Western Alliance Bancorporation (WAL) Barclays 24th Annual Global Financial Services Conference summary

Strategic shift and capital allocation

• Pivoted from maximizing balance sheet growth to optimizing profitability and returning capital due to lack of market recognition for excess growth and perceived riskiness, leading to accelerated share buybacks and a focus on improving asset quality and deposit optimization.

• Share repurchases are ahead of schedule, with $150 million targeted for the second half of the year and plans to continue buybacks into 2027, aiming for medium-term ROAA of 1.20–1.30% and ROE of 16–17%.

• Deposit optimization strategy includes transitioning excess liquidity, repricing select client deposits, and expanding deposit-only channels, resulting in $4 billion in deposits transitioned YTD, surpassing the $3 billion annual goal.

• No further deposit transitions planned for the rest of the year, with additional guidance to be provided in Q3 or early next year.

• Despite deposit outflows, positive deposit growth continues, especially in Technology & Innovation, Business Escrow Services, and Corporate Trust, all contributing to lower funding costs.

Margin, growth, and specialty verticals

• Net interest margin (NIM) target of 3.60–3.70% over three years, driven by deposit mix improvements and growth in specialty finance businesses with above-trend spreads.

• Loan growth has been deliberately moderated to support buybacks, but the company remains a top-quartile grower among peers and expects total assets to dip in Q3 due to accelerated deposit transitions.

• Focus on lowering cost of equity and capital by building more durable earnings, improving asset quality, and aligning growth with market expectations.

• Specialty deposit verticals (HOA, BES, Corporate Trust, Digital Assets Group, Juris Banking) are prioritized for growth, with technology investments enhancing scalability and connectivity.

• Digital Assets Group and Corporate Trust expected to deliver outsized and steady deposit growth, respectively, while fee income from these verticals is set to increase.

Asset quality, credit, and risk management

• Six large non-performing loans (NPLs) identified, with four resolved by Q3 and the remaining two expected to be resolved in Q4, reducing NPLs by about 10% in Q3.

• Allowance for loan loss reserves (ACL) is increasing by a couple of basis points per quarter, with coverage expected to exceed 100% of NPLs by Q3.

• Asset quality improvements are ongoing, with the ACL expected to normalize closer to peers, aided by credit-linked notes that provide insurance against residential losses.

• Lessons from past credit events have led to strengthened collateral controls and administration, with no further instances of issues found.