Western Alliance Bancorporation(WAL) - 2025 Q2 - Quarterly Report

Glossary of Entities and Terms This section defines key entities and terms used throughout the financial report for clarity and understanding PART I. FINANCIAL INFORMATION This part presents the unaudited consolidated financial statements and management's discussion and analysis of the Company's financial performance and condition Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements of Western Alliance Bancorporation and its subsidiaries, including balance sheets, income statements, statements of comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies and specific financial line items Consolidated Balance Sheets The Consolidated Balance Sheets show a significant increase in total assets, primarily driven by growth in investment securities and loans, funded by a substantial rise in deposits. Total equity also increased, reflecting net income and fair value gains Consolidated Balance Sheet Highlights (June 30, 2025 vs. December 31, 2024) | Metric (in millions) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | |:---------------------|:--------------|:------------------|:-----------|:-----------| | Total Assets | $86,725 | $80,934 | $5,791 | 7.2% | | Cash and cash equivalents | $2,767 | $4,096 | $(1,329) | -32.4% | | Investment securities - AFS | $16,898 | $13,468 | $3,430 | 25.5% | | Loans HFI, net | $55,544 | $53,302 | $2,242 | 4.2% | | Total Deposits | $71,107 | $66,341 | $4,766 | 7.2% | | Total Liabilities | $79,318 | $74,227 | $5,091 | 6.9% | | Total Equity | $7,407 | $6,707 | $700 | 10.4% | - Non-interest bearing deposits increased significantly by $4,151 million to $22,997 million at June 30, 2025, from $18,846 million at December 31, 2024[11] - Loans HFI, net of deferred fees and costs, grew by $2,263 million to $55,939 million at June 30, 2025, from $53,676 million at December 31, 2024[11] Consolidated Income Statements The Consolidated Income Statements show improved net income and earnings per share for both the three and six months ended June 30, 2025, compared to the prior year, driven by increased net interest income and non-interest income, despite a higher provision for credit losses Consolidated Income Statement Highlights (Three Months Ended June 30) | Metric (in millions, except per share) | 2025 | 2024 | Change ($) | Change (%) | |:---------------------------------------|:----------|:----------|:-----------|:-----------| | Total interest income | $1,154.4 | $1,147.5 | $6.9 | 0.6% | | Total interest expense | $456.8 | $490.9 | $(34.1) | -6.9% | | Net interest income | $697.6 | $656.6 | $41.0 | 6.2% | | Provision for credit losses | $39.9 | $37.1 | $2.8 | 7.5% | | Total non-interest income | $148.3 | $115.2 | $33.1 | 28.7% | | Total non-interest expense | $514.7 | $486.8 | $27.9 | 5.7% | | Net income | $237.8 | $193.6 | $44.2 | 22.8% | | Net income available to common stockholders | $227.2 | $190.4 | $36.8 | 19.3% | | Diluted EPS | $2.07 | $1.75 | $0.32 | 18.3% | Consolidated Income Statement Highlights (Six Months Ended June 30) | Metric (in millions, except per share) | 2025 | 2024 | Change ($) | Change (%) | |:---------------------------------------|:----------|:----------|:-----------|:-----------| | Total interest income | $2,250.0 | $2,202.5 | $47.5 | 2.2% | | Total interest expense | $901.8 | $947.0 | $(45.2) | -4.8% | | Net interest income | $1,348.2 | $1,255.5 | $92.7 | 7.4% | | Provision for credit losses | $71.1 | $52.3 | $18.8 | 36.0% | | Total non-interest income | $275.7 | $245.1 | $30.6 | 12.5% | | Total non-interest expense | $1,015.1 | $968.6 | $46.5 | 4.8% | | Net income | $436.9 | $371.0 | $65.9 | 17.8% | | Net income available to common stockholders | $423.1 | $364.6 | $58.5 | 16.0% | | Diluted EPS | $3.86 | $3.34 | $0.52 | 15.6% | Consolidated Statements of Comprehensive Income The Consolidated Statements of Comprehensive Income show a significant increase in comprehensive income for the six months ended June 30, 2025, primarily due to a substantial unrealized gain on AFS securities, net of tax, which offset a net other comprehensive loss in the prior year Comprehensive Income Highlights (Six Months Ended June 30) | Metric (in millions) | 2025 | 2024 | Change ($) | Change (%) | |:---------------------|:--------|:--------|:-----------|:-----------| | Net income | $436.9 | $371.0 | $65.9 | 17.8% | | Unrealized gain (loss) on AFS securities, net of tax | $65.4 | $(43.2) | $108.6 | -251.4% | | Net other comprehensive (loss) income | $52.1 | $(45.3) | $97.4 | -215.0% | | Comprehensive income attributable to Western Alliance | $481.6 | $325.7 | $155.9 | 47.9% | - For the three months ended June 30, 2025, net other comprehensive loss was $(3.1) million, compared to $(0.6) million in the prior year, primarily due to unrealized losses on junior subordinated debt and realized gains on AFS securities[15] Consolidated Statements of Stockholders' Equity The Consolidated Statements of Stockholders' Equity reflect an increase in total equity, driven by net income, equity issued by a subsidiary, and other comprehensive income, partially offset by dividends paid and treasury stock purchases Stockholders' Equity Highlights (Six Months Ended June 30, 2025) | Metric (in millions) | Balance, Dec 31, 2024 | Net Income | Equity Issued by Subsidiary | Other Comprehensive Income, net | Dividends Paid | Balance, Jun 30, 2025 | |:---------------------|:----------------------|:-----------|:----------------------------|:--------------------------------|:---------------|:----------------------| | Total Equity | $6,707.5 | $436.9 | $293.1 | $52.1 | $(97.6) | $7,406.8 | - Equity issued by a subsidiary (noncontrolling interest) contributed $293.1 million to total equity during the six months ended June 30, 2025[20] - Dividends paid to common stockholders totaled $84.0 million for the six months ended June 30, 2025, an increase from $81.5 million in the prior year[20] Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows indicate a net decrease in cash and cash equivalents for the six months ended June 30, 2025, primarily due to significant cash used in operating and investing activities, partially offset by cash provided by financing activities Cash Flow Summary (Six Months Ended June 30) | Activity (in millions) | 2025 | 2024 | Change ($) | Change (%) | |:-----------------------|:------------|:------------|:------------|:------------| | Net cash used in operating activities | $(2,011.7) | $(1,052.3) | $(959.4) | 91.2% | | Net cash used in investing activities | $(5,555.2) | $(6,159.3) | $604.1 | -9.8% | | Net cash provided by financing activities | $6,238.0 | $9,713.0 | $(3,475.0) | -35.8% | | Net (decrease) increase in cash and cash equivalents | $(1,328.9) | $2,501.4 | $(3,830.3) | -153.1% | | Cash, cash equivalents, and restricted cash at end of period | $2,766.7 | $4,077.5 | $(1,310.8) | -32.1% | - Net cash used in operating activities increased significantly due to higher purchases and originations of loans HFS ($26,746.0 million in 2025 vs. $21,308.5 million in 2024) and a change in fair value of trading securities, loans HFS, MSRs, and related derivatives ($114.8 million loss in 2025 vs. $17.0 million gain in 2024)[23] - Net cash provided by financing activities decreased primarily due to lower net increase in deposits ($4,762.2 million in 2025 vs. $10,910.7 million in 2024) and a net increase in short-term borrowings ($1,029.6 million in 2025 vs. $(1,089.7) million in 2024)[24] Notes to Unaudited Consolidated Financial Statements These notes provide detailed disclosures on the Company's significant accounting policies, financial instruments, credit quality, capital structure, and other material financial information, offering essential context for the unaudited consolidated financial statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This section outlines the Company's nature of operations, basis of financial statement presentation, recent and newly adopted accounting pronouncements, use of estimates, and principles of consolidation, emphasizing adherence to GAAP for interim reporting - The Company, Western Alliance Bancorporation (WAL), is a bank holding company providing customized loan, deposit, and treasury management capabilities through its banking subsidiary, WAB, and specialized financial services including mortgage banking and digital payment services[28][29] - The FASB issued ASU 2024-03 (effective after Dec 15, 2026) requiring disaggregation of employee compensation, depreciation, and intangible asset amortization expenses in financial statement notes, which the Company is currently evaluating[32][33] - The Company adopted ASU 2023-07 on Segment Reporting (effective Dec 31, 2024) retrospectively, providing enhanced disclosures on significant segment expenses without impacting financial position or results of operations[36][37] 2. INVESTMENT SECURITIES The Company's investment securities portfolio, comprising HTM, AFS, and equity securities, saw an increase in fair value for AFS debt securities, with a detailed breakdown of unrealized gains and losses, credit quality, and sales activities Investment Securities Fair Value (June 30, 2025 vs. December 31, 2024) | Security Type (in millions) | June 30, 2025 (Fair Value) | December 31, 2024 (Fair Value) | Change ($) | |:----------------------------|:---------------------------|:-------------------------------|:-----------| | AFS Debt Securities | $16,898 | $13,468 | $3,430 | | HTM Securities | $1,368 | $1,309 | $59 | | Equity Securities | $122 | $117 | $5 | | Trading Securities | $53 | $0 | $53 | - At June 30, 2025, AFS debt securities in an unrealized loss position totaled $681 million (fair value $6,718 million), a decrease from $729 million (fair value $7,899 million) at December 31, 2024[45][50] - The Company recognized a net gain of $11.8 million on AFS securities sales for the three months ended June 30, 2025, compared to $2.3 million in the prior year, largely due to the sale of U.S. Treasury securities and MBS, including a $7.7 million gain from an interest rate swap termination[64] 3. LOANS HELD FOR SALE Loans HFS, primarily residential mortgage loans originated through AmeriHome, increased significantly, with a detailed breakdown by type and a summary of net gains on loan origination and sale activities Loans HFS by Type (in millions) | Loan Type | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | |:-------------------------------|:--------------|:------------------|:-----------|:-----------| | Government-insured or guaranteed | $1,370 | $764 | $606 | 79.3% | | Agency-conforming | $1,627 | $1,502 | $125 | 8.3% | | Non-agency | $25 | $20 | $5 | 25.0% | | Total Loans HFS | $3,022 | $2,286 | $736 | 32.2% | Net Gain on Loan Origination and Sale Activities (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |:-------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net gain on residential mortgage loans HFS | $23.6 | $33.0 | $59.8 | $64.7 | | Loan acquisition and origination fees | $15.8 | $13.8 | $29.1 | $27.4 | | Net gain on loan origination and sale activities | $39.4 | $46.8 | $88.9 | $92.1 | 4. LOANS, LEASES AND ALLOWANCE FOR CREDIT LOSSES The HFI loan portfolio experienced growth, particularly in commercial and industrial loans, while nonaccrual loans decreased. The Allowance for Credit Losses (ACL) increased, reflecting loan growth and net charge-offs, with detailed breakdowns of credit quality indicators and loan modifications HFI Loan Portfolio Composition (in millions) | Loan Type | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | |:-------------------------------|:--------------|:------------------|:-----------|:-----------| | Total loans HFI | $55,939 | $53,676 | $2,263 | 4.2% | | Other commercial and industrial | $10,474 | $9,175 | $1,299 | 14.2% | | Residential | $13,166 | $12,961 | $205 | 1.6% | | Tech & innovation | $3,609 | $3,383 | $226 | 6.7% | | Allowance for credit losses | $(395) | $(374) | $(21) | 5.6% | Nonaccrual and Past Due Loans (in millions) | Metric | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | |:-------------------------------------|:--------------|:------------------|:-----------|:-----------| | Total Nonaccrual Loans | $427 | $476 | $(49) | -10.3% | | Loans Past Due 90 Days or More and Still Accruing | $377 | $326 | $51 | 15.6% | | Total Loans Past Due (30+ days) | $720 | $601 | $119 | 19.8% | - The ACL on loans HFI increased to $394.7 million at June 30, 2025, from $373.8 million at December 31, 2024, with a provision for credit losses of $76.3 million and gross charge-offs of $62.8 million for the six months ended June 30, 2025[86] - For the six months ended June 30, 2025, loan modifications for borrowers experiencing financial difficulty totaled $238 million, primarily consisting of payment delays ($197 million)[80] 5. MORTGAGE SERVICING RIGHTS The fair value of Mortgage Servicing Rights (MSRs) decreased, influenced by sales and realization of cash flows, despite additions from new loan sales. The Company also provides sensitivity analysis for hypothetical changes in fair value Mortgage Servicing Rights (MSR) Activity (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |:-------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Balance, beginning of period | $1,241 | $1,178 | $1,127 | $1,124 | | Additions from loans sold | $284 | $214 | $545 | $403 | | Carrying value of MSRs sold | $(452) | $(241) | $(535) | $(397) | | Change in fair value | $23 | $32 | $3 | $92 | | Realization of cash flows | $(52) | $(38) | $(96) | $(77) | | Balance, end of period | $1,044 | $1,145 | $1,044 | $1,145 | - The Unpaid Principal Balance (UPB) of mortgage loans serviced for others decreased to $59,441 million at June 30, 2025, from $61,089 million at December 31, 2024[92] - A hypothetical adverse interest rate change of 50 basis points would decrease the fair value of MSRs by $92 million, while a favorable change would increase it by $76 million[96] 6. OTHER ASSETS ACQUIRED THROUGH FORECLOSURE Other assets acquired through foreclosure significantly increased, primarily due to the addition of five CRE office properties, reflecting the Company's credit resolution process Other Assets Acquired Through Foreclosure (in millions) | Metric | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | |:-------------------------------------|:--------------|:------------------|:-----------|:-----------| | Repossessed asset balance, net | $218 | $52 | $166 | 319.2% | | Valuation allowance | $6 | $5 | $1 | 20.0% | | Number of properties held | 11 | 5 | 6 | 120.0% | - The majority of the repossessed asset balance at both June 30, 2025, and December 31, 2024, related to office properties[98] 7. DEPOSITS Total deposits increased, driven by non-interest bearing and savings/money market accounts, while brokered and reciprocal deposits saw a decrease. The Company also details the contractual maturities of time deposits and costs associated with earnings credit accounts Deposits by Type (in millions) | Deposit Type | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | |:-------------------------------|:--------------|:------------------|:-----------|:-----------| | Non-interest bearing | $22,997 | $18,846 | $4,151 | 22.0% | | Interest bearing | $48,110 | $47,495 | $615 | 1.3% | | Total Deposits | $71,107 | $66,341 | $4,766 | 7.2% | - Wholesale brokered deposits decreased to $5.9 billion at June 30, 2025, from $6.9 billion at December 31, 2024[100] - Reciprocal deposits (CDARS and ICS) decreased to $12.9 billion at June 30, 2025, from $14.0 billion at December 31, 2024[100] - Deposits with earnings credits or referral fees totaled $25.0 billion at June 30, 2025, up from $20.7 billion at December 31, 2024, with associated deposit costs decreasing for the three and six months ended June 30, 2025, compared to 2024[101] 8. OTHER BORROWINGS Total other borrowings increased, driven by a rise in long-term FHLB advances, while short-term borrowings remained stable. The Company details its borrowing capacities with FHLB and FRB, and outstanding credit linked notes Other Borrowings by Type (in millions) | Borrowing Type | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | |:-------------------------|:--------------|:------------------|:-----------|:-----------| | Total Short-Term Borrowings | $3,144 | $3,151 | $(7) | -0.2% | | Total Long-Term Borrowings | $2,908 | $2,422 | $486 | 20.1% | | Total Other Borrowings | $6,052 | $5,573 | $479 | 8.6% | - Available credit with the FHLB was approximately $8.1 billion at June 30, 2025, down from $8.7 billion at December 31, 2024[105] - Total available credit with the FRB increased to $16.8 billion at June 30, 2025, from $12.4 billion at December 31, 2024, with no amounts drawn[106] - Long-term FHLB advances increased to $2,500 million at June 30, 2025, from $2,000 million at December 31, 2024, with a weighted average rate of 4.85% for both periods[111][112] 9. QUALIFYING DEBT Qualifying debt decreased primarily due to the full redemption of WAB's fixed-to-variable-rate subordinated debt. The Company provides details on its subordinated and junior subordinated debt issuances Qualifying Debt Carrying Value (in millions) | Debt Type | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | |:----------------------|:--------------|:------------------|:-----------|:-----------| | Subordinated Debt | $595 | $820 | $(225) | -27.4% | | Junior Subordinated Debt | $83 | $79 | $4 | 5.1% | | Total Qualifying Debt | $678 | $899 | $(221) | -24.6% | - The Company fully redeemed its WAB fixed-to-variable-rate subordinated debt of $225 million during the three months ended June 30, 2025[119] - Junior subordinated debt, recorded at fair value, had a carrying value of $83 million at June 30, 2025, with a weighted average interest rate of 6.89%[122] 10. STOCKHOLDERS' EQUITY This section details changes in stockholders' equity, including various stock-based compensation awards, preferred and common stock dividends, treasury share transactions, and the issuance of preferred stock by a subsidiary, which created a noncontrolling interest Stock-Based Compensation Expense (in millions) | Award Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |:-------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Restricted stock awards | $8.1 | $11.4 | $20.1 | $23.5 | | Performance stock units | $1.8 | $0.6 | $3.4 | $1.6 | | Cash settled restricted stock units | $0.6 | $0.3 | $0.9 | $0.4 | | Deferred stock units | $1.3 | $0.5 | $3.0 | $0.5 | - The Company declared and paid a quarterly cash dividend of $0.38 per common share for the three months ended June 30, 2025, totaling $42.2 million, up from $0.37 per share ($40.8 million) in the prior year[131] - BW, a subsidiary, issued 300,000 shares of 9.500% Series B Preferred Stock for $293 million net of issuance costs, creating a noncontrolling interest and resulting in a $7.4 million dividend payment to Series B preferred stockholders[133][134] 11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Accumulated Other Comprehensive Income (Loss) (AOCI) improved significantly for the six months ended June 30, 2025, primarily due to unrealized gains on AFS securities, offsetting prior period losses Changes in AOCI (Loss) by Component (Six Months Ended June 30) | Component (in millions) | Balance, Dec 31, 2024 | Net Current-Period OCI (Loss) | Balance, Jun 30, 2025 | |:------------------------------------|:----------------------|:------------------------------|:----------------------| | Unrealized holding gains (losses) on AFS securities | $(534.7) | $55.0 | $(479.7) | | Unrealized holding gains (losses) on SERP | $(0.4) | $0.1 | $(0.3) | | Unrealized holding gains (losses) on junior subordinated debt | $1.4 | $(3.0) | $(1.6) | | Total AOCI (Loss) | $(533.7) | $52.1 | $(481.6) | - The net current-period other comprehensive income for the six months ended June 30, 2025, was $52.1 million, a significant improvement compared to a net loss of $(45.3) million in the prior year[135] 12. DERIVATIVES AND HEDGING ACTIVITIES The Company uses various derivative instruments, including interest rate contracts, forward commitments, and futures, for both designated hedge relationships (fair value hedges) and non-designated economic hedges, to manage interest rate risk and meet client needs. The fair value of these derivatives and associated gains/losses are detailed, along with counterparty credit risk management Fair Value of Derivative Instruments (Gross, in millions) | Derivative Type (Notional Amount) | June 30, 2025 | December 31, 2024 | June 30, 2024 | |:----------------------------------|:--------------|:------------------|:--------------| | Designated Hedges (Interest rate contracts) | $6,033 | $4,344 | $3,866 | | Non-Designated Hedges (Total) | $51,706 | $43,890 | $30,552 | Net Gain (Loss) on Non-Designated Derivatives (Three Months Ended June 30, in millions) | Income Statement Line Item | 2025 | 2024 | |:-----------------------------------|:--------|:--------| | Net gain (loss) on loan origination and sale activities | $(4.5)$ | $6.5$ | | Net loan servicing revenue | $6.6$ | $(24.2)$| - During the three months ended June 30, 2025, the Company terminated a $1.0 billion notional interest rate swap on hedged AFS U.S. Treasury securities, resulting in a net gain of $7.7 million from the sale of hedged securities[139] - Collateral pledged by the Company to counterparties for its derivatives increased significantly to $399 million at June 30, 2025, from $117 million at December 31, 2024[153] 13. EARNINGS PER SHARE Basic and diluted Earnings Per Share (EPS) increased for both the three and six months ended June 30, 2025, reflecting higher net income available to common stockholders Earnings Per Share (EPS) Summary | Metric (per share) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |:-------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Basic EPS | $2.08 | $1.75 | $3.89 | $3.36 | | Diluted EPS | $2.07 | $1.75 | $3.86 | $3.34 | - Net income available to common stockholders increased to $227.2 million for the three months ended June 30, 2025, from $190.4 million in the prior year, and to $423.1 million for the six months ended June 30, 2025, from $364.6 million[154] 14. INCOME TAXES The Company's effective tax rate decreased for both the three and six months ended June 30, 2025, primarily due to increased investment tax credit benefits and lower state blended tax rates. The net Deferred Tax Asset (DTA) balance also increased Effective Tax Rate | Period | 2025 | 2024 | |:---------------------------|:--------|:--------| | Three Months Ended June 30 | 18.4% | 21.9% | | Six Months Ended June 30 | 18.8% | 22.7% | - The net DTA balance increased by $32 million to $313 million at June 30, 2025, from $281 million at December 31, 2024, mainly due to an increase in credit carryovers[156] - Investments in Low-Income Housing Tax Credit (LIHTC) and renewable energy projects totaled $588 million at June 30, 2025, generating $39.7 million in tax credits for the six months ended June 30, 2025[159][160] 15. COMMITMENTS AND CONTINGENCIES The Company's off-balance sheet commitments, including unfunded loan commitments and letters of credit, remained substantial. Lending activities show concentrations in commercial and industrial and CRE markets, and the Company is involved in routine legal proceedings Unfunded Commitments and Letters of Credit (in millions) | Type | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | |:-----------------------------------|:--------------|:------------------|:-----------|:-----------| | Commitments to extend credit | $13,612 | $13,546 | $66 | 0.5% | | Credit card commitments and financial guarantees | $702 | $585 | $117 | 20.0% | | Letters of credit | $512 | $437 | $75 | 17.2% | | Total | $14,826 | $14,568 | $258 | 1.8% | - The loss contingency for unfunded loan commitments and letters of credit was $39.2 million at June 30, 2025, slightly down from $39.5 million at December 31, 2024[165] - Commercial and industrial loans constituted 45% of the HFI loan portfolio at June 30, 2025, and CRE-related loans accounted for approximately 30% of total loans[167] 16. FAIR VALUE ACCOUNTING This section details the fair value measurements for financial instruments, categorizing them into Level 1, 2, and 3 inputs. It covers recurring measurements for AFS securities, trading securities, loans HFS, MSRs, and derivatives, as well as nonrecurring measurements for collateral-dependent loans and foreclosed assets, and discusses interest rate risk Fair Value of Financial Assets (June 30, 2025, in millions) | Asset Type | Level 1 | Level 2 | Level 3 | Total Fair Value | |:---------------------------|:--------|:--------|:--------|:-----------------| | AFS debt securities | $5,532 | $11,366 | $0 | $16,898 | | Trading securities | $0 | $53 | $0 | $53 | | Equity securities | $122 | $0 | $0 | $122 | | Loans HFS | $0 | $2,896 | $84 | $2,980 | | Mortgage servicing rights | $0 | $0 | $1,044 | $1,044 | | Derivative assets | $0 | $119 | $57 | $176 | Fair Value of Financial Liabilities (June 30, 2025, in millions) | Liability Type | Level 1 | Level 2 | Level 3 | Total Fair Value | |:---------------------------|:--------|:--------|:--------|:-----------------| | Junior subordinated debt | $0 | $0 | $69 | $69 | | Derivative liabilities | $0 | $203 | $0 | $203 | - Collateral-dependent loans (Loans HFI) measured at fair value on a nonrecurring basis totaled $300 million at June 30, 2025, net of a specific ACL of $40 million, down from $561 million at December 31, 2024[193][194] - The Company's Net Interest Income (NII) simulation projects a 6.0% increase in NII for an instantaneous 100 basis point upward shift in market interest rates, and a 5.7% decrease for a 100 basis point downward shift[333] 17. SEGMENTS The Company operates through three reportable segments: Commercial, Consumer Related, and Corporate & Other, with detailed financial information provided for each. The segment reporting methodology includes allocation of equity capital, net interest income (on a TEB), and various non-interest expenses Segment Loans HFI and Deposits (June 30, 2025, in millions) | Segment | Loans HFI, net of deferred fees and costs | Deposits | |:-------------------|:------------------------------------------|:---------| | Commercial | $33,207 | $26,307 | | Consumer Related | $22,732 | $38,546 | | Corporate & Other | $0 | $6,254 | Segment Income (Loss) Before Income Taxes (Three Months Ended June 30, 2025, in millions) | Segment | Income (loss) before provision for income taxes | |:-------------------|:------------------------------------------------| | Commercial | $154.6 | | Consumer Related | $183.3 | | Corporate & Other | $(46.6) | - The Commercial segment's net interest income for the three months ended June 30, 2025, was $321.1 million, while the Consumer Related segment reported $432.4 million[210] 18. REVENUE FROM CONTRACTS WITH CUSTOMERS Revenue from contracts with customers, primarily service charges, fees, and legal settlement services, increased for both the three and six months ended June 30, 2025, with no material unsatisfied performance obligations Revenue from Contracts with Customers (in millions) | Period | 2025 | 2024 | Change ($) | Change (%) | |:---------------------------|:--------|:--------|:-----------|:-----------| | Three Months Ended June 30 | $23.5 | $16.9 | $6.6 | 39.1% | | Six Months Ended June 30 | $46.5 | $30.7 | $15.8 | 51.5% | 19. SUBSEQUENT EVENTS The One Big Beautiful Bill Act (OBBBA) was enacted on July 4, 2025, extending or making permanent various tax provisions, and the Company is currently evaluating its impact on the consolidated financial statements - The OBBBA includes provisions for immediate expensing of domestic research and experimental expenditures, modifications to business interest limitations, and bonus depreciation modifications[215] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition, results of operations, liquidity, capital resources, and interest rate sensitivity, highlighting key trends, financial performance, and asset quality metrics for the quarter and six months ended June 30, 2025 Forward-Looking Information This section serves as a cautionary notice regarding forward-looking statements, outlining various risks and uncertainties that could cause actual results to differ materially from projections, including adverse economic conditions, interest rate changes, credit quality, and regulatory factors - Key risks include adverse financial market and economic conditions (inflation, recession), changes in interest rates, exposure to market risks, inherent accounting estimate risks, and dependency on real estate market conditions[219] - Other significant risks involve concentrations in loan portfolios, ability to compete, expansion strategies, digital payment initiatives, employee retention, capital adequacy, liquidity, information security breaches, and regulatory compliance[219] Recent Market and Banking Industry Developments The Company's significant exposure to the Commercial Real Estate (CRE) market, comprising approximately 30% of total loans, is highlighted, with enhanced measures implemented to monitor and manage credit risk, particularly for non-owner occupied office loans - CRE-related loans constituted approximately 30% of total loans at June 30, 2025, with less than 5% being non-owner occupied office loans[222] - Gross charge-offs on CRE non-owner occupied loans totaled $17.5 million and $32.0 million for the three and six months ended June 30, 2025, respectively, primarily related to office properties[222] - The Company took possession of five CRE office properties during the three and six months ended June 30, 2025, leading to a $166 million increase in other assets acquired through foreclosure[222] Financial Overview and Highlights Western Alliance Bancorporation reported strong financial results for the second quarter of 2025, with significant increases in net income, diluted EPS, and Pre-Provision Net Revenue (PPNR), alongside healthy growth in loans and deposits, and improved asset quality metrics Financial Highlights for Q2 2025 vs. Q2 2024 | Metric (in millions, except per share) | Q2 2025 | Q2 2024 | Change ($) | Change (%) | |:---------------------------------------|:----------|:----------|:-----------|:-----------| | Net income available to common stockholders | $227.2 | $190.4 | $36.8 | 19.3% | | Diluted earnings per share | $2.07 | $1.75 | $0.32 | 18.3% | | Net revenue | $845.9 | $771.8 | $74.1 | 9.6% | | PPNR | $331.2 | $285.0 | $46.2 | 16.2% | | Total loans HFI | $55.9B | $53.7B (Dec 31, 2024) | $2.3B | 4.2% | | Total deposits | $71.1B | $66.3B (Dec 31, 2024) | $4.8B | 7.2% | | Total equity | $7.4B | $6.7B (Dec 31, 2024) | $0.7B | 10.4% | | Nonperforming loans to funded HFI loans | 0.76% | 0.89% (Dec 31, 2024) | -0.13% | -14.6% | | Efficiency ratio | 60.1% | 62.3% | -2.2% | -3.5% | Results of Operations and Financial Condition The Company demonstrated improved financial performance with higher net income and returns on assets and equity for both the quarter and six months ended June 30, 2025, compared to the prior year, despite a slight decrease in net interest margin Key Financial Performance Metrics | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |:-----------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net income (in millions) | $237.8 | $193.6 | $436.9 | $371.0 | | Return on average assets | 1.10% | 0.99% | 1.04% | 0.99% | | Return on average equity | 13.0% | 12.3% | 12.4% | 11.9% | | Net interest margin | 3.53% | 3.63% | 3.50% | 3.61% | Key Financial Condition Metrics (in millions) | Metric | June 30, 2025 | December 31, 2024 | |:-------------------------------------|:--------------|:------------------| | Total assets | $86,725 | $80,934 | | Loans HFI, net of deferred fees and costs | $55,939 | $53,676 | | Total deposits | $71,107 | $66,341 | | Total equity | $7,407 | $6,707 | Asset Quality The Company's asset quality improved with a decrease in nonaccrual loans relative to funded loans, although nonperforming assets increased due to a rise in repossessed assets. The Allowance for Credit Losses (ACL) to funded loans slightly increased, and net charge-offs remained stable Key Asset Quality Metrics for Loans HFI (in millions) | Metric | June 30, 2025 | December 31, 2024 | Change (%) | |:-------------------------------------|:--------------|:------------------|:-----------| | Nonaccrual loans | $427 | $476 | -10.3% | | Repossessed assets | $218 | $52 | 319.2% | | Non-performing assets | $831 | $656 | 26.7% | | Nonaccrual loans to funded loans | 0.76% | 0.89% | -14.6% | | Allowance for credit losses to funded loans | 0.78% | 0.77% | 1.3% | | Net charge-offs to average loans outstanding (annualized) | 0.22% | 0.18% | 22.2% | - The ratio of Allowance for credit losses to nonaccrual loans improved to 102% at June 30, 2025, from 87% at December 31, 2024[230] Asset and Deposit Growth The Company experienced robust asset and deposit growth, with total assets increasing by 7.2% and total deposits by 7.2% since December 31, 2024. This growth was primarily driven by increases in non-interest bearing deposits and savings/money market accounts, supporting significant loan and investment securities growth - Total assets increased by $5.8 billion (7.2%) to $86.7 billion at June 30, 2025, from $80.9 billion at December 31, 2024[232] - Loans HFI increased by $2.3 billion (4.2%) to $55.9 billion, with commercial and industrial, commercial real estate, and residential loans contributing to the growth[233] - Total deposits increased by $4.8 billion (7.2%) to $71.1 billion, primarily due to increases of $4.2 billion in non-interest bearing deposits and $1.0 billion in savings and money market accounts[234] RESULTS OF OPERATIONS The Company's results of operations for the three and six months ended June 30, 2025, show increased net interest income and net income available to common stockholders, driven by higher interest income and non-interest income, despite an increase in provision for credit losses Consolidated Income Statement Data (Three Months Ended June 30) | Metric (in millions, except per share) | 2025 | 2024 | Increase (Decrease) | |:---------------------------------------|:----------|:----------|:--------------------| | Interest income | $1,154.4 | $1,147.5 | $6.9 | | Interest expense | $456.8 | $490.9 | $(34.1) | | Net interest income | $697.6 | $656.6 | $41.0 | | Provision for credit losses | $39.9 | $37.1 | $2.8 | | Non-interest income | $148.3 | $115.2 | $33.1 | | Non-interest expense | $514.7 | $486.8 | $27.9 | | Net income available to common stockholders | $227.2 | $190.4 | $36.8 | | Diluted EPS | $2.07 | $1.75 | $0.32 | Consolidated Income Statement Data (Six Months Ended June 30) | Metric (in millions, except per share) | 2025 | 2024 | Increase (Decrease) | |:---------------------------------------|:----------|:----------|:--------------------| | Interest income | $2,250.0 | $2,202.5 | $47.5 | | Interest expense | $901.8 | $947.0 | $(45.2) | | Net interest income | $1,348.2 | $1,255.5 | $92.7 | | Provision for credit losses | $71.1 | $52.3 | $18.8 | | Non-interest income | $275.7 | $245.1 | $30.6 | | Non-interest expense | $1,015.1 | $968.6 | $46.5 | | Net income available to common stockholders | $423.1 | $364.6 | $58.5 | | Diluted EPS | $3.86 | $3.34 | $0.52 | Non-GAAP Financial Measures This section presents non-GAAP financial measures, including Pre-Provision Net Revenue (PPNR), Efficiency Ratio, and Tangible Common Equity, which management uses to evaluate performance and capital strength. PPNR and tangible common equity increased, while the efficiency ratio improved Pre-Provision Net Revenue (PPNR) (in millions) | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |:---------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net revenue | $845.9 | $771.8 | $1,623.9 | $1,500.6 | | Total non-interest expense | $514.7 | $486.8 | $1,015.1 | $968.6 | | PPNR | $331.2 | $285.0 | $608.8 | $532.0 | Efficiency Ratio (Tax Equivalent Basis) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |:-------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Efficiency ratio - tax equivalent basis | 60.1% | 62.3% | 61.7% | 63.7% | Tangible Common Equity (in millions, except per share) | Metric | June 30, 2025 | December 31, 2024 | |:-------------------------------------|:--------------|:------------------| | Total tangible common equity, net of tax | $6,168 | $5,755 | | Tangible common equity ratio | 7.2% | 7.2% | | Tangible book value per common share, net of tax | $55.87 | $52.27 | Regulatory Capital The Company and the Bank continued to exceed all 'well-capitalized' regulatory capital requirements under Basel III, with Common Equity Tier 1 (CET1), Tier 1, and Total Capital ratios remaining strong. The CECL transition option, which provided a capital benefit, was fully phased out in 2025 Regulatory Capital Ratios (WAL) | Ratio | June 30, 2025 | December 31, 2024 | Well-Capitalized Minimum | |:-----------------------|:--------------|:------------------|:-------------------------| | Common Equity Tier 1 | 11.2% | 11.3% | 6.5% | | Tier 1 Capital Ratio | 12.3% | 11.9% | 8.0% | | Tier 1 Leverage Ratio | 8.4% | 8.1% | 5.0% | | Total Capital Ratio | 14.1% | 14.1% | 10.0% | - The classified assets to Tier 1 capital plus allowance increased to 16.4% at June 30, 2025, from 14.2% at December 31, 2024[244] - The CECL transition option, which delayed the estimated impact on regulatory capital, ended on December 31, 2024, meaning the 25% capital benefit from increased ACL was fully phased out in 2025[243] Net Interest Margin Net interest income increased for both the three and six months ended June 30, 2025, driven by higher average interest-earning assets and lower rates on deposits, despite a slight decrease in net interest margin due to lower yields on interest-earning assets Net Interest Income and Margin | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |:-----------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net interest income (in millions) | $697.6 | $656.6 | $1,348.2 | $1,255.5 | | Net interest margin | 3.53% | 3.63% | 3.50% | 3.61% | - For the three months ended June 30, 2025, interest income increased by $6.9 million, primarily from loans HFS ($31.0 million increase) and investment securities ($11.0 million increase), partially offset by a $13.4 million decrease from loans HFI due to lower yields[251] - Interest expense decreased by $34.1 million for the three months ended June 30, 2025, mainly due to a $32.5 million decrease in deposit interest expense from lower rates and a $23.2 million decrease in short-term borrowings interest expense[253] Provision for Credit Losses The provision for credit losses increased for both the three and six months ended June 30, 2025, reflecting higher net loan charge-offs and overall loan growth, consistent with maintaining an adequate Allowance for Credit Losses (ACL) Provision for Credit Losses (in millions) | Period | 2025 | 2024 | Change ($) | Change (%) | |:---------------------------|:--------|:--------|:-----------|:-----------| | Three Months Ended June 30 | $39.9 | $37.1 | $2.8 | 7.5% | | Six Months Ended June 30 | $71.1 | $52.3 | $18.8 | 36.0% | - The provision for credit losses for the three and six months ended June 30, 2025, was primarily driven by net loan charge-offs of $29.6 million and $55.4 million, respectively, and loan growth[258] Non-interest Income Total non-interest income increased for both the three and six months ended June 30, 2025, primarily due to higher service charges and loan fees, increased income from bank-owned life insurance, and gains on sales of investment securities, partially offset by decreases in net loan servicing revenue and equity investment income Non-interest Income Summary (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |:-------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Total non-interest income | $148.3 | $115.2 | $275.7 | $245.1 | | Service charges and loan fees | $36.9 | $17.8 | $74.1 | $34.2 | | Income from bank owned life insurance | $11.0 | $1.7 | $22.4 | $2.7 | | Gain on sales of investment securities | $11.4 | $2.3 | $13.5 | $1.4 | | Net loan servicing revenue | $38.3 | $38.1 | $60.1 | $84.5 | | Income (loss) from equity investments | $2.9 | $4.2 | $(1.9) | $21.3 | - The $19.1 million increase in service charges and loan fees for the three months ended June 30, 2025, was primarily driven by service charges on insured deposit products[259] - The $24.4 million decrease in net loan servicing revenue for the six months ended June 30, 2025, resulted from fair value losses on MSRs and lower servicing income[260] Non-interest Expense Total non-interest expense increased for both the three and six months ended June 30, 2025, primarily due to higher salaries and employee benefits and data processing expenses, partially offset by a decrease in deposit costs and insurance expense Non-interest Expense Summary (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |:-------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Total non-interest expense | $514.7 | $486.8 | $1,015.1 | $968.6 | | Salaries and employee benefits | $179.9 | $153.0 | $362.3 | $307.9 | | Deposit costs | $147.4 | $173.7 | $284.2 | $310.7 | | Data processing | $45.0 | $35.7 | $90.2 | $71.7 | | Insurance | $37.4 | $33.8 | $75.3 | $92.7 | - Salaries and employee benefits increased by $26.9 million for the three months ended June 30, 2025, due to increases in average salary and headcount[261] - Deposit costs decreased by $26.3 million for the three months ended June 30, 2025, and $26.5 million for the six months ended June 30, 2025, primarily due to lower Earnings Credit Rate (ECR) rates[261][262] Income Taxes The Company's effective tax rate decreased for both the three and six months ended June 30, 2025, compared to the prior year, primarily driven by increased investment tax credit benefits and reductions in the state blended tax rate and nondeductible insurance premiums Effective Tax Rate | Period | 2025 | 2024 | |:---------------------------|:--------|:--------| | Three Months Ended June 30 | 18.4% | 21.9% | | Six Months Ended June 30 | 18.8% | 22.7% | Business Segment Results The Company's three reportable segments—Commercial, Consumer Related, and Corporate & Other—show varied performance. The Commercial and Consumer Related segments contributed positively to income before taxes, while Corporate & Other reported a loss Segment Income (Loss) Before Provision for Income Taxes (in millions) | Segment | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | |:-------------------|:---------------------------------|:-------------------------------|:---------------------------------|:-------------------------------| | Commercial | $154.6 | $301.1 | $128.9 | $272.8 | | Consumer Related | $183.3 | $347.4 | $96.8 | $189.7 | | Corporate & Other | $(46.6) | $(110.8) | $22.2 | $17.2 | - At June 30, 2025, the Commercial segment held $33,207 million in Loans HFI and $26,307 million in Deposits, while the Consumer Related segment held $22,732 million in Loans HFI and $38,546 million in Deposits[264] BALANCE SHEET ANALYSIS The balance sheet analysis reveals significant growth in total assets, driven by increases in investment securities and loans, funded by a substantial rise in deposits. Key areas of focus include the composition and credit quality of the loan portfolio, particularly CRE exposure, and changes in various asset and liability accounts - Total assets increased by $5.8 billion (7.2%) to $86.7 billion at June 30, 2025, primarily due to increases in investment securities ($3.5 billion) and loans HFI ($2.3 billion) and HFS ($736 million)[266] - Total deposits increased by $4.8 billion (7.2%) to $71.1 billion, with non-interest bearing deposits rising by $4.2 billion and savings/money market accounts by $1.0 billion[267] - Total equity increased by $700 million (10.4%) to $7.4 billion, driven by net income, preferred stock issuance by a subsidiary, and unrealized fair value gains on AFS securities[268] - Commercial and industrial loans constituted 45% of total loans HFI at June 30, 2025, and CRE-related loans accounted for approximately 30% of total loans[273][274] - Nonaccrual loans decreased by $49 million to $427 million at June 30, 2025, from $476 million at December 31, 2024, while repossessed assets increased by $166 million to $218 million[282][295] Critical Accounting Estimates This section refers to the Company's Annual Report on Form 10-K for a detailed discussion of critical accounting estimates, noting that there were no material changes to these policies during the current period - There were no material changes to the critical accounting policies disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[314] Liquidity The Company maintains adequate liquidity to meet financial obligations and support client activity, with substantial borrowing capacity from FHLB and FRB, and a significant amount of liquid assets. Cash flows from operating activities were negative, while financing activities provided cash, primarily from deposits Borrowing Capacity and Available Credit (June 30, 2025, in millions) | Source | Borrowing Capacity | Outstanding Borrowings | Total Available Credit | |:-------------------|:-------------------|:-----------------------|:-----------------------| | FHLB | $15,000 | $5,600 | $8,143 | | FRB | $16,793 | $0 | $16,793 | | Warehouse borrowings | $2,050 | $0 | $2,050 | - At June 30, 2025, the Company held $17.9 billion in liquid assets, including $1.7 billion in cash on deposit at the FRB and $16.1 billion in non-pledged marketable securities[317] - Net cash used in operating activities totaled $2.0 billion for the six months ended June 30, 2025, while net cash provided by financing activities was $6.2 billion, significantly impacted by a $4.8 billion increase in net deposits[320][322] - The Company participates in reciprocal deposit programs (CDARS and ICS) totaling $1.8 billion and $9.3 billion, respectively, at June 30, 2025, to mitigate uninsured deposit risk[323] Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company actively manages its market risk, primarily interest rate risk, through various asset/liability strategies and derivative instruments. Sensitivity analyses for Net Interest Income (NII) and Economic Value of Equity (EVE) indicate that exposure to hypothetical interest rate changes remains within Board-approved limits - The Asset and Liability Management Committee (ALCO) monitors interest rate risk by analyzing the potential impact on EVE and earnings from hypothetical changes in interest rates, ensuring exposure remains within Board-