Western Alliance Bancorporation(WAL) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a net interest income growth of 39% annualized, driven by higher average earning assets and an expanding net interest margin (NIM) [10] - The tangible book value per share increased to $48.79, reflecting a growth rate of 3% from the previous quarter [19] - The pre-provision net revenue adjusted for FDIC special assessments is 22% annualized, indicating a positive trend [10] Business Line Data and Key Metrics Changes - Mortgage loan production rose by 14%, while interest rate commitment volume increased by 24%, although the gain on sale margin compressed by 3 basis points [32] - Loans held-for-investment (HFI) grew by$ 1.7 billion to $52.4 billion, while deposits increased by$ 4 billion to $66.2 billion at quarter-end [19] - The cost of interest-bearing deposits increased by 6 basis points from the first quarter, while the total cost of funds declined by 3 basis points to 2.79% [33] Market Data and Key Metrics Changes - The yield on total securities increased by 21 basis points to 4.87%, recovering two-thirds of the prior quarter's decline [8] - The company experienced outsized core deposit growth of$ 4 billion, with HFI loan growth of $1.7 billion or 14% on an annualized basis from Q1 [16] - Non-ECR, non-interest-bearing deposits have shown three consecutive quarters of growth, indicating a positive trend in deposit channels [53] Company Strategy and Development Direction - The company aims to maintain a CET1 capital ratio at or above 11%, supporting forecasted increases in loan volume [24] - The strategy focuses on thoughtful balance sheet growth, enhancing liquidity profiles, and capital bases to drive earnings growth [29] - The company is positioned to proactively lower the effective cost of deposits as interest rate cuts approach, particularly in the warehouse lending segment [19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the quarter's performance and highlighted the importance of their proactive approach to risk management and liquidity [6] - The outlook for net interest income growth is projected at 9% to 14% from the Q4 2023 annualized jumping-off point, with expectations of two 25 basis-point cuts in the latter half of the year [24] - Management noted that asset quality is normalizing, with net charge-offs expected to remain low by industry standards at 15 to 20 basis points of average loans for the year [38] Other Important Information - The company has a strong focus on low-loss loan categories, which has resulted in a reserve level lower than some peers [21] - The company is actively working on initiatives to manage deposit costs and improve service levels in the warehouse lending space [80] - The Corporate Trust business is showing positive traction, with expectations for continued growth in deposits and services offered [133] Q&A Session Summary Question: What is the outlook for loan growth and deposit growth? - Management expects loan growth to continue at$ 1 billion per quarter, with total loans projected to grow by $4.5 billion for the year, and deposits expected to grow by$ 14 billion [37] Question: How does the company plan to manage deposit costs in a changing interest rate environment? - The company plans to leverage its strong balance sheet to lower effective costs of deposits as rates decline, particularly in the warehouse lending segment [80] Question: What is the company's strategy regarding the Corporate Trust business? - The Corporate Trust business is expected to grow significantly, with positive ratings actions from agencies and a strong pipeline of deals [133]