Western Alliance Bancorp (WAL) Q4 2024 Earnings Call Highlights: Strong Earnings Amidst ...

GuruFocus.com
31 Jan
  • Revenue: $3.2 billion for the year 2024.
  • Net Income: $788 million for the year 2024.
  • Earnings Per Share (EPS): $7.09 for the year 2024; $1.95 for Q4 2024.
  • Pre-Provision Net Revenue Growth: 12% linked quarter unannualized.
  • Net Interest Income: $667 million for Q4 2024, decreased by $30 million from the previous quarter.
  • Non-Interest Income: $172 million for Q4 2024, increased by $46 million quarter-over-quarter.
  • Mortgage Banking Revenue: $93 million for Q4 2024, increased by $34 million quarterly.
  • Non-Interest Expense: $519 million for Q4 2024, declined by $18 million quarterly.
  • Provision Expense: $60 million for Q4 2024.
  • Net Charge-Offs: $34 million for Q4 2024.
  • Net Interest Margin: 3.48% for Q4 2024, compressed by 13 basis points from Q3.
  • Total Cost of Funds: 2.52% for Q4 2024, declined by 15 basis points.
  • Loan Growth: $330 million for Q4 2024.
  • Deposit Growth: $11 billion for the year 2024.
  • Tangible Book Value Per Share: $52.27 at year-end 2024, increased by 12% year-over-year.
  • CET1 Ratio: 11.3% at the end of Q4 2024.
  • Efficiency Ratio: Improved by 160 basis points to 51% for Q4 2024.
  • Warning! GuruFocus has detected 7 Warning Signs with WAL.

Release Date: January 28, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Western Alliance Bancorp (NYSE:WAL) reported solid earnings with $1.95 per share for Q4 and $7.09 for the full year 2024.
  • The company completed a significant liquidity build, positioning it to deploy future deposits into higher-yielding loan growth.
  • Net revenue and pre-provision net revenue increased by 21% and 14% respectively from the prior year, showcasing a strengthened earnings engine.
  • Non-interest income rose by $46 million quarter-over-quarter, driven by higher mortgage banking revenue and commercial banking fees.
  • Western Alliance Bancorp (NYSE:WAL) expects to drive its adjusted efficiency ratio below 50% by the end of 2025, indicating improved operational efficiency.

Negative Points

  • Net interest income decreased by $30 million during the quarter due to lower yields on interest-earning assets.
  • The company experienced a decline in deposits by $1.7 billion in Q4, primarily due to seasonal mortgage warehouse factors.
  • Criticized assets rose by $61 million in Q4, with an increase in classified assets, reflecting ongoing asset quality challenges.
  • Provision expense of $60 million was recorded, driven by net charge-offs and adjustments in the CRE portfolio.
  • The tangible book value per share growth was suppressed by a negative AOCI charge in Q4, despite a 12% year-over-year increase.

Q & A Highlights

Q: With the $5 billion loan growth outlook, does Western Alliance have excess capital, and would you consider buybacks? A: Dale Gibbons, Vice Chairman and CFO, stated that the bank expects to generate enough capital to support balance sheet growth, which is their priority. However, they would consider buybacks if market conditions present a favorable opportunity, though it's not their primary focus.

Q: What would be the ideal interest rate environment for Western Alliance to support earnings growth? A: Dale Gibbons explained that a slowly declining rate environment would be ideal, as it would ease credit concerns and debt service costs. However, the bank is prepared to handle various rate scenarios, including rate increases or steeper declines.

Q: How does Western Alliance plan to manage ECR-related costs with the expectation of two rate cuts this year? A: Dale Gibbons noted that the bank expects broader deposit growth in 2025, with less expansion in mortgage-related deposits. Stephen Curley added that while deposits might remain flat, the economics could improve due to reduced pricing competition.

Q: Can you provide insights into the credit outlook, particularly regarding C&I loans and CRE office exposure? A: Tim Bruckner, Chief Credit Officer, stated that outside of CRE office, there are no concerning migration trends in other segments. The bank's CRE office portfolio is well-monitored, and they have been proactive in managing these assets, which are underwritten with a path to stabilization.

Q: What is Western Alliance's stance on M&A given the regulatory backdrop and approaching the $100 billion threshold? A: Dale Gibbons mentioned that the bank is not dependent on M&A to cross the $100 billion threshold. They have a strong organic growth engine and plan to focus on improving performance metrics. M&A could complicate the transition to LFI status, so they prefer to wait until they are past that hurdle.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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