Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Western Alliance Bancorp (WAL, Financial) reported earnings of $1.75 per share for Q2 2024, indicating strong financial performance.
- The company achieved significant core deposit growth of $4 billion and HFI loan growth of $1.7 billion, or 14% annualized from Q1.
- Net interest income grew by 39% annualized, driven by higher average earning assets and an expanding net interest margin (NIM).
- The liquidity profile was bolstered by a $1.7 billion increase in securities and cash, allowing for a reduction in borrowings and broker deposits.
- Tangible book value per share increased by 3% from March 31 to $48.79, reflecting strong retained earnings growth.
Negative Points
- Non-interest income decreased by $15 million quarter-over-quarter, primarily due to lower income from equity investments and softer mortgage revenue.
- Non-interest expense was $487 million, with deposit costs growing to $174 million, reflecting the elevated rate environment.
- Provision expense of $37 million was driven by loan growth above industry trends and $23 million of net charge-offs.
- The cost of interest-bearing deposits increased by 6 basis points from Q1, while the total cost of funds declined by only 3 basis points.
- Asset quality is normalizing, with total classified assets declining by $33 million but net charge-offs remaining at 18 basis points of average loans, primarily due to issues with a Downtown San Diego office property.
Q & A Highlights
Q: Can you provide more details on the loan growth and its geographic distribution?
A: The majority of our growth has been in the C&I categories, which are low or no loss segments. We expect this trend to continue, with a focus on node financing and warehouse lending. CRE will remain relatively flat, and residential loans will continue to decrease. (Dale Gibbons, CFO)
Q: How will the anticipated Fed rate cuts impact your mortgage banking and fee income?
A: We forecast a modest decline in mortgage income due to the seasonal low volume in Q4. The rate cuts are expected to benefit mortgage volume more significantly in 2025. (Dale Gibbons, CFO)
Q: What drove the strong growth in ECR deposits, and how did it affect interest expenses?
A: The growth came primarily from warehouse lending, driven by market share gains and new clients. We are also working on initiatives to reduce the ECR rates as we move into Q3 and Q4. (Kenneth Vecchione, CEO)
Q: Can you elaborate on the credit quality outlook and any potential weaknesses?
A: We focus on early elevation and resolution of troubled loans. Our forward estimates include current valuations and anticipated changes. We maintain a stable outlook on our portfolio. (Tim Bruckner, Chief Credit Officer)
Q: What are your updated thoughts on the net interest margin (NIM) outlook?
A: We expect the NIM to hold close to the current 3.60% area for Q3 and Q4, including the anticipated rate cuts. (Kenneth Vecchione, CEO)
Q: How do you plan to manage the concentration of mortgage warehouse deposits?
A: We are working on repricing strategies to reduce rates paid on these deposits. Our strong balance sheet and premier platform position us well to negotiate better terms. (Kenneth Vecchione, CEO)
Q: What is the status of your large financial institution spend and compliance with the $100 billion threshold?
A: We are about three-quarters of the way through compliance. We plan to pay down borrowings and broker deposits, which will slow total asset growth. (Dale Gibbons, CFO)
Q: How will the rate cuts impact your ability to lower ECR costs and benefit mortgage-related activities?
A: Rate cuts will allow us to reduce ECR rates immediately. Combined with seasonal deposit outflows, this will lower non-interest expenses. (Kenneth Vecchione, CEO)
Q: Can you provide an update on your corporate trust business and its growth prospects?
A: We have seen good traction and have a strong pipeline of deals. Our technology and customer service are highly regarded, and we expect continued growth in deposits and mandates. (Kenneth Vecchione, CEO)
Q: How do you view the competitive environment in your mortgage businesses?
A: We have become a premier platform due to our consistent presence in the market and strong service levels. We expect to continue gaining market share as competitors exit the market. (Kenneth Vecchione, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
