Western Alliance Bancorporation (NYSE:WAL) Q2 2019 Earnings Conference Call - Final Transcript
Jul 19, 2019 • 12:00 pm ET
We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Casey Haire with Jefferies. Please go ahead.
Yeah,thanks good morning, guys.
Kenneth A. Vecchione
I wanted to touch I guess on the loan growth mix going forward and sort of the NIM outlook. You know, obviously, commercial was a very big contributor this quarter and resi was not. But it sounds like that will change going forward. How so -- and I'm assuming that's some -- a lower yield product versus your 590 [Phonetic] book. So how does NIM stay stable if that's going to be driving the bus on loan growth going forward?
Yeah, so we're really focused on -- on net interest income and as we talked about, as I mentioned just a minute ago, we've got 4% growth in the third quarter already in terms of average balances just holding the June 30th balances relative to what our average was in the second quarter. Plus, we expect to grow again, $600 million per quarter in loans and deposits in the third quarter. When -- we were talking about when rates were rising, our NIM would rise approximately 5 basis points, per 25 basis points to the Federal Reserve action. Although we have -- been moving into residential, we put on $1 billion in the past year, that relationship still holds. So I would expect about a 5 basis point margin decline when the Fed cuts rates 25 basis points. I expect the margin to fall more than that though, because, you know, if you look at our ending balance because of the strong deposit growth, we had particularly at quarter end, which is still with us, by the way, those dollars are really sitting in the Federal Reserve account.
So we have -- it's a good problem to have, but we have. We're sitting on a lot of cash, yielding only 2.35%. Yet -- well, that's dilutive to the margin, it's accretive to net interest income and earnings per share. So yes -- so we're going to be having a declining margin, but our margin declined very similar to the second quarter, we expect to be able to earn through to have growing EPS.
Okay, I understood. And the operating leverage dynamics and the language has changed a little bit there. Is that -- I mean, it sounds like you guys are baking in a bunch of cuts. Dale, I think you said four cuts. So is that -- so the -- the top decile of the peer group, you guys are way above that at 2.5 times revenue to expenses. Are you coming off of that 2.5 times revenue expenses just because of the Fed cuts or, just trying to get understanding of what seems to be a change in that language?
Kenneth A. Vecchione
Yeah, the Fed cuts definitely have an impact. But what we're gonna be continue to be focused. Operating leverage is the way we make our money here, it's one of the ways