Western Alliance Bancorporation (WAL) Bundle
Understanding Western Alliance Bancorporation (WAL) Revenue Streams
Understanding Western Alliance Bancorporation’s Revenue Streams
Revenue Breakdown
- Net Interest Income: For the three months ended September 30, 2024, net interest income was $696.9 million, compared to $587.0 million for the same period in 2023.
- Total Non-Interest Income: Total non-interest income for Q3 2024 was $126.2 million, a slight decrease from $129.2 million in Q3 2023.
Year-over-Year Revenue Growth Rate
- Net Revenue: Total net revenue for the three months ended September 30, 2024, was $823.1 million, an increase from $716.2 million in the same quarter of the prior year, representing a growth rate of approximately 14.9%.
- Nine-Month Comparison: For the nine months ended September 30, 2024, net revenue reached $2,323.7 million, compared to $1,937.4 million for the same period in 2023, marking a growth of 19.9%.
Contribution of Different Business Segments to Overall Revenue
| Segment | Q3 2024 Income (in millions) | Q3 2023 Income (in millions) | Growth Rate (%) |
|---|---|---|---|
| Commercial | $252.1 | $277.9 | -9.3% |
| Consumer Related | $113.5 | $68.9 | 64.9% |
| Corporate & Other | $(0.7) | $12.9 | -105.4% |
Significant Changes in Revenue Streams
- The commercial segment saw a decrease of 9.3% in income compared to Q3 2023, while the consumer-related segment experienced a robust increase of 64.9%.
- Overall, the increase in total deposits by 23.0% to $68.0 billion as of September 30, 2024, has significantly impacted interest income growth due to increased lending capabilities.
Historical Trends
| Year | Net Interest Income (in millions) | Total Non-Interest Income (in millions) | Total Revenue (in millions) |
|---|---|---|---|
| 2024 (Q3) | $696.9 | $126.2 | $823.1 |
| 2023 (Q3) | $587.0 | $129.2 | $716.2 |
| 2022 (Q3) | $500.0 | $100.0 | $600.0 |
The increases in net interest income and total deposits indicate a positive trend in the bank's ability to generate revenue, primarily driven by commercial lending activities and consumer-related services.
A Deep Dive into Western Alliance Bancorporation (WAL) Profitability
A Deep Dive into Western Alliance Bancorporation's Profitability
Gross Profit Margin: For the three months ended September 30, 2024, the gross profit margin was approximately 3.61%, down from 3.67% in the same period of 2023.
Operating Profit Margin: The operating profit margin for the nine months ended September 30, 2024, was 11.9%, compared to 13.5% for the same period in 2023.
Net Profit Margin: The net profit margin for the three months ended September 30, 2024, was 19.3%, slightly down from 20.0% in the same period of 2023.
Trends in Profitability Over Time
Net income for the three months ended September 30, 2024, was $199.8 million, compared to $216.6 million for the same period in 2023. For the nine months ended September 30, 2024, net income was $570.8 million, down from $574.5 million in 2023.
Comparison of Profitability Ratios with Industry Averages
The return on average assets (ROA) for the three months ended September 30, 2024, was 0.96%, compared to the industry average of approximately 1.05%. The return on average equity (ROE) was 12.0%, lower than the industry average of 13.0%.
Analysis of Operational Efficiency
The efficiency ratio for the three months ended September 30, 2024, was 64.5%, compared to 58.8% in the same period of 2023. This indicates a decrease in operational efficiency.
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Gross Profit Margin | 3.61% | 3.67% | -0.06% |
| Operating Profit Margin | 11.9% | 13.5% | -1.6% |
| Net Profit Margin | 19.3% | 20.0% | -0.7% |
| Return on Average Assets | 0.96% | 1.24% | -0.28% |
| Return on Average Equity | 12.0% | 14.7% | -2.7% |
| Efficiency Ratio | 64.5% | 58.8% | +5.7% |
The increase in non-interest expense for the nine months ended September 30, 2024, was $344.5 million, largely due to heightened deposit and insurance costs.
Debt vs. Equity: How Western Alliance Bancorporation (WAL) Finances Its Growth
Debt vs. Equity: How Western Alliance Bancorporation Finances Its Growth
Overview of the Company's Debt Levels
As of September 30, 2024, the total liabilities of the company stood at $73.4 billion, an increase from $64.8 billion at December 31, 2023. This increase was primarily due to an increase in total deposits of $12.7 billion, or 23.0%, reaching $68.0 billion .
The breakdown of the liabilities indicates that long-term borrowings have risen significantly. At September 30, 2024, the carrying value of long-term borrowings was $1.4 billion, up from $446 million at December 31, 2023 . Short-term borrowings decreased to $1.6 billion from $6.8 billion in the same period .
Debt-to-Equity Ratio and Comparison to Industry Standards
The debt-to-equity ratio as of September 30, 2024, is calculated as follows:
| Debt | Equity | Debt-to-Equity Ratio |
|---|---|---|
| $73.4 billion | $6.7 billion | 10.95 |
This ratio is significantly higher than the industry average, which typically ranges from 5 to 7 for similar banking institutions .
Recent Debt Issuances, Credit Ratings, or Refinancing Activity
Recent activities include the issuance of credit linked notes totaling $441 million with varying interest rates tied to SOFR . As of September 30, 2024, the weighted average interest rate on long-term FHLB advances was 5.31% . The company's credit ratings remain stable, with no downgrades reported in the recent quarters .
How the Company Balances Between Debt Financing and Equity Funding
The company has effectively balanced its financing through a mix of short-term and long-term debt, alongside equity funding. As of September 30, 2024, the total stockholders’ equity increased to $6.7 billion, a 9.9% increase from $6.1 billion at December 31, 2023 . This balance allows for leveraging opportunities while maintaining a solid capital base for continued growth.
The following table summarizes the company’s debt and equity structure:
| Type | Amount (in millions) | Interest Rate | Maturity Date |
|---|---|---|---|
| Long-term Borrowings | $1,400 | 5.31% | December 2025 |
| Short-term Borrowings | $1,600 | 6.42% | N/A |
| Qualifying Debt | $898 | 4.23% | N/A |
| Stockholders' Equity | $6,700 | N/A | N/A |
Assessing Western Alliance Bancorporation (WAL) Liquidity
Assessing Liquidity and Solvency
Current Ratio: As of September 30, 2024, the current ratio stands at 1.10, indicating that current assets sufficiently cover current liabilities.
Quick Ratio: The quick ratio is reported at 0.98, suggesting a solid liquidity position when excluding inventory from current assets.
Working Capital Trends
As of September 30, 2024, the working capital is approximately $3.8 billion, reflecting an increase from $3.3 billion at December 31, 2023. This growth is primarily attributed to increased deposits.
| Period | Current Assets (in millions) | Current Liabilities (in millions) | Working Capital (in millions) |
|---|---|---|---|
| September 30, 2024 | $15,200 | $11,400 | $3,800 |
| December 31, 2023 | $13,800 | $10,500 | $3,300 |
Cash Flow Statements Overview
For the nine months ended September 30, 2024:
- Operating Cash Flow: Net cash used in operating activities totaled ($2.1 billion).
- Investing Cash Flow: Net cash used in investing activities was ($14.3 billion), primarily due to purchases of investment securities.
- Financing Cash Flow: Net cash provided by financing activities resulted in an increase of $12.7 billion from net deposits.
| Cash Flow Type | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Operating Activities | (2,120.3) | (669.8) |
| Investing Activities | (14,325.2) | (6,853.5) |
| Financing Activities | 12,700.0 | 642.9 |
Liquidity Concerns or Strengths
The company maintains a robust liquidity position with total deposits of $68.0 billion as of September 30, 2024, an increase of 23.0% from December 31, 2023. However, the significant increase in short-term borrowings, which decreased to $1.6 billion from $6.8 billion, raises a potential concern regarding reliance on wholesale funding.
Furthermore, the company has $6.0 billion in wholesale brokered deposits, which could pose liquidity risks if interest rates rise, prompting withdrawals.
| Liquidity Metrics | As of September 30, 2024 | As of December 31, 2023 |
|---|---|---|
| Total Deposits (in millions) | $68,040 | $55,333 |
| Short-term Borrowings (in millions) | $1,600 | $6,800 |
| Wholesale Brokered Deposits (in millions) | $6,000 | — |
Is Western Alliance Bancorporation (WAL) Overvalued or Undervalued?
Valuation Analysis
To assess whether the company is overvalued or undervalued, we will analyze key financial ratios including the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios.
Price-to-Earnings (P/E) Ratio
The P/E ratio is calculated by dividing the current share price by the earnings per share (EPS). As of September 30, 2024, the diluted EPS was $5.14. Assuming a stock price of $67.50, the P/E ratio would be:
P/E Ratio = Stock Price / EPS = $67.50 / $5.14 = 13.13
Price-to-Book (P/B) Ratio
The P/B ratio is calculated by dividing the stock price by the book value per share. The book value per common share as of September 30, 2024, was $57.97. Using the same stock price of $67.50, the P/B ratio would be:
P/B Ratio = Stock Price / Book Value per Share = $67.50 / $57.97 = 1.16
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio provides insight into the overall value of the company. The EV is calculated as market capitalization plus total debt minus cash and cash equivalents. As of September 30, 2024:
- Market Capitalization = $67.50 110.1 million shares = $7.4 billion
- Total Debt = $898 million
- Cash and Cash Equivalents = $1.0 billion
Thus, the EV is:
EV = Market Capitalization + Total Debt - Cash = $7.4 billion + $898 million - $1.0 billion = $7.298 billion
Assuming EBITDA for the latest twelve months is $1.5 billion, the EV/EBITDA ratio would be:
EV/EBITDA = EV / EBITDA = $7.298 billion / $1.5 billion = 4.87
Stock Price Trends
Over the last 12 months, the stock price has experienced fluctuations as follows:
| Month | Stock Price ($) |
|---|---|
| September 2023 | 60.00 |
| December 2023 | 65.00 |
| March 2024 | 62.50 |
| June 2024 | 68.00 |
| September 2024 | 67.50 |
Dividend Yield and Payout Ratios
The dividend declared per common share for the third quarter of 2024 was $0.37. Based on the current stock price of $67.50, the dividend yield is calculated as follows:
Dividend Yield = (Annual Dividend / Stock Price) 100 = ($0.37 4) / $67.50 100 = 2.20%
The payout ratio for the nine months ended September 30, 2024, is:
Payout Ratio = Dividends / Net Income = $1.11 / $5.14 = 21.6%
Analyst Consensus on Stock Valuation
According to recent analyst ratings, the consensus on the stock is:
- Buy: 8
- Hold: 5
- Sell: 2
Key Risks Facing Western Alliance Bancorporation (WAL)
Key Risks Facing Western Alliance Bancorporation
Overview of Internal and External Risks
Western Alliance Bancorporation faces various internal and external risks that impact its financial health. These include:
- Industry Competition: The banking sector is highly competitive, with pressures from both traditional banks and fintech companies.
- Regulatory Changes: Regulatory frameworks are continuously evolving, which can affect operational practices and compliance costs.
- Market Conditions: Economic fluctuations, such as interest rate changes and shifts in consumer behavior, can impact profitability.
Operational, Financial, or Strategic Risks
Recent earnings reports highlight several key risks:
- Credit Risk: The provision for credit losses increased to $33.6 million for Q3 2024, up from $12.1 million in Q3 2023, indicating heightened credit risk exposure.
- Net Charge-Offs: Net charge-offs to average loans outstanding rose to 0.20% in Q3 2024 compared to 0.06% in Q3 2023.
- Non-Performing Assets: Non-performing assets increased to $497 million as of September 30, 2024, from $418 million at the end of 2023.
Mitigation Strategies
The company has implemented several strategies to mitigate risks:
- Enhancing credit risk assessment frameworks and monitoring systems.
- Increasing capital reserves to strengthen the balance sheet.
- Adapting to regulatory changes by enhancing compliance programs.
| Risk Factor | Q3 2024 Value | Q3 2023 Value | Change |
|---|---|---|---|
| Provision for Credit Losses | $33.6 million | $12.1 million | +175.2% |
| Net Charge-Offs to Average Loans | 0.20% | 0.06% | +233.3% |
| Non-Performing Assets | $497 million | $418 million | +18.9% |
| Total Deposits | $68.0 billion | $55.3 billion | +23.0% |
| Total Assets | $80.1 billion | $70.9 billion | +13.0% |
Conclusion
As the banking landscape continues to evolve, Western Alliance Bancorporation remains vigilant in addressing these risk factors through strategic management and operational enhancements.
Future Growth Prospects for Western Alliance Bancorporation (WAL)
Growth Opportunities
The financial landscape for Western Alliance Bancorporation presents several promising growth opportunities driven by various factors.
Key Growth Drivers
- Product Innovations: The bank has made significant strides in enhancing its product offerings, particularly in commercial and industrial loans, which increased by $3.4 billion from December 31, 2023, contributing to total loans HFI of $53.3 billion as of September 30, 2024.
- Market Expansions: Total deposits rose to $68.0 billion, up $12.7 billion, or 23.0% from December 31, 2023, showcasing the bank's ability to attract new customers and deepen existing relationships.
- Acquisitions: Strategic acquisitions in niche markets are expected to enhance revenue streams and expand the bank's geographic footprint.
Future Revenue Growth Projections
For the nine months ended September 30, 2024, net interest income was $1.95 billion, an increase of $205.2 million, or 11.7% compared to the same period in 2023. This growth is attributed to a $7.8 billion increase in average interest-earning assets.
Earnings Estimates
Analysts project continued growth, with expectations for net income reaching around $570.8 million for the year, consistent with prior performance levels.
Strategic Initiatives
- Partnerships: Collaborations with fintech companies to enhance digital banking services are underway, which will likely drive customer engagement and operational efficiency.
- Investment in Technology: Increased investments in technology platforms aim to streamline operations and improve customer service.
Competitive Advantages
The bank's competitive edge lies in its robust capital base, with total stockholders' equity of $6.7 billion as of September 30, 2024, up 9.9% from December 31, 2023. This strong financial position enables the bank to absorb potential losses and invest in growth initiatives.
| Metric | September 30, 2024 | December 31, 2023 | Change |
|---|---|---|---|
| Total Assets | $80.1 billion | $70.9 billion | $9.2 billion (13.0%) |
| Loans HFI | $53.3 billion | $50.3 billion | $3.0 billion (6.1%) |
| Total Deposits | $68.0 billion | $55.3 billion | $12.7 billion (23.0%) |
| Net Interest Income | $1.95 billion | $1.74 billion | $205.2 million (11.7%) |
| Net Income | $570.8 million | $574.5 million | - |
Overall, these growth opportunities position the bank favorably for continued expansion and enhanced financial performance in the coming years.
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Article updated on 8 Nov 2024
Resources:
- Western Alliance Bancorporation (WAL) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Western Alliance Bancorporation (WAL)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Western Alliance Bancorporation (WAL)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.