Western Alliance Bancorporation(WAL) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Western Alliance Bancorporation's unaudited consolidated financial statements, including balance sheets, income statements, and cash flows, with detailed notes Glossary of Entities and Terms This section provides a glossary of acronyms and abbreviations for entities, divisions, and financial terms used in the Form 10-Q - The glossary defines key entities like WAL and WAB, along with their banking divisions[12] - It also defines important financial and regulatory terms such as AFS, HTM, CRE, and PPNR[12] Consolidated Balance Sheets Total assets increased to $26.3 billion by September 30, 2019, driven by growth in net loans and deposits, with stockholders' equity rising to $2.9 billion Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 (Unaudited) | Dec 31, 2018 | | :--- | :--- | :--- | | Total Assets | $26,324,245 | $23,109,486 | | Net Loans Held for Investment | $19,966,037 | $17,557,912 | | Total Deposits | $22,440,814 | $19,177,447 | | Total Liabilities | $23,401,182 | $20,495,752 | | Total Stockholders' Equity | $2,923,063 | $2,613,734 | Consolidated Income Statements Net income for Q3 2019 increased to $127.4 million, driven by higher net interest income, with diluted EPS reaching $1.24 Key Income Statement Data (in thousands, except per share amounts) | Metric | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $266,422 | $234,038 | $768,439 | $672,366 | | Provision for Credit Losses | $4,000 | $6,000 | $14,500 | $17,000 | | Net Income | $127,375 | $111,123 | $371,107 | $316,702 | | Diluted EPS | $1.24 | $1.05 | $3.59 | $3.00 | Consolidated Statements of Comprehensive Income Comprehensive income for Q3 2019 significantly increased to $136.6 million, primarily due to a positive swing in unrealized gains on AFS securities Comprehensive Income Summary (in thousands) | Component | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $127,375 | $111,123 | $371,107 | $316,702 | | Net Other Comprehensive Income (Loss) | $9,218 | $(19,048) | $69,221 | $(66,160) | | Comprehensive Income | $136,593 | $92,075 | $440,328 | $250,542 | Consolidated Statements of Stockholders' Equity Total stockholders' equity grew to $2.92 billion, driven by net income and other comprehensive income, partially offset by stock repurchases and dividends - For the nine months ended Sep 30, 2019, the company repurchased 2,734 thousand shares totaling $115.6 million[24] - Dividends of $25.7 million were paid during the nine months ended Sep 30, 2019[24] Consolidated Statements of Cash Flows Net cash from operating activities was $534.5 million, while investing activities used $2.78 billion, resulting in a $373.5 million net increase in cash Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $534,505 | $396,280 | | Net Cash used in Investing Activities | $(2,775,174) | $(1,642,157) | | Net Cash from Financing Activities | $2,614,156 | $1,529,673 | | Net Increase in Cash | $373,487 | $283,796 | Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations of accounting policies and financial data, covering investment securities, loans, credit losses, and segment reporting Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2019 financial performance, highlighting strong loan and deposit growth, net interest income increase, asset quality, capital adequacy, and liquidity management Financial Overview and Highlights Q3 2019 showed strong financial performance with $127.4 million net income, $2.4 billion loan growth, and $3.3 billion deposit growth - Net income for Q3 2019 was $127.4 million, with diluted EPS of $1.24[285] - Total loans grew to $20.2 billion, an increase of $2.4 billion from December 31, 2018[285] - Total deposits reached $22.4 billion, an increase of $3.3 billion from December 31, 2018[285] Results of Operations Net interest income increased by 13.8% to $266.4 million, while net interest margin compressed, and non-interest income and expenses both rose - Q3 2019 net interest income increased by $32.4 million (13.8%) year-over-year, while net interest margin decreased by 27 basis points to 4.41%[316] - The provision for credit losses was $4.0 million for Q3 2019, a decrease from $6.0 million in Q3 2018[318] - Non-interest income increased by $15.0 million year-over-year, primarily due to a $10.4 million positive swing from investment security sales[320] - Non-interest expense increased by $12.1 million (10.6%) year-over-year, driven by higher deposit costs and salaries[323] Balance Sheet Analysis Total assets grew to $26.3 billion, a 13.9% increase, fueled by $2.4 billion in loan growth and $3.3 billion in deposit growth - Total assets increased by $3.2 billion (13.9%) since December 31, 2018, primarily due to a $2.4 billion (13.8%) increase in loans[329] - Total deposits grew by $3.3 billion (17.0%) since December 31, 2018, with significant increases in savings/money market and non-interest bearing deposits[354] - Total non-performing loans increased to $95.3 million (0.25% of gross loans) from $64.8 million (0.16% of gross loans) at year-end 2018[340][341] Capital Resources The company and its banking subsidiary remained well-capitalized, with a Common Equity Tier 1 ratio of 10.3% and Total Capital ratio of 12.6% Regulatory Capital Ratios | Ratio | Sep 30, 2019 | Dec 31, 2018 | Well-Capitalized Minimum | | :--- | :--- | :--- | :--- | | Common Equity Tier 1 | 10.3% | 10.7% | 6.5% | | Tier 1 Capital | 10.6% | 11.1% | 8.0% | | Total Capital | 12.6% | 13.2% | 10.0% | | Tier 1 Leverage | 10.4% | 10.9% | 5.0% | Liquidity The company maintained a strong liquidity position with $3.4 billion in liquid assets and significant borrowing capacity from FHLB and FRB - Liquid assets totaled $3.4 billion at September 30, 2019, including $872.1 million in cash and $2.6 billion in unpledged securities[365] - Available borrowing capacity includes $4.0 billion from the FHLB and $1.4 billion from the FRB[365] - The Parent company is assessed to have adequate liquidity to operate for over twelve months without new funding sources[366] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk using simulation models, projecting NII to increase by 7.0% and EVE to decrease by 0.5% under a +100 bps rate shock Sensitivity of Net Interest Income (12-Month Parallel Shift) | Rate Scenario | % Change in NII | | :--- | :--- | | Down 100 bps | (4.8)% | | Up 100 bps | 7.0% | | Up 200 bps | 14.5% | Sensitivity of Economic Value of Equity | Rate Scenario | % Change in EVE | | :--- | :--- | | Down 100 bps | (1.2)% | | Up 100 bps | (0.5)% | | Up 200 bps | (2.3)% | Item 4. Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures are effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the reporting period[387] - No material changes to internal control over financial reporting occurred during the quarter ended September 30, 2019[388] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports no material pending legal proceedings, with any ongoing litigation considered routine business - There are no material pending legal proceedings against the company[389] Item 1A. Risk Factors No material changes to risk factors were reported since the company's Annual Report on Form 10-K for 2018 - No material changes to risk factors were reported since the last Annual Report on Form 10-K[390] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2019, the company repurchased 1,000,000 shares for $43.63 per share, with $98.9 million remaining for repurchase Issuer Purchases of Equity Securities (Q3 2019) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased Under Program | | :--- | :--- | :--- | :--- | | Jul 2019 | 13,941 | $45.77 | 0 | | Aug 2019 | 1,000,000 | $43.63 | 1,000,000 | | Sep 2019 | 18,436 | $46.76 | 0 | | Total | 1,032,377 | $43.71 | 1,000,000 | - The company has a $250 million stock repurchase program expiring December 31, 2019, with approximately $98.9 million remaining available for repurchase[391][392] Item 5. Other Information This item is not applicable for the reporting period - Not applicable[393] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Interactive Data Files - Exhibits filed include CEO and CFO certifications pursuant to Rule 13a-14(a)/15d-14(a) and Section 906 of the Sarbanes-Oxley Act[395]