Western Alliance Bancorp Q4 2024 Earnings Call Transcript

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

Question: Ebrahim Poonawala - BofA Securities - Analyst : I guess maybe first question just on Capital. When we look at the capital, I think you mentioned you are pretty much there on CET1 and maybe even TC where you want to be here. Like given the $5 billion loan growth outlook, just see the bank is having excess Capital. And if you do have excess Capital, would you consider buybacks? Or just how you're thinking about Capital deployment priorities?

Question: Ebrahim Poonawala - BofA Securities - Analyst : Got it. And I guess just, Dale, when looking at Slide 9, when we think about rates with, I guess, from a perception standpoint, it feels lower rates would be good for Western Alliance, both in terms of funding cost, mortgage banking pickup. Just give us -- remind us like what would be the ideal rate backdrop for the bank as we think about overall earnings growth, be it on the fee income side as well as from a net interest margin factoring the ECR costs.

Question: Ebrahim Poonawala - BofA Securities - Analyst : Good. And just a quick follow-up, your fee income guide. Does it assume a big pullback in mortgage rates? Or are you assuming 30 years, 7% mortgage rate kind of holding for the rest of the year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 28, 2025 / 5:00PM, WAL.N - Q4 2024 Western Alliance Bancorp Earnings Call

Question: Matthew Clark - Piper Sandler & Co. - Analyst : Just on the ECR-related cost outlook. You mentioned you're assuming two rate cuts this year. What about the average ECR deposit balances this year? Is there an expectation maybe that there's not as much growth in 2Q, 3Q and the balances are just a little bit lower and helps keep the cost down? Any update or change there?

Question: Matthew Clark - Piper Sandler & Co. - Analyst : Got it. Okay. And then just on average earning assets, at least in the near term, I think you're anticipating some growth in earning assets this year. But how should we think about earning assets, I guess, here in the near term? Should we just assume you're paying off that debt that you took on with the seasonal inflow of ECR deposits here in 1Q? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 28, 2025 / 5:00PM, WAL.N - Q4 2024 Western Alliance Bancorp Earnings Call

Question: Bernard Von Gizycki - Deutsche Bank AG - Analyst : Just on the expenses, we talked about the deposit insurance expenses related of $37 million in the quarter. I know this sequential increase was due to higher insured balances. Are these costs that you'll be able to pass on to depositors? Or do you see this expense expected to continue to increase and assuming the '25 outlook?

Question: Bernard Von Gizycki - Deutsche Bank AG - Analyst : And then just maybe on credit. I know Tim, you mentioned the appraisals obtained at the end of the year. I know there was a pickup in net charge-offs in C&I. And I know that's been like kind of lumpy one-offs really throughout the year, the big pickup in 4Q. Just thoughts on your outlook for '25, I know it seems to be kind of flat and more positive. But just anything on C&I that you're seeing? Any color you can elaborate on? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 28, 2025 / 5:00PM, WAL.N - Q4 2024 Western Alliance Bancorp Earnings Call

Question: Gary Tenner - D.A. Davidson & Co. - Analyst : In terms of follow-up on the ECR question asked a few minutes ago. Can you just remind me, is the rate paid on kind of the non-mortgage warehouse ECRs, is that just a lower ECR rate, so it brings down the overall rate as the other segments grow?

Question: Gary Tenner - D.A. Davidson & Co. - Analyst : Okay. And then on the fee income guide for the year, just curious, does that include any embedded assumptions around equity gains. You had almost $40 million this past year. Is there a base assumption as part of that 6% to 8% growth range? Or is that not incorporated? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 28, 2025 / 5:00PM, WAL.N - Q4 2024 Western Alliance Bancorp Earnings Call

Question: Gary Tenner - D.A. Davidson & Co. - Analyst : Well, -- not growth so much, Dale, but is there a base assumption that it stays flat? Because I guess what I'm trying to understand is I think you've mentioned kind of expectations of flat total mortgage revenue in 2025. So where is the growth coming from effectively, especially if you kind of had a zero on that equity investment line. So just trying to see if it's zero or flat or what you [thought it].

Question: Gary Tenner - D.A. Davidson & Co. - Analyst : Okay. And that revenue shows up in the service storage line as well?

Question: Christopher McGratty - Keefe, Bruyette, & Woods, Inc. - Analyst : Dale, if I look at your expense range and you take out the ECRs, I guess what would make you be at the top or the low end of that expense -- core expenses?

Question: Christopher McGratty - Keefe, Bruyette, & Woods, Inc. - Analyst : Okay. And then, I guess, coming back to the margin for a minute. It sounds like if we connect the lag in the deposits. And I think you said margins for the full year will be kind of high [3.50s], if I heard you right. So Q1 should be -- Q1 should see a rebound, if I'm interpreting the margin comments, right?

Question: Christopher McGratty - Keefe, Bruyette, & Woods, Inc. - Analyst : Okay. Great. And then maybe if I could slip one more in. The $8 billion -- I just want to put a finer point on the ECR deposits. The $8 billion that you've laid out, I think around half of your deposit growth this year was related to the ECR. Is that about what's factored into that $8 billion, roughly half of that coming from or would you point it to a lower number.

Question: Benjamin Gerlinger - Citigroup Inc. - Analyst : I just wanted to double check in terms of the Fee income assumption set on mortgage, you said you're assuming flat year-over-year in terms of total master volume? Or were you assuming the MBA forecast?

Question: Benjamin Gerlinger - Citigroup Inc. - Analyst : Got you. Okay. So that kind of leads to my next question. It seems like you guys seem to have a pretty healthy pipeline to put up $5 billion. And if mortgage starts to do better, it seems like both the revenue side, both NII and fees could be a little better than expected. Would that mean you'd probably spend a little bit more to, like you said, that incremental build for life above 100? Or is that kind of just baked in over the next 24, 36 months? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 28, 2025 / 5:00PM, WAL.N - Q4 2024 Western Alliance Bancorp Earnings Call

Question: Nicholas Holowko - UBS Investment Bank - Analyst : I wanted to just circle back on the earnings at risk disclosure for the quarter. I know you pointed to the shock scenario, and it seems like you are fairly neutral under that situation. But looking at the rent scenario, it looks like you swung from a liability-sensitive position to an asset sensitivity position. So I was just wondering if you could unpack a little bit what drove exactly those changes there.

Question: Nicholas Holowko - UBS Investment Bank - Analyst : Got it. And then maybe just one follow-up again on the ECR costs. I know they came down maybe a little bit less than you anticipated in the quarter. Is an 81% beta like you had assumed in the prior earnings at risk, is that still a fair way to think about the sensitivity there to rates?

Question: Andrew Terrell - Stephens Inc. - Analyst : Not to beat a dead horse on mortgage, but Dale, was there a fair value mark on the HFS book that came to the gain on sale income this quarter? And if so, are you able to quantify that?

Question: Andrew Terrell - Stephens Inc. - Analyst : Got it. Okay. I appreciate that. And then on the fee income guidance for 2025, do you assume any securities gains within there?

Question: Andrew Terrell - Stephens Inc. - Analyst : Okay. And then lastly, just, Dale, I know we talked some on crypto back in 2022 time frame. I think you guys were at 1 point working with (inaudible). This administration is clearly taking a bit of a different stance around crypto. And we've seen a few banks talking about it more and more. I just want to gauge your appetite on kind of the crypto space overall and whether it's something interesting to Western Alliance?

Question: Anthony Elian - JPMorgan Chase & Co. - Analyst : Your NII outlook assumes two rate cuts in this year. Can you talk about the impact still to the ranges and outlook for both NII and ECR deposit costs if we don't get any cuts this year?

Question: Anthony Elian - JPMorgan Chase & Co. - Analyst : And then just a follow-up on capital. I wanted to get your latest thoughts on M&A, just given you're getting close to the $100 billion threshold, but we now have a regulatory backdrop with the new administration that's likely going to be more favorable for all banks.

Question: Jon Arfstrom - RBC Capital Markets - Analyst : Dale or Tim, on provision reserves, should we assume a provision that matches loan growth in your NCL guide? Is that too simple? Or is that the right way to look at it?

Question: Jon Arfstrom - RBC Capital Markets - Analyst : Okay. Good. Fair enough. And then maybe, Dale, one for you, the crystal ball. Just your level of confidence in the high teen ROTCE level as you exit '25, I think suggest a pretty strong step-up in the earnings run rate exiting '25 when you flow through the model. And just curious, does the Dale's crystal ball say [$15 to $17, $17 to $19]and just overall level of confidence in that.

Question: Jon Arfstrom - RBC Capital Markets - Analyst : All right. And then just one more just on the expenses. You've got FTEs that have grown quite a bit sequentially and year-over-year. Is that all just category four prep or how would you split that between business growth and maybe regulatory?