Western Alliance Bancorp Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ebrahim Poonawala - BofA Global Research - Analyst : Hey, good morning. So just first question around deposits. Trying to understand, so we've I'm assuming you were aware of the seasonality last quarter when you raised the deposit guidance for the year. So I'm just trying to understand if you can give us a little color on the settlement that impact. And how pronounced is the seasonality versus just some of these chunkier outflows? And are there more such deposits that could leave the bank that could have some meaningful impact on near-term NII trajectory? If we can address NII, both in terms of larger outflows and then how impactful is the 4Q seasonality because I'm not sure it was that prevalent in the fourth quarter of last year. Thanks.

Question: Ebrahim Poonawala - BofA Global Research - Analyst : It was going to be my follow-up. So please, I think you've given the guidance. Just talk to us how that goes, NII plus ECR deposit costs with or without rate cuts?

Question: Ebrahim Poonawala - BofA Global Research - Analyst : Okay. All very clear. I'll let Jon ask you whether or not you can earn 9-plus next year.

Question: Chris McGratty - Keefe, Bruyette & Woods North America - Analyst : Hey. Good morning. Dale I was wondering if you could help or Ken, on the outlook for noninterest income for the fourth quarter. I know this quarter had an MSR adjustment, but maybe unpack the 8% to 12% growth in fees for Q4 because some of the line items moving around a little bit? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 18, 2024 / 4:00PM, WAL.N - Q3 2024 Western Alliance Bancorp Earnings Call

Question: Chris McGratty - Keefe, Bruyette & Woods North America - Analyst : Okay. And then just, I guess, my follow-up. The security gains you mentioned, is that in the guide? And I guess, a similar magnitude?

Question: Chris McGratty - Keefe, Bruyette & Woods North America - Analyst : Okay.

Question: Jared Shaw - Barclays - Analyst : Hi, good morning. Maybe looking at the loan growth that you had referenced, especially on the C&I side, where are you seeing opportunities for that -- and maybe if you could just give us a little bit of early look at '25 in terms of sort of the pipelines and the expectation for the sustainability of that growth?

Question: Jared Shaw - Barclays - Analyst : Okay. That's good. Thanks. And then just as my follow-up, looking at capital with the 11% sort of, I won't call it target, but calling out 11% or above that. Should we expect you to continue to grow CET1 from this 11%, too? Or would there be other capital management alternatives that you you'd utilize here?

Question: Matthew Clark - Piper Sandler Companies - Analyst : Hey. Good morning, everyone. Thank you. First question around the ECR-related costs. Given the volume and rate dynamic going forward and assuming either your rate assumptions that you laid out earlier or the forward curve, what is the good range of expectations for customer service cost dollars in 2025? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 18, 2024 / 4:00PM, WAL.N - Q3 2024 Western Alliance Bancorp Earnings Call

Question: Matthew Clark - Piper Sandler Companies - Analyst : Above 100%.

Question: Matthew Clark - Piper Sandler Companies - Analyst : Okay. So it sounds like it's more rate driven, not volume-driven kind of -- okay. Got it. Okay. And then just on the -- your kind of a blended question around loan yields. I know SOFR came down ahead of the Fed cuts, and I'm sure that hurt a little bit. It also looked like your loan fees came down to 15 basis points from 24 bps in the prior quarter, and they had been running around that level for a few quarters. I guess just what happened there? And then how do we think about the overall NIM in the near term?

Question: Bernard Von Gizycki - Deutsche Bank AG - Analyst : Hey, guys, good morning. Just on mortgage, you previously obviously guided to 3Q being seasonally weaker with the loan production volumes were up nicely versus 2Q while the gain on sale margins declined. And obviously, you called out the negative MSR mark. Could you just talk to the puts and takes on how high demand maybe needs to pick up to see a pickup in Regina margins? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 18, 2024 / 4:00PM, WAL.N - Q3 2024 Western Alliance Bancorp Earnings Call

Question: Bernard Von Gizycki - Deutsche Bank AG - Analyst : Okay. And then just as we think about maybe mortgage more broadly and just the dynamics like you mentioned with mortgage rates coming down closer to 6% and then backing off. What really gets mortgage for you guys? I think in the past, you've said maybe like the 3, 4 rate cuts kind of help and maybe a low 6% is really what's meaningful to increase production. But just kind of wanted to get your thoughts like maybe the 6.5% hopefully comes down again, but it is based on some of the pull forward of the rate cut expectation. So just want to get your thoughts on maybe a mortgage rate level that you think the production volumes kind of pick up and revenues follow?

Question: Timur Braziler - Wells Fargo Securities LLC - Analyst : Hi, good morning. I wanted to just get some clarity on the expectation for 4Q to be the NII trough. Is the expectation that 1Q maybe you get some additional margin compression from the asset-sensitive balance sheet and then volume makes it up? Or should 4Q be the trough for NIM compression as well?

Question: Timur Braziler - Wells Fargo Securities LLC - Analyst : Yeah. Okay. And then just to maybe to put a finer point on Bernie's question. So for the earnings at risk analysis, I guess, what are you assuming for mortgage rates and kind of mortgage revenues within that earnings at risk analysis?

Question: Timur Braziler - Wells Fargo Securities LLC - Analyst : Great. And then just last thing for me (multiple speakers) Sure

Question: Timur Braziler - Wells Fargo Securities LLC - Analyst : No, I appreciate that clarification. And then just lastly for me, just thinking about HQLA deposits in a rate-down environment I'm assuming just the short-term nature, there is going to be a little bit punitive to NII. Just how are you thinking about HQLA levels growing, maybe commensurate with the asset base or asset growth and then what that might look like from a rate perspective?

Question: Anthony Elian - JPMorgan Chase & Co - Analyst : Hi, everyone. Does your 4Q deposit guide of down $2 billion include any additional paydowns of broker deposits? Or is the decline really coming from the seasonality of warehouse?

Question: Anthony Elian - JPMorgan Chase & Co - Analyst : Got it. Okay. And then my follow-up also on deposits. I understand the warehouse is going to seasonally outflow in 4Q. But I guess are there not enough deposit opportunities from other areas of the company to be able to offset that seasonal headwind for this quarter specifically? Thank you.

Question: Gary Tenner - D. A. Davidson & Co - Analyst : Thanks. Good morning. I appreciate the firm thoughts on the combined NII and ECR costs. I just wonder if you're willing to put a finer time on just the GAAP NII outlook. Obviously, the fourth quarter is a lower guide. Based on your rate forecast for next year, kind of the 25 basis points per quarter, how deep into the year would you think it would be until you could turn dollars of GAAP NII from a bottom?

Question: Gary Tenner - D. A. Davidson & Co - Analyst : All right. Thank you.

Question: Samuel Varga - UBS - Analyst : Good morning. Dale, I just wanted to touch on the CRA again. I wanted to get your sense for, let's say, if Fed funds normalize around the 3% that a lot of people are pegging, what would be the floor on ECR rates? I understand that the beta at least initially is expected to be near 100%. But how -- at what point does it just level off and that move lower?

Question: Samuel Varga - UBS - Analyst : Got it. And then just my follow-up on the earnings at risk. Can you give us a sense -- obviously, it's hard for us to know exactly what you're assuming on mortgage. But can you give us a sense for what helps more in offsetting the NII compression? Is it the CRs or the mortgage benefit from AmeriHome on the fee income side?

Question: Chris McGratty - Keefe, Bruyette & Woods North America - Analyst : Great. Thanks. Great. Dale or Ken, longer-term question about ROE potential in a down rate environment. How are you thinking about ROE over the next couple of years?

Question: Chris McGratty - Keefe, Bruyette & Woods North America - Analyst : Understood. Thanks a lot, Dale.

Question: Jon Arfstrom - RBC Capital Markets - Analyst : Thanks. Good morning. Ebrahim set me up, I guess. But Ken, I hear you on your 2025 thoughts. Are you more optimistic on with the recent rate cuts and the current rate outlook? Is this good for the company generally?

Question: Jon Arfstrom - RBC Capital Markets - Analyst : Yeah. Okay. You guys, you used the word transitional a lot and I understand that. It feels like this was kind of an unusual quarter for you, and I hear you on transitional, but do you have like a non-GAAP core EPS number in your mind for the quarter? I mean, I think you've got MSR, BOLI, I don't know, gains, lower gain on sale, ECR pressure. There's a lot going on. I guess it would be helpful if you have some kind of a shot at like a repeatable, sustainable quarterly EPS run rate in your mind just because there was a lot, I think, a lot going on here? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 18, 2024 / 4:00PM, WAL.N - Q3 2024 Western Alliance Bancorp Earnings Call

Question: Brandon King - Truist Securities Inc - Analyst : Hey. Just one for me on core expenses. Stripping out ECR deposit costs, it looks like the growth run rate was around 5% in the quarter. And taking your commentary on deposit costs, next quarter seems like I noticed a higher of 4%. So that 5% to 4% quarterly run rate of growth, is that something we should expect over the foreseeable future? Or anything temporary within that core expense run rate over the next few quarters?

Question: Brandon King - Truist Securities Inc - Analyst : Okay. And within that, any sort of commentary on as far as the infrastructure build as you continue to grow towards in a CAT 4?