Q1 2021 Western Alliance Bancorp Earnings Call

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Home Office lounge good day everyone. Welcome to the earnings call for restaurant along for first-quarter 2021 our speakers today are

Ken vecchione president and chief executive officer and Dale Gibbons Chief Financial Officer. You may also view the presentation Thursday by the webcast through the company's website at ww.w Western Alliance Bank Corporation. The call will be recorded and made available for replay after 3 p.m. Eastern time, April 16th through May 16th, 2021 at 11 p.m. Eastern Time by dialing in one 805-858-3067 using conference ID number 975-7965

A discussion during the this call may be forward-looking statements that relate to expectations beliefs projections future plans and strategies a dissipated the events or Trends and similar Expressions concerning matters, but are not historically fax the forward-looking statements contained herein wage reflects. Our current views about future events and financial performance and are subject to risks and uncertainties assumptions and changes in circumstances that gave us our actual results to differ significantly from historical results and those expressed in any forward-looking statements.

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Actual results to differ materially from historical are expected results are included in this presentation related earnings release and our feelings with life. He's and Exchange Commission except as required by law. The company does not undertake any obligation to update any forward-looking statements now for the opening remarks, I would now like to turn the call over to mister Ken vecchione, please go ahead.

Good afternoon, and welcome to West Airlines first quarter earnings call joining me on the call. Today are Dale Gibbons and tip Bruckner our Chief Financial Officer and chief credit officer an overview of our quarterly results and how we are managing the business in this current economic environment. And then they'll walk you through the bank's financial performance afterwards. We all open the line and we will take your questions and continued growth in West Airlines National Commercial business strategy Crow Financial results and balance sheet growth to record quarterly. Hi to keep off 2021 month during the company's strong fourth-quarter performance and underlying fundamental fundamental Trends Waller. Net income hundred ninety, two point five million dollars and earnings per share of a doll a recorder 108 million over a year and nearly classic you for net revenue expanded more and half times the rate of expenses as improving in after quad.

And economic conditions for over thirty two point four million dollar release and the loan loss Reserve this quarter our Focus continues to be on and our growth which rose approximately fifty 1% year-over-year to 202 million dollars while marginally lower than last quarter due to fewer days regarding the acquisition of amerihome. I am place at the closing took place approximately three weeks ahead of schedule while personal personnel and Technology Integrations are minimal. We have begun to focus on balance sheet and funding Synergy off with the page out of external Credit One. Additionally, we signed agreements for the sales approximately 750 million dollars of mortgage servicing rights too strong counterparty that will bow West Airlines to retain substantially all the custodial deposits. We expect it to be completed in early May. Amerihome was an attractive strategic acquisition expand dead.

The line since fee income and lowering the company's Reliance on spreading, while providing growth optionality to our commercial portfolio of business.

Turning to the first quarter balance sheet Trends saving quarterly loan and deposit growth of 1.7 billion and 6 and 1/2 billion respective weight lifted total assets 2:43 a.m. For billions up 49% from the prior-year our near-term focus on growing loans in low-risk asset classes classes was on display as long as growth was really driven by Warehouse lending residential home purchases and increased activity who are throughout our traditional Banking and Regional footprint. Our deposit growth was broad-based across our franchise which pushed down our loan-to-deposit ratio to 75% and creates a strong funding foundation for on calling loan and earnings growth from our commercial loan Pike and the amerihome acquisition the continued excess liquidity from are improving deposit franchise. Is that the expense of short-term damn compression, but it's a trade-off. We are willing.

for long-term value

Loan growth drove and interest income of 317.3 million dollars from two and half a million dollars higher than last quarter and on 18% on a quarterly managers margin was 3.37% down 47% of the fourth quarter as we continue to deploy excess liquidity into loans and Investments Securities. I'm interest income totaled 19.7 million dollars for the quarter 85 7.3 million dollars of warranty come from Bridge bank. That's the quality remain stable this month at the economic recovery game Steam, but a quarter of net won't charge also one point four million dollars or two basis points on an annualized basis credit losses may not have faith in any meaningful way as prior and proposed stimulus package has continued to positively impact consumer spending habits and many businesses were provided to liquidity to whether they dead.

Finally Western Alliance continues to generate significant Texas capital which proved tangible book value per share the $33.02 or twenty three and a half percent over your four five three and a half percent over here. We remain one of the most profitable banks in the industry with a return on average assets and return an average tangible common Equity of 1.93% and 24.2% respectively this strong momentum coupled with economic reopening positions Western Western Alliance. Well for an industry-leading 2012, I just find all of the LTV to the financial forms. Thanks again for the quarter Western Alliance generated net income of 192.5 million or a dollar ninety six year olds down about 1% of the prior quarter. This is inclusive of reversal credit loss provisions of 32.4 million due to continued Improvement in economic forecasts relative to your end twenty-twenty and continue age.

Loan in segments with historically very low loss rates additionally merger expenses related to the amerihome acquisition of 400,000 were recognized we expect total merger Chargers to be approximately 15 million preponderance of which will be encouraged in Q2 is integration continues that interest income group two point five million during the quarter to three hundred Seventeen point three million an increase of 18% year-over-year primarily as a result of our significant balance sheet growth. However, while average earning assets through 5.7 billion the relative proportion held in cash the lower-wage Securities increased to approximately 32% in q1 from 22% in Q4, which temporarily needed our entire interest income growth has prepared to deploy excess liquidity into amerihome generated assets and higher-yielding Commercial loans order over quarter our loan-to-deposit ratio fell to 75% from 85% in Q4 wage.

Actively look to grow.

Los deposits is dry powder for future loan growth not interesting himself 4.1 million to nineteen point seven million from the prior quarter mainly driven by smaller fair value gain adjustments in our own security is measured at fair value The partially offset by 7.3 million the war in Vietnam not interest expense increased 2.8 million mainly mainly due to higher deposit cost is lower range or upset by higher average balance and continued balance sheet growth generating Superior net interest income growth reprovision net revenues of 202 million up over 30% from long ago.

Brain out a net interest drivers as our strong core deposit growth continued throughout the quarter. We look to deploy redeploy excess liquidity into the Investment Portfolio and Loans total investment point four billion for the quarter or 43% 7.9 billion compared to an average balance of 6.5 billion investment yields declined twenty four basis points from a quarter to 2.37% do to lower reinvestment rates in the current environment.

Similarly on a link order basis blink slowly decline 8 basis points following ongoing mid shift toward residential loans and it has a class with generally lower yields and the remainder of the Port Colborne in and low credit risk. This was partially offset by modestly higher ppp's strong loan growth and the food in deployment towards the end of the quarter significantly shorter range is for loans and Investments were 3.3 billion higher than the average balances and yielded three and half percent more than our that account higher income from this already deployed liquidity positions as well for Q2 interest-bearing deposit costs will reduce by 3. Basis points in q1 22 due to ongoing repricing efforts and maturities of higher-cost CD-ROM the spot rate for total deposits which includes, you know, an interest-bearing was 11 basis points. We expect funding costs have generally stabilized at these levels.

Net interest income increased two and half million to 317.3 million during the quarter or 18% year-over-year is higher loan investment balance is offset net interest margin compression am inclined 47 basis points to 3:37 as are purposeful strong deposit growth in advance imposing amerihome acquisition negatively impacted the margin by 43 basis points to put this in perspective average Securities and cash balances to interest-earning assets increased meaningfully in q1 by 32% from 22%

Given our higher-end higher-end quarter loan balances healthy long Pipeline and ability to deploy this excess liquidity over the coming quarters into higher-yielding or Thursday. We expect this margin drag to moderate while net interest income lines additionally a PPP long yield of 4.9% benefited to know by 8 basis points, which was similar to the fourth quarter cumulatively over the remainder of 2021. We expect to recognize 15.4 million of trouble TV.

All right.

Azure ratio Rose 90 basis points and 39.1% increase from 38.2% in Q4 is higher efficiency ratio is driven by a modest decline in non-opec in an increase in expenses partially offset by increased net interest in non-interest expense linked quarter growth increased by 2.1% driven by hiring Kaepernick is related to the 82% annualized rise in the positive balance, excluding ptpp net loan fees and interest the efficiency arrangement for the quarter would have been 41% off inclusive inclusive of amerihome. We expect the efficiency ratio to rise to the mid forties this quarter.

Reprovision net revenue decline 4.4 million or 2.1% in the prior quarter, but increased 31% from the same period last year this results in ppnr our own no way of 2.03% for the quarter and decrease of 21 basis points compared to 2.24% for the for the year ago. Partially impacted by a much larger asset base wage discontinued strong performance in capital generation provides a significant flexibility to fund ongoing balance sheet growth Capital Management actions were made credit demands.

Balance sheet momentum continued during the quarter as loans increased one point seven billion or 6.1% to 28.7 billion and deposit growth of 6.5 billion proper balance is to Thursday 24 billion Corner end but inclusive of the second round the PPP funding loans grew 24% year-over-year all deposits grew approximately 55% year-over-year with a focus on low low low low segments and Eda and all the total assets have grown 49% year-over-year as we approach the 50 billion tax cut level including amerihome.

Finally tangible book value per share increased $2.12 over the prior quarter to 3302 an increase of $6.29 or 23.55% over the prior-year contributing both net income and the common stock offering of 2.3 million shares completed during q1 in anticipation of the amerihome acquisition.

For strong loan growth continues to benefit from flexible National Commercial business strategy, the majority of the one point seven billion growth was driven by an increase in cni loans of $746 loan growth is also strong and residential real estate loans of six hundred six hundred and seventy-five Million supplemented by construction loans and 337 million in Syria, non-owner-occupied June 27th, presidential and Consumer loans now comprise 10.9% of our loan portfolio and increased from 9.9% a year ago.

Within the cni growth with a quarter in highlighting our focus on low-risk assets mortgage Warehouse loans from 562 million in round, two three p loans origination were of life and sixty million, which were nearly upset by 479 million dollars around 1 to pay off.

We continue to believe our ability to grow poor deposits from Diversified funding channels is our key to produce long-term value-creation given the ballot the ability to deploy funds in to attract Assets in the near-term. We purposefully look to expand balance sheet liquidity and he went on the screw six and a half billion or 20% in the first quarter driven by increases in non-interest DDA of 4.1 billion which now comprise 46% of our deposit base and savings and money market of 2.9% market share gains and mortgage Warehouse continue to be a truck drivers Positive Growth during the quarter along with robust activity and Tech and Innovation and seasonal in close formation way banking relationships developed during a 2020.

Or asset quality remains strong and bar hours are Staples liquid and supported by strong sponsors total classified assets increased $57 million q12 281 due to migration a few borrowers in COVID-19 impacted Industries such as travel Leisure and entertainment as reopening continues, but in an uneven Pace, you see the potential for these credits to be upgraded as traveling events increase in coming quarters our non-performing loans plus Oreo ratio declined to 27 basis points to total assets and total classified assets Rose four basis points to Total a 2.65% heard you the ratio at the end of 2020.

Special mention loans increased twenty-three million during the quarter to 1.65% of hundred loans as we discussed before SM loans are result of our credit Mike litigation strategy to Thursday Elevate in a monitoring two loans or segments impacted by the current global environment and the fluctuate as credits migrate in and out. We do not see credit losses emerging from special mention volatility.

Regarding loan deferrals and as of quarter-end, we had sixty-eight and half a million of deferrals all of which are in low LTV residential loans.

Quarterly net credit losses were modest at one point four million or two basis points of average loans converted three point nine million in the 4th Ward our loan ACL three six million from the prior quarter to age eighty million due to an improvement in macroeconomics work a slow growth and portfolio segments with low expected loss rates.

In all total loan ACL to funded loans declined twenty basis points to 97 basis points for 1.03% when excluding triple P loans for comparison purposes of the loan a CL500 levels was 84 basis points at year end 2019 before Cecil adoption.

We continue to generate capital and maintain strong regulatory ratios tangible common Equity to total assets of 7.9% way down this quarter by strong asset growth and wage and in the common Equity Tier 1 ratio of 10.3% and increase of 40 basis points during the quarter mainly driven by our, Capri and growth and low risk assets inclusive quarterly cash dividend payment of $0.25 a share our tangible book value per share Rose $2.12 in the quarter to $33.02 an increase of 23% in the past year while now, he's call back over. Again. Thanks Phil. Western Alliance is one of only a handful of banks in the industry with double-digit loan growth liquidity to fund the growth strong improve the same, the generate consistent. Leading Roa and return on average tangible common equity, which study actually quality and low net Charges going off.

Are you talking about current iPhone?

We expect moment deposit growth of 1 to 1 and 1/2 billion dollars per quarter which will drive higher than interest income and ppnr growth wage Spectrum pressure to subside through the deployment of liquidity into attractive asset classes. One of the characteristics of the amerihome that we found very attractive is that it provides a natural solution to all excess liquidity. Amerihome will be expanding its products or a to include higher-yielding non-qm and jumbo loans that fit our established credit Bob placing and holding these loans on our balance sheet answers our existing Residential Mortgage purchase program, and it's worthy and and is a worthy credit solution for the deployment of excess liquid to keep Pace with balance sheet performance or risk management programs and Technology platforms are evolving and expenses will rise, but will be offset by the revenue generated from New Jersey.

Liquidity employment there will be no drag on ppnr or EPS of these Investments inclusive. Amerihome efficiency ratio will rise finally a long-term asset quality of almost reserves are performed by the economic consensus forecast incorporating risk for tail economic events, which is consistent. I couldn't fly a steady Reserve balance. I think on the timing and pace of the recovery, there could be some long migration into the special mention category, but we do not offer materials hydration into substandard. We believe the provisions in excess of Charles since the event that make began are more than sufficient to cover charge offs through the cycle. We done as we do not see any indicators that have applied material losses are on the horizon to conclude Western Alliance as well positioned for balancing growth with any asset Club.

Ppnr should continue is upward trajectory from few one along with industry-leading return on assets and Equity at this time failed him and I am happy to take your questions. Thank you at this time would like to take any questions you might have rest today. If you would like to ask a question over the phone simply, press star. Then the number one on your telephone keypad again, that would be starved. And the number one on your telephone keypad.

We have our first question from the line of vandervliet from UVS. Your lives are open.

Great. Thanks very much deal. If you could review with the closing of amerihome, what the debt paydown picture look like and how how is that going to shape your ability to kind of soak up this excess liquidity in the near-term.

Yeah, so we're we're doing that now, you know, they had about a little over 3 billion dollars worth of borrowings and and we're facing those out kind of going forward. I think we're going to I think that's going to be done. You know Say by this. If sometime in the second quarter what we're also going to be getting from amerihome is and you know is we're going to be able to have a kind of read employment into mortgages that we you know would want to put in our balance sheet and we'd prefer to have something that is low LTV, but but higher-yielding which means as you toward kind of a non-qm solution, which they're going to be rolling that product out as well. So as our ability to do that happens and I think over the next, you know, couple of quarters that's going to be the case cause it wasn't random that we had this kind of massive deposit growth during the quarter. We you know, we we we let it go in terms of bringing in more deposits cuz now we have you know an ear off.

Brady access to you know, a to a almost Limitless source of of good food quality asset deployment and I think you're going to see that in 2021. Okay, and you know, I think the on amerihome they gain on sale picture is dark and somewhat since you announced the deal, can you give us any sense of what they're going on sale was in q1 and how that may have compared to the prior quarter or prior year.

But we we can't talk about your your your q1 performance because there are part of a a public Enterprise of seeing and seeing it has been announced yet. But but we did mention was you know, amerihome has the ability to Pivot. So we expected that. You know that margins were going to be coming down that is taking place today and but they have also the ability to take what we called their win rate, which was about 7 p.m. That is lying about 7% of the of the loans that they look at too, you know and to increasing that and so they've been doing that as well. So so there are pivoting appropriately, and you know, we're standing by the you know, the dollar forty one that that we indicated amerihome was going to benefit us in 2021. I think you're going to see Thirty to thirty-five cents of that in the second thoughts as we you know, as we face this in including the thing you just inquired about Brock regarding, you know, being able to pay down their loans and stuff like that. So we're in that process, but that's where we are rocket Pig.

And I just want to add a few things. If you would call back to our earnings call in or our conference call in early February and we announced amerihome. We said that there were other opportunities wage, um to earn more than the accretion numbers that we provided we held those back because of some uncertainty that we saw it coming potentially with Rising rates and we're using all those as we intended to in order to maintain our earnings estimates for amerihome.

got

Okay, appreciate the color.

Thank you. You have our next question from the line of Casey haire from Jefferies these go ahead great. Thanks gud morning guys want to I wanted to touch on the wage growth. I mean you guys um, I mean even with the updated with pumping up the guide, I mean this quarter you really massively outperform. I'm just wondering is there still it feels like the environment is still ripe to continue to do that. Is it is it possible that the deposit growth is is conservative based on based on the current environment based on what you're saying.

So you think it's conservative because we told you eight hundred million and we came in at six point five billion May. Yes. We've hooked up to a billion to a billion and half, you know, we we've been performing at this level or better for the last six eight quarters. We have some real visibility into the pipe fine based on either oral commitments or things. We're just finishing up the paperwork on now. So, um, yeah, there is a possibility to exceed both the deposit guide as well as the the loan guide.

Okay, and and on so on the cash balance at 15% on average in the quarter and I realize that you guys did did get to work in the back half of the of the quarter of was Securities loans, but even with the the pay down on the amerihome debt, you're still at a probably around 7% of cash position. What what is a good Target level? You know, how comfortable how how comfortable are are you driving that to what level? Yeah, so I mean the billion billion and half is what we consider to be kind of a core number but you know as we deploy that and pull that number down and that number can fall substantially and frankly, you know, the the the Securities book is, you know, at least a third or 40% higher than it needs to be now. That's better than cash but not as good as you know, some of these other loan based Alternatives, so I do expect that we're going to have you know, a, you know a couple of quarters off.

We're going to right-size are low to deposit ratio wasn't that long ago? But we were in the nineties, you know, now we're down at 75 well doing that means that loan growth will be well in excess of a billion five as we as we increase so that loaded deposit ratio that's going to get underway, you know, you know in the next they're not too distant future.

Okay, great and just just some follow-ups on the name side of thing is the new money loan yields that you're seeing in on mortgage as well. As you know wage new money yields on Securities purchases. Yeah, so the security purchases deals that we got worse was a 2:20 and new loan meals that were putting on Mondays are running about 20 to 25 basis points lower than what the average is. I think we are we are experiencing pricing pressure. I think that the velocities Thursday at the industry and the economy is come out of this pandemic has resulted in kind of reduced expectations for credit losses industry-wide and that's been reflected in price. But again, you know, we've got the ability to do is you know to to drive volume and to you know, and to shift our focus in terms of you know, where the best kind of risk-adjusted returns will be.

Okay, just to clarify Del Sol 25.

I mean your existing loan yield on the quarter was around four 6, I would think Reggie mortgages was is lower than that, right or yeah, no crazy mortgages that we are putting off. Our books are around 3.

Gotcha. Okay. Thank you.

Thank you. Your next question is from the line of Brad milsaps from Piper's Handler realize that open.

Hey, good afternoon, guys.

right

Just wanted to stick with some questions around. Amerihome. Just kind of curious how much the change in in increase in loan got it is related to you guys retaining, you know more production from amerihome and what if and if so, does that have any impact on kind of what you know amerihome, you know would contribute on a stand-alone basis going forward or is it all kind of interconnected?

Well, so I mean kind of our core number, you know, I wouldn't say is is amerihome dependent. I mean, we've been buying mortgages, you know from other sources that was you know, it happened in the in the first quarter and and last year what what amerihome gives us is a a more profitable way to do that rather than going to other parties we can kind of keep it all in a family and and also, you know kind of a ready, you know full, you know full bore in terms of ability to do that. So so what we're going to get from amerihome is also on top of that is to be able to you know to again kind of right size or alone the deposit ratio in a you know, in a in a way that certainly creative to net interest income.

Yeah, I guess maybe differently Dale is are the two sort of exclusive one another you're increasing loan guidance, but then you still think amerihome can contribute what it was going to when you initially announced check in February.

Yeah, we we increased our loan guidance irrespective of amerihome. That is that we all of last year. We certainly didn't have amerihome and we were in a pandemic. In fact, I've never once where we under a billion dollars. So it's it's imparted knowledgement of that so we can we we can do this without a mirror home. But amerihome gives us I don't know more confidence to be able to execute a better price point for the residential real estate. We pick up they're going to be expanding their product line that's going to give us, you know, kind of even more volume. So we're we're amerihome doesn't affect the billion and half of that's what you're going to get right? Yeah. Yep. Got it. Got it. That's helpful. And then I know you announced the deal you your intention was to sell some of the MSR the discharge line with about you know, what you were thinking, you know sort of how does that impact, you know kind of there, you know kind of beer run rate in terms of you know, gain-on-sale margin going forward.

Yeah, this is Ken.

We actually sold the msrs for more money than we had anticipated. So we feel good about that in terms of the transaction by getting these getting the this large amount off our offer. Our books allows us to do smaller MSR transactions going forward. I think we should get better a better pricing on.

Okay, great. Thank you guys.

Thank you. Your next question is from the line of Chris McGrady from KBW East. Go ahead. Good afternoon, You can parse out the the six and half billion of deposit growth by your verticals, um, you know, specifically Tech and Innovation HOA and kind of mortgage.

Yeah, so, you know the age of a group was up about so the Region's all in fact about a billion nine. All right, Warehouse lending it about two point 1 billion Tech and Innovation is about $760 million dollars off. Rhoa business just under $700 billion by the way did as much in this quarter as it did almost all last year. So those are the those are the big drivers of HOA of deposit growth Chris.

Okay, great. And then I'm sorry. We never give you the names of deposit businesses, but our deposit Thursday is one through five hundred million in q1 and the positives is to which we always said was well behind the positive business number 1 through 50 million dollars off. So we're getting excited about what these businesses can do for us.

Okay, it's a great color in terms of the cni growth. Can you maybe I'm missing your prepared remarks. Did you did you enter the last quarter? You said that your guidance wasn't inclusive of growth in the warehouse, but did you tell us what the warehouse balance changes were in the commercial book?

Are you asking I'm not certain of your question. Ask it again. Sure the mortgage Warehouse in you know, how much of that in the in the lending side how much how much wage other growth this quarter was Warehouse? All right Warehouse lending this quarter.

And we include three items in there. We include Warehouse lending MSR lending in our note Finance, which is a separate business, but we have it on the warehouse lending that collectively grew 560 million dollars, but we came in with an understanding this year that we keep Warehouse lending basically flat who is sending a 2020 but we keep telling you we keep winning share there and it manifests itself here in q1 as you can see.

Okay.

Thank you very much.

Thank you. The next says Gary tenner from d a Davidson, please. Go ahead. Good morning. Just a couple of questions one. Just kind of housekeeping on a PPP you give us what the average loans outstanding were the quarter.

We have about about a billion five Inland remaining.

Yeah, including too of course.

Gotcha. Okay in terms of as you kind of thing come forward and you know knowing that obviously adding more ready mortgage will change this but it kind of just run through from a bone sensitivity perspective. You know, what amount of your loans are variable rate today and kind of status within the money floors as we start thinking, you know, a little further out wage should be a perspective rate hikes.

So, you know today employers are active in the preponderance of our portfolio. So we are we're behaving as if we're 80% fixed we have I think that's an interesting asymmetrical profile. Whereby if rates go lower. We see very little contraction of that interest income because because the recipe wage rise our our loan yields become even more sensitive because they'll be be lifting off of the floors. I'm kind of going forward so and so it's an asymmetrical benefit for us dead relative to you know to where we are. So we yeah 80% of our of our book today is behaving is as if it fixed rate.

Okay, I just in terms of you know, if there's is it one right? I cure rate hikes until there's an actual upward benefit in the manual dead. Yeah. I mean it's it's staggering some our immediate there, you know kind of others are a hundred basis points away. So I would say on average you're going to need to see probably two months or you know rate increases before you're going to start seeing kind of notable Improvement in terms of even though these loans are variables. We're putting them on at the floor. So I'm looking like they're fixed rate loans, right?

If you'd like and then just last question you talked about mortgage warehouse and continuing to win business there and taking share and obviously the warehouse deposit balance is group. Definitely you can just talk about the kind of sensitivity of mortgage Warehouse related deposits relative to you know, overall volume overall more violent.

so

You know, we're out when they I I think started out ten twelve years ago was an interesting idea and we see if we can get another Channel going to something where it's just a very important strategic weapon for us. It's delivering more in deposits than we anticipated because primarily of the page the service we deliver and the fact that we moved upscale up of a market in dealing with some of the larger more sophisticated clients. They're feeling more comfortable consolidating more and more their deposits with us. Right and there's some of the large clients there's a disproportion between wage much more in deposits than we have on their Loan in their loan balance, but we're we're continuing to gain Sharon both the loan side and the deposit side. Yep.

Would say at some of the competitors that we normally have.

Let's see are just not performing as well as they should in terms of service levels. And you know, we've got I think I said maybe its last earnings call if you think of us as an airport took a plane circling overhead looking to land and give us their business and you know for us it's a matter of how quickly we can on board both the deposit and I'm among business. I think it's important to remember that that the deposit balances aren't really the the business so it's not it's not operating accounts when these you know, so let's say the refined business, you know contracts dramatically off that that can affect the actual balances of the Enterprise but that is a very small piece of the deposit balances. We have both balances. We have that drive that that phone number is the escrow relationships and that's based upon the mortgage servicing that some of these Enterprises own so so you can see volatility in the origination side but dead

But the MSR SRX Drive the deposit balances and that's tends to be much more stable as because people maintain mortgages on their house.

Great. Thank you.

Thank you. Your next question is from the line of the more braziler from Wells Fargo your lines are open.

Hi, good morning. Maybe just following up on that last mortgage Warehouse discussion. I guess how sensitive is that business to speaking yield curve and and if broader industry off and start to slow down with the circling Runway is is that kind of irrespective of what's happening industry-wide is you on board new clients or if there is a broader slowdown, we should expect to see volumes and and growth rates low as well at well less annoying so good question there, you know when we came into twenty Twenty-One am planning here for our overall growth. We did not have Warehouse lending stepping up in terms of balances, but well, obviously, we we had a good first quarter and we're going to continue that Trend going into quarters to 3. And for what we're seeing is two things one. There's just a natural rise in terms of taking birth.

Chair with the clientele that we have today and then on top of that we will get a benefit from penetrating the amerihome a climb. So they've got as I said the 720 clients we've got about a hundred or so that overlap and we're going to be able to penetrate going into their clients. So if you can make sure that we go into one of the amerihome clients and say look, we're William we give you a line of credit just call twenty-five million for argument's say and we'll also by after you took like loans on that line will also take you out of that line. That's a very powerful argument to offer sort of a two-for-one opportunity to the amerihome clients. So we haven't fully factored that into our numbers yet, but that gives us some confidence that we should be able to continue to grow our warehouse club.

on the left side

Okay, that's that's helpful. So as we start thinking about your new loan growth guidance, it shouldn't just be you know, what you've been putting on existing plus the rest of the wage increase guide coming directly from Revy. We can actually see mortgage Warehouse continue to ramp higher and the larger component of that growth. Well, I'm just trying to clarify what you said the billion to a billion and half is basically business as we do it today. All right, so you'll see already purchase has continued age and you'll see Warehouse lending grow as as if we never had the amerihome acquisition the amerihome acquisition as we ramped that up will provide either Comfort to Thursday evening that billion to a billion and half or if we do it really well it will help us succeed that number

Okay, that's helpful. Thank you on the residential side. I think in quarters past you guys have talked about the concentration of 20% Do you have a concentration limited off and then I guess as we're building out what residential loan growth could look like how big are the overall loan portfolio can be envisioned by becoming I think we can easily, you know punch through Thursday morning. I mean the average you know Banker size is thirty, you know First Republic is just under sixty. So um, you know, so I mean what we like about the space is dead, you know, I mean, you know, very good quality, you know performance now, we've got kind of, you know, an unlimited channel into that. There are some other kind of cross-selling opportunities some of which we've talked about wage we can pick up so, you know, we're no we're definitely going through 20 and and toward the media and at least for now, that's a very strong but we have right 75095 KO BT I've about

334 and 36 below 70% LTV we could probably give you a list of all the folks that have been gone 90-day delinquents. It's usually just walk out on usual event and we've not had a loss in the book. So it's it really helps bring a lot of asset quality too too good at the Quality to our Lounge position.

Okay, thank you. And then just last one for me back on the deposit side. I'm wondering how much are the growth growth if any is coming from the extension of the tax deadline and what that could look like for balance is off of customers go to pay tax bills and that's wonderful. That's more of a consumer phenomenon say and you know our has been coming in strong all through twenty. Remember 20/20. We did nine point 1 billion dollars of liquidity which far far exceeded our best best year ever and a quarter. We did six and half billion, which it just did one quarter.

Okay.

Thank you. The next question is from the line of David chiaverini from wedbush Securities, please go ahead.

Hi, thanks. I wanted to ask about the pace of Securities purchases. You had a strong ramp up in the in the first quarter going forward. Should we expect that page to slow somewhat as you pay down debt with the closing of amerihome?

Deposit growth that we expect to continue to generate so so the but over time yeah, I think our security is booked can actually bleed down but but I wouldn't expect to see that any time soon. But no I think wage growth in the book and the security side is largely behind us views were using our current liquidity to pay off all of the amerihome debt and and then also, you know to begin to purchase them work mortgages through that channel.

Great that's helpful in also wanted to follow up on the Nim commentary you mentioned about how the drag should moderate going forward and I see in the slide deck how the spot rate on loans is about 13 basis points lower than the portfolio average in the quarter in terms of magnitude of of being down. Well, I guess the clarification to expect continued margin compression, but just not clearly as much as the 47 basis points in the first quarter. Is that the way to think about it? Yeah. I mean, you know again what we're focused on is we're focused on how do we increase the earning power of the company and translate that into the GPS margin has very little to do with that. We're we're so bring our we think you know, hey low-cost stable core deposits that we can deploy into profitable Assets Now gosh, I'd love to get 5% for that, you know on a you know without risk. Yep.

We're not seeing those opportunities at scale at that price point. So what are we doing? Well, we're going to residential where we have, you know, unlimited and that's two point two points less. But if I add mortgage loans, you know and 3% and our margins that you know, 337 that's going to help prevent that margin a little bit but instead if I think about it, you know, I've got Investments at 10 basis points of stuff that's already on the books and I can put that out at 3 that would help the margin even though that's Fred is actually lower because I'm taking from ten basis points to 300. So the combination of those two things is a possible the margin comes down a little bit. Yeah. I think that would actually be likely a good thing because it really means is that we're continuing to move the fundamental footings of the balance sheet that we can then deploy into earning assets. I just wash and one of the things that was down said, you know our focus on that interesting rather than em started in early 2018. So this is not a new phenomenon for us we suck.

I'm talked about this since the early.

2018 that this was a direction that we're going to take which is prioritized net interest income growth over them. Simply said interest income is going to drive ETF. One of the things are very proud of them this quarter with two less days. We made more in that interest income that we made in in Q4. So our our strategy is dead is being executed upon and they all said, you know, our our goal is to keep that net interest income looking robust for the next several quarters as we continued Applause the excess liquidity and continued all of upgrade our guidance as to what we're going to bring in.

That'll make sense. And then a last housekeeping item. I think you mentioned merger charges You're Expecting fifty and million roughly fifteen million mostly in the second quarter cup is your expectation. Now that it's going to be in total lower than the $35 million that was discussed at the announcement of amerihome. Yes. Yeah that can was alluding to that page in terms of the pricing that we got on the disposition of the MSRP book. I mean the preponderance of those fees that were going to be incurring are basically deconversion costs from our Outsource work in service or off to the to the purchaser that transaction should close within the next few weeks.

Got it. Thanks very much.

Thank you. The next Michael Young from Julius your lines are open.

Hey, thanks. Good morning morning.

Wanted to follow up on your comments about the reserve level maybe maintaining more of a flat level going forward. Is that sort of on a relative basis two loans outstanding in other words, I guess Cecil impacts, maybe or more muted and lung growth coming more from commercial going forward. So we're kind of stay more stable.

That was really it's a numerator denominator thing. And what I was trying to say is the balance is going to stay relatively flat with the way we're growing you can see the the racial drop but the the balance we think will be relatively flat a lot of that is, you know, when Cecil it's just driven by the economic Outlook which can which we can really move the the number that but you know, what should not be lost upon our our shareholders investors. The analysts Community is that 42% of our portfolio is in loans or asset categories that we've never ever had a loss on or loss and I should say and that's where it also drives the Cecil calculation.

Okay, great and maybe just as a follow-up just thinking about the pace of growth relative to capital capital levels gotten a little skinny, even with the the issuance of this quarter. I know P. It has an impact on the tce ratio, but just should we think about you know, you guys are willing to grow if growth is there and you'll raise Capital as needed or would you temper some of the mortgage growth is that maybe more of a a flex area on the balance sheet to stay within kind of capital ratios if we need Capital to grow I think you can look to a look for us to do the right thing.

okay, and if I can

Can one last one just for the mirror home, you know kind of on the books, I guess now, you know can just trying to think about sort of the the buy versus build equation going forward. Um, you guys always have, you know, some of the part that loan growth verticals, you know in the pipeline that you're building but you know has this changed your view on on that equation or what you'd like to do on a go-forward basis. No, not at all. I mean off the amerihome team has a couple things that they like to look at in terms of New Opportunities and I've mentioned them not non-qm Channel jumbo channel are just two of them that jump right off but that's separate that team can work on that as the commercial side of of West Airlines can work on other business opportunities, and we're we're continuing to work on those opportunities. Now, you know, we're probably one of the few banks that are sitting here working on 2022 s Grove levels.

That's how far out we are and what we think in terms of our Pipeline and our visibility.

Okay. Thanks.

Thank you. Your next question is from Tim coffee from Jenny, please go ahead in the back of your net loan growth. Would you expect it to be that level going forward? Yeah. Yeah. Yes. I I think that's going to continue and and as I mentioned that's kind of a core piece. I think 40 is not a phone number, you know, you know when we when we stop up our excess liquidity it's going to ask you much higher than that. Cuz a lot of that is going to be directly toward, you know mortgage Acquisitions as you know, we're where we see something kind of well in excess of a billion bucks. Okay, and on the efficiency ratio is kind of you think as we go give me breathless Osbournes you go through the year adding amerihome and such do you think 45% is going to be kind of new level for you?

Yeah, I guess you know it's going to be $45.46 or something in there. But you know, yeah mid-forties. I think that's kind of where it's it's fairly stable at that wage something under 50 for sure. Okay, and can you talk a little bit about what it is about Western allows you to maintain kind of expense growth at a level. Well below asset growth.

Yeah, so let me try to I think a lot of that, you know, when we talk about our national commercial business line strategy, we generally talked about in terms of the growth that it brings. In fact, it's very helpful to keeping the efficiency ratio low, but these businesses are for the most part have very very high operating leverage. And that's one of the characteristics there. There are several characteristics of the of the national strategy generally very few competitors pricing power or stability great asset quality. And then Thursday, we love is very high operating leverage and has to growth shifts over to that coming from those National Business lines. Just the the natural calculation of the efficiency ratio will will keep us will keep us more moderate as compared to our peer group. The other thing is we we just growing revenues, you know, as I said up front four times faster.

That expenses about two we'll we'll keep the efficiency ratio in mind.

Those are my questions. Thank you very much.

Thank you.

The next question is from John arfstrom from RBC Capital markets your lines. Okay, good morning. Everyone else deal question for you. Can you go back and review the loan-to-deposit comments you made earlier and you know, where do you think you might sit at end of the second quarter and maybe end of the year? Can you help us with that a bit Yeah. So so I mean it's something we're you know, we're trying to get underway now, I you know, I think that at the end of the second quarter I expect we maybe we'll be close to where we are presently maybe a little bit better, you know with you know, you know the the billion billion five and and growth in age. I think we're going to be able to get these kind of new products out for the rear home, you know, maybe by the end of the second quarter into 3rd, and then you know what they see billions of dollars certainly in volume and so we can move rapidly on that. I personally would suck.

To be you know, kind of you know, it's a 90% range back to low deposit ratio at the end of the year. And so I mean if you do if you take where we are where we right size that where we have, you know, very substantial growth from you know, just where we are as of 331, you know, we had 3 and 1/2 you three point four billion dollars of low growth in a three and a half percent spread that's already in the you know in the books as of 3:30 a.m. That generates about nearly ten million dollars a month of increased just from deploying that liquidity then you add in amerihome with this we expect to be at know any PS run rate of you know of $9 is we exit 20 21

I was going to ask later. If you I just want to talk to a Salesman for a moment there a John, you know, everyone's talking about the liquidity and CEO. We're talking about data pack vs. Net interest income. What they'll just said is the Crux of of how we're structured the business that the 3 and 1/2 billion dollars that we just put out and the ten million that were making a month pretax Thirty million a quarter that is very very powerful. And that's what you know leads us to have a certain degree of confidence along with the amerihome acquisition that we can exit the year at that $9 EPS run rate. I was going to ask if you think number should go up but you answered that for me I did but I do want to ask one more question and it won't be on deposits. But can you talk about lending outside of your National businesses?

Some of the pipeline Trends and what you're seeing in construction just as kind of a gut check on what you're thinking on the overall economy.

Yeah, so, you know actually what we're seeing inside of our footprint is exactly what we're seeing outside of our footprint. So on the on a construction side residential that's very hot for us at this moment homes, you know take five to seven months to build. They're extending out a little bit longer than that because of our neighbors shortages. And so the cost is a little a little bit higher but once they're built pulling their their souls rather quickly. So one of our struggles, of course, I you keep those really good loans outstanding for a longer period of time, but the the construction side of single-family residences are really hot bath built to rent opportunities which for us are mostly in our footprint more so than outside of our footprint Arizona seems to be the build to rent a bathrobe.

capital of the outskirts of Phoenix

In the West Valley seems to be a very very active and we're doing a number of deals there. I'm going to let our chief credit officer who's been sitting here patiently wage hasn't said a word tip doctor didn't want to comment on this, you know, residential and Commercial Volpe, I think.

There were definitely some things that sat on the Shelf last year with the uncertainties of the pandemic. So projects delayed Thursday. We're so we're seeing that move forward and so we as we look out across 20 21, we don't see any big big shifts in Long demand. We see stability across, you know, the the major food groups within our real estate portfolio. So we're not seeing Trends in in rent payment that are alarming we're seeing things that give us comfort and we're you know, maintaining a very close in age correct monthly or weekly dialogue even with our our borrowers that gives us that information. So I think it looks very very

Very very positive for us across all all the same. So yeah, and I know it is residential and we're very active in the net migration States as you would expect as they're seeing even more activity. But it I I should have said it does not only pertains to construction of single-family residences, but on the industrial-size we started or financed the number of spec projects for industrial where homes warehouses and before the show was even completed their already leased up a longer are they are they spent their all pre-leased? So that's that's give you example of how hot the cre Market is for data point on Thursday that portfolio stabilizing.

And has stabilized faster now than at any time in the past four years our our portfolio. So it is moving moving very quickly. Do you have time to give you a short answer? We hope the long one? No, that's that's that's fine. And and I guess just the one thing you did flag this and I want to make sure it's out there but I did say you're expecting some movement in special mention and classified but it doesn't sound like you're concerned about credit at all.

I did the answer. The short answer is yes, we've looked around. We don't see anything on the horizon that's going to give us a a little bit of trouble and you know, we feel good about where the acid quavo.

All right. Thank you.

Thank you, very no further questions at this time. I will turn the call over back to the second vacuum. Thank you. Thanks everyone for dialing in and listening to our strong feeling very good about it. We were very proud of the result and we look forward to talking to you 90 days from now about the second quarter. Thanks again and everyone. Enjoy your weekend.

This concludes today's conference call. Thank you for participating you may now disconnect. Have a great day.

Joseph Choi