Western Alliance: Q1 2024 Results Reaffirm Improving Outlook

seekingalpha04-20

A change in the Fed's rate cut story and geopolitical tensions may have impacted WAL's YTD performance.1Q24 results show that loan/deposit growth has been robust.Asset quality remains stable.The ...

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We think a string of hotter-than-expected U.S. inflation reports has led investors to reprice the Fed's rate cut story. In addition, rising geopolitical risks have been factors for the underperformance. However, we believe the improving credit story has not altered from when we wrote last quarter. Data by YCharts 1Q24 earnings remain strong WAL reported a strong set of earnings for the past quarter. Net interest income of $598.9M was ahead of consensus slightly by 0.4% and rose from $591.7M in Q4, but it was down from $609.9M in Q1 2023. The sequential growth was due to higher earning asset balances and lower average borrowings. Compared to a year ago, interest expense has outpaced interest income growth, reflecting NIM compression in a higher rate environment. Net interest margin of 3.60% came in slightly below market estimates of 3.62%, which narrowed from 3.65% in the prior quarter and 3.79% a year ago. Loan growth was robust Held-for-investment loans of $50.7B grew $403M Q/Q, or 0.8%, and increased $4.3B, or 9.2% over the prior year. The Q/Q change was mainly driven by a $646M surge in Commercial & Industrial loans, and to a lesser extent, owner-occupied CRE loans. This was partially offset by decreases in Residential & Consumer (-$171M), Construction & Land (-$108M), and non-owner-occupied CRE ($-13M) loans. Compared to the quarter of the prior year, C&I loan growth of $4,246M contributed to the majority of the Y/Y change. Company Asset quality is stable but an uptick in NPL has been observed Non-Performing Assets (Non-Performing Loans + OREO) increased $126M to $407M or 53bps to total assets. This figure has been on a continual rise for the past few quarters indicated by the chart below. While it is not an alarming figure, caution is warranted if this number further increases. The provision expense of $15.2M primarily reflects loan growth, net charge-offs and a stable economic outlook, but it's an increase from the prior quarter's $9.3M and down from 1Q23's $19.4M. On the deposit side, total deposits hit $62.2B as of March 31, 2024, rising from $55.3B on December 31, 2023. Q/Q growth in deposits was mainly attributable to $3.9B in non-interest bearing accounts. Company Improving guidance sets a good tone for the remainder of 2024 Management has reaffirmed its 2024 guidance for net interest income to grow 5%-10% and non-interest income to increase 10%-20%. It still expects net charge-offs to increase by 10-15 bps this year. Further, the company has raised its loan growth indication from $2.0B to $4.0B while deposits are set to increase by $11.0B, up from the $8.0B growth forecast previously issued. However, it expects non-interest expenses to increase 6%-9% for the full-year, up from its previous guidance of flat to up 2%. Valuation: Underappreciated We believe WAL trading at about 1.2x tangible book value could be indicative of the market under-appreciating WAL's 14%-15% forward ROE in the next year. Both loan and deposit growth outlooks appear to be achievable, and asset quality should continue to remain robust. Perhaps a risk would be the Fed not delivering any cuts in 2024 which could have some negative impact on net interest margin. But, we do not see this as a material hit to its recovering fundamentals.  Himalayas Research, Koyfin","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2428672326"}