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What changed in WESTERN ALLIANCE BANCORPORATION's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of WESTERN ALLIANCE BANCORPORATION's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+503 added−430 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-23)

Top changes in WESTERN ALLIANCE BANCORPORATION's 2023 10-K

503 paragraphs added · 430 removed · 357 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

66 edited+16 added−11 removed36 unchanged
Biggest changeThe following table shows the Company's deposit composition: December 31, 2022 2021 Amount Percent Amount Percent (in millions) Non-interest-bearing demand deposits $ 19,691 36.7 % $ 21,353 44.9 % Interest-bearing transaction accounts 9,507 17.7 6,924 14.5 Savings and money market accounts 19,397 36.2 17,279 36.3 Time certificates of deposit ($250,000 or more) 3,815 7.1 523 1.1 Other time deposits 1,234 2.3 1,533 3.2 Total deposits $ 53,644 100.0 % $ 47,612 100.0 % Although the Company does not pay interest to depositors of non-interest-bearing accounts, earnings credits and referral fees are awarded to some account holders, which offset charges incurred by account holders for other services.
Biggest changeThe Bank considers a number of factors when determining deposit rates, including: • current and projected national and local economic conditions and the outlook for interest rates; • competition from other institutions; • loan and deposit positions and forecasts, including any concentrations in either; and • alternative borrowing costs from the FHLB or other sources. 11 Table of Contents The following table shows the Company's deposit composition: December 31, 2023 2022 Amount Percent Amount Percent (in millions) Non-interest-bearing demand deposits $ 14,520 26.2 % $ 19,691 36.7 % Interest-bearing transaction accounts 15,916 28.8 9,507 17.7 Savings and money market accounts 14,791 26.7 19,397 36.2 Time certificates of deposit ($250,000 or more) (1) 1,478 2.7 1,101 2.0 Other time deposits 8,628 15.6 3,948 7.4 Total deposits $ 55,333 100.0 % $ 53,644 100.0 % (1) Retail brokered time deposits over $250,000 of $5.8 billion and $2.7 billion as of December 31, 2023 and 2022, respectively, are included within Other time deposits as these deposits are generally participated out by brokers in shares below the FDIC insurance limit.
Net interest income, provision for credit losses, and non-interest expense amounts are recorded in their respective segments to the extent that the amounts are directly attributable to those segments. Net interest income of a reportable segment includes a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics.
Net interest income, provision for credit losses, and non-interest expense amounts are recorded in their respective segments to the extent the amounts are directly attributable to those segments. Net interest income of a reportable segment includes a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics.
The Company has built relationships with community and educational institutions to strengthen its pipelines of talent in underrepresented communities. The Company has established an executive-led Opportunity Council, which guides and sponsors DEI initiatives, provides access to leadership, and evaluates organizational and best practice DEI strategies. Overall, the Opportunity Council is focused on accelerating DEI activities and results.
The Company has built relationships with community and educational institutions to strengthen its pipelines of talent in underrepresented communities. The Company established an executive-led Opportunity Council, which guides and sponsors DEI initiatives, provides access to leadership, and evaluates organizational and best practice DEI strategies. Overall, the Opportunity Council is focused on accelerating DEI activities and results.
Loans in this category are usually performing as agreed, although there may be non-compliance with financial covenants. • “Substandard” (Grade 7): These assets are characterized by well-defined credit weaknesses and carry the distinct possibility that the Company will sustain some loss if such weakness or deficiency is not corrected.
Loans in this category are usually performing as agreed, although there may be non-compliance with financial covenants. • “Substandard” (Grade 7): These assets are characterized by well-defined credit weaknesses and carry the distinct possibility the Company will sustain some loss if such weakness or deficiency is not corrected.
If a borrower fails to make a scheduled payment on a loan, Bank personnel attempt to remedy the deficiency by contacting the borrower and seeking payment. Contact is generally made within 15 business days after the payment becomes past due. The Bank also maintains a special assets department, which generally services and collects loans rated Substandard or worse.
If a commercial borrower fails to make a scheduled payment on a loan, Bank personnel attempt to remedy the deficiency by contacting the borrower and seeking payment. Contact is generally made within 15 business days after the payment becomes past due. The Bank also maintains a special assets department, which generally services and collects loans rated Substandard or worse.
The provision is equal to the amount required to maintain the ACL at a level that is adequate to absorb estimated lifetime credit losses inherent in the loan and investment securities portfolios as well as off-balance sheet credit exposures. Charge-offs are recorded as a reduction to the ACL and subsequent recoveries of previously charged-off amounts are credited to the ACL.
The provision is equal to the amount required to maintain the ACL at a level adequate to absorb estimated lifetime credit losses inherent in the loan and investment securities portfolios as well as off-balance sheet credit exposures. Charge-offs are recorded as a reduction to the ACL and subsequent recoveries of previously charged-off amounts are credited to the ACL.
This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practicable or desirable to defer writing off the asset, even though partial recovery may be achieved in the future.
This classification does not mean the loan has absolutely no recovery or salvage value, but rather it is not practicable or desirable to defer writing off the asset, even though partial recovery may be achieved in the future.
Earnings credits and referral fees earned in excess of charges incurred by account holders are recorded in deposit costs as part of non-interest expense and fluctuate as a result of eligible deposit balances and rates on these deposit balances.
Earnings credits and referral fees earned in excess of charges incurred by account holders are recorded in Deposit costs as part of non-interest expense and fluctuate as a result of eligible deposit balances and ECR rates on these deposit balances.
The SEC maintains an internet site at http://www.sec.gov , from which all forms filed electronically may be accessed. The Company’s internet website and the information contained therein are not incorporated into this Form 10-K. In addition, copies of the Company’s annual report will be made available, free of charge, upon written request. 14 Table of Contents
The SEC maintains an internet site at http://www.sec.gov , from which all forms filed electronically may be accessed. The Company’s internet website and the information contained therein are not incorporated into this Form 10-K. In addition, copies of the Company’s annual report will be made available, free of charge, upon written request. 15 Table of Contents
Item 1. Business. Organization Structure and Description of Services WAL is a bank holding company headquartered in Phoenix, Arizona, incorporated under the laws of the state of Delaware. WAL provides a full spectrum of customized loan, deposit and treasury management capabilities, including 24/7 funds transfer and other digital payment offerings through its wholly-owned banking subsidiary, WAB.
Item 1. Business. Organization Structure and Description of Services WAL is a bank holding company headquartered in Phoenix, Arizona, incorporated under the laws of the state of Delaware. WAL provides a full spectrum of customized loan, deposit and treasury management capabilities, including funds transfer and other digital payment offerings through its wholly-owned banking subsidiary, WAB.
Loans, Leases and Allowance for Credit Losses" in Item 8 or "Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition – Loans" in Item 7 of this Form 10-K. The Company adheres to a specific set of credit standards that are intended to ensure appropriate management of credit risk.
Loans, Leases and Allowance for Credit Losses" in Item 8 or "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations and Financial Condition – Loans" in Item 7 of this Form 10-K. The Company adheres to a specific set of credit standards intended to ensure appropriate management of credit risk.
Diversity, Equity, and Inclusion The Company is committed to improving workforce diversity at all levels of the organization and to providing equal opportunity in all aspects of employment. In 2022, the Company continued to make progress towards enhancing its ability to attract and retain a diverse population of employees.
Diversity, Equity, and Inclusion The Company is committed to improving workforce diversity at all levels of the organization and to providing equal opportunity in all aspects of employment. In 2023, the Company continued to make progress towards enhancing its ability to attract and retain a diverse population of employees.
Technological innovation and capabilities, including changes in product delivery systems and web-based tools, also continue to contribute to greater competition in domestic and international financial services markets and larger competitors may be able to allocate more resources to these technology initiatives. Human Capital Resources The Company’s culture is defined by its corporate values of integrity, creativity, teamwork, passion, and excellence.
Technological innovation and capabilities, including changes in product delivery systems and web-based tools, also continue to contribute to greater competition in domestic and international financial services markets and larger competitors may be able to allocate more resources to these technology initiatives. 12 Table of Contents Human Capital Resources The Company’s culture is defined by its corporate values of integrity, creativity, teamwork, passion, and excellence.
In addition, the grading of the Company's loan portfolio is reviewed on a regular basis by its internal Loan Review Department. Collection Procedure Bank personnel are responsible for monitoring activity that may indicate an increased risk rating, including, but not limited to, past-dues, overdrafts, and loan agreement covenant defaults.
In addition, the grading of the Company's loan portfolio is reviewed on a regular basis by its internal loan review department. Collection Procedure Bank personnel are responsible for monitoring activity that may indicate an increased risk rating, including, but not limited to, past-dues, overdrafts, and loan agreement covenant defaults related to its commercial borrowers.
WAL also has eight unconsolidated subsidiaries used as business trusts in connection with issuance of trust-preferred securities as described in "Note 12. Qualifying Debt" in Item 8 of this Form 10-K.
WAL also has eight unconsolidated subsidiaries used as business trusts in connection with issuance of trust-preferred securities as described in "Note 11. Qualifying Debt" in Item 8 of this Form 10-K.
In addition, the Company has the following non-bank subsidiaries: CSI, a captive insurance company formed and licensed under the laws of the State of Arizona and established as part of the Company's overall enterprise risk management strategy, and WATC, which will provide corporate trust services and levered loan administration solutions.
In addition, the Company has the following non-bank subsidiaries: CSI, a captive insurance company formed and licensed under the laws of the State of Arizona and established as part of the Company's overall enterprise risk management strategy and WATC, which provides corporate trust services and levered loan administration solutions.
In general, loans are placed on non-accrual status when the Company determines that ultimate collection of principal and interest is in doubt due to the borrower’s financial condition, collateral value, and collection efforts. In addition, the Company considers all loans rated Substandard or lower to be experiencing financial difficulty.
In general, loans are placed on non-accrual status when the Company determines ultimate collection of principal and interest is in doubt due to the borrower’s financial condition, collateral value, and collection efforts. In addition, the Company considers all loans rated Substandard or worse to be experiencing financial difficulty.
A summary description of the laws and regulations that relate to the Company’s operations are discussed in Item 7 of this Form 10-K. Additional Available Information The Company maintains an internet website at http://www.westernalliancebancorporation.com .
A summary description of the laws and regulations that relate to the Company’s operations are discussed in Supervision and Regulation within Item 7 of this Form 10-K. Additional Available Information The Company maintains an internet website at http://www.westernalliancebancorporation.com .
The CBDP is an 18-month, on-the-job development program to train successful credit analysts that offers progressive assignments, mentoring, opportunities to learn the business and various aspects of leadership, with the objective of developing future leaders of the Company.
The CBDP is an 18-month, on-the-job development program to train successful credit analysts that offers progressive assignments, 13 Table of Contents mentoring, opportunities to learn the business and various aspects of leadership, with the objective of developing future leaders of the Company.
Our people are committed to our clients’ success and, by putting clients first, we create strong shareholder performance. This leads to tremendous possibilities to fuel client growth and support the Company’s communities. The Company is deeply committed to giving back to the communities where it does business and strives to help low-to-moderate income geographies become healthier and more sustainable communities.
Our people are committed to our clients’ success and, by putting clients first, we create strong stockholder returns. This leads to tremendous possibilities to fuel client growth and support the Company’s communities. The Company is deeply committed to giving back to the communities where it does business and strives to help low-to-moderate income geographies become healthier and more sustainable communities.
To support these efforts, the Company has established Wellness Committees to engage its people in well-being initiatives that provide opportunities for employees to develop healthier lifestyles by promoting habits and attitudes that support wellness. Supervision and Regulation The Company and its subsidiaries are extensively regulated and supervised under both federal and state laws.
To support these efforts, 14 Table of Contents the Company has established Wellness Committees to engage its people in well-being initiatives that provide opportunities for employees to develop healthier lifestyles by promoting habits and attitudes that support wellness. Supervision and Regulation The Company and its subsidiaries are extensively regulated and supervised under both federal and state laws.
To foster this development, the Company has created three early talent identification programs, a college internship program, the CBDP, and iLead, the goal of each of which is to enhance management’s ability to promote pathways for growth of future leaders. Campus recruitment initiatives and partnerships also help expand the Company’s pipeline of talent.
To foster this development, the Company has created three early talent identification programs, a college internship program, the CBDP, and iLead, with the goal of each program being to enhance management’s ability to promote pathways for growth of future leaders. Campus recruitment initiatives and partnerships also help expand the Company’s pipeline of talent.
Bank Subsidiary At December 31, 2022, WAL has the following bank subsidiary: Bank Name Headquarters Location Cities Total Assets Net Loans Deposits (in millions) Western Alliance Bank Phoenix, Arizona Arizona: Chandler, Flagstaff, Gilbert, Mesa, Phoenix, Scottsdale, and Tucson $ 67,684 $ 52,737 $ 53,918 Nevada: Carson City, Fallon, Henderson, Las Vegas, Mesquite, Reno, and Sparks California: Beverly Hills, Carlsbad, Costa Mesa, Irvine, La Mesa, Los Angeles, Oakland, Pleasanton, San Diego, San Francisco, San Jose, and Woodland Hills Other: Atlanta, Georgia; Austin, Houston, and Irving, Texas; Boston, Massachusetts; Chicago, Illinois; Denver, Colorado; Minneapolis, Minnesota; New York, New York; Seattle, Washington; and Tysons, Virginia WAB also has the following significant wholly-owned subsidiaries: • WABT holds certain investment securities, municipal and non-profit loans, and leases. • WA PWI holds interests in certain limited partnerships invested primarily in low income housing tax credits and small business investment corporations. • BW Real Estate, Inc. operates as a real estate investment trust and holds certain of WAB's real estate loans and related securities. • Helios Prime, Inc. holds certain equity interests in renewable energy tax credit transactions. • Western Finance Company purchases and originates equipment finance leases and provides mortgage banking services through its wholly-owned subsidiary, AmeriHome. • DST provides digital payments services for the class action legal industry.
Bank Subsidiary At December 31, 2023, WAL has the following bank subsidiary: Bank Name Headquarters Location Cities Total Assets Net Loans Deposits (in millions) Western Alliance Bank Phoenix, Arizona Arizona: Chandler, Flagstaff, Gilbert, Mesa, Phoenix, Scottsdale, and Tucson $ 70,853 $ 51,362 $ 55,689 Nevada: Carson City, Fallon, Henderson, Las Vegas, Mesquite, Reno, and Sparks California: Beverly Hills, Carlsbad, Costa Mesa, Irvine, La Mesa, Los Angeles, Oakland, Pleasanton, San Diego, San Francisco, San Jose, and Woodland Hills Other: Atlanta, Georgia; Austin, Houston, and Irving, Texas; Boston, Massachusetts; Chicago, Illinois; Columbus, Ohio; Denver, Colorado; Minneapolis, Minnesota; New York, New York; Seattle, Washington; and Tysons, Virginia WAB has the following significant wholly-owned subsidiaries: • WABT holds certain investment securities, municipal and non-profit loans, and leases. • WA PWI holds interests in certain limited partnerships invested primarily in low income housing tax credits and small business investment corporations. • BW Real Estate, Inc. operates as a real estate investment trust and holds certain of WAB's real estate loans and related securities. • Helios Prime, Inc. holds certain equity interests in renewable energy tax credit transactions. • Western Finance Company purchases and originates equipment finance leases and provides mortgage banking services through its wholly-owned subsidiary, AmeriHome. • DST provides digital payments services for the class action legal industry.
For a detailed discussion of the Company’s methodology see “Management’s Discussion and Analysis and Financial Condition – Critical Accounting Policies – Allowance for Credit Losses” in Item 7 of this Form 10-K. Investment Activities The Company has an investment policy, which is approved by the BOD on an annual basis.
For a detailed discussion of the Company’s methodology see “Management’s Discussion and Analysis and Financial Condition – Critical Accounting Estimates – Allowance for Credit Losses” in Item 7 of this Form 10-K. 9 Table of Contents Investment Activities The Company has an investment policy, which is approved by the BOD on an annual basis.
Employees are encouraged to dedicate their time and expertise to charitable and civic organizations they are passionate about. In total, employees have volunteered more than 25,000 hours since 2020. The Company is also committed to providing financial support for education, affordable housing, and community development lending and investments.
Employees are encouraged to dedicate their time and expertise to charitable and civic organizations they are passionate about. In total, employees have volunteered more than 28,000 hours in 2023. The Company is also committed to providing financial support for education, affordable housing, and community development lending and investments.
The table below presents the Company's overall employee turnover rate: Year ended December 31, 2022 (1) 2021 2020 Turnover Rate 17 % 19 % 13 % (1) Excludes the impact of reductions in workforce during the period. For 2022 compared to 2021, the turnover rate decreased from 19% to 17%.
The table below presents the Company's overall employee turnover rate: Year ended December 31, 2023 (1) 2022 (1) 2021 Turnover Rate 14 % 17 % 19 % (1) Excludes the impact of reductions in workforce during the period. For 2023 compared to 2022, the turnover rate decreased from 17% to 14%.
Market Segments The Company's reportable segments are aggregated with a focus on products and services offered and consist of three reportable segments: • Commercial: provides commercial banking and treasury management products and services to small and middle-market businesses, specialized banking services to sophisticated commercial institutions and investors within niche industries, as well as financial services to the real estate industry. • Consumer Related: offers both commercial banking services to enterprises in consumer-related sectors and consumer banking services, such as residential mortgage banking and beginning on January 25, 2022, includes the financial results of DST, which provides digital payment services for the class action legal industry. 5 Table of Contents • Corporate & Other: consists of the Company's investment portfolio, Corporate borrowings and other related items, income and expense items not allocated to other reportable segments, and inter-segment eliminations.
Market Segments The Company's reportable segments are aggregated with a focus on products and services offered and consist of three reportable segments: • Commercial segment: provides commercial banking and treasury management products and services to small and middle-market businesses, specialized banking services to sophisticated commercial institutions and investors within niche industries, as well as financial services to the real estate industry. • Consumer Related segment: offers both commercial banking services to enterprises in consumer-related sectors and consumer banking services, such as residential mortgage banking. 5 Table of Contents • Corporate & Other: consists of the Company's investment portfolio, Corporate borrowings and other related items, income and expense items not allocated to other reportable segments, and inter-segment eliminations.
Loans deemed uncollectible are charged-off. Nonperforming Assets Nonperforming assets include loans past due 90 days or more and still accruing interest (that are not government guaranteed), non-accrual and TDR loans, and repossessed assets, including OREO.
Loans deemed uncollectible are charged-off. 8 Table of Contents Nonperforming Assets Nonperforming assets include loans past due 90 days or more and still accruing interest (that are not government guaranteed), non-accrual and accruing restructured loans, and repossessed assets, including OREO.
Owner occupied CRE loans are loans secured by owner occupied non-farm nonresidential properties for which the primary source of repayment (more than 50%) is the cash flow from the ongoing operations and activities conducted by the borrower who owns the property.
As of December 31, 2023 and 2022, 16% of the Company's CRE loans were owner occupied. Owner occupied CRE loans are loans secured by owner occupied non-farm nonresidential properties for which the primary source of repayment (more than 50%) is the cash flow from the ongoing operations and activities conducted by the borrower who owns the property.
CRE: Loans to fund the purchase or refinancing of CRE for investors (non-owner occupied) or owner occupants are a significant portion of the Company's loan portfolio. These CRE loans are secured by multi-family residential properties, professional offices, industrial facilities, retail centers, hotels, and other commercial properties.
CRE: Loans to fund the purchase or refinancing of CRE for investors (non-owner occupied) or owner occupants represent 23% and 21% of the Company's loan portfolio as of December 31, 2023 and 2022, respectively. These CRE loans are secured by multi-family residential properties, professional offices, industrial facilities, retail centers, hotels, and other commercial properties.
As of December 31, 2022, the Company employed 3,365 full-time equivalent employees in its branches and loan production offices across the United States, an increase of 7% from December 31, 2021 due to continued organic growth. The Company’s employees are not represented by a union or covered by a collective bargaining agreement.
As of December 31, 2023, the Company employed 3,260 full-time equivalent employees in its branches and loan production offices across the United States, a decrease of 3% from December 31, 2022. The Company’s employees are not represented by a union or covered by a collective bargaining agreement.
The following table sets forth the composition of the Company's HFI loan portfolio: December 31, 2022 2021 Amount Percent Amount Percent (dollars in millions) Commercial and industrial $ 20,710 39.9 % $ 18,297 46.8 % Commercial real estate - non-owner occupied 9,319 18.0 6,526 16.7 Commercial real estate - owner occupied 1,818 3.5 1,898 4.9 Construction and land development 4,013 7.7 3,023 7.7 Residential real estate 15,928 30.7 9,282 23.8 Consumer 74 0.2 49 0.1 Loans HFI, net of deferred loan fees and costs $ 51,862 100.0 % $ 39,075 100.0 % Allowance for credit losses (310) (252) Net loans HFI $ 51,552 $ 38,823 For additional information concerning loans, see "Note 5.
The following table sets forth the composition of the Company's HFI loan portfolio: December 31, 2023 2022 Amount Percent Amount Percent (dollars in millions) Commercial and industrial $ 19,103 38.0 % $ 20,710 39.9 % Commercial real estate - non-owner occupied 9,650 19.2 9,319 18.0 Commercial real estate - owner occupied 1,810 3.6 1,818 3.5 Construction and land development 4,889 9.7 4,013 7.7 Residential real estate 14,778 29.4 15,928 30.7 Consumer 67 0.1 74 0.2 Loans HFI, net of deferred loan fees and costs $ 50,297 100.0 % $ 51,862 100.0 % Allowance for credit losses (337) (310) Net loans HFI $ 49,960 $ 51,552 For additional information regarding loans, see "Note 4.
In both 2022 and 2021, the Company's turnover rate was highest among employees in the Under 30 age group, as shown in the table below.
In 2023, 2022 and 2021, the Company's turnover rate was highest among employees in the Under 30 age group.
Year ended December 31, Turnover Rate by Age Group 2022 2021 Under 30 27 % 27 % Between 30-50 15 19 Over 50 15 16 The Company also offers a variety of resources to help its employees grow in their current roles and build new skills, including online development programs and workshops, mentoring programs, and internal webinars that feature speakers from across the Company, sharing information about and success in their business line, division, or functional area.
The Company also offers a variety of resources to help its employees grow in their current roles and build new skills, including online development programs and workshops, mentoring programs, and internal webinars that feature speakers from across the Company, sharing information about and success in their business line, division, or functional area.
The first five are considered satisfactory "pass" ratings. The other four "non-pass" grades range from a “Special mention” category to a “Loss” category and are consistent with the grading systems used by federal banking regulators.
Asset Quality General To measure asset quality, the Company has instituted a loan grading system consisting of nine different categories. The first five are considered satisfactory "pass" ratings. The other four "non-pass" grades range from a “Special mention” category to a “Loss” category and are consistent with the grading systems used by federal banking regulators.
Neither the Company nor any of its reportable segments have customer relationships that individually account for 10% or more of consolidated or segment revenues. No material portion of the Company’s business is seasonal.
The Company is not dependent upon any single or limited number of customers, the loss of which would have a material adverse effect on the Company. Neither the Company nor any of its reportable segments have customer relationships that individually account for 10% or more of consolidated or segment revenues. No material portion of the Company’s business is seasonal.
One aspect of this work is the active support of Business Resource Groups focused on the career advancement of diverse groups within the Company, such as women, minority groups, and LGBTQIA+ employees.
One aspect of this work is the active support of Business Resource Groups focused on the career advancement of diverse groups within the Company, such as women, minority groups, and LGBTQIA+ employees. These groups foster opportunities to engage in programs, network with peers, and connect with Bank leadership.
A loan grade of "Special Mention" from the Company's internal loan grading system is utilized to identify potential problem assets and loan grades of "Substandard," "Doubtful," and "Loss" are utilized to identify actual problem assets.
In addition, in connection with their examinations of the Bank, examiners have authority to identify problem assets and, if appropriate, re-classify them. A loan grade of "Special Mention" from the Company's internal loan grading system is utilized to identify potential problem assets and loan grades of "Substandard," "Doubtful," and "Loss" are utilized to identify actual problem assets.
Non-conforming loan purchases are considered to be high quality as the borrowers have high FICO scores and the loans generally have low loan-to-values. Consumer: Limited types of consumer loans are offered to meet customer demand and to respond to community needs.
These loan purchases consist of both conforming and non-conforming loans. Non-conforming loan purchases are considered to be high quality as the borrowers have high FICO scores and the loans generally have low loan-to-values.
These groups foster opportunities to engage in programs, network with peers, and connect with Bank leadership. 12 Table of Contents The Company employs a diverse workforce that reflects its communities, which is shown in the Company's ethnic and gender diversity metrics presented in the table below: December 31, 2022 2021 2020 (as a percentage of total employees) Employees belonging to an ethnic minority group 43 % 44 % 38 % Female employees 52 55 58 Of the employees that are women, 44% occupy roles that involve supervising and managing other employees as of December 31, 2022, compared to 47% in the prior year.
The Company employs a diverse workforce that reflects its communities, which is shown in the Company's ethnic and gender diversity metrics presented in the table below: December 31, 2023 2022 2021 (as a percentage of total employees) Employees belonging to an ethnic minority group 44 % 43 % 44 % Female employees 51 52 55 As of December 31, 2023, 43% of employees that occupied roles involving supervision and management of other employees were women, compared to 44% in the prior year.
The following table summarizes the carrying value of the Company's investment securities: December 31, 2022 2021 Amount Percent Amount Percent (dollars in millions) Debt securities CLO $ 2,706 31.7 % $ 926 12.4 % Commercial MBS issued by GSEs 97 1.1 69 1.0 Corporate debt securities 390 4.6 383 5.1 Private label residential MBS 1,397 16.3 1,725 23.1 Residential MBS issued by GSEs 1,740 20.4 1,993 26.8 Tax-exempt 1,982 23.2 2,105 28.2 U.S. treasury securities — — 13 0.2 Other 69 0.8 82 1.1 Total debt securities $ 8,381 98.1 % $ 7,296 97.9 % Equity securities Common stock $ 3 0.0 % $ — — % CRA investments 49 0.6 45 0.6 Preferred stock 108 1.3 114 1.5 Total equity securities $ 160 1.9 % $ 159 2.1 % Total investment securities $ 8,541 100.0 % $ 7,455 100.0 % As of December 31, 2022 and 2021, the Company had investments in BOLI of $182 million and $180 million, respectively.
Treasury securities $ 4,853 38.2 % $ — — % Tax-exempt 2,101 16.5 1,982 23.2 Residential MBS issued by GSEs 1,972 15.5 1,740 20.4 CLO 1,399 11.0 2,706 31.7 Private label residential MBS 1,303 10.2 1,397 16.3 Commercial MBS issued by GSEs 530 4.2 97 1.1 Corporate debt securities 367 2.9 390 4.6 Other 69 0.5 69 0.8 Total debt securities $ 12,594 99.0 % $ 8,381 98.1 % Equity securities Preferred stock $ 100 0.8 % $ 108 1.3 % CRA investments 26 0.2 49 0.6 Common stock — — 3 — Total equity securities $ 126 1.0 % $ 160 1.9 % Total investment securities $ 12,720 100.0 % $ 8,541 100.0 % As of December 31, 2023 and 2022, the Company also held investments in BOLI of $186 million and $182 million, respectively.
Set forth below are the primary segmentation limits and actual measures based on outstanding amounts as of December 31, 2022: Percent of Tier 1 Capital and ACL Policy Limit Actual Loans HFI CRE 295 % 193 % Commercial and industrial 485 359 Construction and land development 85 70 Residential real estate 300 276 Consumer 10 1 Loans HFS Residential real estate 215 21 Asset Quality General To measure asset quality, the Company has instituted a loan grading system consisting of nine different categories.
Set forth below are the primary segmentation limits and actual measures based on outstanding amounts as of December 31, 2023: Percent of Tier 1 Capital and ACL (1) Policy Limit Actual Loans HFI CRE 295 % 180 % Commercial and industrial 485 299 Construction and land development 85 77 Residential real estate 300 232 Consumer 10 1 Loans HFS Residential real estate 215 22 (1) ACL refers to the allowance for credit losses on funded loans.
As a growing company, recruiting new talent to the organization is key to the Company’s success and part of that objective includes building a diverse workforce that is representative of the communities that the Company serves.
As a growing company, recruiting new talent to the organization is key to the Company’s success and part of that objective includes building a diverse workforce that is representative of the communities the Company serves. In 2023, 47% of WAB’s open positions were filled by external candidates belonging to an ethnic minority group compared to 48% in 2022.
The SLC is chaired by the WAB CCO and includes the Company’s CEO. 7 Table of Contents Loans to One Borrower. In addition to the limits set forth above, subject to certain exceptions, state banking laws generally limit the amount of funds that a bank may lend to a single borrower.
In addition to the limits set forth below, subject to certain exceptions, state banking laws generally limit the amount of funds a bank may lend to a single borrower.
Other Financial Products and Services In addition to traditional commercial banking activities, the Company offers other financial services to its customers, including internet banking, wire transfers, electronic bill payment and presentment, 24/7 funds transfer and other digital payment offerings, lock box services, courier, and cash management services. 11 Table of Contents Customer, Product, and Geographic Concentrations Commercial and industrial loans make up 40% and 47% of the Company's HFI loan portfolio as of December 31, 2022 and 2021, respectively.
Other Financial Products and Services In addition to traditional commercial banking activities, the Company offers other financial services to its customers, including internet banking, wire transfers, electronic bill payment and presentment, funds transfer and other digital payment offerings, lock box services, courier, and cash management services.
The below table presents the ethnic and gender diversity metrics for the Company's BOD: December 31, 2022 2021 (as a percentage of total directors) Directors belonging to an ethnic minority group 21 % 15 % Female directors 21 15 The Company remains committed to increasing the share of women and minority groups in the ranks of its leadership and BOD.
The below table presents the ethnic and gender diversity metrics for the Company's BOD: December 31, 2023 2022 2021 (as a percentage of total directors) Directors belonging to an ethnic minority group 15 % 21 % 15 % Female directors 15 21 15 Recruiting, Retention, and Talent Development The Company recognizes its success is highly dependent on its ability to attract, retain and develop employees.
The Company has historically focused on growing its lower cost core customer deposits. As of December 31, 2022, the deposit portfolio was comprised of 37% non-interest-bearing deposits and 63% interest-bearing deposits. The competition for deposits in the Company's markets is strong.
As of December 31, 2023, the deposit portfolio was comprised of 26% non-interest-bearing deposits and 74% interest-bearing deposits. The competition for deposits in the Company's markets is strong.
As of December 31, 2022, the Company's investment securities portfolio totals $8.5 billion, representing approximately 13% of the Company's total assets, with a significant portion of the portfolio invested in AAA/AA+ rated securities. The average duration, which is a measure of the interest rate sensitivity of the Company's debt securities portfolio, is 5.5 years as of December 31, 2022.
As of December 31, 2023, the Company's investment securities portfolio totaled $12.7 billion, representing approximately 18% of the Company's total assets, with a significant portion of the portfolio invested in AAA/AA+ rated securities.
In addition, conservative underwriting focused on loan-to-cost lending with significant up-front sponsor cash equity, re-appraisal rights by the Company, re-margining requirements and ongoing debt service and debt yield covenants mitigates asset-type credit risk and provides for ongoing sponsor support of and commitment to projects.
In addition to adhering to conservative underwriting standards, asset-specific credit risk is mitigated through continued sponsor support of projects by re-appraisal rights by the Company, re-margining requirements and ongoing debt service, and debt yield covenants.
During 2022, the Company’s residential mortgage banking workforce was reduced to align with lower residential mortgage loan production volumes compared to 2021, which was driven by rising interest rates throughout 2022.
During 2023, the Company’s workforce was reduced in conjunction with the Company's balance sheet repositioning efforts to align with current business initiatives. This reduction represented 4% of the Company’s 2023 average employees. For 2022, the Company’s residential mortgage banking workforce was reduced to align with lower residential mortgage loan production volumes, which was driven by rising interest rates through 2022.
These loans are primarily originated to experienced local and national developers with whom the Company has a satisfactory lending history. An analysis of each construction project is performed as part of the underwriting process to determine whether the type of property, location, construction costs, and contingency funds are appropriate and adequate.
An analysis of each construction project is performed as part of the underwriting process to determine whether the type of property, location, construction costs, and contingency funds are appropriate and adequate. Loans to finance commercial raw land are primarily to borrowers who plan to initiate active development of the property within two years.
The Company also provides an array of specialized financial services to business customers across the country, including mortgage banking services through AmeriHome, and has added to its capabilities with the acquisition of DST on January 25, 2022, which provides digital payment services for the class action legal industry.
WAB operates the following full-service banking divisions: ABA, BON and FIB, Bridge, and TPB. The Company also provides an array of specialized financial services to business customers across the country, including mortgage banking services through AmeriHome, treasury management services to the homeowner's association sector, and digital payment services for the class action legal industry.
As a matter of longstanding practice, the Arizona Department of Financial Institutions uses the same aggregation analysis as applied to national banks by the OCC. Concentrations of Credit Risk. The Company's lending policies also establish customer and product concentration limits for its HFI and HFS loan portfolios, which are based on outstanding amounts, to control single customer and product exposures.
The Company's lending policies also establish customer and product concentration limits for its HFI and HFS loan portfolios, which are based on outstanding amounts, to control single customer and product exposures. The Company's lending policies have several different measures to limit concentration exposures.
All investment transactions for the Bank and for the holding company were reviewed by the ALCO and BOD. 9 Table of Contents The Company's investment policy limits new securities purchases to certain eligible investment types and, in the aggregate, are further subject to the following quantitative limits of the Bank: Securities Category Basis Limit Policy Limit Actual Collateralized loan obligations Total assets 5.0 % 4.1 % Commercial mortgage-backed securities Total assets 1.0 — Corporate debt securities Total assets 2.5 0.6 Investment grade corporate bond mutual funds Tier 1 capital 5.0 — Preferred stock Common equity tier 1 10.0 2.0 Tax-exempt low income housing development bonds Total capital 30.0 17.4 Tax-exempt municipal securities Total assets 5.0 1.4 The Company's policies also govern the use of derivatives, and provide that the Company prudently use derivatives in accordance with applicable regulations as a risk management tool to reduce the overall exposure to interest rate risk, and not for speculative purposes.
The Company's investment policy limits new securities purchases to certain eligible investment types and, in the aggregate, are further subject to the following quantitative limits of the Bank, which are calculated as a percent of CET1, as of December 31, 2023: Securities Category Policy Limit Actual Held-to-maturity Tax-exempt low income housing development bonds 35.0 % 20.0 % Available-for-sale debt and equity securities CLO 40.0 22.6 Corporate debt securities 10.0 6.6 High quality liquid assets: Non‐GNMA 80.0 39.8 GNMA 65.0 6.1 Private label residential MBS 30.0 21.2 Municipal securities and tax-exempt low income housing development bonds (AFS) 20.0 15.2 US treasuries (with maturities less than 1 year) No limit 65.8 US treasuries & agency notes (with maturities greater than 1 year) 50.0 12.1 CRA 5.0 1.1 Preferred stock 5.0 1.7 The Company's policies also govern the use of derivatives, and provide that the Company prudently use derivatives in accordance with applicable regulations as a risk management tool to reduce the overall exposure to interest rate risk, and not for speculative purposes.
Substantially all of the Company's remaining CRE loans are secured by first liens with an initial loan-to-value ratio of generally not more than 75%. As of December 31, 2022 and 2021, 16% and 23% of the Company's CRE loans were owner occupied.
To a large extent, the financing structures of these loans do not carry junior liens or mezzanine debt, which enables maximum flexibility when working with clients and sponsors. Substantially all of the Company's remaining CRE loans are secured by first liens with an initial loan-to-value ratio of generally not more than 75%.
These loans include working capital lines of credit, loans to technology companies, inventory and accounts receivable lines, mortgage warehouse lines, and other commercial loans. Equipment loans and leases, tax-exempt municipalities, and not-for-profit organizations are also categorized as commercial and industrial loans.
Commercial and Industrial: Commercial and industrial loans comprise 38% and 40% of the Company's HFI loan portfolio as of December 31, 2023 and 2022, respectively. These loans include working capital lines of credit, loans to technology companies, inventory and accounts receivable lines, mortgage warehouse lines, and other commercial loans.
Approximately 16% and 13% of the Company's CRE investor portfolio consisted of office loans as of December 31, 2022 and 2021, respectively. These office loans are primarily shorter-term bridge loans that enable borrowers to reposition or redevelop projects and are geographically well diversified, with the vast majority located in midtown or suburban locations.
These office loans primarily consist of shorter-term bridge loans that enable borrowers to reposition or redevelop projects with more modern standards attractive to in-office employers in today’s environment, including enhanced on-site amenities. The vast majority of these projects are located in suburban locations with central business district and midtown exposure totaling approximately 2% and 10% of office loans, respectively.
Non-owner occupied CRE loans are CRE loans for which the primary source of repayment is rental income generated from the collateral property. Construction and Land Development: Construction and land development loans include single family and multi-family residential projects, industrial/warehouse properties, office buildings, retail centers, medical office facilities, and residential lot developments.
Non-owner occupied CRE loans are CRE loans for which the primary source of repayment is rental income generated from the collateral property. Construction and Land Development: Construction and land development loans comprise 10% and 8% of the Company's loan portfolio as of December 31, 2023 and 2022, respectively.
Any difference in the corporate tax rate and the aggregate effective tax rates in the segments are adjusted in the Corporate & Other segment. Lending Activities General The Company’s lending has focused primarily on meeting the needs of business customers.
Any difference in the corporate tax rate and the aggregate effective tax rates in the segments are adjusted in the Corporate & Other segment. Lending Activities General Through WAB and its banking divisions and operating subsidiaries, the Company provides a variety of lending products to customers, including the loan types discussed below.
In addition, 29% of the Company's loan portfolio at December 31, 2022 and 2021 was represented by CRE and construction and land development loans. The Company’s CRE business is concentrated primarily in the Phoenix, Las Vegas, Los Angeles, Reno, San Francisco, San Jose, San Diego and Tucson metropolitan areas.
In addition, 33% and 29% of the Company's HFI loan portfolio at December 31, 2023 and 2022, respectively, was represented by CRE and construction and land development loans. The Company’s CRE business is concentrated primarily in the Company's core footprint states: Arizona, California, and Nevada. Consequently, the Company is dependent on the trends of these regional economies.
The CFO and Treasurer have the authority to purchase and sell securities within specified guidelines.
The CFO and Treasurer have the authority to purchase and sell securities within specified guidelines. All investment transactions for the Bank and for the holding company during the year ended December 31, 2023 were reviewed by the ALCO and BOD.
For additional information concerning investments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Investments” in Item 7 of this Form 10-K. 10 Table of Contents Deposit Products The Company offers a variety of deposit products, including demand deposits, checking accounts, savings accounts, money market accounts, and other types of deposit accounts, including fixed-rate, fixed maturity certificates of deposit.
BOLI is used to help offset employee benefit costs. For additional information concerning investments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations and Financial Condition – Investments” in Item 7 of this Form 10-K.
However, losses may be experienced in future periods. 8 Table of Contents Criticized Assets Federal bank regulators require banks to classify its assets on a regular basis. In addition, in connection with their examinations of the Bank, examiners have authority to identify problem assets and, if appropriate, re-classify them.
The total net realized and unrealized gains and losses on repossessed and other assets was not significant during each of the years ended December 31, 2023, 2022, and 2021. However, losses may be experienced in future periods. Criticized Assets Federal bank regulators require banks to classify their assets on a regular basis.
The Company generally re-appraises OREO and collateral dependent non-residential loans with balances greater than $0.5 million every 12 months. The total net realized and unrealized gains and losses of repossessed and other assets was not significant during each of the years ended December 31, 2022, 2021, and 2020.
A restructured loan is a loan modification for a borrower experiencing financial difficulty. Other repossessed assets result from loans where the Company has received title or physical possession of the borrower’s assets. The Company generally re-appraises OREO and collateral dependent non-residential loans with balances greater than $0.5 million every 12 months.
Examples of these consumer loans include home equity loans and lines of credit, home improvement loans, personal lines of credit, and loans to individuals for investment purposes. At December 31, 2022, the Company's HFI loan portfolio totaled $51.9 billion, or approximately 77% of total assets.
Consumer: Limited types of consumer loans are offered to meet customer demand and to respond to community needs. Examples of these consumer loans include home equity loans and lines of credit, home improvement loans, personal lines of credit, and loans to individuals for investment purposes.
Loans to finance commercial raw land are primarily to borrowers who plan to initiate active development of the property within two years. 6 Table of Contents Residential: The Company executes flow and bulk residential loan purchases that meet the Company's goals and underwriting criteria through its residential mortgage acquisition program. These loan purchases consist of both conforming and non-conforming loans.
Equipment loans and leases, tax-exempt municipalities, and not-for-profit organizations are also categorized as commercial and industrial loans. Residential: Residential loans comprise 29% and 31% of the Company's loan portfolio as of December 31, 2023 and 2022, respectively. The Company executes flow and bulk residential loan purchases that meet the Company's goals and underwriting criteria through its residential mortgage acquisition program.
Removed
WAB operates the following full-service banking divisions: ABA, BON, Bridge, FIB, and TPB.
Added
Approximately $2.4 billion, or 4.7%, of total loans HFI consisted of CRE non-owner occupied office loans as of December 31, 2023, compared to $2.4 billion, or 4.6%, as of December 31, 2022.
Removed
Through WAB and its banking divisions and operating subsidiaries, the Company provides a variety of lending products to customers, including the loan types discussed below. Commercial and Industrial: Commercial and industrial loans are a significant portion of the Company's loan portfolio, representing 40% and 47% of the Company's HFI loan portfolio as of December 31, 2022 and 2021, respectively.
Added
The office loan portfolio largely consists of value-add loans that require significant up-front cash equity contributions from institutional sponsors and large regional and national developers. The properties underlying these loans have stable business trends and low vacancy rates.
Removed
At the time of origination, these loans have an initial loan-to-value ratio of less than 55% and a weighted average loan-to-cost of less than 60%. The properties underlying these loans have stable business trends and low vacancy rates.
Added
This portfolio includes single family and multi-family residential 6 Table of Contents projects, industrial/warehouse properties, office buildings, retail centers, medical office facilities, and residential lot developments. These loans are primarily originated to experienced local and national developers with whom the Company has a satisfactory lending history.
Removed
The Company's lending policies have several different measures to limit concentration exposures.
Added
At December 31, 2023, the Company's HFI loan portfolio totaled $50.3 billion, or approximately 71% of total assets.
Removed
A TDR loan is a loan for which the Company, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. Other repossessed assets result from loans where the Company has received title or physical possession of the borrower’s assets.
Added
The SLC is chaired by the WAB CCO and includes the Company’s CEO. 7 Table of Contents Management and monitoring of credit risk for the Company's overall lending portfolio continues to be a high priority.
Removed
BOLI is used to help offset employee benefit costs.
Added
As elevated focus on the evolving industry dynamics facing the CRE market have emerged during the year, the Company has been proactive in establishing enhanced monitoring policies and procedures as it relates to its CRE loans and has undertaken actions to limit growth of its CRE portfolio.
Removed
The Bank considers a number of factors when determining deposit rates, including: • current and projected national and local economic conditions and the outlook for interest rates; • competition from other institutions; • loan and deposit positions and forecasts, including any concentrations in either; and • alternative borrowing costs from the FHLB or other sources.
Added
To this end, and to drive consistency in underwriting, portfolio management, and loan monitoring metrics, in January 2024, the Company aligned its loan committee structures to a product focus, creating new CRE and C&I loan committees, which is a shift away from its former divisional or NBL focused loan committees.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

94 edited+31 added−17 removed115 unchanged
Biggest changeThese factors include: • actual or anticipated changes in the political climate or public policy; • sales of our equity securities; • our financial condition, performance, creditworthiness, and prospects; • quarterly variations in our operating results or the quality of our assets; • operating results that vary from the expectations of management, securities analysts, and investors; • changes in expectations as to our future financial performance; • announcements of strategic developments, acquisitions, and other material events by us or our competitors; • the operating and securities price performance of other companies that investors believe are comparable to us; • the credit, mortgage, and housing markets, the markets for securities relating to mortgages or housing, and developments with respect to financial institutions generally; • changes in interest rates and the slope of the yield curve; • changes in national and global financial markets and economies and general market conditions, such as interest or foreign exchange rates, inflation, stock, commodity or real estate valuations or volatility and other global, geopolitical, 26 Table of Contents regulatory or judicial events that effect the financial markets and economy including pandemics, terrorism and war, including the military conflict between Russia and the Ukraine; and • our past and future dividend and share repurchase practices.
Biggest changeOther factors that may cause fluctuations in our stock price include: • actual or anticipated changes in the political climate or public policy; • changes in national and global financial markets and economies and general market conditions, such as interest or foreign exchange rates, inflation, stock, commodity or real estate valuations or volatility and other global, geopolitical, regulatory or judicial events that effect the financial markets and economy including pandemics, terrorism and war, including the military conflicts in Ukraine and the Middle East; • sales of our equity securities; • our financial condition, performance, creditworthiness, and prospects; • quarterly variations in our operating results or the quality of our assets; • operating results that vary from the expectations of management, securities analysts, and investors; • changes in expectations as to our future financial performance; • announcements of strategic developments, acquisitions, and other material events by us or our competitors; • the operating and securities price performance of other companies that investors believe are comparable to us; • the credit, mortgage, and housing markets, the markets for securities relating to mortgages or housing, and developments with respect to financial institutions generally; • changes in interest rates and the slope of the yield curve; • events affecting the financial services industry generally or financial institutions similar to us or that may be viewed as similar to us; and • our past and future dividend and share repurchase practices.
A worsening of business and economic conditions generally or specifically in the principal markets in which we conduct business could have adverse effects, including the following: • a decrease in deposit balances or the demand for loans and other products and services we offer; • an increase in the number of borrowers who become delinquent, file for protection under bankruptcy laws or default on their loans or other obligations to us, which could lead to higher levels of nonperforming assets, net charge-offs, and provisions for credit losses; • a decrease in the value of loans and other assets or in the value of collateral; • a decrease in net interest income from our lending and deposit gathering activities; • an impairment of certain intangible assets such as goodwill; and • an increase in competition resulting from increasing consolidation within the financial services industry; and • an increase in borrowing costs in excess of changes in the rate at which we reinvest funds.
A worsening of business and economic conditions generally or specifically in the principal markets in which we conduct business could have adverse effects, including the following: • a decrease in deposit balances or the demand for loans and other products and services we offer; • an increase in the number of borrowers who become delinquent, file for protection under bankruptcy laws or default on their loans or other obligations to us, which could lead to higher levels of nonperforming assets, net charge-offs, and provisions for credit losses; • a decrease in the value of loans and other assets or in the value of collateral; • a decrease in net interest income from our lending and deposit gathering activities; • an impairment of certain intangible assets such as goodwill; • an increase in competition resulting from increasing consolidation within the financial services industry; and • an increase in borrowing costs in excess of changes in the rate at which we reinvest funds.
Most of our assets and liabilities reprice with changes in interest rates, which subjects us to significant risks from changes in interest rates and can impact our net interest income, mortgage banking revenues, the valuation of our assets and liabilities, and our ability to effectively manage our interest rate risk.
Most of our assets and liabilities reprice with changes in interest rates, which subjects us to significant risks from changes in interest rates and can impact our net interest income, mortgage banking revenues, the valuation of our assets and liabilities, and our ability to effectively manage interest rate risk.
We derive a significant amount of our revenue from net interest income and, therefore, our net income depends heavily on our net interest margin. Net interest margin is the difference between the interest we receive on loans, securities, and other earning assets and the interest we pay on interest-bearing deposits, borrowings, and other liabilities.
We derive a significant amount of revenue from net interest income and, therefore, our net income depends heavily on net interest margin. Net interest margin is the difference between the interest we receive on loans, securities, and other earning assets and the interest we pay on interest-bearing deposits, borrowings, and other liabilities.
In addition, with the exception of residential loans, we individually evaluate all loans identified as problem loans with a total commitment of $1.0 million or more, and establish an allowance based upon our estimation of the potential loss associated with those problem loans. Additions to the ACL recorded through our provision for credit losses decrease our net income.
In addition, with the exception of residential loans, we individually evaluate all loans identified as problem loans with a total commitment of $1.0 million or more, and establish an allowance based upon our estimation of the potential loss associated with those problem loans. Additions to the ACL recorded through provision for credit losses decrease our net income.
Investor advocacy groups, investment funds, and influential investors are increasingly focused on these practices, especially as they relate to climate risk, hiring practices, the diversity of the workforce, and racial and social justice issues.
Investor advocacy groups, investment funds, and influential investors are increasingly focused on these practices, especially as they relate to climate risk, hiring practices, diversity of the workforce, and racial and social justice issues.
These professionals bring with them valuable knowledge, specialized skills and expertise, customer relationships and in some cases extensive ties within markets upon which our competitive strategy is based, and have been an integral part of our ability to attract deposits and to expand our market share.
These professionals bring with them valuable knowledge, specialized skills and expertise, customer relationships and in some cases extensive ties within markets upon which our competitive strategy is based, and have been an integral part of our ability to attract deposits and to expand market share.
We also could be required to raise additional capital, dispose of certain assets and liabilities within a prescribed period of time, or both.
We also could be required to raise additional capital, dispose of certain assets and liabilities, or both, within a prescribed period of time.
These rules require that financial institutions develop, implement, and maintain a written, comprehensive information security program containing safeguards that are appropriate to the financial institution’s size and complexity, the nature and scope of the financial institution’s activities, and the sensitivity of any customer information at issue.
These rules require financial institutions to develop, implement, and maintain a written, comprehensive information security program containing safeguards that are appropriate to the financial institution’s size and complexity, the nature and scope of the financial institution’s activities, and the sensitivity of any customer information at issue.
We have paid regular quarterly dividends on our common stock since the third quarter of 2019, subject to quarterly declarations by the BOD, and also have paid dividends on our depositary shares representing our preferred stock since the issuance of such securities in the third quarter of 2021.
We have paid regular quarterly dividends on our common stock since the third quarter of 2019, subject to quarterly declarations by the BOD, and have also paid dividends on our depositary shares representing our preferred stock since the issuance of such securities in the third quarter of 2021.
While these wildfires have not significantly damaged our own properties, it is possible that our borrowers may experience losses in the future, which may materially impair their ability to meet the terms of their obligations. California and the southwestern United States are also prone to other natural disasters, including, but not limited to, drought, earthquakes, flooding, and mudslides.
While these wildfires have not significantly damaged our own properties, it is possible our borrowers may experience losses in the future, which may materially impair their ability to meet the terms of their obligations. California and the southwestern United States are also prone to other natural disasters, including, but not limited to, drought, earthquakes, flooding, and mudslides.
Therefore, any increases or decreases in the fair value of these financial instruments have a corresponding impact on reported earnings or AOCI. Fair value can be affected by a variety of factors, many of which are beyond our control, including credit spreads, interest rate volatility, liquidity, and other economic factors.
Therefore, any increases or decreases in the fair value of these financial instruments will have a corresponding impact on reported earnings or AOCI. Fair value can be affected by a variety of factors, many of which are beyond our control, including credit spreads, interest rate volatility, liquidity, and other economic factors.
Our financial instruments expose us to certain market risks and may increase the volatility of earnings and AOCI. We hold certain financial instruments measured at fair value. For those financial instruments measured at fair value, we are required to recognize the changes in the fair value of such instruments in either earnings or AOCI each quarter.
Our financial instruments expose us to certain market risks and may increase the volatility of earnings and AOCI. We hold certain financial instruments measured at fair value. For those financial instruments measured at fair value, we are required to recognize changes in fair value in either earnings or AOCI each quarter.
In addition, market acceptance of digital payments products and services is subject to significant uncertainty. As such, there can be no assurance that digital payments products and services we offer and the technologies we have chosen to implement will be accepted and desired by customers.
In addition, market acceptance of digital payments products and services is subject to significant uncertainty. As such, there can be no assurance the digital payments products and services we offer and the technologies we have chosen to implement will be accepted and desired by customers.
We could be harmed if our succession planning is inadequate to mitigate the loss of key members of our senior management team. We believe that our senior management team has contributed greatly to our performance. In addition, we from time to time experience retirements and other changes to our senior management team.
We could be harmed if our succession planning is inadequate to mitigate the loss of key members of our senior management team. We believe our senior management team has contributed greatly to our performance. In addition, we from time to time experience retirements and other changes to our senior management team.
We expect that competition for suitable acquisition candidates may be significant. We may compete with other banks or financial service companies with similar acquisition strategies, many of which are larger and have greater financial and other resources.
We expect competition for suitable acquisition candidates may be significant. We may compete with other banks or financial service companies with similar acquisition strategies, many of which are larger and have greater financial and other resources.
Like previous acquisitions by us such as the acquisition of AmeriHome in 2021 and DST in 2022, any future acquisitions will be accompanied by risks commonly encountered in such transactions, including, among other things: • time and expense incurred while identifying, evaluating and negotiating potential acquisitions and transactions; • difficulty in accurately estimating the value of target companies or assets and in evaluating their credit, operations, management, and market risks; • potential payment of a premium over book and market values that may cause dilution of our tangible book value or earnings per share; • exposure to unknown or contingent liabilities of the target company; • potential exposure to asset quality issues of the target company; • difficulty of integrating the operations and personnel; • potential disruption of our ongoing business; • failure to retain key personnel at the acquired business; 19 Table of Contents • inability of our management to maximize our financial and strategic position by the successful implementation of uniform product offerings and the incorporation of uniform technology into our product offerings and control systems; and • failure to realize any expected revenue increases, cost savings, and other projected benefits from an acquisition.
Like previous acquisitions by us such as the acquisition of AmeriHome in 2021 and DST in 2022, any future acquisitions will be accompanied by risks commonly encountered in such transactions, including, among other things: • time and expense incurred while identifying, evaluating and negotiating potential acquisitions and transactions; • difficulty in accurately estimating the value of target companies or assets and in evaluating their credit, operations, management, and market risks; • potential payment of a premium over book and market values that may cause dilution of our tangible book value or earnings per share; • exposure to unknown or contingent liabilities of the target company; • potential exposure to asset quality issues of the target company; • difficulty of integrating the operations and personnel; • potential disruption of our ongoing business; • failure to retain key personnel of the acquired business; • inability of our management to maximize our financial and strategic position by the successful implementation of uniform product offerings and the incorporation of uniform technology into our product offerings and control systems; and • failure to realize any expected revenue increases, cost savings, and other projected benefits from an acquisition.
Intended to protect customers, depositors, and the DIF, these laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on the business activities in which we can engage, require monitoring and reporting of suspicious activity and of customers who are perceived to present a heightened risk of money laundering or other illegal activity, limit the dividends or distributions that WAB can pay to WAL or that we can pay to our stockholders, restrict the ability of affiliates to guarantee our debt, impose certain specific accounting requirements on us that may be more restrictive and result in greater or earlier charges to earnings or reductions in our capital than does GAAP, among other things.
Intended to protect customers, depositors, and the DIF, these laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on the business activities in which we can engage, require monitoring and reporting of suspicious activity and of customers who are perceived to present a heightened risk of money laundering or other illegal activity, limit the dividends or distributions that WAB can pay to WAL or that we can pay to our stockholders, restrict the ability of affiliates to guarantee our debt, impose certain specific accounting requirements on us that may be more restrictive and result in greater or earlier charges to earnings or reductions in our capital than prescribed by GAAP, among other things.
In addition, we may be required to record additional loan provisions or increase our ACL based on new information regarding existing loans, input from regulators in connection with their review of our loan portfolio, changes in regulatory guidance, regulations or accounting standards, identification of additional problem loans, changes in economic outlook, and other factors, both within and outside of our management’s control.
We may also be required to record additional loan provisions or increase our ACL based on new information regarding existing loans, input from regulators in connection with their review of our loan portfolio, changes in regulatory guidance, regulations or accounting standards, identification of additional problem loans, changes in economic outlook, and other factors, both within and outside of our management’s control.
To the extent we continue to grow and become more complex, regulatory oversight and risk and the cost of compliance will likely increase, which may adversely affect us.
To the extent we continue to grow and become more complex, regulatory oversight, risk management, and the cost of compliance will likely increase, which may adversely affect us.
We expect that new technologies will continue to emerge and may be superior to or render obsolete the technologies currently used in our products and services.
We expect new technologies will continue to emerge and may be superior to or render obsolete the technologies currently used in our products and services.
The specific impact on us of unfavorable or uncertain economic or market conditions is difficult to predict, could be long or short term, and may be indirect, such as disruptions in our customers' supply chain or a reduction in the demand for their products or services.
The specific impact on us of unfavorable or uncertain economic or market conditions is difficult to predict, could be long or short term, and may be indirect, such as disruptions in our customers' supply chains or a reduction in the demand for their products or services.
We may from time to time issue debt securities, borrow money through other means, or issue preferred stock. We may also borrow money from the FRB, the FHLB, other financial institutions, and other lenders. At December 31, 2022, we had outstanding subordinated debt, senior secured and unsecured debt, and short-term borrowings.
We may from time to time issue debt securities, borrow money through other means, or issue preferred stock. We may also borrow money from the FRB, the FHLB, other financial institutions, and other lenders. At December 31, 2023, we had outstanding subordinated debt, senior secured and unsecured debt, and short-term borrowings.
Lower interest rates are usually associated with higher loan originations, but also result in higher loan refinancings which can result in lower average loan yields and the loss of future net servicing revenues on residential loans with an associated write-down of MSRs.
Lower interest rates are typically associated with higher loan originations, but also result in higher loan refinancings which can result in lower average loan yields and the loss of future net servicing revenues on residential loans with an associated write-down of MSRs.
The market for real estate is cyclical and a significant change in the real estate market that resulted in deterioration in the value of collateral or rental or occupancy rates could adversely affect borrowers’ ability to repay loans. Changes in the real estate market could also affect the value of foreclosed assets.
The market for real estate is cyclical and a significant change in the real estate market that results in deterioration in the value of collateral or rental or occupancy rates could adversely affect borrowers’ ability to repay loans. Changes in the real estate market could also affect the value of foreclosed assets.
Significant indemnification or repurchase activity on securitized or sold loans without offsetting recourse to a counterparty from which the loan was purchased could have a material adverse effect on our financial condition and results of operations. 21 Table of Contents We utilize borrowings from the FHLB and the FRB, and there can be no assurance these programs will be available as needed.
Significant indemnification or repurchase activity on securitized or sold loans without offsetting recourse to a counterparty from which the loan was purchased could have a material adverse effect on our financial condition and results of operations. We utilize borrowings from the FHLB and the FRB, and there can be no assurance these programs will be available as needed.
Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, results of operations, and financial condition. We are pursuing digital payments initiatives which are subject to significant uncertainty and could adversely affect our business, reputation, or financial results.
Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, results of operations, and financial condition. 21 Table of Contents We are pursuing digital payments initiatives which are subject to significant uncertainty and could adversely affect our business, reputation, or financial results.
The terms of any such supervisory action and the consequences associated with any failure to comply therewith could have a material negative effect on our business, operating flexibility, and financial condition. 25 Table of Contents Current and proposed regulations addressing consumer privacy and data use and security could increase our costs and impact our reputation.
The terms of any such supervisory action and the consequences associated with any failure to comply therewith could have a material negative effect on our business, operating flexibility, and financial condition. Current and proposed regulations addressing consumer privacy and data use and security could increase our costs and impact our reputation.
In addition, there may be risks that exist, or that develop in the future, that we have not appropriately anticipated, identified, or mitigated. Our internal controls and procedures may fail or be circumvented and the accuracy of judgments and estimates about financial and accounting matters may impact operating results and financial condition.
In addition, there may be risks that exist, or that develop in the future, that we have not appropriately anticipated, identified, or mitigated. 25 Table of Contents Our internal controls and procedures may fail or be circumvented and the accuracy of judgments and estimates about financial and accounting matters may impact operating results and financial condition.
Our risk management framework seeks to mitigate risk and appropriately balance risk and return. We have established policies and procedures intended to identify, monitor, and manage the types of risk to which we are subject, including, but not limited to credit risk, market risk, liquidity risk, operational risk, legal and compliance risk, and reputational risk.
Our risk management framework seeks to mitigate risk while appropriately balancing risk and return. We have established policies and procedures intended to identify, monitor, and manage the types of risk to which we are subject, including, but not limited to credit risk, market risk, liquidity risk, operational risk, legal and compliance risk, and reputational risk.
In a rising rate environment, the rate of interest we pay on our interest-bearing deposits, borrowings, and other liabilities may increase more quickly than the rate of interest we receive on loans, securities, and other earning assets, which could adversely impact our net 15 Table of Contents interest income and earnings.
In a rising rate environment, the rate of interest we pay on our interest-bearing deposits, borrowings, and other liabilities may increase more quickly than the rate of interest we receive on loans, securities, and other earning assets, which could adversely impact our net interest income and earnings.
In addition to the potential effects on net interest margin and loan volumes, an increase in the general level of interest rates affected the ability of certain borrowers to pay interest and principal on their obligations and reduced the amount of non-interest income we can earn due to potentially lower levels of banking business conducted generally as well lower levels of servicing, gain on sale, and other revenues generated through our residential mortgage business.
In addition to the potential effects on net interest margin and loan volumes, an increase in the general level of interest rates may affect the ability of certain borrowers to pay interest and principal on their obligations and reduces the amount of non-interest income we can earn due to potentially lower levels of banking business conducted, generally, as well lower levels of servicing, gain on sale, and other revenues generated through our residential mortgage business.
Our mortgage warehouse lending operations are subject to federal, state and local laws, regulations and judicial and administrative decisions, including those designed to discourage predatory lending and regulate collections and servicing practices with respect to mortgage loans. 24 Table of Contents Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose significant additional compliance costs.
Our mortgage warehouse lending operations are subject to federal, state and local laws, regulations and judicial and administrative decisions, including those designed to discourage predatory lending and regulate collections and servicing practices with respect to mortgage loans. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose significant additional compliance costs.
We are pursuing digital payments initiatives, including our 2022 acquisition of DST, a digital payments platform for the class action legal industry, and implementation of a fully integrated digital banking platform for our customers, including a digital token powered by the TassatPay platform. The digital payments products and services we offer may use or rely on blockchain-based technologies or assets.
We are pursuing digital payments initiatives, including our 2022 acquisition of DST, a digital payments platform for the class action legal industry, and implementation of a fully integrated digital banking platform for our customers. The digital payments products and services we offer may use or rely on blockchain-based technologies or assets.
If we are unable to maintain and implement improvements to our controls, processes, and reporting systems and procedures, we may lose customers, experience compliance and operational problems or incur additional expenditures beyond current projections, any one of which could adversely affect our financial results. The replacement of LIBOR may adversely affect our business.
If we are unable to maintain and implement improvements to our controls, processes, and reporting systems and procedures, we may lose customers, experience compliance and operational problems or incur additional expenditures beyond current projections, any one of which could adversely affect our financial results.
Accordingly, we are subject to mark-to-market risk and the application of fair value accounting may cause our earnings and AOCI to be more volatile than would be suggested by our underlying performance.
Accordingly, we are subject to mark-to-market risk and the application of fair value accounting which may cause our earnings and AOCI to be more volatile than what may be suggested by our underlying performance.
Were we to lose key employees, we may not be able to replace them with equally qualified persons who bring the same skills and knowledge of and ties to the communities and markets within which we operate.
Were we to lose key employees, we may not be able to replace them with equally qualified persons who bring the same skills and knowledge of and ties to the communities and markets where we operate.
We may also become subject to new or heightened regulatory requirements related to climate change, such as requirements relating to operational resiliency or stress testing for various climate stress scenarios. New or increased regulations, including potential additional climate-related disclosure requirements, could result in increased compliance costs or capital requirements.
We may also become subject to new or heightened regulatory requirements related to climate change, such as 18 Table of Contents requirements relating to operational resiliency or stress testing for various climate stress scenarios. New or increased regulations, including potential additional climate-related disclosure requirements, could result in increased compliance costs or capital requirements.
Our commercial and industrial, CRE, and construction and land development loans, are also largely concentrated in selected markets in Arizona, California, and Nevada.
Our commercial and industrial, CRE, and construction and land development loans, are also largely concentrated in select markets in Arizona, California, and Nevada.
While this ratio is above the well-capitalized regulatory ratio threshold of 6.5%, it is still below our targeted capital level. As we continue to focus on building our capital ratios, we may need to issue additional equity capital or reduce the pace at which we are growing in order to increase our CET1 and other capital ratios.
While this ratio is above the well-capitalized regulatory ratio threshold of 6.5%, it is still below our target capital level. 22 Table of Contents As we continue to focus on building our capital ratios, we may need to issue additional equity capital or reduce the pace at which we are growing in order to increase our CET1 and other capital ratios.
These transactions are structured as credit linked notes, which transfer the risk of first losses on covered loans to these note holders. These notes have an aggregate principal amount of $1.0 billion on a $12.0 billion reference pool of warehouse and equity fund resource loans and residential mortgages.
These transactions are structured as credit linked notes, which transfer the risk of first losses on covered loans to these note holders. These notes have an aggregate principal amount of $459.9 million on a $9.1 billion reference pool of warehouse and equity fund resource loans and residential mortgages.
Regulations affecting banks and other financial institutions are undergoing continuous review and frequently change, and the ultimate effect of such changes cannot be predicted. Regulations and laws may be modified at any time, and new legislation may be enacted that will affect us, WAB, and our other subsidiaries.
Regulations affecting banks and other financial institutions are under continuous review and frequently change, and the ultimate effect of such changes cannot be predicted. Regulations and laws may be modified at any time, and 26 Table of Contents new legislation may be enacted that will affect us, WAB, and our other subsidiaries.
Furthermore, our outstanding Series A preferred stock is senior to our common stock and could adversely affect the ability of us to declare or pay dividends or distributions on common stock.
Furthermore, our outstanding Series A preferred stock is senior to our common stock and could adversely affect our ability to declare or pay dividends or distributions on common stock.
Because of our relatively high reliance on net interest income, our revenue and earnings are more sensitive to changes in market rates than other financial institutions that have more diversified sources of revenue. Loan volumes are also affected by market interest rates on loans.
Because of our relatively high reliance on net interest income, our revenue and earnings are more sensitive to changes in market rates than other financial institutions with more diversified sources of revenue. Loan volumes may also be affected by market interest rates on loans.
Provisions of Delaware law and provisions of our Certificate of Incorporation, as amended, and our Amended and Restated Bylaws could make it more difficult for a third party to acquire control of us or have the effect of discouraging a third party from attempting to acquire control of us.
Anti-takeover provisions could negatively impact our stockholders. Provisions of Delaware law and provisions of our Certificate of Incorporation, as amended, and our Amended and Restated Bylaws could make it more difficult for a third party to acquire control of us or have the effect of discouraging a third party from attempting to acquire control of us.
As of December 31, 2022, we have $4.3 billion of borrowings from the FHLB of San Francisco and no borrowings from the FRB. We utilize borrowings from the FHLB of San Francisco and the FRB to satisfy short-term liquidity needs. Our borrowing capacity is generally dependent on the value of our collateral pledged to these entities.
As of December 31, 2023, we have $6.2 billion of borrowings from the FHLB of San Francisco and no borrowings from the FRB. We utilize borrowings from the FHLB of San Francisco and the FRB to satisfy short-term liquidity needs. Our borrowing capacity is generally dependent on the value of our collateral pledged to these entities.
Management makes various assumptions and judgments about the collectability of our loan portfolio and maintains an ACL deemed to cover expected losses over the life of the loan portfolio.
Management makes various assumptions and judgments about the collectability of our loan portfolio and maintains an ACL estimated to cover expected losses over the life of the loans in our portfolio.
If we fail to meet these minimum capital and liquidity guidelines and other regulatory requirements, we may be restricted in the types of activities we may conduct and may be prohibited from taking certain capital actions, such as paying executive bonuses or dividends and repurchasing or redeeming capital securities. At December 31, 2022, our CET1 ratio was 9.3%.
If we fail to meet these guidelines and other regulatory requirements, we may be restricted in the types of activities we may conduct and may be prohibited from taking certain capital actions, such as paying executive bonuses or dividends and repurchasing or redeeming capital securities. At December 31, 2023, our CET1 ratio was 10.8%.
Many of the real and personal properties securing our loans are located in California and more generally in the southwestern portion of the United States. Much of California experiences wildfires from time to time that cause significant damage throughout the state.
Many of the real and personal properties securing our loans are located in California and more generally in the southwestern portion of the United States. Substantial portions of California experience wildfires from time to time that may cause significant damage throughout the state.
Despite these efforts, the manner and impact of this transition and related developments, as well as the effect of these developments on our funding costs, investment and trading securities portfolios, and business, is uncertain and could have a material adverse impact on our profitability. 23 Table of Contents Our risk management practices may prove to be inadequate or ineffective.
Despite such efforts, the manner and impact of the transition and related developments, as well as the effect of such developments on our funding costs, investment and trading securities portfolios, and business, would be uncertain and could have a material adverse impact on our profitability. Our risk management practices may prove to be inadequate or ineffective.
Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity, or investor or business confidence, limitations on the availability or increases in the cost of credit and capital, increases in inflation or interest rates, US government debt default or shutdown, the imposition of tariffs on trade, natural disasters, the emergence of widespread health emergencies or pandemics (including the COVID-19 pandemic), terrorist attacks, acts of war (including the military conflict between Russia and Ukraine), or a combination of these or other factors.
Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity, or investor or business confidence, limitations on the availability or increases in the cost of credit and capital, increases in inflation or interest rates, U.S. government debt default or shutdown, the imposition of tariffs on trade, natural disasters, the emergence of widespread health emergencies or pandemics (such as the COVID-19 pandemic), terrorist attacks, acts of war (such as the military conflicts in Ukraine and the Middle East), or a combination of these or other factors.
In addition, failure to comply with the privacy, data use and security laws and regulations to which we are subject, including by reason of inadvertent disclosure of confidential information, could result in fines, sanctions, penalties, reputational harm, loss of consumer confidence, and other adverse consequences, any of which could have a material adverse effect on our results of operations and business.
In addition, failure to comply with the privacy, data use and security laws and regulations to which we are subject, including by reason of inadvertent disclosure of confidential information, could result in fines, sanctions, penalties, reputational harm, loss of consumer confidence, and other adverse consequences, any of which could have a material adverse effect on our results of operations and business. 27 Table of Contents We could be subject to adverse changes or interpretations of tax laws, tax audits, or challenges to our tax positions.
If we issue additional preferred stock in the future that has a preference over our common stock, with respect to the payment of dividends or upon our liquidation, dissolution, or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock and/or the rights of holders of our common stock, the market price of our common stock could be adversely affected. 27 Table of Contents Anti-takeover provisions could negatively impact our stockholders.
If we issue additional preferred stock in the future that has a preference over our common stock, with respect to the payment of dividends or upon liquidation, dissolution, or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock and/or the rights of holders of our common stock, the market price of our common stock could be adversely affected.
In addition, the transition to an increased remote work environment, may exacerbate the challenges of attracting and retaining talented and diverse employees as job markets may be less constrained by physical geography. We incentivize employee retention through our equity incentive plans; however, we cannot guarantee the effectiveness of our equity incentive plans in retaining these key employees and executives.
In addition, the proliferation of hybrid work environments, may exacerbate the challenges of attracting and retaining talented and diverse employees as job markets may be less constrained by physical geography. We incentivize employee retention through our equity incentive plans; however, we cannot guarantee the effectiveness of our equity incentive plans in retaining these key employees and executives.
Effective January 1, 2022, the administrator of the LIBOR ceased the publication of one-week and two-month US dollar LIBOR and will cease the publications of the remaining tenors of US dollar LIBOR (one, three, six, and 12-month) immediately after June 30, 2023.
For example, effective January 1, 2022, the administrator of LIBOR ceased the publication of one-week and two-month U.S. dollar LIBOR, and immediately after June 30, 2023, the administrator of LIBOR ceased the publications of the remaining tenors of U.S. dollar LIBOR (one, three, six, and 12-month).
While current estimates of future credit losses are below the first loss position, no assurances can be given that these losses will not exceed the first loss position and, if credit losses were to exceed the first loss position, our financial condition and results of operations could be adversely effected.
While current estimates of future credit losses are below the first loss position, no assurances can be given that future losses will not exceed the first loss position and, if credit losses were to exceed the first loss position, our financial condition and results of operations could be adversely effected. We may enter into more such transactions in the future.
In addition, AmeriHome has outstanding senior notes that were issued prior to the acquisition. We also have outstanding depositary shares representing Series A preferred stock, which is senior to our common stock. All of these securities or borrowings have priority over our common stock in a liquidation, which could affect the market price of our stock.
We also have outstanding depositary shares representing Series A preferred stock, which is senior to our common stock. All of these securities or borrowings have priority over our common stock in a liquidation, which could affect the market price of our stock.
We have not 20 Table of Contents entered into employment agreements with most of our employees and competition for talent in our industry is intense. The labor market is currently challenging, with employee turnover at an all-time high and increased wage pressure.
We have not entered into employment agreements with most of our employees and competition for talent in our industry is strong. The labor market is currently challenging, with high employee turnover and increased wage pressure.
If management’s assumptions and judgments are incorrect or if economic conditions worsen compared to forecast, our actual credit losses may exceed our ACL. At December 31, 2022, our ACL on funded loans and loss contingency on unfunded loan commitments and letters of credit totals $309.7 million and $47.0 million, respectively.
If management’s assumptions and judgments are incorrect or if economic conditions worsen compared to forecast, our actual credit losses may exceed our ACL. 17 Table of Contents At December 31, 2023, our ACL on funded loans and loss contingency on unfunded loan commitments and letters of credit totaled $336.7 million and $31.6 million, respectively.
In developing and marketing new lines of business and/or new products and services, we may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove attainable.
Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove attainable.
We could be subject to adverse changes or interpretations of tax laws, tax audits, or challenges to our tax positions. We are subject to federal and applicable state income tax laws and regulations. Income tax laws and regulations are often complex and require significant judgment in determining our effective tax rate and in evaluating our tax positions.
We are subject to federal and applicable state income tax laws and regulations. Income tax laws and regulations are often complex and require significant judgment in determining our effective tax rate and in evaluating our tax positions.
It is possible that the business environment in the U.S. will continue to be challenging or experience recession or additional volatility in the future. There can be no assurance that such conditions will improve in the near term or that conditions will not worsen. Such conditions could adversely affect our business, results of operations, and financial condition.
It is possible that the business environment in the U.S., including with respect to the financial services industry, will continue to be challenging or experience recession or additional volatility in the future. There can be no assurance such conditions will improve in the near term or that conditions will not worsen.
Conversely, our earnings also could be adversely affected in a declining rate environment if the rates on our loans and other investments fall more quickly than those on our deposits and other liabilities.
If interest rates continue to increase, our business, financial condition and results of operations may be materially and adversely affected. Conversely, our earnings also could be adversely affected in a declining rate environment if the rates on our loans and other investments fall more quickly than those on our deposits and other liabilities.
From time to time, we may implement new lines of business, offer new products and services within existing lines of business, or offer existing products or services to new industries, geographies, or market segments. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed or industries are heavily regulated.
There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed or industries are heavily regulated. In developing and marketing new lines of business and/or new products and services, we may invest significant time and resources.
Climate change or societal responses to climate change could adversely affect our business and performance, including indirectly through impacts on our customers and vendors.
Climate change, societal responses and legislative and regulatory initiatives with respect to climate change could materially affect our business and performance, including indirectly through impacts on our customers and vendors.
We cannot assure that we will be able to successfully identify and acquire suitable acquisition targets on acceptable terms and conditions, or that we will be able to obtain the regulatory approvals needed to complete any such transactions.
We cannot assure we will be able to successfully identify and acquire suitable acquisition targets on acceptable terms and conditions, or that we will be able to obtain the regulatory approvals needed to complete any such transactions. We cannot provide any assurance we will be successful in overcoming these risks or any other problems encountered in connection with acquisitions.
If actual credit losses materially exceed our ACL, we may be required to raise additional capital, which may not be available to us on acceptable terms or at all.
If actual credit losses materially exceed our ACL, we may be required to raise additional capital, which may not be available to us on acceptable terms or at all. Our inability to raise additional capital on acceptable terms when needed could materially and adversely affect our financial condition, results of operations, and capital.
In addition, we may be at risk of an operational failure with respect to our customers’ systems. Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, the outsourcing of many of our business operations, and the continued uncertain global economic environment.
Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, the outsourcing of many of our business operations, and the continued uncertain global economic environment.
Operational and Technological Risks A failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors and other service providers, including as a result of cyber-attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs, and cause losses.
Likewise, any loss of or decline in the credit rating assigned to us could impair our ability to attract deposits or to obtain other funding sources, or increase our cost of funding. 23 Table of Contents Operational and Technological Risks A failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors and other service providers, including as a result of cyber-attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs, and cause losses.
In addition, some of the financial services organizations with which we compete are not subject to the same degree of regulation as is imposed on bank holding companies and federally insured depository institutions. As a result, these non-bank competitors have certain advantages over us in accessing funding and in providing various services.
In addition, some of the financial services organizations we compete with are not subject to the same degree of regulation as is imposed on bank holding companies and federally insured depository institutions.
In particular, the transition could: • adversely affect the interest rates received or paid on the value of our LIBOR-based assets and liabilities compared to the rate received or paid based on the alternative benchmark rates; • adversely affect the interest rates received or paid on the value of other securities or financial arrangements, given LIBOR's role in determining market interest rates globally; • prompt inquiries or other actions from regulators in respect of our preparation and readiness for the replacement of LIBOR with an alternative reference rate; and • result in disputes, litigation or other actions with borrowers or counterparties about the interpretation and enforceability of certain fallback language in LIBOR-based contracts and securities.
In particular, the transition could: • adversely affect the interest rates received or paid on the value of our assets and liabilities that are based on the discontinued interest rate benchmark compared to the rate received or paid based on the alternative benchmark rates; • adversely affect the interest rates received or paid on the value of other securities or financial arrangements; • result in charges to the financial statements and obligation to "de-designate" certain interest rate swaps used in hedges of certain loans indexed to the discontinued interest rate benchmark; • prompt inquiries or other actions from regulators in respect of our preparation and readiness for the replacement of the discontinued interest rate benchmark with an alternative reference rate; and • result in disputes, litigation or other actions with borrowers or counterparties about the transition to an alternative reference rate.
Because our decision to issue securities in the future will depend on market conditions, our acquisition activity, and other factors, we cannot predict or estimate the amount, timing, or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing the market price of our common stock and diluting their stock holdings in us.
Because our decision to issue securities in the future will depend on market conditions, our acquisition activity, and other factors, we cannot predict or estimate the amount, 28 Table of Contents timing, or nature of our future offerings.
A substantial portion of our mortgage banking operations involves the sale of loans to third parties, including through securitization. When loans are sold or securitized, we make customary representations and warranties about such loans to the loan purchaser or through documents governing our securitized loan pools.
When loans are sold or securitized, we make customary representations and warranties about such loans to the loan purchaser or through documents governing our securitized loan pools.
Changes in tax laws, changes in interpretations, guidance or regulations that may be promulgated, or challenges to judgments or actions that we may take with respect to tax laws could negatively impact our current and future financial performance. In August 2022, the IRA was signed into law.
Changes in tax laws, changes in interpretations, guidance or regulations that may be promulgated, or challenges to judgments or actions that we may take with respect to tax laws could negatively impact our current and future financial performance. In addition, our determination of our tax liability is subject to review by applicable tax authorities.
As a financial institution, we are inherently exposed to a wide range of operational risks, including, but not limited to, theft and other fraudulent activity by employees, customers, and other third parties targeting us and/or our customers or data. Such activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts.
Any of these things could adversely affect our business and financial performance. Our business may be adversely affected by fraud. As a financial institution, we are inherently exposed to a wide range of operational risks, including, but not limited to, theft and other fraudulent activity by employees, customers, and other third parties targeting us and/or our customers or data.
In the course of our business, we may foreclose on and take title to real estate, and could be subject to environmental liabilities with respect to these properties.
We are exposed to risk of environmental liabilities with respect to properties to which we obtain title. Approximately 62% of our loan portfolio at December 31, 2023 was secured by real estate. In the course of our business, we may foreclose on and take title to real estate, and could be subject to environmental liabilities with respect to these properties.
This is sometimes referred to as “systemic risk” and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms, and exchanges, with which we interact on a daily basis, and therefore could adversely affect us.
Additionally, these types of events may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms, and exchanges, with which we interact on a daily basis.
Our success depends on our ability to maintain sufficient liquidity to fund our current obligations and support loan growth and, specifically, to attract and retain a stable base of relatively low-cost deposits.
Our success depends on our ability to maintain sufficient liquidity to fund our current obligations and support loan growth and, specifically, to attract and retain a stable base of relatively low-cost deposits. Shortly following the closures of Silicon Valley Bank and Signature Bank in March 2023, we and certain other banks experienced a brief period of elevated deposit withdrawals.
Replacing third-party vendors could create significant delays and expense and there is no guarantee that such replacement vendors will be available at 22 Table of Contents comparable rates, on similar terms, or in a timely manner, if at all. Any of these things could adversely affect our business and financial performance. Our business may be adversely affected by fraud.
Financial or operational difficulties of a third-party vendor could also impact our operations if those difficulties interfere with their ability to serve us. Replacing third-party vendors could create significant delays and expense and there is no guarantee that such replacement vendors will be available at comparable rates, on similar terms, or in a timely manner, if at all.
Our controls and processes, our reporting systems and procedures, and our operational infrastructure may not be able to keep pace with our growth, which could cause us to experience compliance and operational problems, to lose customers, or incur additional expenditures, any one of which could adversely affect our financial results.
Although we devote substantial resources to maintaining effective policies and internal controls to identify and prevent such incidents, given the persistence and increasing sophistication of possible perpetrators, we may experience financial losses or reputational harm as a result of fraud. 24 Table of Contents Our controls and processes, our reporting systems and procedures, and our operational infrastructure may not be able to keep pace with our growth, which could cause us to experience compliance and operational problems, lose customers, or incur additional expenditures, any one of which could adversely affect our financial results.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn addition, WAB owns and occupies a 36,000 square foot operations facility in Las Vegas, Nevada. See "Item 1. Business” in this Form 10-K for location cities. For information regarding rental payments, see "Note 7. Premises and Equipment" in Item 8 included in this Form 10-K.
Biggest changeIn addition, WAB owns and occupies a 36,000 square foot operations facility in Las Vegas, Nevada. See "Item 1. Business” in this Form 10-K for location cities. For information regarding rental payments, see "Note 7. Leases" in Item 8 included in this Form 10-K.
Item 2. Properties. The Company and WAB are headquartered at One E. Washington Street in Phoenix, Arizona. WAB operates 36 domestic branch locations, which include six executive and administrative offices, of which 20 of these locations are owned and 16 are leased. The Company also has several loan production and other offices across the United States.
Item 2. Properties. The Company and WAB are headquartered at One E. Washington Street in Phoenix, Arizona. WAB operates 38 domestic branch locations, which include five executive and administrative offices, of which 20 of these locations are owned and 18 are leased. The Company also has several loan production and other offices across the United States.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. There are no material pending legal proceedings to which the Company is a party or to which any of its properties are subject. There are no material proceedings known to the Company to be contemplated by any governmental authority. See "Note 18. Commitments and Contingencies" in Item 8 included in this Form 10-K for additional information.
Biggest changeItem 3. Legal Proceedings. There are no material pending legal proceedings to which the Company is a party to or to which any of its properties are subject. There are no material proceedings known to the Company to be contemplated by any governmental authority.
From time to time, the Company is involved in a variety of litigation matters in the ordinary course of its business and anticipates that it will become involved in new litigation matters in the future. Item 4. Mine Safety Disclosures. Not applicable. 28 Table of Contents PART II
From time to time, the Company is involved in a variety of litigation matters in the ordinary course of its business and anticipates that it will become involved in new litigation matters in the future. Item 4. Mine Safety Disclosures. Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeShare Repurchases The following table provides information about the Company's purchases of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act for the periods indicated: Total Number of Shares Purchased (1)(2) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) Approximate Dollar Value of Shares That May Yet to be Purchased Under the Plans or Programs October 2022 1,436 $ 66.56 — $ — November 2022 — — — — December 2022 101 65.64 — — Total 1,537 $ 66.50 — $ — (1) Shares purchased during the period outside of the publicly announced repurchase program were transferred to the Company from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock awards during the period.
Biggest changeShare Repurchases The following table provides information about the Company's purchases of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act for the periods indicated: Period Total Number of Shares Purchased (1)(2) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) Approximate Dollar Value of Shares That May Yet to be Purchased Under the Plans or Programs October 2023 841 $ 44.04 — $ — November 2023 161 45.87 — — December 2023 92 54.86 — — Total 1,094 $ 45.22 — $ — (1) Shares purchased during the period were transferred to the Company from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock awards during the period.
(2) The Company does not currently have a common stock repurchase program. 29 Table of Contents Performance Graph The following graph summarizes a five year comparison of the cumulative total returns for the Company’s common stock, the Standard & Poor’s 500 stock index and the KBW Regional Banking Total Return Index, each of which assumes an initial value of $100.00 on December 31, 2017 and reinvestment of dividends.
(2) The Company does not currently have a common stock repurchase program. 31 Table of Contents Performance Graph The following graph summarizes a five year comparison of the cumulative total returns for the Company’s common stock, the Standard & Poor’s 500 stock index and the KBW Regional Banking Total Return Index, each of which assumes an initial value of $100.00 on December 31, 2018 and reinvestment of dividends.
The Company has filed, without qualifications, its 2022 Domestic Company Section 303A CEO Certification regarding its compliance with the NYSE’s corporate governance listing standards. Holders At February 17, 2023, there were approximately 1,870 stockholders of record of our common stock. This number does not include stockholders who hold shares in the name of brokerage firms or other financial institutions.
The Company has filed, without qualifications, its 2023 Domestic Company Section 303A CEO Certification regarding its compliance with the NYSE’s corporate governance listing standards. Holders At February 21, 2024, there were approximately 2,230 stockholders of record of our common stock. This number does not include stockholders who hold shares in the name of brokerage firms or other financial institutions.
In addition, the Company paid a cash dividend of $0.27 per depository share to preferred shareholders on December 30, 2022, totaling $3.2 million.
In addition, the Company paid a cash dividend of $0.27 per depository share to preferred stockholders on December 30, 2023, totaling $3.2 million.
The Company is not provided the exact number of or identities of these stockholders. There are no other classes of common equity outstanding. Dividends During the fourth quarter of 2022, the Company's BOD approved a cash dividend of $0.36 per common share. The dividend payment to shareholders totaled $39.2 million and was paid on December 2, 2022.
The Company is not provided the exact number of or identities of these stockholders. There are no other classes of common equity outstanding. Dividends During the fourth quarter of 2023, the Company's BOD approved a cash dividend of $0.37 per common share. The dividend payment to stockholders totaled $40.5 million and was paid on December 1, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe maturity distribution and weighted average yield of the Company's investment security portfolios at December 31, 2022 are summarized in the table below: Due Under 1 Year Due 1-5 Years Due 5-10 Years Due Over 10 Years Total Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield (dollars in millions) Held-to-maturity Private label residential MBS (1) $ — — % $ — — % $ — — % $ 198 2.20 % $ 198 2.20 % Tax-exempt bonds 9 4.10 17 5.21 29 4.80 1,036 4.33 1,091 4.36 Total HTM securities $ 9 4.10 % $ 17 5.21 % $ 29 4.80 % $ 1,234 3.99 % $ 1,289 4.03 % Available-for-sale CLO $ — — % $ — — % $ 817 6.13 % $ 1,979 6.03 % $ 2,796 6.06 % Commercial MBS issued by GSEs (1) — — 21 2.77 37 7.02 46 2.45 104 4.16 Corporate debt securities — — 157 4.28 267 3.78 5 3.70 429 3.97 Private label residential MBS (1) — — — — 31 4.37 1,411 2.49 1,442 2.53 Residential MBS issued by GSEs (1) — — 3 2.70 5 2.82 2,115 2.16 2,123 2.17 Tax-exempt — — 5 2.85 42 3.06 957 2.66 1,004 2.68 Other 1 2.00 8 2.65 10 5.06 56 4.84 75 4.59 Total AFS securities $ 1 2.00 % $ 194 3.99 % $ 1,209 5.46 % $ 6,569 3.50 % $ 7,973 3.81 % (1) MBS are comprised of pools of loans with varying maturities, the majority of which are due after 10 years.
Biggest changeThe maturity distribution and weighted average yield of the Company's investment security portfolios at December 31, 2023 are summarized in the table below: Due Under 1 Year Due 1-5 Years Due 5-10 Years Due Over 10 Years Total Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield (dollars in millions) Held-to-maturity Tax-exempt bonds $ 17 5.35 % $ 20 6.68 % $ 86 3.99 % $ 1,120 4.59 % $ 1,243 4.60 % Private label residential MBS (1) — — — — — — 186 2.20 186 2.20 Total HTM securities $ 17 5.35 % $ 20 6.68 % $ 86 3.99 % $ 1,306 4.25 % $ 1,429 4.29 % Available-for-sale U.S.
The rule sets forth timing requirements for delivery of annual privacy notices in the event that a financial institution that qualified for the annual notice exemption later changes its policies or practices in such a way that it no longer qualifies for the exemption.
The rule sets forth timing requirements for delivery of annual privacy notices in the event a financial institution that qualified for the annual notice exemption later changes its policies or practices in such a way that it no longer qualifies for the exemption.
Preventing Suspicious Activity Under Title III of the USA PATRIOT Act, all financial institutions are required to take certain measures to identify their customers, prevent money laundering, monitor customer transactions, and report suspicious activity to U.S. law enforcement agencies. Financial institutions also are required to respond to requests for information from federal banking agencies and law enforcement agencies.
Preventing Suspicious Activity Under Title III of the USA PATRIOT Act, all financial institutions are required to take certain measures to identify their customers, prevent money laundering, monitor customer transactions, and report suspicious activity to U.S. law enforcement agencies. Financial institutions are also required to respond to requests for information from federal banking agencies and law enforcement agencies.
The primary federal banking agencies and the Secretary of the Treasury have adopted regulations to implement several of these provisions. All financial institutions also are required to establish internal anti-money laundering programs.
The primary federal banking agencies and the Secretary of the Treasury have adopted regulations to implement several of these provisions. All financial institutions are also required to establish internal anti-money laundering programs.
The Company believes that certain of these policies, along with various estimates that it is required to make in recording its financial transactions, are important to have a complete understanding of the Company's financial position. In addition, these estimates require management to make complex and subjective judgments, many of which include matters with a high degree of uncertainty.
The Company believes certain of these policies, along with various estimates it is required to make in recording its financial transactions, are important to have a complete understanding of the Company's financial position. In addition, these estimates require management to make complex and subjective judgments, many of which include matters with a high degree of uncertainty.
The Company does not believe that these off-balance sheet arrangements have or are reasonably likely to have a material effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. However, there can be no assurance that such arrangements will not have a future effect.
The Company does not believe these off-balance sheet arrangements have or are reasonably likely to have a material effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. However, there can be no assurance such arrangements will not have a future effect.
Management believes that this is an important metric as it illustrates the underlying performance of the Company, it enables investors and others to assess the Company's ability to generate capital to cover credit losses through the credit cycle, and provides consistent reporting with a key metric used by bank regulatory agencies.
Management believes this is an important metric as it illustrates the underlying performance of the Company, it enables investors and others to assess the Company's ability to generate capital to cover credit losses through the credit cycle, and provides consistent reporting with a key metric used by bank regulatory agencies.
Goodwill and other intangible assets acquired in a business combination that are determined to have an indefinite useful life are not subject to amortization, but are subsequently evaluated for impairment at least annually. The Company has goodwill totaling $527 million as of December 31, 2022.
Goodwill and other intangible assets acquired in a business combination that are determined to have an indefinite useful life are not subject to amortization, but are subsequently evaluated for impairment at least annually. The Company has goodwill totaling $527 million as of December 31, 2023 and 2022.
In April 2020, the Federal Reserve adopted a final rule codifying the presumptions used in determinations of whether a company has the ability to exercise a controlling influence over another company for purposes of the BHCA, and providing greater transparency on the types of relationships that the Federal Reserve generally views as supporting a determination of control.
In April 2020, the Federal Reserve adopted a final rule codifying the presumptions used in determinations of whether a company has the ability to exercise a controlling influence over another company for purposes of the BHCA, and providing greater transparency on the types of relationships the Federal Reserve generally views as supporting a determination of control.
Whether the Company continues to pay quarterly dividends and the amount of any such dividends will be at the discretion of WAL's BOD and will depend on the Company’s earnings, financial condition, results of operations, business prospects, capital requirements, regulatory restrictions, contractual restrictions, and other factors that the BOD may deem relevant.
Whether the Company continues to pay quarterly dividends and the amount of any such dividends will be at the discretion of WAL's BOD and will depend on the Company’s earnings, financial condition, results of operations, business prospects, capital requirements, regulatory restrictions, contractual restrictions, and other factors the BOD may deem relevant.
The provision is equal to the amount required to maintain the ACL at a level that is adequate to absorb estimated lifetime credit losses inherent in the loan and investment securities portfolios based on remaining contractual maturity, adjusted for estimated prepayments as of each period end.
The provision is equal to the amount required to maintain the ACL at a level adequate to absorb estimated lifetime credit losses inherent in the loan and investment securities portfolios based on remaining contractual maturity, adjusted for estimated prepayments as of each period end.
The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA.
The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services it believes are best suited to its particular community, consistent with the CRA.
Business activities that have been determined to be related to banking, and therefore appropriate for bank holding companies and their affiliates to engage in, include securities brokerage services, investment advisory services, fiduciary services, and certain management advisory and data processing services, among others.
Business activities that have been determined to be related to banking and are therefore appropriate for bank holding companies and their affiliates to engage in, include securities brokerage services, investment advisory services, fiduciary services, and certain management advisory and data processing services, among others.
The rule requires a banking organization to notify its primary federal regulator of any significant computer-security incident as soon as possible and no later than 36 hours after the banking organization determines that a cyber incident has occurred.
The rule requires a banking organization to notify its primary federal regulator of any significant computer-security incident as soon as possible and no later than 36 hours after the banking organization determines a cyber incident has occurred.
The Company performs its annual goodwill and intangibles impairment tests as of October 1 each year, or more often if events or circumstances indicate that the carrying value may not be recoverable.
The Company performs its annual goodwill and intangibles impairment tests as of October 1 each year, or more often if events or circumstances indicate the carrying value may not be recoverable.
Incentive Compensation The Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities, including the Company and WAB, with at least $1 billion in total consolidated assets, that encourage inappropriate risks by providing an executive officer, employee, director, or principal shareholder with excessive compensation, fees, or benefits that could lead to material financial loss to the entity.
Incentive Compensation The Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities, including the Company and WAB, with at least $1 billion in total consolidated assets, that encourage inappropriate risks by providing an executive officer, employee, director, or principal stockholder with excessive compensation, fees, or benefits that could lead to material financial loss to the entity.
During the years ended December 31, 2022, 2021, and 2020, there were no events or circumstances that indicated an interim impairment test of goodwill or other intangible assets was necessary.
During the years ended December 31, 2022 and 2021, there were no events or circumstances that indicated an interim impairment test of goodwill or other intangible assets was necessary.
The Company cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it or any implementing regulations would have on the financial condition or results of operations of the Company.
The Company cannot predict whether any such legislation will be enacted, and, if enacted, the effect it or any implementing regulations would have on the financial condition or results of operations of the Company.
The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates used to manage the underlying business. 53 Table of Contents Liquidity Liquidity is the ongoing ability to accommodate liability maturities and deposit withdrawals, fund asset growth and business operations, and meet contractual obligations through unconstrained access to funding at reasonable market rates.
The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates used to manage the underlying business. 59 Table of Contents Liquidity Liquidity is the ongoing ability to accommodate liability maturities and deposit withdrawals, fund asset growth and business operations, and meet contractual obligations through unconstrained access to funding at reasonable market rates.
Transactions with Affiliates and Insiders Under federal law, transactions between insured depository institutions and their affiliates are governed by Sections 23A and 23B of the FRA and implementing Regulation W.
Transactions with Affiliates and Insiders Under federal law, transactions between insured depository institutions and their affiliates are governed by Sections 23A and 23B of the FRA and Regulation W.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items (discussed in "Note 18. Commitments and Contingencies" in Item 8 of this Form 10-K) as calculated under regulatory accounting practices.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items (discussed in "Note 17. Commitments and Contingencies" in Item 8 of this Form 10-K) as calculated under regulatory accounting practices.
The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. As permitted by the regulatory capital rules, the Company elected the CECL transition option that delays the estimated impact on regulatory capital resulting from the adoption of CECL over a five-year transition period ending December 31, 2024.
The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. As permitted by the regulatory capital rules, the Company elected the CECL transition option that delayed the estimated impact on regulatory capital resulting from the adoption of CECL over a five-year transition period ending December 31, 2024.
The following is a summary of these critical accounting policies and significant estimates. Allowance for credit losses The ACL guidance requires that an organization measure all expected credit losses for financial assets held at the reporting date, including off-balance sheet credit exposures, based on historical experience, current conditions, and reasonable and supportable forecasts.
The following is a summary of these critical accounting policies and significant estimates. Allowance for credit losses The ACL guidance requires an organization to measure all expected credit losses for financial assets held at the reporting date, including off-balance sheet credit exposures, based on historical experience, current conditions, and reasonable and supportable forecasts.
In response to the COVID-19 pandemic, the federal bank regulatory authorities issued a final rule in late August 2020 that allows institutions that adopted the CECL accounting standard in 2020 to mitigate CECL’s estimated effects on regulatory capital for two years, followed by a three-year transition period. The Company has elected this capital relief option.
In response to the COVID-19 pandemic, the federal bank regulatory agencies issued a final rule in late August 2020 that allows institutions that adopted the CECL accounting standard in 2020 to mitigate CECL’s estimated effects on regulatory capital for two years, followed by a three-year transition period. The Company has elected this capital relief option.
Generally, Sections 23A and 23B of the FRA are intended to protect insured depository institutions from losses arising from transactions with non-insured affiliates by limiting the extent to which a bank or its subsidiaries may engage in covered transactions with any one affiliate and with all affiliates of the bank in the aggregate, and requiring that such transactions be on terms consistent with safe and sound banking practices. 62 Table of Contents Further, Section 22(h) of the FRA and its implementing Regulation O restricts loans to directors, executive officers, and principal stockholders (“insiders”).
Generally, Sections 23A and 23B of the FRA are intended to protect insured depository institutions from losses arising from transactions with non-insured affiliates by limiting the extent to which a bank or its subsidiaries may engage in covered transactions with any one affiliate and with all affiliates of the bank in the aggregate, and requiring such transactions be on terms consistent with safe and sound banking practices. 68 Table of Contents Further, Section 22(h) of the FRA and its implementing Regulation O restricts loans to directors, executive officers, and principal stockholders (“insiders”).
Financial Overview and Highlights WAL is a bank holding company headquartered in Phoenix, Arizona, incorporated under the laws of the state of Delaware. WAL provides a full spectrum of customized loan, deposit and treasury management capabilities, including 24/7 funds transfer and other digital payment offerings through its wholly-owned banking subsidiary, WAB.
Financial Overview and Highlights WAL is a bank holding company headquartered in Phoenix, Arizona, incorporated under the laws of the state of Delaware. WAL provides a full spectrum of customized loan, deposit and treasury management capabilities, including funds transfer and other digital payment offerings through its wholly-owned banking subsidiary, WAB.
As a result of passage of the EGRRCPA, bank holding companies with less than $100 billion in assets, such as the Company, are exempt from the enhanced prudential standards imposed under Section 165 of the Dodd-Frank Act (including, but not limited to, the resolution planning and enhanced liquidity and risk management requirements therein).
As a result of passage of the EGRRCPA, bank holding companies with less than $100 billion in assets are exempt from the enhanced prudential standards imposed under Section 165 of the Dodd-Frank Act (including, but not limited to, the resolution planning and enhanced liquidity and risk management requirements therein).
The GLBA also requires that financial institutions implement comprehensive written information security programs that include administrative, technical, and physical safeguards to protect consumer information. Further, pursuant to interpretive guidance issued under the GLBA and certain state laws, financial institutions are required to notify customers of security breaches that result in unauthorized access to their nonpublic personal information.
The GLBA also requires financial institutions to implement comprehensive written information security programs that include administrative, technical, and physical safeguards to protect consumer information. Further, pursuant to interpretive guidance issued under the GLBA and certain state laws, financial institutions are required to notify customers of security breaches resulting in unauthorized access to their nonpublic personal information.
Assumptions used to value the Company’s MSRs represent management’s best estimate of assumptions that market participants would use to value this asset and may require significant judgement. The primary risk of material changes to the value of the MSRs resides in the potential volatility and judgment in the assumptions used, specifically prepayment speeds, option adjusted spreads, and discount rates.
Assumptions used to value the Company’s MSRs represent management’s best estimate of assumptions market participants would use to value this asset and may require significant judgment. The primary risk of material changes to the value of the MSRs resides in the potential volatility and judgment in the assumptions used, specifically prepayment speeds, option adjusted spreads, and discount rates.
At December 31, 2022, the Company's long-term liquidity needs primarily relate to funds required to support loan originations, commitments, and deposit withdrawals, which can be met by cash flows from investment payments and maturities, and investment sales, if necessary.
At December 31, 2023, the Company's long-term liquidity needs primarily relate to funds required to support loan originations, commitments, and deposit withdrawals, which can be met by cash flows from investment payments and maturities, and investment sales, if necessary.
Bank holding companies that have elected to become financial holding companies may engage in any activity, or acquire and retain the shares of a company engaged in any activity that is either: (i) financial in nature or incidental to such financial activity (as determined by the FRB in consultation with the Secretary of the Treasury) or (ii) complementary to a financial activity, and that does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally (as solely determined by the FRB).
Bank holding companies that have elected to become financial holding companies may engage in any activity, or acquire and retain the shares of a company engaged in any activity that is either: (i) financial in nature or incidental to such financial activity 64 Table of Contents (as determined by the FRB in consultation with the Secretary of the Treasury) or (ii) complementary to a financial activity, and that does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally (as solely determined by the FRB).
The Company's net cash provided by and used in investing activities has been primarily influenced by its loan and securities activities.
The Company's net cash used in investing activities has been primarily influenced by its loan and securities activities.
Summary of Significant Accounting Policies," in Item 8 of this Form 10-K for information on recent and recently adopted accounting pronouncements and their expected impact, if any, on the Company's Consolidated Financial Statements. 56 Table of Contents SUPERVISION AND REGULATION WAL, WAB, and certain of its non-banking subsidiaries are subject to comprehensive regulation under federal and state laws.
Summary of Significant Accounting Policies," in Item 8 of this Form 10-K for information on recent and recently adopted accounting pronouncements and their expected impact, if any, on the Company's Consolidated Financial Statements. SUPERVISION AND REGULATION WAL, WAB, and certain of its non-banking subsidiaries are subject to comprehensive regulation under federal and state laws.
Further, without receiving prior approval from both the FRB and two-thirds of its shareholders, a bank cannot declare or pay a dividend that would exceed its undivided profits or withdraw any portion of its permanent capital.
Further, without receiving prior approval from both the FRB and two-thirds of its stockholders, a bank cannot declare or pay a dividend that would exceed its undivided profits or withdraw any portion of its permanent capital.
Holding company expenses and obligations with respect to its outstanding trust preferred securities and corresponding subordinated debt also may limit or impair the Company’s ability to declare and pay dividends.
Holding company expenses and obligations with respect to its outstanding preferred stock, trust preferred securities and subordinated debt also may limit or impair the Company’s ability to declare and pay dividends.
Blocked assets (property and bank deposits) cannot be paid out, withdrawn, set off, or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences. 65 Table of Contents Future Legislative Initiatives Federal and state legislatures may introduce legislation that will impact the financial services industry.
Blocked assets (property and bank deposits) cannot be paid out, withdrawn, set off, or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences. Future Legislative Initiatives Federal and state legislatures may introduce legislation that will impact the financial services industry.
The EGRRCPA relieves bank holding companies with less than $100 billion in assets, such as the Company, from the enhanced prudential standards imposed under Section 165 of the Dodd-Frank Act (including, but not limited to, resolution planning and enhanced liquidity and risk management requirements).
The EGRRCPA relieves bank holding companies with less than $100 billion in assets from the enhanced prudential standards imposed under Section 165 of the Dodd-Frank Act (including, but not limited to, resolution planning and enhanced liquidity and risk management requirements).
These laws, rules and regulations may change as statutes and regulations are enacted, promulgated, amended, interpreted and enforced. Supervision and Regulation of WATC WATC is an OCC-chartered, non-depository national trust bank. WATC will offer levered loan facility administration, loan administration, and securities custody products.
These laws, rules and regulations may change as statutes and regulations are enacted, promulgated, amended, interpreted and enforced. Supervision and Regulation of WATC WATC is an OCC-chartered, non-depository national trust bank. WATC offers levered loan facility administration, loan administration, and securities custody products.
As of December 31, 2022 and 2021, the Company and the Bank exceeded the capital levels necessary to be classified as well-capitalized, as defined by the various banking agencies.
As of December 31, 2023 and 2022, the Company and the Bank exceeded the capital levels necessary to be classified as well-capitalized, as defined by the various banking agencies.
Activities that are financial in nature include securities underwriting and dealing, insurance underwriting, and making merchant banking investments. 58 Table of Contents Mergers and Acquisitions The BHCA, the Bank Merger Act, and other federal and state statutes regulate the direct and indirect acquisition of depository institutions.
Activities that are financial in nature include securities underwriting and dealing, insurance underwriting, and making merchant banking investments. Mergers and Acquisitions The BHCA, the Bank Merger Act, and other federal and state statutes regulate the direct and indirect acquisition of depository institutions.
Gross unrealized losses on the Company's AFS securities at December 31, 2022 relate primarily to changes in interest rates and other market conditions that are not considered to be credit-related issues. The Company has reviewed its securities on which there is an unrealized loss in accordance with its ACL policy described in "Note 1.
Gross unrealized losses on the Company's AFS securities at December 31, 2023 relate primarily to changes in interest rates and other market conditions not considered to be credit-related issues. The Company has reviewed its securities on which there is an unrealized loss in accordance with its ACL policy described in "Note 1.
To mitigate the uninsured deposit risk, the Company participates in the CDARS and ICS programs, which allow an individual customer to invest up to $50.0 million and $150.0 million, respectively, through one participating financial institution or, a combined total of $200.0 million per individual customer, with the entire amount being covered by FDIC insurance.
To mitigate the uninsured deposit risk, the Company participates in the CDARS and ICS programs, which allow an individual customer to invest up to $50.0 million and $225.0 million, respectively, through one participating financial institution or, a combined total of $275.0 million per individual customer, with the entire amount being covered by FDIC insurance.
Net cash provided by financing activities has been impacted significantly by increased deposit levels. During the years ended December 31, 2022, 2021, and 2020, net deposits increased $6.0 billion, $15.7 billion, and $9.1 billion, respectively.
Net cash provided by financing activities has been impacted significantly by deposit levels. During the years ended December 31, 2023, 2022, and 2021, net deposits increased $1.7 billion, $6.0 billion, and $15.7 billion, respectively.
For the years ended December 31, 2022, 2021, and 2020, net cash provided by (used in) operating activities was $2.2 billion, $(2.7) billion, and $670.2 million, respectively. The Company's primary investing activities are the origination of real estate and commercial loans, the collection of repayments of these loans, and the purchase and sale of securities.
For the years ended December 31, 2023, 2022, and 2021, net cash (used in) provided by operating activities was $(329) million, $2.2 billion, and $(2.7) billion, respectively. The Company's primary investing activities are the origination of real estate and commercial loans, the collection of repayments of these loans, and the purchase and sale of securities.
Under the Volcker Rule, the term "covered funds" is defined as any issuer that would be an investment company under the Investment Company Act but for the exemption in Section 3(c)(1) or 3(c)(7) of that Act, which includes CLO and CDO securities.
Under the Volcker Rule, the term "covered funds" is defined as any issuer that would be an investment company under the Investment Company Act but for the exemption in Section 3(c)(1) or 3(c)(7) of that Act, which includes CLO and collateralized debt obligation securities.
Net unamortized purchase premiums on acquired and purchased loans of $195 million and $185 million increased the carrying value of loans as of December 31, 2022 and 2021, respectively. 44 Table of Contents The following table sets forth the amount of loans outstanding by type of loan as of December 31, 2022 that were contractually due in under one year, one through five years, after five through 15 years, and more than 15 years based on remaining scheduled repayments of principal.
Net unamortized purchase premiums on acquired and purchased loans of $177 million and $195 million increased the carrying value of loans as of December 31, 2023 and 2022, respectively. 48 Table of Contents The following table sets forth the amount of loans outstanding by type of loan as of December 31, 2023 that were contractually due in under one year, one through five years, after five through 15 years, and more than 15 years based on remaining scheduled repayments of principal.
The majority of the Company's modifications are extensions in terms or deferral of payments which result in no lost principal or interest.
The majority of the Company's modifications were extensions in terms or deferral of payments which result in no lost principal or interest.
The Company believes that it is in compliance with these requirements as of December 31, 2022. 52 Table of Contents Critical Accounting Estimates The Notes to the Consolidated Financial Statements contain a discussion of the Company's significant accounting policies, including information regarding recently issued accounting pronouncements, adoption of such policies, and the related impact of their adoption.
The Company believes it is in compliance with these requirements as of December 31, 2023. 57 Table of Contents Critical Accounting Estimates The Notes to the Consolidated Financial Statements contain a discussion of the Company's significant accounting policies, including information regarding recently issued accounting pronouncements, adoption of such policies, and the related impact of their adoption.
The taxable-equivalent adjustment was $33.7 million and $33.3 million for the year ended December 31, 2022 and 2021, respectively. (2) Included in the yield computation are net loan fees of $132.2 million and $131.7 million for the year ended December 31, 2022 and 2021, respectively. (3) Includes non-accrual loans.
The taxable-equivalent adjustment was $35.5 million and $33.7 million for the year ended December 31, 2023 and 2022, respectively. (2) Included in the yield computation are net loan fees of $131.2 million and $132.2 million for the year ended December 31, 2023 and 2022, respectively. (3) Includes non-accrual loans.
A change in statutes, regulations, or regulatory policies applicable to WAL or any of its subsidiaries could have a material effect on the business of the Company.
A change in statutes, regulations, or regulatory policies applicable to WAL or any of its subsidiaries could have a material effect on the business of the Company. 72 Table of Contents
Tangible common equity represents total stockholders' equity less goodwill and intangible assets and preferred stock. Management believes that tangible common equity financial measures are useful in evaluating the Company's capital strength, financial condition, and ability to manage potential losses.
Tangible common equity represents total stockholders' equity reduced by goodwill and intangible assets and preferred stock. Management believes tangible common equity financial measures are useful in evaluating the Company's capital strength, financial condition, and ability to manage potential losses.
In addition, the rule requires a bank service provider to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect banking organization customers for four or more hours. The rule became effective May 1, 2022.
In addition, the rule requires a bank service provider to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect banking organization customers for four or more hours.
As of December 31, 2022 and 2021, no borrower relationships at both the commitment and funded loan level exceeded 5% of total loans HFI. Commercial and industrial loans made up 40% and 47% of the Company's HFI loan portfolio as of December 31, 2022 and 2021, respectively.
As of December 31, 2023 and 2022, no borrower relationships at both the commitment and funded loan level exceeded 5% of total loans HFI. Commercial and industrial loans made up 38% and 40% of the Company's HFI loan portfolio as of December 31, 2023 and 2022, respectively.
The Company holds financial instruments, including loans HFS, MSRs, and derivative instruments, that are recorded at fair value and require management to make significant judgments in estimating the fair value of these financial instruments.
Fair value of financial instruments The Company uses fair value measurements to recognize certain financial instruments at fair value. The Company holds financial instruments, including loans HFS, MSRs, and derivative instruments, that are recorded at fair value and require management to make significant judgments in estimating the fair value of these financial instruments.
However, when quoted market prices or observable market inputs are not fully available, significant management judgment may be necessary to estimate the fair value of these financial instruments. The fair value of MSRs is determined using a discounted cash flow model based on unobservable inputs, as MSRs are not traded in active markets.
However, when quoted market prices or observable market inputs are not fully available, significant management judgment may be necessary to estimate the fair value of these financial instruments. The fair value of MSRs is determined using a discounted cash flow model based on certain unobservable inputs.
The ability of a state member bank, such as WAB, to pay cash dividends is restricted by the FRB and the State of Arizona.
The ability of a state member bank, such as WAB, to pay cash dividends is subject to restrictions by the FRB and the State of Arizona.
In addition, management believes that the classified assets to CET1 plus allowance measure is an important regulatory metric for assessing asset quality. As permitted by the regulatory capital rules, the Company elected to delay the estimated impact of CECL on its regulatory capital over a five-year transition period ending December 31, 2024.
In addition, management believes the classified assets to CET1 plus allowance measure is an important regulatory metric for assessing asset quality. As permitted by the regulatory capital rules, the Company elected the CECL transition option that delayed the estimated impact on regulatory capital resulting from the adoption of CECL over a five-year transition period ending December 31, 2024.
(2) Excludes government guaranteed residential mortgage loans of $582 million and zero at December 31, 2022 and 2021, respectively. Interest income that would have been recorded under the original terms of nonaccrual loans was $4.7 million, $5.3 million, and $5.0 million for the years ended December 31, 2022, 2021, and 2020, respectively.
(2) Excludes government guaranteed residential mortgage loans of $399 million and $582 million at December 31, 2023 and 2022, respectively. Interest income that would have been recorded under the original terms of nonaccrual loans was $12.3 million, $4.7 million, and $5.3 million for the years ended December 31, 2023, 2022, and 2021, respectively.
The Company does not hold any subprime MBS in its investment portfolio. Approximately 58% of its MBS are GSE issued. The MBS that are not GSE issued consist primarily of investment grade securities, including $1.2 billion rated AAA and $41 million rated AA.
The Company does not hold any subprime MBS in its investment portfolio. Approximately 65% of its MBS are GSE issued. The MBS that are not GSE issued consist primarily of investment grade securities, including $1.1 billion rated AAA and $26 million rated AA.
The loan terms that have been modified or restructured due to a borrower’s financial situation include, but are not limited to, a reduction in the stated interest rate, an extension of the maturity or renewal of the loan at an interest rate below current market, a reduction in the face amount of the debt, a reduction in the accrued interest, or deferral of interest payments.
The loan terms that were modified or restructured due to a borrower’s financial situation included, but were not limited to, a reduction in the stated interest rate, an extension of the maturity or renewal of the loan at an interest rate below current market, a reduction in the face amount of the debt, a reduction in the accrued interest, or deferral of interest payments.
For the year ended December 31, 2022, the Company recognized no provision for credit losses on HTM securities, compared to a recovery of credit losses of $1.6 million for the same period in 2021, resulting in a total allowance of $5.2 million as of December 31, 2022 and 2021. 43 Table of Contents Loans HFS The Company purchases and originates residential mortgage loans through its AmeriHome mortgage banking business channel that are held for sale or securitization.
For the year ended December 31, 2023, the Company recognized $2.6 million provision for credit losses on HTM securities, compared to no provision of credit losses of for the same period in 2022, resulting in a total allowance of $7.8 million and $5.2 million as of December 31, 2023 and 2022, respectively. 47 Table of Contents Loans HFS The Company purchases and originates residential mortgage loans through its AmeriHome mortgage banking business channel that are held for sale or securitization.
The credit loss model under ASC 326-20, applicable to HTM securities, requires recognition of lifetime expected credit losses through an allowance account at the time the security is purchased.
The credit loss model applicable to HTM securities, requires recognition of lifetime expected credit losses through an allowance account at the time the security is purchased.
Consistent with regulatory guidance, a TDR loan that is subsequently modified in another restructuring agreement but has shown sustained performance and classification as a TDR, will be removed from TDR status provided that the modified terms were market-based at the time of modification.
Consistent with regulatory guidance, a TDR loan subsequently modified in another restructuring agreement but had shown sustained performance and classification as a TDR, was removed from TDR status provided that the modified terms were market-based at the time of modification.
Compliance with the Volcker Rule was required by July 21, 2017. 59 Table of Contents The EGRRCPA and subsequent promulgation of inter-agency final rules have aimed at simplifying and tailoring requirements related to the Volcker Rule, including by eliminating collection of certain metrics and reducing the compliance burdens associated with other metrics for banks with less than $20 billion in average trading assets and liabilities.
The EGRRCPA and subsequent promulgation of inter-agency final rules have aimed at simplifying and tailoring requirements related to the Volcker Rule, including by eliminating collection of certain metrics and reducing the compliance burdens associated with other metrics for banks with less than $20 billion in average trading assets and liabilities.
Comparison of interest income, interest expense and net interest margin The Company's primary source of revenue is interest income. For the year ended December 31, 2022, interest income was $2.7 billion, an increase of $1.0 billion, or 62.3%, compared to $1.7 billion for the year ended December 31, 2021.
Comparison of interest income, interest expense and net interest margin The Company's primary source of revenue is interest income. For the year ended December 31, 2023, interest income was $4.0 billion, an increase of $1.3 billion, or 49.9%, compared to $2.7 billion for the year ended December 31, 2022.
The amendments also simplified the formula used to calculate the amount of interest paid on balances maintained by or on behalf of eligible institutions in master accounts at Federal Reserve Banks, and to made other conforming amendments.
The amendments also simplified the formula used to calculate the amount of interest paid on balances maintained by or on behalf of eligible institutions in master accounts at Federal Reserve Banks, and to made other conforming amendments. The rule became effective on July 29, 2021.
The following table presents the available and outstanding balances on the Company's lines of credit as of December 31, 2022: Available Balance Outstanding Balance (in millions) Unsecured fed funds credit lines at correspondent banks $ 3,989 $ 640 In addition to lines of credit, the Company has borrowing capacity with the FHLB and FRB from pledged loans and securities and warehouse borrowing lines of credit.
The following table presents the available and outstanding balances on the Company's lines of credit as of December 31, 2023: Available Balance Outstanding Balance (in millions) Unsecured fed funds credit lines at correspondent banks $ 1,120 $ 175 In addition to lines of credit, the Company has borrowing capacity with the FHLB and FRB from pledged loans and securities and warehouse borrowing lines of credit.
The following table summarizes the allocation of the ACL on loans HFI by loan portfolio segment: December 31, 2022 December 31, 2021 Allowance for credit losses Percent of total allowance for credit losses Percent of loan type to total loans HFI Allowance for credit losses Percent of total allowance for credit losses Percent of loan type to total loans HFI (dollars in millions) (dollars in millions) Warehouse lending $ 8.4 2.7 % 10.7 % $ 3.0 1.2 % 13.2 % Municipal & nonprofit 15.9 5.1 3.0 13.7 5.4 4.1 Tech & innovation 30.8 9.9 4.4 25.7 10.2 3.6 Equity fund resources 6.4 2.1 7.2 9.6 3.8 9.8 Other commercial and industrial 85.9 27.7 15.0 103.6 41.0 16.5 CRE - owner occupied 7.1 2.3 3.2 10.6 4.2 4.4 Hotel franchise finance 46.9 15.1 7.4 41.5 16.4 6.5 Other CRE - non-owner occupied 47.4 15.3 10.5 16.9 6.7 10.1 Residential 30.4 9.8 27.0 12.5 5.0 23.7 Residential - EBO — — 3.6 — — — Construction and land development 27.4 8.8 7.7 12.5 5.0 7.7 Other 3.1 1.0 0.3 2.9 1.1 0.4 Total $ 309.7 100.0 % 100.0 % $ 252.5 100.0 % 100.0 % During the years ended December 31, 2022 and 2021, net loan charge-offs to average loans outstanding were approximately 0.00% and 0.02%, respectively.
The following table summarizes the allocation of the ACL on loans HFI by loan portfolio segment: December 31, 2023 December 31, 2022 Allowance for credit losses Percent of total allowance for credit losses Percent of loan type to total loans HFI Allowance for credit losses Percent of total allowance for credit losses Percent of loan type to total loans HFI (dollars in millions) Warehouse lending $ 5.8 1.7 % 13.2 % $ 8.4 2.7 % 10.7 % Municipal & nonprofit 14.7 4.4 3.1 15.9 5.1 3.0 Tech & innovation 42.1 12.5 5.6 30.8 10.0 4.4 Equity fund resources 1.3 0.4 1.7 6.4 2.1 7.2 Other commercial and industrial 81.4 24.2 14.8 85.9 27.7 15.0 CRE - owner occupied 6.0 1.8 3.3 7.1 2.3 3.2 Hotel franchise finance 33.4 9.9 7.6 46.9 15.2 7.4 Other CRE - non-owner occupied 96.0 28.5 11.9 47.4 15.3 10.5 Residential 23.1 6.9 26.4 30.4 9.8 27.0 Residential - EBO — — 2.4 — — 3.6 Construction and land development 30.4 9.0 9.6 27.4 8.8 7.7 Other 2.5 0.7 0.4 3.1 1.0 0.3 Total $ 336.7 100.0 % 100.0 % $ 309.7 100.0 % 100.0 % During the years ended December 31, 2023 and 2022, net loan charge-offs to average loans outstanding were 0.06% and approximately 0.00%, respectively.
Further, AmeriHome must comply with a large number of federal consumer protection laws and regulations including, among others: • the Real Estate Settlement Procedures Act and Regulation X, which require lenders, mortgage brokers, or servicers to provide borrowers with pertinent and timely disclosures regarding the nature and costs of the settlement process and prohibit specific practices related thereto; • the Truth In Lending Act and Regulation Z, which require disclosures and timely information on the nature and costs of the residential mortgages and the real estate settlement process; 57 Table of Contents • the Secure and Fair Enforcement for Mortgage Licensing Act, which applies to businesses and individuals engaging in the residential mortgage loan business; • the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Fair Debt Collection Practices Act, the Federal Trade Commission Act, and the rules and regulations of the FTC and CFPB that prohibit unfair, abusive or deceptive acts or practices; • the Fair Credit Reporting Act (as amended by the Fair and Accurate Credit Transactions Act) and Regulation V, which address the accuracy, fairness, and privacy of information in the files of consumer reporting agencies; and • the Equal Credit Opportunity Act and Regulation B, the Fair Housing Act, the Homeowners Protection Act, and the Home Mortgage Disclosure Act and Regulation C, which generally disallow discrimination on a prohibited basis, provide applicants and borrowers rights with respect to credit decisioning and the residential mortgage process, and require disclosures and impose obligations on financial businesses conducting residential lending and mortgage servicing.
In addition to supervision by the federal banking agencies with primary jurisdiction over the Company and WAB, AmeriHome is subject to the rules, regulations and oversight of certain federal, state and local governmental authorities, including the CFPB, HUD, and GNMA, and government-sponsored enterprises in the mortgage industry such as FHLMC and FNMA. 63 Table of Contents Further, AmeriHome must comply with a large number of federal consumer protection laws and regulations including, among others: • the Real Estate Settlement Procedures Act and Regulation X, which require lenders, mortgage brokers, or servicers to provide borrowers with pertinent and timely disclosures regarding the nature and costs of the settlement process and prohibit specific practices related thereto; • the Truth In Lending Act and Regulation Z, which require disclosures and timely information on the nature and costs of the residential mortgages and the real estate settlement process; • the Secure and Fair Enforcement for Mortgage Licensing Act, which applies to businesses and individuals engaging in the residential mortgage loan business; • the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Fair Debt Collection Practices Act, the Federal Trade Commission Act, and the rules and regulations of the FTC and CFPB that prohibit unfair, abusive or deceptive acts or practices; • the Fair Credit Reporting Act (as amended by the Fair and Accurate Credit Transactions Act) and Regulation V, which address the accuracy, fairness, and privacy of information in the files of consumer reporting agencies; and • the Equal Credit Opportunity Act and Regulation B, the Fair Housing Act, the Homeowners Protection Act, and the Home Mortgage Disclosure Act and Regulation C, which generally disallow discrimination on a prohibited basis, provide applicants and borrowers rights with respect to credit decisioning and the residential mortgage process, and require disclosures and impose obligations on financial businesses conducting residential lending and mortgage servicing.
Net deferred loan fees of $141 million and $86 million reduced the carrying value of loans as of December 31, 2022 and 2021, respectively.
Net deferred loan fees of $108 million and $141 million reduced the carrying value of loans as of December 31, 2023 and 2022, respectively.
At December 31, 2022, the carrying value of qualifying debt was $893 million, compared to $896 million at December 31, 2021. 51 Table of Contents Capital Resources The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.
At December 31, 2023, the carrying value of qualifying debt was $895 million, compared to $893 million at December 31, 2022. Capital Resources The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.
Total U.S. time deposits in excess of the FDIC insurance limit were $1.1 billion and $466 million at December 31, 2022 and 2021, respectively.
Total U.S. time deposits in excess of the FDIC insurance limit were $1.0 billion and $1.1 billion at December 31, 2023 and 2022, respectively.
Therefore, the ability to originate new loans and attract new deposits is fundamental to the Company’s growth. Total assets increased to $67.7 billion at December 31, 2022 from $56.0 billion at December 31, 2021.
Therefore, the ability to originate new loans and attract new deposits is fundamental to the Company’s growth. Total assets increased to $70.9 billion at December 31, 2023 from $67.7 billion at December 31, 2022.
Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity, and other capital instrument repurchases and compensation based on the amount of the shortfall. The Capital Rules became fully phased-in on January 1, 2019.
Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity, and other capital instrument repurchases and compensation based on the amount of the shortfall.
The following table presents information regarding potential and actual problem loans, consisting of loans graded as Special Mention, Substandard, Doubtful, and Loss, but which are still performing: December 31, 2022 Number of Loans Problem Loan Balance Percent of Problem Loan Balance Percent of Total Loans HFI (dollars in millions) Warehouse lending 1 $ 43 11.3 % 0.08 % Tech & innovation 27 81 21.4 0.16 Other commercial and industrial 50 36 9.5 0.07 CRE - owner occupied 8 4 1.0 0.01 Hotel franchise finance 2 26 6.9 0.05 Other CRE - non-owner occupied 9 55 14.5 0.10 Residential 39 20 5.3 0.04 Construction and land development 2 98 25.9 0.19 Other 18 16 4.2 0.03 Total 156 $ 379 100.0 % 0.73 % December 31, 2021 Number of Loans Problem Loan Balance Percent of Problem Loan Balance Percent of Total Loans HFI (dollars in millions) Tech & innovation 13 $ 39 11.4 % 0.10 % Other commercial and industrial 66 60 17.9 0.16 CRE - owner occupied 14 16 4.7 0.04 Hotel franchise finance 9 139 40.9 0.35 Other CRE - non-owner occupied 5 11 3.4 0.03 Residential 35 16 4.6 0.04 Construction and land development 7 28 8.3 0.07 Other 17 30 8.8 0.08 Total 166 $ 339 100.0 % 0.87 % Mortgage Servicing Rights The fair value of the Company's MSRs related to residential mortgage loans totaled $1.1 billion and $698 million as of December 31, 2022 and 2021, respectively.
The following table presents information regarding potential and actual problem loans, consisting of loans graded as Special Mention, Substandard, Doubtful, and Loss, but which are still performing: December 31, 2023 Number of Loans Problem Loan Balance Percent of Problem Loan Balance Percent of Total Loans HFI (dollars in millions) Warehouse lending 1 $ 26 3.6 % 0.05 % Municipal & nonprofit 2 18 2.5 0.04 Tech & innovation 14 49 6.8 0.10 Other commercial and industrial 50 95 13.2 0.19 CRE - owner occupied 9 3 0.4 0.01 Hotel franchise finance 9 203 28.3 0.40 Other CRE - non-owner occupied 15 251 35.0 0.50 Residential 143 72 10.0 0.14 Construction and land development 1 1 0.1 0.00 Other 20 1 0.1 0.00 Total 264 $ 719 100.0 % 1.43 % December 31, 2022 Number of Loans Problem Loan Balance Percent of Problem Loan Balance Percent of Total Loans HFI (dollars in millions) Warehouse lending 1 $ 43 11.3 % 0.08 % Tech & innovation 27 81 21.4 0.16 Other commercial and industrial 50 36 9.5 0.07 CRE - owner occupied 8 4 1.0 0.01 Hotel franchise finance 2 26 6.9 0.05 Other CRE - non-owner occupied 9 55 14.5 0.10 Residential 39 20 5.3 0.04 Construction and land development 2 98 25.9 0.19 Other 18 16 4.2 0.03 Total 156 $ 379 100.0 % 0.73 % Mortgage Servicing Rights The fair value of the Company's MSRs related to residential mortgage loans totaled $1.1 billion as of December 31, 2023 and 2022.
Results of Operations and Financial Condition A summary of the Company's results of operations, financial condition, and selected metrics are included in the following tables: Year Ended December 31, 2022 2021 2020 (dollars in millions, except per share amounts) Net income $ 1,057.3 $ 899.2 $ 506.6 Net income available to common stockholders 1,044.5 895.7 506.6 Earnings per share - basic 9.74 8.72 5.06 Earnings per share - diluted 9.70 8.67 5.04 Return on average assets 1.62 % 1.83 % 1.61 % Return on average equity 20.7 22.3 16.1 Return on average tangible common equity (1) 25.4 26.2 17.7 Net interest margin 3.67 3.41 3.97 (1) See Non-GAAP Financial Measures section beginning on page 34.
Results of Operations and Financial Condition A summary of the Company's results of operations, financial condition, and selected metrics are included in the following tables: Year Ended December 31, 2023 2022 2021 (dollars in millions, except per share amounts) Net income $ 722.4 $ 1,057.3 $ 899.2 Net income available to common stockholders 709.6 1,044.5 895.7 Earnings per share - basic 6.55 9.74 8.72 Earnings per share - diluted 6.54 9.70 8.67 Return on average assets 1.03 % 1.62 % 1.83 % Return on average equity 12.6 20.7 22.3 Return on average tangible common equity (1) 14.9 25.4 26.2 Net interest margin 3.63 3.67 3.41 (1) See Non-GAAP Financial Measures section beginning on page 37.
Beginning in 2022, capital ratios and amounts include a 25% reduction to the capital benefit that resulted from the increased ACL related to the adoption of ASC 326.
Accordingly, capital ratios and amounts for 2022 include a 25% reduction to the capital benefit that resulted from the increased ACL related to the adoption of ASC 326, which has increased to include a 50% reduction beginning in 2023.
Beginning in 2022, capital ratios and amounts include a 25% reduction to the capital benefit that resulted from the increased ACL related to the adoption of ASC 326.
Accordingly, capital ratios and amounts for 2022 include a 25% reduction to the capital benefit that resulted from the increased ACL related to the adoption of ASC 326, which has increased to include a 50% reduction beginning in 2023.
In addition, the Company has borrowing capacity from other sources, collateralized by securities, including securities sold under agreements to repurchase, which are reflected at the amount of cash received in connection with the transaction, and may require additional collateral based on the fair value of the underlying securities.
In addition, the Company has repurchase facilities, collateralized by securities and EBO loans, including assets sold under agreements to repurchase, which are reflected at the amount of cash received in connection with the transaction, and may require additional collateral based on the fair value of the underlying assets.
The following is a summary of the UPB of loans underlying the Company's MSR portfolio by type: December 31, 2022 2021 (in millions) FNMA and FHLMC $ 38,113 $ 38,754 GNMA 31,046 14,379 Non-agency 1,690 1,215 Total unpaid principal balance of loans $ 70,849 $ 54,348 49 Table of Contents Goodwill and Other Intangible Assets Goodwill represents the excess consideration paid for net assets acquired in a business combination over their fair value.
The following is a summary of the UPB of loans underlying the Company's MSR portfolio by type: December 31, 2023 2022 (in millions) FNMA and FHLMC $ 46,840 $ 38,113 GNMA 19,848 31,046 Non-agency 1,959 1,690 Total unpaid principal balance of loans $ 68,647 $ 70,849 54 Table of Contents Goodwill and Other Intangible Assets Goodwill represents the excess consideration paid for net assets acquired in a business combination over their fair value.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

14 edited+10 added−7 removed5 unchanged
Biggest changeAt December 31, 2022, the Company's EVE exposure related to these hypothetical changes in market interest rates was within the Company's current guidelines, with the exception of the Up 100 rate scenario, where there was a slight breach on the Company's guideline of (10.0)%.
Biggest changeThe following table shows the Company's projected change in EVE for this set of rate shocks at December 31, 2023: Economic Value of Equity Interest Rate Scenario Down 200 Down 100 Up 100 Up 200 (change in basis points from Base) % Change 15.3 % 8.1 % (7.2) % (13.2) % At December 31, 2023, the Company's EVE exposure related to these hypothetical changes in market interest rates was within the Company's current guidelines.
The Company manages its balance sheet in part to maintain the potential impact on EVE and net interest income within acceptable ranges despite changes in interest rates. The Company's exposure to interest rate risk is reviewed at least quarterly by ALCO.
The Company manages its balance sheet in part to keep the potential impact on EVE and net interest income within acceptable ranges despite changes in interest rates. The Company's exposure to interest rate risk is reviewed at least quarterly by ALCO.
To measure interest rate risk at December 31, 2022, the Company used a simulation model to project changes in net interest income that result from forecasted changes in interest rates.
To measure interest rate risk at December 31, 2023, the Company used a simulation model to project changes in net interest income that result from forecasted changes in interest rates.
The Company measures the impact of market interest rate changes on the NPV of estimated cash flows from its assets, liabilities, and off-balance sheet items, defined as EVE, using a simulation model.
Economic Value of Equity. The Company measures the impact of market interest rate changes on the NPV of estimated cash flows from its assets, liabilities, and off-balance sheet items, defined as EVE, using a simulation model.
Furthermore, loan prepayment rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan prepayment speeds that will differ from the market estimates incorporated in this analysis.
Interest rate changes create changes in actual loan prepayment speeds that will differ from the market estimates incorporated in this analysis.
Hedging strategies, including the terms and pricing of loans and deposits and management of the deployment of its securities, are used to reduce mismatches in interest rate re-pricing opportunities of portfolio assets and their funding sources. Interest rate risk is addressed by ALCO, which includes members of executive management, finance, and operations.
Hedging strategies, including the terms and pricing of loans and deposits and management of the deployment of its securities, are used to reduce mismatches in interest rate re-pricing opportunities of portfolio assets and their funding sources.
This simulation model assesses the changes in the market value of interest rate sensitive financial instruments that would occur in response to an instantaneous and sustained increase or decrease (shock) in market interest rates.
The Company's EVE model assumptions have not changed from the assumptions used in its December 31, 2022 simulation. This simulation model assesses the changes in the market value of interest rate sensitive financial instruments that would occur in response to an instantaneous and sustained increase or decrease (shock) in market interest rates.
Changes that vary significantly from the modeled assumptions may have a significant effect on the Company's actual net interest income. 66 Table of Contents This simulation model assesses the changes in net interest income that would occur in response to an instantaneous and sustained increase or decrease (shock) in market interest rates.
These assumptions are inherently uncertain and as a result, actual results may differ from simulated results due to factors such as timing, magnitude and frequency of interest rate changes as well as changes in market conditions, customer behavior and management strategies, and changes that vary significantly from the modeled assumptions may have a significant effect on the Company's actual net interest income. 73 Table of Contents This simulation model assesses the changes in net interest income that would occur in response to an instantaneous and sustained increase or decrease (shock) in market interest rates.
It assumes the balance sheet remains static and that its structure does not change over the course of the year. It does not account for all factors that could impact the Company's results, including changes by management to mitigate interest rate changes or secondary factors, such as changes to the Company's credit risk profile as interest rates change.
It does not account for all factors that could impact the Company's results, including changes by management to mitigate interest rate changes or secondary factors, such as changes to the Company's credit risk profile as interest rates change. The results also will be impacted by seasonality in the balance sheet. Furthermore, loan prepayment rate estimates and spread relationships change regularly.
This analysis calculates the difference between a baseline net interest income forecast using current yield curves that do not take into consideration any future anticipated rate hikes, compared to forecasted net income resulting from an immediate parallel shift in rates upward or downward, along with other scenarios directed by ALCO.
This analysis calculates the difference between a baseline net interest income forecast using current yield curves, compared to forecasted net income resulting from an immediate parallel shift in rates upward or downward, along with other scenarios directed by ALCO. The income simulation model includes various assumptions regarding re-pricing relationships for each of the Company's products.
The income simulation model includes various assumptions regarding re-pricing relationships for each of the Company's products. Many of the Company's assets are variable rate loans, which are assumed to re-price immediately and, proportional to the change in market rates, depending on their contracted index, including the impact of caps or floors.
Many of the Company's assets are variable rate loans, which are assumed to re-price at the next rate re-set period and, proportional to the change in market rates, depending on their contracted index, including the impact of caps or floors. Some loans and investments contain contractual prepayment features (embedded options) and, accordingly, the simulation model incorporates prepayment assumptions.
If potential changes to EVE and net interest income resulting from hypothetical interest rate changes are not within the limits established by the BOD, the BOD may direct management to adjust the asset and liability mix to bring interest rate risk within Board-approved limits. Net Interest Income Simulation.
If potential changes to EVE and net interest income resulting from hypothetical interest rate changes are not within the limits established by the BOD or, ALCO determines that interest rate exposures should be reduced, ALCO will either take hedging actions or adjust the asset and liability mix to bring interest rate risk within BOD-approved limits or in line with ALCO's proposed reduction.
In the normal course of business, the Company uses derivative instruments to meet the needs of its customers and manage exposure to fluctuations in interest rates.
Derivative Contracts. In the normal course of business, the Company uses derivative instruments to meet the needs of its customers and manage exposure to fluctuations in interest rates. For additional discussion on how derivatives in a hedging relationship (fair value hedges) are used to manage the Company's interest rate risk, see "Note 14.
At December 31, 2022, our net interest income exposure for the next twelve months related to these hypothetical changes in market interest rates was within our current guidelines.
Sensitivity of Net Interest Income Down 200 Down 100 Up 100 Up 200 (change in basis points from Base) Parallel Shift Scenario (7.1) % (3.4) % 3.2 % 6.4 % Interest Rate Ramp Scenario (3.1) (1.5) 1.5 3.0 At December 31, 2023, our net interest income exposure for the next twelve months related to these hypothetical changes in market interest rates was within our current guidelines.
Removed
Some loans and investments contain contractual prepayment features (embedded options) and, accordingly, the simulation model incorporates prepayment assumptions. The Company's non-term deposit products re-price concurrently with interest rate changes taken by the FOMC. This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions.
Added
Derivatives in a hedging relationship are also used to minimize the Company's exposure to changes in benchmark interest rates and volatility of net interest income and EVE to interest rate fluctuations, with their impact reflected in the model results discussed below. Interest rate risk is addressed by ALCO, which includes members of executive management, finance, and operations.
Removed
Sensitivity of Net Interest Income Parallel Shift Rate Scenario (change in basis points from Base) Down 100 Base Up 100 Up 200 (in millions) Interest Income $ 3,176.2 $ 3,499.6 $ 3,824.6 $ 4,142.6 Interest Expense 1,004.9 1,260.1 1,516.0 1,771.9 Net Interest Income 2,171.3 2,239.5 2,308.6 2,370.7 % Change (3.0) % 3.1 % 5.9 % Interest Rate Ramp Scenario (change in basis points from Base) Down 100 Base Up 100 Up 200 (in millions) Interest Income $ 3,358.3 $ 3,499.6 $ 3,642.2 $ 3,782.9 Interest Expense 1,148.7 1,260.1 1,371.7 1,483.4 Net Interest Income 2,209.6 2,239.5 2,270.5 2,299.5 % Change (1.3) % 1.4 % 2.7 % Economic Value of Equity.
Added
ALCO may also decide the best course of action for a limit breach is to accept the breach and present justification to the BOD. If the BOD does not agree to accept the limit breach, it will direct ALCO to remediate the breach.
Removed
The breach is the result of a decline in duration of the Company's deposit liabilities from lower non-interest bearing deposit balances and increasing decay rates as well as an increase in the duration of earning assets related to decreases in loans HFS and shorter-term investments.
Added
The Company's net interest income and EVE exposure limits are approved by the BOD on an annual basis, or more often if market conditions warrant. During the year ended December 31, 2023, there have been no changes to the Company's exposure limits. Net Interest Income Simulation.
Removed
The BOD and ALCO have accepted the breach and believe that as the Company continues to grow its balance sheet with an emphasis on deposits, the EVE exposure in the Up 100 rate scenario will be reduced.
Added
The Company's non-term deposit products re-price with a certain beta to underlying market rate changes. The Company regularly conducts sensitivity analysis for this assumption to determine the impact on the interest rate risk position. These betas are derived separately by deposit product and are based on both observed and projected market rate and balance trends.
Removed
The following table shows the Company's projected change in EVE for this set of rate shocks at December 31, 2022: Economic Value of Equity Interest Rate Scenario (change in basis points from Base) Down 200 Down 100 Base Up 100 Up 200 Up 300 (in millions) Assets $ 66,887 $ 64,861 $ 63,049 $ 61,484 $ 60,126 $ 58,939 Liabilities 57,278 56,310 55,527 54,765 54,034 53,255 Net Present Value 9,609 8,551 7,522 6,719 6,092 5,684 % Change 27.7 % 13.7 % (10.7) % (19.0) % (24.4) % The computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, asset prepayments, and deposit decay, and should not be relied upon as indicative of actual results.
Added
Current deposit beta assumptions range between 20% to 90%, depending on product, with an average interest bearing deposit beta of 59%. This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions. It assumes loan and deposit balances remain static and do not change over the course of the year.
Removed
Further, the computations do not contemplate any actions the Company may undertake in response to changes in interest rates. Actual amounts may differ from the projections set forth above should market conditions vary from the underlying assumptions. 67 Table of Contents Derivative Contracts.
Added
A Down 200 scenario in this simulation model is also being presented as of December 31, 2023 as current projections of future market rates include consideration of rate decreases in the current high rate environment. The Company will continue to evaluate the scenarios that are presented as interest rates change and will update these scenario disclosures as appropriate.
Removed
The following table summarizes the aggregate notional amounts, market values, and terms of the Company’s derivative positions: Outstanding Derivatives Positions December 31, 2022 2021 Notional NPV Weighted Average Term (Years) Notional NPV Weighted Average Term (Years) (dollars in millions) $ 322,057 $ 11 0.6 $ 480,766 $ (50) 1.5 68 Table of Contents
Added
The Company's simulation model focuses on parallel interest rate shocks and takes into account assumptions related to loan prepayment trends that are sourced using a combination of third-party prepayment models and internal historical experience, terminal maturity for non-maturity deposits, decay attrition, and pricing sensitivity derived from the Company's data and other internally-developed analysis and models.
Added
These assumptions are reviewed at least annually and are adjusted periodically to reflect changes in market conditions and the Company's balance sheet composition. As simulated model results are based on a number of assumptions outlined above, including forecasted market conditions, actual amounts may differ significantly from the projections set forth below should market conditions vary from the underlying assumptions.
Added
The Company will continue to evaluate the scenarios that are presented as interest rates change and will update these scenario disclosures as appropriate.
Added
Derivatives and Hedging Activities" in Item 8 of this Form 10-K. 74 Table of Contents

Other WAL 10-K year-over-year comparisons