Western Alliance Bancorporation Reports Fourth Quarter and Full Year 2024 Financial Results

Western Alliance Bancorporation (NYSE:WAL):

FOURTH QUARTER AND FULL YEAR 2024 FINANCIAL RESULTS

Income Statement

Net interest income totaled $666.5 million in the fourth quarter 2024, a decrease of $30.4 million, or 4.4%, from $696.9 million in the third quarter 2024, and an increase of $74.8 million, or 12.6%, compared to the fourth quarter 2023. The decrease in net interest income from the third quarter 2024 is due to decreased yields on interest earning assets, partially offset by a decrease in rates on interest-bearing liabilities. The increase in net interest income from the fourth quarter 2023 was driven by an increase in average interest earning asset balances and a decrease in average short-term borrowings, partially offset by an increase in interest expense from higher deposit balances.

The Company recorded a provision for credit losses of $60.0 million in the fourth quarter 2024, an increase of $26.4 million from $33.6 million in the third quarter 2024, and an increase of $50.7 million from $9.3 million in the fourth quarter 2023. The provision for credit losses during the fourth quarter 2024 is primarily reflective of net charge-offs of $34.1 million and an incremental qualitative adjustment on the CRE portfolio.

The Company's net interest margin in the fourth quarter 2024 was 3.48%, a decrease from 3.61% in the third quarter 2024, and a decrease from 3.65% in the fourth quarter 2023. The decrease in net interest margin from the third quarter 2024 was driven by lower yields on interest earning assets, partially offset by lower rates on interest-bearing liabilities due to reductions in the federal funds target rate. The decrease in net interest margin from the fourth quarter 2023 was driven primarily by the lower rate environment, resulting in lower yields on interest earning assets.

Non-interest income was $171.9 million for the fourth quarter 2024, compared to $126.2 million for the third quarter 2024, and $90.5 million for the fourth quarter 2023. The $45.7 million increase in non-interest income from the third quarter 2024 was primarily due to increases in net gain on loan origination and sale activities of $21.6 million, net loan servicing revenue of $12.4 million, and other non-interest income of $9.0 million. The $81.4 million increase in non-interest income from the fourth quarter 2023 was primarily driven by increases in net gain on loan origination and sale activities and net loan servicing revenue, as well as, net gain on sales of investment securities and income from bank owned life insurance.

Net revenue totaled $838.4 million for the fourth quarter 2024, an increase of $15.3 million or 1.9%, compared to $823.1 million for the third quarter 2024, and an increase of $156.2 million or 22.9%, compared to $682.2 million for the fourth quarter 2023.

Non-interest expense was $519.0 million for the fourth quarter 2024, compared to $537.4 million for the third quarter 2024, and $461.9 million for the fourth quarter 2023. The Company's efficiency ratio, adjusted for deposit costs¹, was 51.1% for the fourth quarter 2024, compared to 52.7% in the third quarter 2024, and 59.1% for the fourth quarter 2023. The $18.4 million decrease in non-interest expense from the third quarter 2024 is due primarily to a decrease of $33.5 million in deposit costs driven by lower ECR rates, partially offset by an increase in salaries and employee benefits of $7.6 million. The $57.1 million increase in non-interest expense from the fourth quarter 2023 is primarily attributable to an increase in deposit costs of $43.5 million, a non-recurring gain on debt extinguishment of $39.3 million in the fourth quarter of 2023, and increased salaries and employee benefits of $30.8 million. These increases were partially offset by decreased insurance costs of $71.9 million largely related to the FDIC special assessment.

Income tax expense was $42.5 million for the fourth quarter 2024, compared to $52.3 million for the third quarter 2024, and $63.1 million for the fourth quarter 2023. The decrease in income tax expense from the third quarter 2024 is primarily related to increased investment tax credit benefits and tax exempt income. The decrease in income tax expense from the fourth quarter 2023 is primarily related to increased investment tax credit benefits.

Net income was $216.9 million for the fourth quarter 2024, an increase of $17.1 million from $199.8 million for the third quarter 2024, and an increase of $69.0 million from $147.9 million for the fourth quarter 2023. Earnings per share totaled $1.95 for the fourth quarter 2024, compared to $1.80 for the third quarter 2024, and $1.33 for the fourth quarter 2023.

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 fourth quarter 2024, the Company's PPNR¹ was $319.4 million, up $33.7 million from $285.7 million in the third quarter 2024, and up $99.1 million from $220.3 million in the fourth quarter 2023.

The Company had 3,524 full-time equivalent employees and 56 offices at December 31, 2024, compared to 3,426 full-time equivalent employees and 56 offices at September 30, 2024, and 3,260 full-time equivalent employees and 57 offices at December 31, 2023.

Balance Sheet

HFI loans, net of deferred fees, totaled $53.7 billion at December 31, 2024, compared to $53.3 billion at September 30, 2024, and $50.3 billion at December 31, 2023. The increase in HFI loans of $330 million from the prior quarter was primarily driven by an increase of $577 million in commercial and industrial loans, partially offset by a decrease of $248 million in construction and land development loans. The increase in HFI loans of $3.4 billion from December 31, 2023 was primarily driven by increases of $4.0 billion and $218 million in commercial and industrial and commercial real estate non-owner occupied loans, respectively, partially offset by decreases of $452 million and $410 million in residential real estate and construction and land development loans, respectively. HFS loans totaled $2.3 billion at December 31, 2024 and September 30, 2024, compared to $1.4 billion at December 31, 2023.

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. The allowance for loan losses to funded HFI loans ratio was 0.70%, 0.67%, and 0.67% at December 31, 2024, September 30, 2024, and December 31, 2023, respectively. The allowance for credit losses, which includes the allowance for unfunded loan commitments, to funded HFI loans ratio was 0.77% at December 31, 2024, 0.74% at September 30, 2024, and 0.73% at December 31, 2023. 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 $8.6 billion, $8.8 billion, and $9.1 billion as of December 31, 2024, September 30, 2024, and December 31, 2023, 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 related to these pools of loans of $11.4 million as of December 31, 2024, $11.8 million as of September 30, 2024, and $14.7 million as of December 31, 2023. 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 0.92% at December 31, 2024, 0.88% at September 30, 2024, and 0.89% at December 31, 2023.

Deposits totaled $66.3 billion at December 31, 2024, a decrease of $1.7 billion from $68.0 billion at September 30, 2024, and an increase of $11.0 billion from $55.3 billion at December 31, 2023. By deposit type, the decrease from the prior quarter is attributable to a decrease of $6.1 billion from non-interest bearing deposits due to seasonality in mortgage warehouse deposits, partially offset by increases of $2.0 billion from interest-bearing demand deposits, $1.6 billion from savings and money market deposits, and $755 million from certificates of deposits. From December 31, 2023, savings and money market deposits increased $6.4 billion, non-interest bearing deposits increased $4.3 billion, and certificates of deposit increased $303 million. Non-interest bearing deposits were $18.8 billion at December 31, 2024, compared to $25.0 billion at September 30, 2024, and $14.5 billion at December 31, 2023.

The table below shows the Company's deposit types as a percentage of total deposits:

The Company's ratio of HFI loans to deposits was 80.9% at December 31, 2024, compared to 78.4% at September 30, 2024, and 90.9% at December 31, 2023.

Borrowings were $5.6 billion at December 31, 2024, $3.0 billion at September 30, 2024, and $7.2 billion at December 31, 2023. Borrowings increased $2.6 billion from September 30, 2024 primarily due to an increase of $1.6 billion in short-term borrowings and a $993 million increase in long-term borrowings. The decrease in borrowings from December 31, 2023 is primarily due to a decrease in short-term borrowings of $3.6 billion and payoff of the AmeriHome senior notes as part of the Company's balance sheet repositioning, partially offset by an increase in long term borrowings of $2.0 billion.

Stockholders' equity was $6.7 billion at December 31, 2024 and September 30, 2024, compared to $6.1 billion at December 31, 2023. Stockholders' equity from the prior quarter was relatively flat as net income of $213.7 million was offset by net unrealized fair value losses of $152 million on the Company's available-for-sale securities, which are recorded in other comprehensive loss, net of tax, and dividends to shareholders. Cash dividends of $41.8 million ($0.38 per common share) and $3.2 million ($0.27 per depository share) were paid to stockholders during the fourth quarter 2024. The increase in stockholders' equity from December 31, 2023 is primarily a function of net income, partially offset by dividends to stockholders and net unrealized fair value losses on available-for-sale securities.

The Company's common equity tier 1 capital ratio was 11.3% at December 31, 2024, compared to 11.2% and 10.8% at September 30, 2024 and December 31, 2023, respectively. At December 31, 2024, tangible common equity, net of tax¹, was 7.2% of tangible assets¹ and total capital was 14.1% of risk-weighted assets. The Company's tangible book value per share¹ was $52.27 at December 31, 2024, an increase of 0.6% from $51.98 at September 30, 2024, and an increase of 11.9% from $46.72 at December 31, 2023. The increase in tangible book value per share from September 30, 2024 and December 31, 2023 is primarily attributable to net income.

Total assets increased $854 million, or 1.1%, to $80.9 billion at December 31, 2024 from $80.1 billion at September 30, 2024, and increased 14.2% from $70.9 billion at December 31, 2023. The increase in total assets from September 30, 2024 was primarily driven by increases in cash and due from banks and HFI loans, partially offset by a decrease in investment securities. The increase in total assets from December 31, 2023 was primarily driven by increases in HFI loans, cash and due from banks, and investment securities.

Asset Quality

Provision for credit losses totaled $60.0 million for the fourth quarter 2024, compared to $33.6 million for the third quarter 2024, and $9.3 million for the fourth quarter 2023. Net loan charge-offs in the fourth quarter 2024 totaled $34.1 million, or 0.25% of average loans (annualized), compared to $26.6 million, or 0.20%, in the third quarter 2024, and $8.5 million, or 0.07%, in the fourth quarter 2023.

Nonaccrual loans increased $127 million to $476 million during the quarter and increased $203 million from December 31, 2023. Loans past due 90 days and still accruing interest totaled zero at December 31, 2024, $4 million at September 30, 2024, and $42 million at December 31, 2023 (excluding government guaranteed loans of $326 million, $313 million, and $399 million, respectively). Loans past due 30-89 days and still accruing interest totaled $92 million at December 31, 2024, a decrease from $110 million at September 30, 2024, and from $164 million at December 31, 2023 (excluding government guaranteed loans of $183 million, $203 million, and $279 million, respectively).

Repossessed assets totaled $52 million at December 31, 2024, compared to $8 million at September 30, 2024 and December 31, 2023. Classified assets totaled $1.0 billion at December 31, 2024, an increase of $171 million from $838 million at September 30, 2024, and an increase of $336 million from $673 million at December 31, 2023.

The ratio of classified assets to Tier 1 capital plus the allowance for credit losses², a common regulatory measure of asset quality, was 14.2% at December 31, 2024, compared to 12.2% at September 30, 2024, and 10.5% at December 31, 2023.

Conference Call and Webcast

Western Alliance Bancorporation will host a conference call and live webcast to discuss its fourth quarter 2024 financial results at 12:00 p.m. ET on Tuesday, January 28, 2025. Participants may access the call by dialing 1-833-470-1428 and using access code 383154 or via live audio webcast using the website link https://events.q4inc.com/attendee/798283184. 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 January 28th through 1:00 p.m. ET February 27th by dialing 1-866-813-9403, using access code 574248.

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, 2023 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 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 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.

Any forward-looking statement made by us in this release is based only on information currently available to us and speaks only as of the date on which it is made. We do not intend and disclaim any duty or obligation to update or revise any industry information or forward-looking statements, whether written or oral, that may be made from time to time, set forth in this press release to reflect new information, future events or otherwise.

About Western Alliance Bancorporation

With more than $80 billion in assets, Western Alliance Bancorporation (NYSE:WAL) is one of the country's top-performing banking companies. Through its primary subsidiary, Western Alliance Bank, Member FDIC, clients benefit from a full spectrum of tailored commercial banking solutions and consumer products, all delivered with outstanding service by industry experts who put customers first. Major accolades include being ranked as a top U.S. bank in 2024 by American Banker and Bank Director and receiving #1 rankings on Extel's (previously Institutional Investor's) All-America Executive Team Midcap 2024 for Best CEO, Best CFO and Best Company Board of Directors. Serving clients across the country wherever business happens, Western Alliance Bank operates individual, full-service banking and financial brands with offices in key markets nationwide. For more information, visit westernalliancebank.com.