Western Alliance Bancorporation(US:WAL)2023-10-21 03:20Financial Data and Key Metrics Changes - The company reported a net income of $217 million and earnings per share (EPS) of $1.97 for Q3 2023, with pre-provision net revenue of $290 million [25][31] - The CET1 capital ratio increased from 8.7% a year ago to 10.6% [22] - The HFI loan-to-deposit ratio improved from 94% to 91% [22] - Total deposits grew by $3.2 billion to $54 billion at quarter-end, with a 27 basis point increase in deposit costs [23][28] - Net interest income rose by $37 million to $587 million due to favorable repricing of earning assets [25] Business Line Data and Key Metrics Changes - Mortgage banking revenue declined by $7 million to $79 million, impacted by rising mortgage rates and a 5% decrease in lot volume [25] - Organic held for investment loans grew by $240 million, primarily from C&I and mortgage warehouse financing [51] - The securities portfolio increased by $1 billion to $11.4 billion, with a yield on total investments expanding by 15 basis points to 4.91% [52] Market Data and Key Metrics Changes - The company experienced a 5% quarter-over-quarter decline in mortgage banking revenue due to rising rates [25] - Non-interest-bearing DDA comprised a third of total deposits, with approximately 40% having no cash payment or earnings credits [28] Company Strategy and Development Direction - The company aims to stabilize and grow deposits while optimizing its liability structure by paying down borrowings [45][46] - The strategy includes enhancing liquidity and deposit granularity to withstand market disruptions [45] - The company plans to complete the optimization of its funding structure and deploy excess core deposits into loan growth over the next one to two quarters [46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the stability of the deposit franchise and the ability to navigate a volatile rate environment [46] - The company anticipates net deposit growth will be impacted by seasonal reductions in mortgage warehouse deposits but expects growth in regional divisions and digital channels [35] - Management expects loan and core deposits to be flat to several hundred million dollars higher in Q4 [35] Other Important Information - The company reclassified $1.3 billion of non-AmeriHome held-for-sale loans back to held for investment, indicating a shift in strategy towards generating interest income [50] - The efficiency ratio was reported at 58.8%, with an adjusted efficiency ratio of 50% [54] Q&A Session Summary Question: What is the outlook for loan growth and deposit growth in 2024? - Management indicated that they expect to maintain a $2 billion deposit growth target while potentially increasing loan growth as the loan-to-deposit ratio improves [68][91] Question: How will the company manage expenses moving forward? - Management stated that expenses are expected to remain flat in Q4, with marginal growth in 2024 driven by investments in new products and services [69][92] Question: What is the impact of rate cuts on net interest income and PPNR? - Management noted that a 100 basis point rate cut could lead to a 4% decline in net interest income, but also higher revenue from mortgage operations [148] Question: How is the company addressing the challenges in the mortgage warehouse business? - Management acknowledged that the mortgage warehouse business is subject to seasonal volatility, which could impact deposit levels in Q4 [142]