KBRA Affirms Ratings for Western Alliance Bancorporation

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, the preferred stock rating of BBB-, and the short-term debt rating of K2 for Western Alliance Bancorporation (NYSE: WAL; or "the company"). KBRA also affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for Western Alliance Bank ("the bank"), WAL’s principal operating subsidiary. Additionally, KBRA affirms the Issuer rating of BBB+ for Western Alliance Trust Company, N.A. ("WATC"), a wholly-owned subsidiary of WAL, as well as the Issuer rating of A- for the bank's subsidiary, AmeriHome Mortgage Company, LLC ("AmeriHome"). The Outlook for all long-term ratings is Stable.

Key Credit Considerations

WAL’s favorable operating performance (core ROA of >1.1)%, as well as balance sheet trends – principally strong deposit flows and internal core capital generation – since the emergence of the industry’s funding challenges that were magnified in March 2023, have done well to support the Stable Outlook that was placed on ratings following our downgrade in April 2023. With respect to deposit flows, WAL’s $62 billion of total deposits at 1Q24 were up $14.6 billion from 1Q23; the prior year total ($47.6 billion) representing the lowest period-end balance in recent years. While the brokered deposit channel, together with increased use of reciprocals, have no doubt contributed to WAL’s strong flows, so too have meaningful balances from new and returning commercial customers that had moved deposits during 1Q23. Beyond the considerably larger, and what we consider to be more durable deposit base that incorporates substantially lower uninsured / uncollateralized balances, WAL’s enhanced earning asset liquidity positions the company very well from this vantage point. Furthermore, new strategic deposit initiatives are expected to continue to benefit WAL’s core funding profile during 2024, following the deposit mix changes to higher cost balances that have been evident for the company (and industry) beginning in 2H22, and accelerating during 2023. Regarding a refined strategic earning asset focus, beyond the noted enhanced liquidity elements, WAL continues to make progress reducing select loan exposures determined to be more transactional in nature; a reshaping that began in latter 2022 and has continued to date. While not necessarily unique strategic or financial profile adjustments, we consider it fundamentally important that WAL continues to benefit from a very experienced management team that has demonstrated long-term success executing its attractive business model, with diverse commercial verticals that supplement core middle-market banking; one which has produced favorable risk-adjusted returns. Similarly significant to WAL’s enhanced creditor profile has been the meaningful growth in the company’s core capital measures. Having publicly communicated their objective to grow organic capital and meet higher targets for CET1 as early as 3Q22, WAL’s plans accelerated following March 2023 events. Through a combination of solid internal capital generation and RWA optimization, WAL’s 1Q24 CET1 was up to 11.0%, with the potential for some movement modestly higher over the near-to-intermediate term.

Rating Sensitivities

A positive near-term adjustment in WAL’s ratings is not currently expected, though continued demonstration of solid core earnings power, positive client core deposit trends, and better-than-peer prospective credit loss performance would be viewed favorably. Any meaningful slippage in core funding profile, combined with evidence of reduced core earnings could pressure ratings.

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Methodologies