PHOENIX–(BUSINESS WIRE)–Western Alliance Bancorporation (NYSE:WAL):
THIRD QUARTER 2023 FINANCIAL RESULTS
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Quarter Highlights: |
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Net income |
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Earnings per share |
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PPNR1 |
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Net interest margin |
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Adjusted efficiency ratio1 |
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Book value per common share |
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$49.78 |
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$216.6 million |
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$1.97 |
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$290.0 million |
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3.67% |
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50.0% |
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$43.661, excluding goodwill and intangibles |
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CEO COMMENTARY: |
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“Western Alliance continued to execute its balance sheet repositioning strategy and produced strengthening profitability in the third quarter, highlighted by net interest income growth and net interest margin expansion, while maintaining stable asset quality. Deposit momentum continued to improve liquidity levels and demonstrates the vibrancy of the franchise,” said Kenneth A. Vecchione, President and Chief Executive Officer. “Quarterly deposit growth of $3.2 billion lowered our HFI loan-to-deposit ratio to 91%, with total insured and collateralized deposits representing 82% of deposits and available liquidity coverage of 293% of uninsured deposits. We achieved net income of $216.6 million and earnings per share of $1.97 for the third quarter 2023, which resulted in a return on tangible common equity1 of 17.3%. Tangible book value per share1 climbed 1.3% quarterly to $43.66, or 17.5% year-over-year, with a CET1 ratio of 10.6%.” |
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LINKED-QUARTER BASIS |
YEAR-OVER-YEAR |
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| FINANCIAL HIGHLIGHTS: | |
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FINANCIAL POSITION RESULTS: |
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LOANS AND ASSET QUALITY: |
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KEY PERFORMANCE METRICS: |
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Income Statement
Net interest income totaled $587.0 million in the third quarter 2023, an increase of $36.7 million, or 6.7%, from $550.3 million in the second quarter 2023, and a decrease of $15.1 million, or 2.5%, compared to the third quarter 2022. The increase in net interest income from the second quarter 2023 is due to a decrease in average short-term borrowings, combined with higher yields on HFI loans and was partially offset by an increase in deposit balances and rates. The decrease in net interest income from the third quarter 2022 was driven by an increase in both the balances and rates of borrowings and deposits, partially offset by higher yields on HFI loans.
The Company recorded a provision for credit losses of $12.1 million in the third quarter 2023, a decrease of $9.7 million from $21.8 million in the second quarter 2023, and a decrease of $16.4 million from $28.5 million in the third quarter 2022. The decrease in provision for credit losses during the third quarter 2023 is primarily due to modest improvement in economic forecasts and stable asset quality.
The Company’s net interest margin in the third quarter 2023 was 3.67%, an increase from 3.42% in the second quarter 2023, and a decrease from 3.78% in the third quarter 2022. A decrease in short-term borrowings and higher yields on HFI loans drove an increase in net interest margin from the second quarter 2023, with higher rates on short-term borrowings and on deposits partially offsetting this increase. The decrease in net interest margin from the third quarter 2022 was driven by higher average balances and rates on deposits and short-term borrowings.
Non-interest income was $129.2 million for the third quarter 2023, compared to $119.0 million for the second quarter 2023, and $61.8 million for the third quarter 2022. The $10.2 million increase in non-interest income for the second quarter 2023 was due to a $0.1 million gain on sale of securities in the third quarter compared to a loss of $13.6 million in the second quarter, combined with an increase in fair value gain adjustments of $5.1 million and a $3.1 million increase in net loan servicing revenue due to higher servicing income and MSR fair value changes. These increases were offset by a $10.3 million decrease in net gain on loan origination and sale activities from lower spreads and volume. The $67.4 million increase in non-interest income from the third quarter 2022 was driven by a higher net gain on loan origination and sale activities, fair value gain adjustments, and service charges and fees.
Net revenue totaled $716.2 million for the third quarter 2023, an increase of $46.9 million or 7.0%, compared to $669.3 million for the second quarter 2023, and an increase of $52.3 million or 7.9%, compared to $663.9 million for the third quarter 2022.
Non-interest expense was $426.2 million for the third quarter 2023, compared to $387.4 million for the second quarter 2023, and $305.8 million for the third quarter 2022. The Company’s adjusted efficiency ratio1 was 50.0% for the third quarter 2023, compared to 50.5% in the second quarter 2023, and 40.5% for the third quarter 2022. The increase in non-interest expense from the second quarter 2023 is due primarily to increased deposit costs. The increase in non-interest expense from the third quarter 2022 is primarily attributable to an increase in deposit and insurance costs.
Income tax expense was $61.3 million for the third quarter 2023, compared to $44.4 million for the second quarter 2023, and $65.6 million for the third quarter 2022. The increase in income tax expense from the second quarter 2023 is primarily due to discrete nondeductible items.
Net income was $216.6 million for the third quarter 2023, an increase of $0.9 million from $215.7 million for the second quarter 2023, and a decrease of $47.4 million from $264.0 million for the third quarter 2022. Earnings per share totaled $1.97 for the third quarter 2023, compared to $1.96 for the second quarter 2023, and $2.42 for the third quarter 2022.
The Company views its pre-provision net revenue1 (“PPNR”) as a key metric for assessing the Company’s earnings power, which it defines as net revenue less non-interest expense. For the third quarter 2023, the Company’s PPNR1 was $290.0 million, up $8.1 million from $281.9 million in the second quarter 2023, and down $68.1 million from $358.1 million in the third quarter 2022.
The Company had 3,272 full-time equivalent employees and 56 offices at September 30, 2023, compared to 3,336 employees and 56 offices at June 30, 2023, and 3,368 employees and 60 offices at September 30, 2022.
Balance Sheet
HFI loans, net of deferred fees totaled $49.4 billion at September 30, 2023, compared to $47.9 billion at June 30, 2023, and $52.2 billion at September 30, 2022. The increase in HFI loans of $1.6 billion from the prior quarter was primarily related to loan transfers from HFS to HFI totaling $1.3 billion, which drove an increase of $1.7 billion in commercial and industrial loans and $241 million in construction and land development loans. The decrease in HFI loans of $2.8 billion from September 30, 2022 was driven by a $4.0 billion decrease in commercial and industrial loans, resulting from the transfer of a significant portion of HFI loans to HFS in the first quarter 2023 as part of the Company’s balance sheet repositioning strategy. This decrease was partially offset by increases in CRE non-owner occupied and construction and land development loans of $1.1 billion and $1.0 billion, respectively. HFS loans totaled $1.8 billion at September 30, 2023, compared to $3.2 billion at June 30, 2023, and $2.2 billion at September 30, 2022. The balance of HFS loans at September 30, 2023 primarily consisted of AmeriHome HFS loans, consistent with the balance at December 31, 2022 and prior periods. The decrease of $1.4 billion in HFS loans from the prior quarter is primarily related to transfer of loans to HFI. The decrease of $438 million in HFS loans from September 30, 2022 primarily relates to a decrease in AmeriHome HFS loans.
The Company’s allowance for credit losses on HFI loans consists of an allowance for funded HFI loans and an allowance for unfunded loan commitments. At September 30, 2023, the allowance for loan losses to funded HFI loans ratio was 0.66%, compared to 0.67% at June 30, 2023, and 0.58% at September 30, 2022. The allowance for credit losses, which includes the allowance for unfunded loan commitments, to funded HFI loans ratio was 0.74% at September 30, 2023, compared to 0.76% at June 30, 2023, and 0.68% at September 30, 2022. The Company is a party to credit linked note transactions, which effectively transfer a portion of the risk of losses on reference pools of loans to the purchasers of the notes. The Company is protected from first credit losses on reference pools of loans totaling $9.3 billion, $9.4 billion, and $10.8 billion as of September 30, 2023, June 30, 2023, and September 30, 2022, respectively, under these transactions. However, as these note transactions are considered to be free standing credit enhancements, the allowance for credit losses cannot be reduced by the expected credit losses that may be mitigated by these notes. Accordingly, the allowance for loan and credit losses ratios include an allowance of $17.4 million as of September 30, 2023, $21.4 million as of June 30, 2023, and $18.5 million as of September 30, 2022, related to these pools of loans. The allowance for credit losses to funded HFI loans ratio, adjusted to reduce the HFI loan balance by the amount of loans in covered reference pools, was 0.91% at September 30, 2023, 0.94% at June 30, 2023, and 0.86% at September 30, 2022.
Deposits totaled $54.3 billion at September 30, 2023, an increase of $3.2 billion from $51.0 billion at June 30, 2023, and a decrease of $1.3 billion from $55.6 billion at September 30, 2022. By deposit type, the increase from the prior quarter is attributable to increases of $1.6 billion from savings and money market accounts, $1.3 billion from non-interest bearing demand deposits, $204 million from certificates of deposits, and $197 million from interest-bearing demand deposits. From September 30, 2022, non-interest bearing demand deposits and savings and money market accounts decreased $6.9 billion and $4.5 billion, respectively. These decreases were partially offset by increases in certificates of deposit and interest-bearing demand deposits of $5.7 billion and $4.5 billion, respectively. Non-interest bearing deposits were $18.0 billion at September 30, 2023, compared to $16.7 billion at June 30, 2023, and $24.9 billion at September 30, 2022.
The table below shows the Company’s deposit types as a percentage of total deposits:
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Sep 30, 2023 |
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Jun 30, 2023 |
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Sep 30, 2022 |
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Non-interest bearing |
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33.1 |
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32.8 |
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44.8 |
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Savings and money market |
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27.0 |
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25.6 |
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34.6 |
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Interest-bearing demand |
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23.7 |
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24.8 |
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15.0 |
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Certificates of deposit |
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16.2 |
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16.8 |
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5.6 |
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The Company’s ratio of HFI loans to deposits was 91.1% at September 30, 2023, compared to 93.8% at June 30, 2023, and 93.9% at September 30, 2022.
Borrowings were $8.7 billion at September 30, 2023, $9.6 billion at June 30, 2023, and $6.3 billion at September 30, 2022. Borrowings decreased from June 30, 2023 due primarily to a decrease in short-term borrowings of $817 million. The increase in borrowings from September 30, 2022 is due to an increase in short-term borrowings of $2.9 billion, partially offset by payoffs of credit linked notes in the first half of 2023.
Qualifying debt totaled $890 million at September 30, 2023, compared to $888 million at June 30, 2023, and $889 million at September 30, 2022.
Stockholders’ equity was $5.7 billion at September 30, 2023, compared to $5.7 billion at June 30, 2023 and $5.0 billion at September 30, 2022. The slight increase in stockholders’ equity from the prior quarter was due to net income, partially offset by dividends to shareholders and unrealized fair value losses of $121 million on the Company’s available-for-sale securities, which are recorded in other comprehensive loss, net of tax. Cash dividends of $39.4 million ($0.36 per common share) and $3.2 million ($0.27 per depository share) were paid to shareholders during the third quarter 2023. The increase in stockholders’ equity from September 30, 2022 is primarily a function of net income, partially offset by dividends to shareholders.
At September 30, 2023, tangible common equity, net of tax1, was 6.8% of tangible assets1 and total capital was 13.5% of risk-weighted assets. The Company’s tangible book value per share1 was $43.66 at September 30, 2023, an increase of 1.3% from $43.09 at June 30, 2023, and up 17.5% from $37.16 at September 30, 2022. The increase in tangible book value per share from June 30, 2023 is attributable to net income.
Total assets increased 4.0% to $70.9 billion at September 30, 2023, from $68.2 billion at June 30, 2023, and increased 2.5% from $69.2 billion at September 30, 2022. The increase in total assets from June 30, 2023 was driven by an increase in HFI loans, cash, and investments, partially offset by a decrease in HFS loans. The increase in total assets from September 30, 2022 was driven by an increase in investments and cash, partially offset by a decrease in HFI and HFS loans.
Asset Quality
Provision for credit losses totaled $12.1 million for the third quarter 2023, compared to $21.8 million for the second quarter 2023, and $28.5 million for the third quarter 2022. Net loan charge-offs (recoveries) in the third quarter 2023 were $8.0 million, or 0.07% of average loans (annualized), compared to $7.4 million, or 0.06%, in the second quarter 2023, and $(1.9) million, or (0.02)%, in the third quarter 2022.
Nonaccrual loans decreased $19 million to $237 million during the quarter and increased $147 million from September 30, 2022. Loans past due 90 days and still accruing interest were zero at each of the periods ended September 30, 2023, June 30, 2023, and September 30, 2022 (excluding government guaranteed loans of $439 million, $481 million, and $644 million, respectively). Loans past due 30-89 days and still accruing interest totaled $189 million at September 30, 2023, an increase from $121 million at June 30, 2023, and an increase from $56 million at September 30, 2022 (excluding government guaranteed loans of $261 million, $289 million, and $245 million, respectively).
Repossessed assets totaled $8 million at September 30, 2023, a $3 million decrease from $11 million at June 30, 2023 and September 30, 2022. Classified assets totaled $639 million at September 30, 2023, an increase of $35 million from $604 million at June 30, 2023, and an increase of $254 million from $385 million at September 30, 2022.
The ratio of classified assets to Tier 1 capital plus the allowance for credit losses, a common regulatory measure of asset quality, was 10.2% at September 30, 2023, compared to 10.0% at June 30, 2023, and 7.0% at September 30, 2022.
1 See reconciliation of Non-GAAP Financial Measures.
Segment Highlights
The Company’s reportable segments are aggregated with a focus on products and services offered and consist of three reportable segments:
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Commercial segment: provides commercial banking and treasury management products and services to small and middle-market businesses, specialized banking services to sophisticated commercial institutions and investors within niche industries, as well as financial services to the real estate industry. |
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Consumer Related segment: offers both commercial banking services to enterprises in consumer-related sectors and consumer banking services, such as residential mortgage banking. |
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Corporate & Other segment: consists of the Company’s investment portfolio, Corporate borrowings and other related items, income and expense items not allocated to our other reportable segments, and inter-segment eliminations. |
Key management metrics for evaluating the performance of the Company’s Commercial and Consumer Related segments include loan and deposit growth, asset quality, and pre-tax income.
The Commercial segment reported an HFI loan balance of $28.7 billion at September 30, 2023, an increase of $581 million during the quarter, and a decrease of $3.3 billion during the last twelve months. The Commercial segment did not have any loans held for sale at September 30, 2023, a decrease of $1.0 billion during the quarter. Deposits for the Commercial segment totaled $22.6 billion at September 30, 2023, an increase of $1.2 billion during the quarter, and a decrease of $7.4 billion during the last twelve months.
Pre-tax income for the Commercial segment was $196.1 million for the three months ended September 30, 2023, a decrease of $25.3 million from the three months ended June 30, 2023, and a decrease of $102.1 million from the three months ended September 30, 2022. For the nine months ended September 30, 2023, the Commercial segment reported total pre-tax income of $576.8 million, a decrease of $198.0 million compared to the nine months ended September 30, 2022.
The Consumer Related segment reported an HFI loan balance of $20.7 billion at September 30, 2023, an increase of $991 million during the quarter, and an increase of $586 million during the last twelve months. The Consumer Related segment also has loans held for sale of $1.8 billion at September 30, 2023, a decrease of $341 million during the quarter, and a decrease of $438 million during the last twelve months. Deposits for the Consumer Related segment totaled $25.1 billion, an increase of $2.7 billion during the quarter and an increase of $4.1 billion during the last twelve months.
Pre-tax income for the Consumer Related segment was $68.9 million for the three months ended September 30, 2023, an increase of $12.2 million from the three months ended June 30, 2023, and a decrease of $24.3 million from the three months ended September 30, 2022. Pre-tax income for the Consumer Related segment for the nine months ended September 30, 2023 totaled $182.4 million, a decrease of $197.9 million compared to the nine months ended September 30, 2022.
Conference Call and Webcast
Western Alliance Bancorporation will host a conference call and live webcast to discuss its third quarter 2023 financial results at 12:00 p.m. ET on Friday, October 20, 2023. Participants may access the call by dialing 1-833-470-1428 and using access code 448677 or via live audio webcast using the website link https://events.q4inc.com/attendee/123936476. The webcast is also available via the Company’s website at www.westernalliancebancorporation.com. Participants should log in at least 15 minutes early to receive instructions. The call will be recorded and made available for replay after 3:00 p.m. ET October 20th through 11:00 p.m. ET November 20th by dialing 1-866-813-9403, using access code 831794.
Reclassifications
Certain amounts in the Consolidated Income Statements for the prior periods have been reclassified to conform to the current presentation. The reclassifications have no effect on net income or stockholders’ equity as previously reported.
Use of Non-GAAP Financial Information
This press release contains both financial measures based on GAAP and non-GAAP based financial measures, which are used where management believes them to be helpful in understanding the Company’s results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in this press release. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.
Cautionary Note Regarding Forward-Looking Statements
This release contains forward-looking statements that relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Examples of forward-looking statements include, among others, statements we make regarding our expectations with regard to our business, financial and operating results, future economic performance and dividends. The forward-looking statements contained herein reflect our current views about future events and financial performance and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from historical results and those expressed in any forward-looking statement. Some factors that could cause actual results to differ materially from historical or expected results include, among others: the risk factors discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and the Company’s subsequent Quarterly Reports on Form 10-Q, each as filed with the Securities and Exchange Commission; adverse developments in the financial services industry generally such as the bank failures earlier in 2023 and any related impact on depositor behavior; risks related to the sufficiency of liquidity; the potential adverse effects of unusual and infrequently occurring events such as the COVID-19 pandemic and any governmental or societal responses thereto; changes in general economic conditions, either nationally or locally in the areas in which we conduct or will conduct our business; the impact on financial markets from geopolitical conflicts such as the wars in Ukraine and the Middle East; inflation, interest rate, market and monetary fluctuations; increases in competitive pressures among financial institutions and businesses offering similar products and services; higher defaults on our loan portfolio than we expect; changes in management’s estimate of the adequacy of the allowance for credit losses; legislative or regulatory changes or changes in accounting principles, policies or guidelines; supervisory actions by regulatory agencies which may limit our ability to pursue certain growth opportunities, including expansion through acquisitions; additional regulatory requirements resulting from our continued growth; management’s estimates and projections of interest rates and interest rate policy; the execution of our business plan; and other factors affecting the financial services industry generally or the banking industry in particular.
Contacts
Western Alliance Bancorporation
Dale Gibbons, 602-952-5476
