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| Statement |
|---|
| These transferred loans are short duration, low credit risk assets, which we believe are better served generating interest income for the bank going forward |
| This has led to net interest margin growing from our second quarter trough as we have sustained improvement in our funding structure, lowered our adjusted efficiency and produced above-peer return on average assets and return on average tangible common equity |
| But I'll also say that the regions, this is the second quarter in a row the regions that have had very solid growth |
| But as we think about 2024, as I said, with deposits following the $2 billion guide and loans growing at a moderate pace, which is that $500 million, we see sort of the dexterity and agility of the national business line framework and the regional growth gives us confidence in that balance sheet construction going forward |
| In a higher prolonged rate environment, we expect to benefit from favorable asset pricing tailwinds |
| So again, this is a segment of loans category that we like a great deal and has a very good risk/reward attribute to it |
| But everything being equal, we have a high degree of confidence in this company to grow loans in excess of $500 million, and loan growth will follow the deposit growth that we've laid out |
| We've proven here over time that we can generate sound, thoughtful, reasonable loan growth with very little asset quality problems |
| Over the next one to two quarters, we will complete the optimization of our funding structure and be well positioned to deploy excess core deposits into loan growth |
| In the third quarter, Western Alliance profitability, strong liquidity generation and stable asset quality are proof points to the dexterity of our diversified business model |
| Net interest income grew nearly 7% despite a modest contraction in average earning assets and as the margin expanded 25 basis points quarter-over-quarter to 3.67% |
| Given the national undersupply of homes, we still view the macro backdrop for this product favorably despite the elevated rate environment |
| Mortgage warehouse and HOA pushed growth upward and the regional network posted a second consecutive quarter of vigorous deposit contributions |
| Deposit cost of $128 million demonstrated our deposit share gains from new customers and previous clients returning funds to the grant |
| Our strong organic capital growth lifted the CET1 ratio of the 10.6% [indiscernible] 6.8% when adjusted for AOCI and tax-affected unrealized held-to-maturity securities marks |
| In short, I feel confident in the vitality of our deposit franchise and how it sets up for future success |
| We were very pleased with this quarter |
| So -- and I think that straight, flat out DDA, we have had success with in the regions during the quarter as well to some degree |
| The quarter-over-quarter increase resulted from our earnings outpacing industry-wide AOCI headwinds, setting for rising rates |
| Solid profitability was maintained in Q3 with a stable return on average assets of 1.24% on a larger balance sheet |
| And last but not least, we've had tremendous success with our consumer -- digital consumer platform |
| Back to your first question, as we probably exit the second quarter and we achieve our loan-to-deposit ratio, we'll be able to step on the accelerator of loan growth, and that will generate higher interest income, which should provide the denominator of that equation to grow at a faster pace |
| Additionally, in a lower rate environment, mortgage banking acts as a shock absorber to our asset-sensitive balance sheet from increased refinancing activity and gain on sale margin expansion |
| Those three should have an above growth rate to prior year's history here and should really contribute |
| So the growth that we had in the third quarter was a baseline improvement, which I think that has life, the same power |
| So that trend looks strong because of the balance from quarter end to quarter end looks good |
| Before handing the call over to Dale, I want to highlight the drivers of our strong deposit growth in Q3 |
| Having established strong capital, liquidity and deposit granularity, a sturdy foundation has been laid to deliver earnings improvement going forward |
| So again, we go with experienced sponsors, proven track records in adding value and repositioning |
| Overall, we made substantial progress in increasing on balance sheet liquidity with investments in cash 19% higher quarter-over-quarter, mostly from adding more high-quality liquid assets |
| Statement |
|---|
| AmeriHome was moderately impacted by rising mortgage rates and treasury yields with mortgage banking revenue declining $7 million to $79 million as lot volume fell 5% quarter-over-quarter and production margins compressed slightly to 38 basis points |
| Kenneth Vecchione I'm also surprised that the stock was down 8% |
| Return on average tangible common equity of 17.3% was modestly below our Q2 level as our capital level time |
| And really, the builders cannot afford to lose any of this inventory and lose control of their for-sale demand |
| And even the variable rate ones are being replaced at higher spreads because maybe uncertainty in the economy and the relative tightness |
| So in an environment where the Fed does pivot and we see 100 basis points of rate cuts, I see NII down 4% |
| And we've never, since we've been doing it here at the bank, suffered a loss on that |
| Dale Gibbons Look, I think it is set up that way, but it's a little bit deferred in terms of when that takes place because of the reasons Ken is talking about that we're going to be sluggish on having the loan growth really kind of match 85% of the deposit growth as we continue to pull that number to the LDR number down for a couple of more quarters |
| As noted on our last earnings call, we believe net interest income and net interest margin reached a cycle trough in the second quarter |
| And just to confirm, are you expecting that composition of the DDA-based ECR deposits, are you expecting that to march higher over the course of next year? Dale Gibbons Well, I think the acquisition of DDA funds in this elevated rate environment is quite challenging |
| Obviously, that was the one thing that kind of surprised negatively this quarter on the deposit cost |
| And part of the reason why I think pressure really came on the industry overall on deposits is because of the competition from the bond market |
| A 100 basis point decline is not enough to jet up a meaningful refinance business |
| It puts you at 5 times earnings, but your stock is down 8% |
| I mean the CPRs on that stuff today are 5%, kind of about the lowest anyone's ever seen |
| With our strong deposit growth and capital levels, we elected to reclassify $1.3 billion of non-AmeriHome held-for-sale loans back to held for investment as organic loan growth has slowed |
| What we're saying is the balance from quarter end to quarter end for the fourth quarter is going to be down, not because of P&I, which looks good |
| But clearly, on the ECR side, we should see some cuts there as well or declines there |
| But the direction of borrowings is going to continue to be down |
| And so you're going to see that come down |
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