Western Alliance Bancorporation Q4 2024 Earnings Report

Western Alliance Bancorporation EPS Results

• Actual EPS: $1.95
• Consensus EPS: $1.92
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: N/A

Western Alliance Bancorporation Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $804.88 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Western Alliance Bancorporation Announcement Details

• Quarter: Q4 2024
• Date: 1/27/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, January 28, 2025
• Conference Call Time: 12:00PM ET

Western Alliance Bancorporation (NYSE:WAL) is a bank holding company headquartered in Phoenix, Arizona. Through its principal subsidiary, Western Alliance Bank, the company provides a range of banking and financial services to businesses, entrepreneurs, professionals and individual customers.

Western Alliance Bank offers commercial and industrial lending, commercial real estate financing, treasury management, deposit products, mortgage warehouse lending and other specialized banking services. Its business lines also serve technology companies, life sciences firms, entertainment businesses, homeowners’ associations, institutional investors and other niche markets.

The company serves customers through a combination of relationship-focused regional banking and specialized national platforms. Its banking operations have included brands and divisions serving markets such as Arizona, California and Nevada, while certain specialty businesses operate across the United States. Western Alliance Bancorporation was established in 1994 and has expanded through organic growth and acquisitions. Kenneth A. Vecchione has served as the company’s president and chief executive officer since 2018.

Western Alliance Bancorporation Q4 2024 Earnings Call Transcript

Key Takeaways

• Strong 2024 financial performance: Western Alliance delivered $1.95 EPS in Q4 and $7.09 for the full year, with net revenue up 21% and pre‐provision net revenue rising 14% year-over-year.
• Liquidity build and balance sheet positioning: The bank grew deposits above loans in 2024, driving a 31% marginal loan‐to‐deposit ratio and setting up an 80s LDR to support higher‐yield loan growth and NIM expansion.
• Improving asset quality outlook: A decline in special mention loans and completion of key CRE appraisals give confidence that 2025 net charge-offs will be in line with 2024’s 18 basis points of loans.
• Funding cost tailwinds: Deposit costs fell by 27 basis points in Q4, driven by repricing of ECR deposits, and further reductions are expected to enhance margins and operating leverage.
• 2025 guidance: The bank targets $5 billion in loan growth, $8 billion in deposits, 6–8% increases in NII and noninterest income, a 1–6% decline in expense, efficiency ratio under 50% and upper-teens ROTCE by year end.

Presentation

[Operator]

Good day, everyone. Welcome to Western Alliance Bancorporation's Fourth Quarter 2024 Earnings Call. You may also view the presentation today via webcast through the company's website at www.westernalliancebancorporation.com. I would now like to turn the call over to Miles Pondelik, Director of Investor Relations and Corporate Development. Please go ahead.

[Miles Pondelik, Director of Investor Relations and Corporate Development at Western Alliance Bancorporation]

Thank you and welcome to Western Alliance Bank's Fourth Quarter 2024 Conference Call. Our speakers today are Dale Gibbons, Interim CEO and CFO; Steve Curley, Chief Banking Officer for the National Business Lines; and Tim Bruckner, Chief Banking Officer for Regional Banking. Before I hand the call over to Dale, please note that today's presentation contains forward-looking statements which are subject to risks and uncertainties and assumptions, except as required by law. The company does not undertake any obligation to update any forward-looking statements. For a more complete discussion of risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, please refer to the company's SEC filings, including the 10-K filed yesterday, which are available on the company's website. Now, for opening remarks, I'd like to turn the call over to Dale Gibbons.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Good afternoon, everyone. I'll make some brief comments about our fourth quarter and full year 2024 earnings, then review our financial results and drivers in more detail before handing the call over to the other two members of the executive committee leading the company during Ken's absence, who's doing quite well, and we expect to be back soon. Steve Curley, our Chief Banking Officer for National Business Lines, will discuss our business balance sheet composition and loan and deposit growth drivers. Tim Bruckner, our Chief Banking Officer for Regional Banking, will then discuss asset quality trends. I'll close our prepared remarks by reviewing our 2025 outlook before opening the call up for questions and answers. Before addressing our financial results, I want to express our heartfelt sympathy to those affected by the Southern California wildfires.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

We have a long-standing presence in the area and are saddened for those whose lives and livelihoods have been upended by this tragedy. Western Alliance has already taken actions and stands ready to support our employees, clients, and communities in the rebuilding efforts. We are also currently in the process of providing direct financial support to relief efforts. Regarding borrower exposure for the company, we've identified 17 properties experiencing either significant or total loss, with the combined exposure of under $15 million. Each of these properties had sufficient insurance coverage above our loan amounts, with Western Alliance designated as the last payee. Therefore, we expect negligible direct financial impact to the company.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Looking back over 2024, Western Alliance completed a significant liquidity build for a purposefully prioritized growing deposits in excess of loans and deployed this excess liquidity into lower-yielding, high-quality liquid assets, which is demonstrated in our 31% marginal loan-to-deposit ratio for the year. With this stout liquidity foundation, we are well positioned to resume deploying future incremental deposits into a more normal earning asset mix that prioritizes higher-yielding loan growth while maintaining a low 80s loan-to-deposit ratio. This positions Western Alliance in 2025 to further drive down cost of deposits, expand our net interest margin, improve profitability, and generate significant operating leverage as our efficiency ratio closes in on 50% on an adjusted basis and a move toward a higher teens return on tangible common equity by year-end.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Looking at our financial performance, Western Alliance ended the year with solid earnings generating $1.95 per share for the fourth quarter and $7.09 for 2024. I'm also pleased to report pre-provision net revenue growth was 12% linked quarter on an annualized. These results demonstrate the power of our credit and deposit platforms and our gaining success in earning fee income from clients while proactively managing asset quality during a changing rate environment. Lastly, while Tim will discuss asset quality in detail later, I note the completion of a significant number of appraisals toward the end of 2024 and a material decline in special mention loans makes us increasingly confident the bulk of CRE migration to classifieds behind us and net charge-offs in 2025 will be comparable to that experience in 2024.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

For the year, WAL produced net revenue of $3.2 billion, net income of $788 million, and earnings per share of $7.09. Net revenue and pre-provision net revenue increased 21% and 14% respectively from the prior year, demonstrating the strength of the bank's earnings engine throughout the liquidity restocking process. Balance sheet repositioning actions that fortified our liquidity and capital bases now position the bank to resume greater risk-adjusted balance sheet growth going forward. Notably, net interest income increased $24 million more than ECR-related deposit costs did during the following rate environment. Turning to fourth quarter trends and business drivers, Western Alliance generated pre-provision net revenue of $319 million, net income of $217 million, and EPS of $1.95. Net interest income decreased $30 million during the quarter to $667 million from lower yields on interest-earning assets, along with approximately flat average earning balances.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Loan growth was back-weighted as we experienced some deferral of fundings into Q1 2025 and pay downs. Non-interest income of $172 million rose $46 million quarter over quarter from higher mortgage banking revenue, commercial banking fees, and income from equity investments. Mortgage banking revenue grew $34 million quarterly to $93 million as mortgage loan production rose 31% YoY, with a firming gain on sale margin of 21 basis points in the fourth quarter. AmeriHome's earnings benefited from secondary sales from seasonally strong demand for CRA qualifying loans and mortgage servicing rights, where a lack of industry supply benefits our business margins as a regular seller. Additionally, we are making product investments to tap into new mortgage customers that could benefit us in a higher mortgage rate environment. Non-interest expense declined $18 million quarterly to $519 million as deposit costs fell over $33 million to $174 million.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Deposit cost reductions are poised to continue pulling overall expenses lower throughout 2025. In aggregate, deposit costs fell by $3 million more than net interest income declined this quarter, which exemplifies our balance sheet flexibility and nominal net interest income-related earnings volatility during a changing rate environment. Provision expense of $60 million resulted from $34 million in net charge-offs and an incremental qualitative adjustment on the CRE portfolio. Lastly, our tax rate was lower than expected in Q4 due to several factors, including an increase in solar tax credits from projects placed in service. Turning to our net interest drivers, you'll see the impact of falling rates on our asset yields, but continued accelerating deposit repricing is reducing the overall cost of liability funding, which will expand margins going forward. For the quarter, the yield on total securities declined 22 basis points to 4.67%.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Held-for-investment loan yields decreased 31 basis points to 6.34% due to the impact of rate cuts on variable-rate loans. The cost of interest-bearing deposits declined 27 basis points from a reduction in deposit rates, which continues irrespective of potential future rate cuts. Indicative of how funding cost reductions are offsetting lower asset yields, the 20 basis point difference between the year-end spot rate and the Q4 average rate for interest-bearing deposits exceeds the 8 basis point difference for both held for investment loans and securities portfolio yields. Throughout the fall of last year, market expectations for steep successive rate cuts were so significant that one-month and three-month SOFR were lower than Fed funds rate. This pressured our margin as most variable-rate yields are tied to SOFR, but indexed deposits and ECRs are usually tied to the Fed funds rate.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

As rate cut forecasts have tempered significantly, this relationship has changed, and now term SOFR is essentially aligned with Fed funds effective. This is why the difference between spot rates for loans and securities and those of deposits was 12 basis points wider to start 2025 than it was for the average during the fourth quarter. Additionally, we have further reduced deposit rates and ECRs in January, while SOFR remains flat as no cut action is expected from the FOMC tomorrow. Total cost of funds declined 15 basis points to 2.52% and would have fallen further absent the typical seasonal decline in deposits causing a larger portion of earning assets to be funded by borrowings, which we expect to repay fairly rapidly. In other words, we are seeing funding cost tailwinds emerge outside of just ECR-related deposits.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

In aggregate, net interest income declined $30 million from lower yields on earning assets. Net interest margin compressed 13 basis points from Q3 to 3.48%. However, I'll point out the overall balance sheet profitability continues to improve as annualized ECR-related deposit costs to average earning assets, which they fund, fell 16 basis points quarter over quarter, outpacing the net interest income decrease rooted in term SOFR pricing moving ahead of effective Fed funds reductions. Overall, non-interest expense declined $18 million in Q4 as deposit costs fell $34 million from lower rates and average balances, while other operating expenses increased $15 million, mostly from an accrual true-up due to the annual bonus. We expect continued reductions in deposit costs and ECR rates as the full benefit of a lower rate environment is realized.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Our adjusted efficiency ratio for the quarter improved by 160 basis points to 51%, buoyed by higher mortgage banking revenue. Regarding interest rate sensitivity, we've included both a static shock and a dynamic balance sheet ramp scenario to better illustrate the factors that make Western Alliance interest rate neutral on an earnings-at-risk basis. We are forecasting two 25 basis point rate cuts this year, which is similar to what the futures market currently expects. In the bottom left quadrant, you will see that our static balance sheet shock scenario interest-sensitive earnings should increase modestly in both the up 100 and the down 100 shocks, making us essentially rate neutral. This is exactly what happened in Q4 with a decline in net interest income more than offset by growth in mortgage banking revenue and a material decline in ECR-related costs.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

This dynamic is indicative of the interplay between our mortgage business and higher beta ECR-related deposits, which act as a natural hedge to earning assets that are more variable rate and thus make us appear asset-sensitive on a reported net interest income basis. Depending on the trajectory of interest rates, we are prepared to make adjustments to our loan and securities mixes to maintain our largely rate neutral into earnings profile if needed. Steve Curley will now take us through the balance sheet dynamics.

[Steve Curley, Chief Banking Officer for the National Business Lines at Western Alliance Bancorporation]

Thanks, Dale. The balance sheet ended the year at approximately $81 billion, which reflected solid loan growth of $330 million and an increase in securities and cash of $217 million. As previously mentioned, deposits declined $1.7 billion, primarily driven by expected short-term seasonal mortgage warehouse factors, but still grew 20% YoY from diversified strength across the franchise.

[Steve Curley, Chief Banking Officer for the National Business Lines at Western Alliance Bancorporation]

Q4 outflows were comparable on a relative basis to the prior year. Borrowings rose $2.6 billion to offset the lower deposits, but we expect to reduce these high-cost balances as deposit growth resumes in the first quarter. Echoing Dale's introductory comments, throughout 2024, $5 billion of the $10 billion in balance sheet growth was in cash and securities, while we also reduced borrowings by $1.5 billion. With this important liquidity build behind us, we are poised to generate strong, risk-adjusted earning asset growth going forward. Finally, tangible book value per share growth was suppressed by a negative AOCI charge in the fourth quarter, but still increased 12% YoY to $52.27. Western Alliance Credit Platforms provide expertise to a variety of industries and clients, which have allowed us to repeatedly produce loan growth better than overall industry.

[Steve Curley, Chief Banking Officer for the National Business Lines at Western Alliance Bancorporation]

Loan growth of $330 million was more muted than expected, but progress continues to be achieved in diversifying the loan mix into C&I loans while desired runoff occurs in our Resi portfolio. This trend continued in the fourth quarter with nearly all growth in C&I, while construction loans were down $248 million. Resi and consumer loans decreased $74 million. C&I loans now account for 43% of the held for investment loan portfolio compared to 38% a year ago, while Resi and consumer loans are now just over 26% of the portfolio compared to 29% at the end of 2023. In the fourth quarter, growth was fairly diverse as our regional and national business lines contributed $186 million and $110 million in loans, respectively. Growth in Regional Banking was primarily driven by Homebuilder Finance, Hotel Franchise, and Tech and Innovation.

[Steve Curley, Chief Banking Officer for the National Business Lines at Western Alliance Bancorporation]

For the national business lines, Mortgage Warehouse and MSR Finance were the main growth contributors. Turning to slide 12, deposits grew $11 billion in 2024, primarily in money market accounts and ECR-related non-interest bearing. In the fourth quarter, deposit growth in our other business lines resulted from strength across Regional Banking business of $327 million, which fully funded its loan growth, as well as $2.4 billion in contributions from Escrow Services businesses such as Juris, HOA, and Corporate Trust. Combined with $111 million of consumer digital deposit growth, growth in these channels allowed us to partially offset $5.7 billion in Mortgage Warehouse deposit outflow as expected. Our deposit-focused businesses provide diversified granular deposits that complement other deposit gathering efforts and support our loan growth. I'll now hand the call over to Tim Bruckner.

[Tim Bruckner, Chief Banking Officer for Regional Banking at Western Alliance Bancorporation]

Thanks, Steve. Overall, asset quality continues to remain resilient.

[Tim Bruckner, Chief Banking Officer for Regional Banking at Western Alliance Bancorporation]

In quarter four, criticized assets rose $61 million, as special mention loans declined $110 million, while classified assets increased to $171 million. Criticized assets are only $87 million higher from a year ago and declined from 1.85% to 1.73% as a percentage of total assets during the same time period, reflecting the interplay of upgrades and downgrades driven by our proactive risk mitigation strategy. We expect the total criticized asset pool to remain stable in Q1 and then declining throughout 2025. Due in part to our proactive management of troubled situations, which requires pressing for re-margin or ongoing borrower investment in troubled loans, non-performing assets as a percentage of total assets increased to 65 basis points during the quarter. We expect to see non-performing loans decline as we work through the resolution process.

[Tim Bruckner, Chief Banking Officer for Regional Banking at Western Alliance Bancorporation]

These loans have been reserved or charged down to current as-is values and are revalued on an ongoing basis. Our ACL was increased in support of revaluations in the context of our proactive strategy. As a green shoot, we're beginning to see increased lease activity in office properties that have been reset. A compelling example of this is the downtown San Diego property, which migrated into other real estate owned early in Q4. Since taking control of this asset and resetting the basics and rents to the market, we reached agreement to lease five and a half additional floors. Occupancy has rebounded from 44% to 62% in just a little over two months. Quarterly net charge-offs were $34 million, or 25 basis points of average loans, and 18 basis points for the year.

[Tim Bruckner, Chief Banking Officer for Regional Banking at Western Alliance Bancorporation]

We expect charge-offs to be relatively similar in Q1, followed by a generally declining trend throughout 2025 as we continue to make progress remediating our CRE portfolio. Provision expense of $60 million added to reserves to cover charge-offs and augmented our CRE reserve. Our classified loans are supported by as-is valuations, giving effect to the present market conditions. Our ACL for funded loans increased $17 million from the prior quarter to $374 million. The total ACL to funded loans ratio of 77 basis points rose 3 basis points from the prior quarter. Slide 15 shows the updated ACL walk we've regularly provided to add more context behind our allowance methodology relative to our peers.

[Tim Bruckner, Chief Banking Officer for Regional Banking at Western Alliance Bancorporation]

Our ACL moves up from 77 basis points to 1.37% when incorporating the effect of credit-linked notes, as well as the low to no-loss loan categories like equity fund recourse, our low LTV and high FICO Resi portfolio, and Mortgage Warehouse. Compared to our $50 billion-$250 billion asset peer banks, we benefit from greater credit-linked note support, as well as a greater percentage of loans in the low to no-loss categories. Emblematic of a balance sheet with a low risk profile, our risk-weighted assets to tangible assets ratio is one of the lowest among the largest U.S. banks at just under 70%. I'll now hand the call back to Dale.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Thank you, Tim. Our CET1 ratio increased approximately 10 basis points to 11.3% during the quarter. Our tangible common equity to total assets remained flat at 7.2%.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Given the evolving conversation on Basel III Endgame, I'll mention that our CET1 ratio, including AOCI marks, as well as the low loss reserve, is 11%, which is down slightly from 11.1 at September 30th. Please note the peer data using the appendix of this presentation are from Q3 when AOCI was pronounced across the industry for the peers. Even with our AOCI drag in Q4 applied to WAL, our adjusted capital still ranks above the median of the peer group. As previously mentioned, our tangible book value per share increased $0.29 to $52.27 at year-end, which reflects solid earnings growth that mitigated negative AOCI impact from higher rates. Consistent upward growth in tangible book value per share remains a hallmark of Western Alliance and has exceeded peers by seven times over the past decade.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Turning to the management outlook, exiting 2024, we have essentially completed our balance sheet transformation that considerably increased our deposits and liquidity buffer while still growing earnings and capital. In 2025, we expect continued thoughtful balance sheet growth driven by a diversified credit and deposit platforms with an origination mix designed to drive net interest income growth and margin expansion. We expect loan growth of approximately $5 billion for the year that should hold a loan-to-deposit ratio of around 80 basis points. Deposits are expected to grow $8 billion with increased contributions from our Regional Banking and Escrow businesses. Turning to capital, our CET1 ratio should remain fairly consistent with our year-end level of 11.3, providing balance sheet flexibility. Net interest income is expected to increase 6%-8%, largely as a result of sustained thoughtful loan growth and expanding them at approximate 2024 level on a full-year basis.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Non-interest income is also expected to grow 6%-8% due to ongoing traction and cultivating deeper client relationships with commercial banking fee opportunities and stable mortgage banking revenue. Non-interest expense should decline 1%-6% with ECR-related deposit costs between $475-$525 million, which is notable moderation primarily driven by continued rate reductions. Other non-ECR operating expenses should land between $1.425-$1.475 billion as we continue to invest in future growth opportunities and crossing over the $100 billion asset threshold. We expect to make meaningful operating leverage that will drive our adjusted efficiency ratio below 50% by the end of this year.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Regarding our ongoing LFI readiness efforts to transition to a Category IV bank, we've completed significant foundational investments in risk and treasury management, as well as data reporting capabilities over the last four years when we were $36 billion in assets, and expect incremental investments of $55 million-$65 million over the next three years to make the bank Category IV ready. Of this amount, we only expect half to become incremental run rate operating expenses, which is already baked into our business plans and run rate and won't meaningfully impact our profitability. I'd also note these costs exclude total loss absorbing capacity considerations, which are uncertain at this point. Asset quality remains resilient, and we expect full-year charge-offs of approximately 20 basis points compared to 18 basis points for 2024. Lastly, the effective tax rate for the full year should be approximately 21% as it was in 2024.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

So, in conclusion, in 2025, you should expect Western Alliance to enter a renewed period of stronger profitability and robust earnings growth, significant operating leverage improvement, and return on tangible common equity climbing into the upper teens. At this time, Steve, Tim, and I look forward to answering your questions.

[Operator]

Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, please press star two. Our first question comes from Ebrahim Poonawalla from Bank of America. Please go ahead.

[Ebrahim Poonawala, Analyst at Bank of America]

Hey, Dale. Good afternoon. 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 TCE where you want to be.

[Ebrahim Poonawala, Analyst at Bank of America]

Given the $5 billion loan growth outlook, just see the bank as having excess capital, and if you do have excess capital, would you consider buybacks or just how you're thinking about capital deployment priorities?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Yeah. So, we're generating, and we expect to generate certainly enough capital to support the balance sheet growth that I outlined, and we think that's kind of the highest and best use for us. But would it make sense to be able to do something, to take advantage of a displacement at some point should that occur in the market? Yeah, I think that would be appropriate. That's not our first order of business, however. Got it.

[Ebrahim Poonawala, Analyst at Bank of America]

And I guess just, Dale, when looking at slide nine, when we think about rates, 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 remind us what would be the ideal rate backdrop for the bank as we think about overall earnings growth, be it on the fee income side, and as well as from our net interest margin factoring the ECR costs.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Yeah. I think if the interest rate declines, it would work out best for the company. I mean, so right now we're seeing, I'm going to say, maybe capitulation from home buyers in terms of even going into 7% mortgages.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

If they were maybe in the low 6s, I think that would be maybe more substantial, and maybe avoid kind of the flash in the pan type of thing, which maybe occurred during the pandemic when they dropped so sharply. So, if we could have a slowly declining rate environment, that's what I would prefer. That obviously eases maybe credit concerns as well as debt service coverage costs also ameliorate to some degree. So, but conversely, we're ready kind of for everything. I mean, we can handle an increase in rates. We can have a steeper decline. Right now, we're showing that most of our loan growth is originated in basically SOFR-tied variable rate, but we can swap that fixed if it looks like that things are going to be falling more precipitously.

[Ebrahim Poonawala, Analyst at Bank of America]

Got it. And just a quick follow-up.

[Ebrahim Poonawala, Analyst at Bank of America]

Your fee income guide, does it assume a big pullback in mortgage rates, or are you assuming 30-year, 7% mortgage rates kind of holding for the rest of the year?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Yeah. We're assuming, but basically, we're really aligned with kind of the futures market right now, which I think would be good, I mean, in terms of rates throughout the year. The Mortgage Bankers Association, and I realize that's an industry entity, came out looking for something a little more optimistic. We're not. We're looking for basically flat from 2024 to 2025, and I think we're kind of headed into that right now in the first quarter. The first quarter of 2024 was really flat to the fourth quarter that we had of 2024. So, we think that looks fairly decent.

[Ebrahim Poonawala, Analyst at Bank of America]

That's helpful. Thanks for taking my questions.

[Operator]

Our next question comes from Matthew Clark at Piper Sandler.

[Operator]

Please go ahead.

[Matthew Clark, Analyst at Piper Sandler]

Hey, good morning, everyone. 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 Q2, Q3, and the balances are just a little bit lower and helps keep the cost down? Any update or change there?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Yeah. So, we had the seasonality drop, and I think we telegraphed that at the third quarter earnings call. In the fourth quarter, we have a lot of paydowns from ECR-related Mortgage Warehouse funds for property taxes. That's kind of rebounded as expected, but I do expect us to have a broader growth of our deposit base in 2025 than we had in 2024.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Getting to your point, Matt, that there's going to be less expansion, certainly, in the mortgage side, and we're growing in other categories. We have our Escrow businesses, which I think are doing well. We've got our Trust Operation. We have our Settlement Services. We have our Business Escrow Services. We think the outlook for that might be a little bit better this year with kind of the change in administration and maybe some more M&A activity going on. So, we're looking for a broader diversification in 2025.

[Steve Curley, Chief Banking Officer for the National Business Lines at Western Alliance Bancorporation]

Yeah. I would just add, Dale, I've managed that business for quite a while. I think deposits there will be flat, but economics will be a bit better. There's not quite as much pricing competition, so I think you might see us improve the cost of funding beyond what just happens with the Fed funds rate.

[Matthew Clark, Analyst at Piper Sandler]

Got it. Okay.

[Matthew Clark, Analyst at Piper Sandler]

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?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Well, so, yeah, we said $8 billion for the year, and as we just saw, the fourth quarter tends to be a little bit of a contraction. So, it means you got to do more than eight for the first three quarters, and part of that is really kind of paying that down. No, I'm looking for loan growth to be more or less consistent throughout 2025.

[Matthew Clark, Analyst at Piper Sandler]

Okay. Thank you.

[Steve Curley, Chief Banking Officer for the National Business Lines at Western Alliance Bancorporation]

I just think we carefully managed the loan growth in 2024 as we did the liquidity build, but I mean, our people are out in the market making sales calls, and I can kind of feel the pipeline filling up. So, we have exposure to private credit. We like that business, good risk-adjusted returns with our Lender Finance and Note Finance business. So, I'm bullish on loan growth.

[Operator]

Our next question comes from Bernard von Gizycki from Deutsche Bank. Please go ahead.

[Bernard von Gizycki, Analyst at Deutsche Bank]

Hi, guys. Good morning. Just on the expenses, we talked about the deposit insurance expenses related to $37 million in the quarter. I know the 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 assume in the 2025 outlook?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Yeah. That's a great question.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

No, we don't expect it to increase. And we got here in part after some of the volatility last year, and whereby we basically volunteered clients said, "You know what? Why don't you move into an insured deposit network situation?" And there's a cost associated with that, both to the FDIC as well as to the network manager. And so, we did that. And so, what we just implemented in the fourth quarter, I think December, we're now charging the client for that. It's actually a little bit surcharge. And we said, "Look, we're going to set it up that either way. You can move funds at will from fully insured or just to insured to $250,000, but note that there's a 40 basis point charge if you're going to go to the fully insured piece of it." And so, some of them move back and forth.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

A lot of them are keeping it kind of in fully insured, and so we're actually doing a little bit better than we expected with that. But no, we've pushed that back to the clients. We've given them optionality now, and so far, it seems to be working out.

[Bernard von Gizycki, Analyst at Deutsche Bank]

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 kind of lumpy, one-offs really throughout the year, the big pickup in 4Q. Just thoughts on your outlook for 2025? 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?

[Tim Bruckner, Chief Banking Officer for Regional Banking at Western Alliance Bancorporation]

Great question. Thanks. Tim Bruckner. Okay.

[Tim Bruckner, Chief Banking Officer for Regional Banking at Western Alliance Bancorporation]

First, outside of CRE office, we're not seeing any migration trends in any other segment. So, our C&I has been stable and very predictable in terms of performance, and we've made no changes in our business model or underwriting that would suggest that would change going forward. When we look at CRE office, I remind the listeners that we're a bridge lender in this area. So, that entire portfolio is a floating rate portfolio that we underwrote on a path to stabilization or in a repositioning. So, we don't have assets that come over the bow and that surprises. These are assets that receive high monitoring and very structured default provisions from the time we booked the loan.

[Tim Bruckner, Chief Banking Officer for Regional Banking at Western Alliance Bancorporation]

So, these same assets are the ones that we underwrote on a direct basis, and we've been hand in hand with for the last 18 months as we work through the cycle. So, your point of it is and can be chunky. When we talk about the San Diego asset, that's really a good news story. We show the ability to reset the basis to something close to being a little below market and how quickly we can lease a property like that up. Having that kind of strategy at our disposal gives us the ability to do that again and again. And so, we've been a little more aggressive with the reserve. We stepped up our reserve a little bit to give us that kind of flexibility.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

We also note that our total. I mean, our total exposure, as we mentioned, has been kind of relatively flat.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

So, we don't have any more things kind of coming in the funnel in terms of the criticized asset situation.

[Bernard von Gizycki, Analyst at Deutsche Bank]

[Thank you for taking my] question.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Thank you.

[Operator]

Thank you. Our next question comes from Gary Tenner at D.A. Davidson. Please go ahead.

[Gary Tenner, Analyst at DA Davidson]

Thanks. 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?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Yeah. I mean, most of them are really binary. You're either getting interest or you're getting ECR.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

There's maybe a unique case with our HOA group whereby interest goes to the HOA itself, the owner of the funds, and then an ECR can go to the manager, and that's going to get compensated for doing the work for these HOAs. And those are both lower, right? So, you have a lower rate and a lower ECR for those that combined is still lower than, obviously, what a market rate would be.

[Gary Tenner, Analyst at DA Davidson]

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%-8% growth range, or is that not incorporated?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

So, that's not part of the growth. I mean, we do think that we're likely to see some.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Those generally come about after an acquisition or a sale of a company, whether it's an IPO or from a larger what we call sequential buyers. But yeah, we're not anticipating a growth in that in the equity piece to be able to get that growth rate.

[Gary Tenner, Analyst at DA Davidson]

Well, sorry, 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 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 a zero or flat or what the thought is?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

I understand your question, Gary. So, yeah, it's basically coming from two places.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

One of them is our regions, which we're getting good traction in, and we expect to see growth there. We implemented a service charge fee increase on January 1st to pick that up. And then the second is what we're doing in the digital payment space with our Digital Disbursements, which is probably the largest in the world, I think, on some of these contracts that they've distributed, and settlement services where there's payment revenue in there that we think is going to be stepping up.

[Gary Tenner, Analyst at DA Davidson]

Okay. And that revenue shows up in the service charges line as well?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

It does. And other income at the bottom there.

[Gary Tenner, Analyst at DA Davidson]

Got it. Thank you.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Thank you.

[Operator]

The next question is from Chris McGratty at KBW. Please go ahead.

[Chris McGratty, Analyst at KBW]

Oh, great. Thanks.

[Chris McGratty, Analyst at KBW]

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?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Well, so, I mean, we've got LFI in there. That's certainly kind of a part of what's taken place. Frankly, I would hope that maybe we've got a little stronger performance than we're outlining here. I mean, we see where we've come out. I mentioned that we want to hold kind of an 80% loan-to-deposit ratio. That would imply a little bit better growth based on an $8 billion deposit number. So, things like that could be a factor which would affect elements of incentive compensation and things of that sort.

[Chris McGratty, Analyst at KBW]

Okay.

[Chris McGratty, Analyst at KBW]

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 350s, if I heard you right. So, Q1 should see a rebound, if I'm interpreting the margin comments right.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Yeah. So, if I look at the adjusted margin, which of course pushes the ECR cost as the interest expense, we were actually up. We're up 4 basis points from third quarter to fourth quarter. And that's going to show a more significant improvement than just the core margin itself, but the core margin itself, we believe, is also going to look okay.

[Chris McGratty, Analyst at KBW]

Okay. Great.

[Chris McGratty, Analyst at KBW]

And then maybe if I could slip a little 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 us to a lower number?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

To a lower number, I believe, less than a third.

[Chris McGratty, Analyst at KBW]

Okay. Wonderful. Thank you.

[Operator]

Our next question is from Ben Gerlinger at Citi. Please go ahead.

[Ben Gerlinger, Analyst at Citi]

Hey. Good morning, everyone. I just wanted to double-check in terms of the fee income assumptions set on mortgage. You said you're assuming flat year over year in terms of total national volume, or were you assuming the MBA forecast?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

No, we're assuming flat revenue for us.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

The MBA forecast would be more optimistic than that, I would say, but that's what we've dialed in to show you the estimates and the guidance we have for 2025.

[Ben Gerlinger, Analyst at Citi]

Gotcha. 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 then if mortgage starts to do better, it seems like both the revenue sides, both NII and fees, could be a little better than expected. Would that mean you'd probably spend a little bit more too, like you said, that incremental build for LDR above 100, or is that kind of just baked in over the next 24-36 months?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Yeah. I appreciate that. I mean, in terms of the expense level, we're really focused on PPNR growth. And so, if we can drive more revenue, is what you're alluding to.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Now, I got to tell you, I mean, the rate market has been so uneven since last summer here with now the 10-year up 100 basis points from when they first started cutting rates. So, I'm not sure kind of what that means. And so, we think that flat is a reasonable basis for going forward. But if that were to be more attractive, we're going to look at what can we do to, again, build businesses, but also coincident with driving our efficiency ratio below 50%. We think we can adjust on an adjusted basis. We think we'll be there by the end of this year, irrespective of maybe the scenario you're outlining.

[Ben Gerlinger, Analyst at Citi]

Gotcha. That's helpful. Thanks.

[Operator]

Our next question is from Nick Holowko at UBS. Please go ahead.

[Nick Holowko, Analyst at UBS]

Hi. Good afternoon. Wanted to just circle back on the earnings at risk disclosure for the quarter.

[Nick Holowko, Analyst at UBS]

I know you pointed to the shock scenario, and it seems like you are fairly neutral under that situation. But looking at the ramp scenario, it looks like you swung from a liability-sensitive position to an asset-sensitive position. So, I was just wondering if you could unpack a little bit what drove exactly those changes there. Thank you.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Yeah. Yeah. So, I alluded to this a little bit earlier, but let me go into more depth. So, the assumption set on the ramp scenario on both the net interest income and earnings at risk is that we are basically putting most of our earning assets loan growth on with a variable rate, usually tied to one-month SOFR or something like that. And we've done that in part because we think that that's been helpful to the clients to some degree. And so, we've kind of let that go.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

And of course, we get fees for that. If we think this is going to play out where we are going to see rates down 100 basis points, and again, we're not calling for that, but could happen, certainly, we expect that we'll be swapping that fix and hold those asset yields higher than they would otherwise be if they fell. And that's how we can really manipulate this and have earnings at risk also positive in a declining rate environment, as directly as you stated as it was in the third quarter.

[Nick Holowko, Analyst at UBS]

Got it. Thank you. 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.

[Nick Holowko, Analyst at UBS]

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?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Yeah, it is. We think it's going to pick up a little bit. So, we had this situation of going in, basically starting from mid of the third quarter where you were going to see these successive jumbo cuts, 50 basis points in a row. And as you know, we ended up getting three cuts aggregating to 100 basis points. And then the expectation, which was originally we were going to have seven cuts in 2024, kind of really dissipated, and now we're kind of at two. So, as that's taken place, we're not repricing our loans below a SOFR base rate in terms of what they were before. And so, that has really kind of held that up.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

In terms of the catch-up on the ECR side, those were also it's a little bit of a, I don't know, it's a leapfrog process in terms of what are we doing with the client, what are they seeing elsewhere, what are their other options. And so, it's been a successive cut. And so, we've cut these several times. We cut them in December 1st. We cut them again in January 1st. And I think we've basically kind of caught up. But that is why it's been a little slower on the ECR catch-up than what we originally expected.

[Steve Curley, Chief Banking Officer for the National Business Lines at Western Alliance Bancorporation]

Yeah. And I think we, this is Steve again. I think we had some outliers where we had to bump a little bit more, but we were able to kind of trim those back in, and that kind of readjustment's done.

[Steve Curley, Chief Banking Officer for the National Business Lines at Western Alliance Bancorporation]

But it was kind of a—we did it in increments, and now those cuts over and above Fed funds have now been made, and you'll see the benefit of that starting in 2025.

[Nick Holowko, Analyst at UBS]

Got it. Thanks for taking my questions.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Thanks.

[Operator]

The next question is from Andrew Terrell at Stephens. Please go ahead.

[Andrew Terrell, Analyst at Stephens]

Hey. Good morning. Not to beat a dead horse on mortgage, but Dale, was there a fair value mark on the HFS book that came through the gain on sale income this quarter? And if so, are you able to quantify that?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

No, there wasn't. And it was stronger than kind of we anticipated. And seasonally, the fourth quarter tends to be a little bit lighter. I did mention that we sell CRA qualifying loan pools and securities pools. We'll securitize them for people that want some kind of a census tract, zip code, whatever.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Obviously, those bespoke types of securities and pools come with a premium price from us. That helps. Maybe there's some seasonal elements to that for year-end window dressing for reporting purposes. But in any event, again, I look at the fourth quarter revenue from AmeriHome and I compare it to the first quarter, which is now a seasonally stronger period that we're entering now. It's really right on top of each other. So, we think holding basically where we are in 4Q for mortgage revenue going into 2025 is reasonable.

[Steve Curley, Chief Banking Officer for the National Business Lines at Western Alliance Bancorporation]

This is Steve again. I just think in the fourth quarter, what ended up happening is we assume the loan will be sold to Fannie, Freddie, or issued into Ginnie security.

[Steve Curley, Chief Banking Officer for the National Business Lines at Western Alliance Bancorporation]

But in most cases, I mean, AmeriHome's a wonderful company, and they will build static pools, or they'll build a pool of loans and sell them to an insurance company or a bank that's exactly tailored. "Hey, we want $200 million in these five counties in Florida," and they'll pull that from inventory. And so, they'll kind of build you a semi-custom suit, and they get a premium for that. They do a really nice job of building to suit for people that want to buy loans. And that doesn't come through in the margin. It comes through in kind of secondary gain. Margin is if, hey, we delivered the loan to Fannie, Freddie. A gain over and above that, we take as a secondary marketing gain, and we track it separately. But we saw a nice uptick in activity in the fourth quarter there.

[Andrew Terrell, Analyst at Stephens]

Got it. Okay.

[Andrew Terrell, Analyst at Stephens]

I appreciate that. And then on the fee income guidance for 2025, do you assume any securities gains within there?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

None.

[Andrew Terrell, Analyst at Stephens]

Okay. And then lastly, just Dale, I know we talked some on crypto back in 2022 timeframe. I think you guys were at one point working with Tassat. 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 wanted to gauge your appetite on kind of the crypto space overall and whether it was something interesting to Western Alliance.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Yeah. I mean, I have long been an advocate for blockchain technology. I mean, I look at SWIFT and what it takes to send money to Hong Kong versus USDC. I can do that in less than a minute. And so, that there isn't a breakthrough here in terms of transferring funds.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

And with all the AML and everything else behind it, I think makes sense. We are a fully compliant process with regulators on this, and we're working with them as we step into it. But we have about 2% of our deposits coming from this source presently. I think that there's kind of more opportunity there over time. But again, we're working with the best, most well-heeled participants in the space. But you're right. I mean, I do think it is a little bit more accepted from this administration than maybe what it has been in the past.

[Operator]

Our next question is from Anthony Elian at J.P. Morgan. Please go ahead.

[Anthony Elian, Analyst at JP Morgan]

Yeah. Hi, everyone. Your NII outlook assumes two rate cuts in this year.

[Anthony Elian, Analyst at JP Morgan]

Can you talk about the impact, Dale, to the ranges and outlook for both NII and ECR deposit costs if we don't get any cuts this year?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Yeah. I mean, I think that's kind of where we are. I mean, it's really flat for us in terms of kind of this kind of net interest income guide. So again, the sensitivity report you see changes off of the baseline. And we think those are eminently manageable by us within this kind of relevant range of plus or minus 100 basis points. The guidance we're giving you is really based upon what we think is going to happen. And we've got two cuts in there, minus 50 basis points. Say that's zero, which I don't think is a very—I think that's a reasonable probability that there aren't any cuts this year.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

We have the same guidance because our variability on our rate environments, both on a shock as well as a ramp scenario, is, I think, fairly negligible and easily within our management capability to be able to pin down.

[Anthony Elian, Analyst at JP Morgan]

Thank you. And then just to 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 a new administration that's likely going to be more favorable for all banks? Thank you.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Yeah. So, I mean, I think different banks have different ideas of how they're going to cross over $100 billion. There are additional costs associated with that that I think a lot of participants have kind of laid out. I mean, for us, we're not dependent upon doing an M&A deal to successfully move over.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

We have a strong organic growth engine over the next two years as we kind of finally prepare for LFI status. We're going to focus on having our good kind of core growth deposits and loans, but also improving our performance metrics, i.e., we still have some borrowed funds. We still have some brokered deposits. We can push those down. We can get higher quality sources that will drive up our return on tangible common equity. That will drive up our ROA and our margin during this period of time. So we're not sitting back. And then let's say we're hovering kind of below 100 billion at that point in time. It's like, "Okay. We got a green light.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Let's go." We could put in a little bit of that and move through, say, to north of 110 or something with our capital ratios high enough and still maintain what we say is our floor of above 11%. And we'll be able to do that and swallow any additional charges to do that. So we have a path to be able to do it without it. I got to tell you, if you're going to plan on doing M&A on this, it really does complicate your LFI transition life because now I've got to figure out a plan for how am I going to migrate all of their applications, either convert them to us or in advance, or how are they going to be compliant such that on a consolidated basis, you're compliant over 100?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

We think it's probably easier to wait until you're kind of through that hurdle before you do that, of any size.

[Anthony Elian, Analyst at JP Morgan]

Great. Thank you.

[Operator]

Our next question is from Jon Arfstrom at RBC Capital Markets. Please go ahead.

[Jon Arfstrom, Analyst at RBC Capital Markets]

Hey. Thanks. Good morning, guys. Dale or Tim on provision reserves. Should we assume a provision that matches loan growth in your NCO guide? Is that too simple, or is that the right way to look at it?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Yeah. I mean, it's too simple, but it's still the right way to look at it. I mean, obviously, there's complex computations here. There's overlays of what's going to transpire. We look at Moody's Analytics and what they expect on their adverse scenario and their consensus forecast. But at the end of the day, we put an overlay in that took us up a couple of basis points.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

We did that by taking a more dour view of the S3, the adverse scenario. We put an 80% weighting on that, and that's how we came up with this additional overlay there. I don't think we need it, but we're aware that others also have overlays, and so that's kind of a situation that we added to. I don't think that there's anything else that we need to do, and so I think that could go forward like that.

[Tim Bruckner, Chief Banking Officer for Regional Banking at Western Alliance Bancorporation]

Yeah. I'd add the very nature of the NCO is if we had anything like that contemplated, it would already be in there. So we've looked as best as we can forward. We've taken that and brought it back to current, and we feel very comfortable with our ACL.

[Jon Arfstrom, Analyst at RBC Capital Markets]

Okay. Good. Fair enough. And then maybe, Dale, one for you, the crystal ball.

[Jon Arfstrom, Analyst at RBC Capital Markets]

Just your level of confidence and the high-teen ROTCE level as you exit 2025, I think suggests a pretty strong step up in the earnings run rate exiting 2025 when you flow through the model. And just curious, does Dale's crystal ball say 15-17, 17-19, and just overall level of confidence in that? Thank you.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Well, yeah. So I mean, so we're what, 14 and a half here? I see pretty easy to get over 15. And then where can we go from there? I mean, there could be some seasonality effects in there, the fourth quarter with maybe a little bit of a deposit drawdown, which has been our seasonal experience.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

But in terms of kind of what we see in front of us with the business opportunity, I don't know that I'm not going to necessarily kind of draw a straight line to something, but I mean, to me, upper teens is north of 16 and no higher than 19. So I'll call it that.

[Jon Arfstrom, Analyst at RBC Capital Markets]

All right. Well, thank you. And then just one more just on the expenses. You've got FTEs that have grown quite a bit sequentially in year over year. Is that all just Category IV prep, or how would you split that between business growth and maybe regulatory. Thanks.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

There has been Category IV preparation. But in addition to that, we've actually been hiring people at AmeriHome, if you can believe it.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

So with what's transpired there, they've done some things that kind of helped their revenue, including some kind of direct originations and a limited basis. Those margins are a big multiple over what they get on the wholesale side. And that's been another kind of notable area of investment.

[Jon Arfstrom, Analyst at RBC Capital Markets]

Okay. Thank you.

[Operator]

Our next question is from Jared Shaw at Barclays. Please go ahead.

[John Richert, Analyst at Barclays]

Hi. This is John Richert for Jared. Just a couple of quick modeling questions. What portion of the securities book is floating rate?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

15%. 15% floating rate.

[John Richert, Analyst at Barclays]

Okay. Perfect.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Okay. Great. Thank you.

[John Richert, Analyst at Barclays]

And then just going into the components of loan growth for 2025, it sounds pretty broad-based. Any differences in the spreads on those loans or the yields on those loans that you're adding on relative to what was added to the balance sheet in 2024 based on just different mix competition level?

[John Richert, Analyst at Barclays]

Anything in there worth commenting on?

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Well, so I mean, we sort through this regularly and look for opportunities based upon our risk assessment of these categories and obviously the return opportunity. Things that, I mean, what we're doing in local banking kind of has strong returns. We've seen some areas that will kind of tighten up on pricing that we've maybe been less interested in, but we see opportunities in the tech space and the regional banking space. I think we could tighten up a little bit in kind of the Mortgage Warehouse. And so I think we're going to see a little slower growth there than what we've had.

[Steve Curley, Chief Banking Officer for the National Business Lines at Western Alliance Bancorporation]

Yeah. I just add we've had some real lift and kind of positive surprises in our venture-dependent tech and life sciences space. We see that gaining momentum as we move into 2025.

[John Richert, Analyst at Barclays]

Okay. Perfect. Thank you.

[John Richert, Analyst at Barclays]

And then just one last one. The Mortgage Servicing portfolio looks like it has been trending down the last few quarters. Should we expect that to continue shrinking? Just look for the size of that business.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Yeah. We're going to have that basically flat from here. I mean, it does move around a little bit just on valuation. Rates rise. It tends to increase, of course, with the extension of those mortgages and how long they're going to last before the refi. But no, I think you should look for that to be fairly flat going through this year.

[Steve Curley, Chief Banking Officer for the National Business Lines at Western Alliance Bancorporation]

Yeah. Steve, we'll sell a pool, and then it'll take a few months for us to replenish that. I mean, when you can sell in larger blocks, you get better pricing. So you'll see it kind of move down, but then we'll replenish that over the next two, three months.

[Steve Curley, Chief Banking Officer for the National Business Lines at Western Alliance Bancorporation]

So it should be relatively average, the same number.

[Operator]

This concludes the Q&A session. I will now hand the floor back to Dale Gibbons for any closing remarks.

[Dale Gibbons, Interim CEO and CFO at Western Alliance Bancorporation]

Thank you all for your participation today. We appreciate your continued interest in our company. Have a good day.

[Operator]

Thank you all for joining today's conference call. Goodbye. You may now disconnect.

Participants

Executives

• Dale Gibbons, Interim CEO and CFO
• Miles Pondelik, Director of Investor Relations and Corporate Development
• Steve Curley, Chief Banking Officer for the National Business Lines
• Tim Bruckner, Chief Banking Officer for Regional Banking

Analysts

• Nick Holowko, Analyst at UBS
• Chris McGratty, Analyst at KBW
• Gary Tenner, Analyst at DA Davidson
• Ebrahim Poonawala, Analyst at Bank of America
• John Richert, Analyst at Barclays
• Bernard von Gizycki, Analyst at Deutsche Bank
• Andrew Terrell, Analyst at Stephens
• Matthew Clark, Analyst at Piper Sandler
• Jon Arfstrom, Analyst at RBC Capital Markets
• Anthony Elian, Analyst at JP Morgan
• Ben Gerlinger, Analyst at Citi