Western Alliance Profit Climbs Amid Scrutiny Over Bad Loans

Phoenix-based Western Alliance reported third-quarter earnings per share of $2.28. (Dreamstime.com)

Key Points

• Western Alliance Bancorporation reported third-quarter earnings per share of $2.28 on revenue of $938 million, exceeding estimates.
• Net interest income increased by 7.7% year over year, contributing to the bank’s higher profit.
• The provision for credit losses rose to $80 million in the third quarter, up from $39.9 million in the second quarter.

Western Alliance Bancorporation posted a higher profit for the third quarter even as it set aside more money in case customers fall behind on their loan payments.

Phoenix-based Western Alliance reported third-quarter earnings per share of $2.28 on revenue of $938 million, beating Wall Street estimates. Analysts had expected the bank to report earnings of $2.08 on revenue of $886 million, according to estimates compiled by FactSet. For the year-ago period, Western Alliance reported earnings of $1.80 on revenue of $823 million.

Profit were lifted thanks in part to a 7.7% year over year increase in net interest income. NII is the difference between what banks earn on interest-bearing assets and pay in interest to customers on deposits.

The stock rose 2.3% in after hours trading. Shares of the regional lender closed Tuesday at $76.25, a 1.25% increase while the S&P 500 was unchanged for the day. Shares are down 8.6% this year.

Western Alliance’s stock took a hit last week after bank investors were spooked by a disclosure from Zions Bancorporation, another regional lender, which said it was taking a $50 million charge over bad loans made to a group of real estate investors. That sparked a selloff in bank stocks on Thursday. It also came after bankruptcies of two heavily indebted companies in the auto sector, First Brands and Tricolor.

Western Alliance disclosed last week that it had filed a lawsuit in August against some of the same borrowers alleging fraud. Western Alliance’s lawsuit, which was filed in California state court, says it extended a $100 million revolving credit facility to the borrower on Oct. 28, 2024.

On Tuesday, Western Alliance said its third-quarter provision for credit losses was $80 million. That is up from $39.9 million for the second quarter and from $33.6 million for the third quarter 2024. The bank attributed the higher provision in part to the establishment of a $30 million reserve related to the bad loan it previously disclosed.

Zions reported better-than-expected earnings on Monday. While executives at Zions said they couldn’t go into detail about the bad loans because of pending litigation, they emphasized that they viewed the matter as an isolated incident. “We have no further exposure related to these borrowers or guarantors,” ZionsCEO Harris H. Simmons told analysts during the company’s earnings call.

Western Alliance will hold a conference call to discuss the earnings on Wednesday.

Write to Andrew Welsch at andrew.welsch@barrons.com