Western Alliance Bancorp. in Phoenix is looking to sell loans and rebuild its deposit base as part of a plan to increase liquidity and get its Tier 1 capital ratio back to 11%.
Loans held for sale at the $71 billion-asset company rose from $1.2 billion at yearend to $7 billion on March 31. Its Tier 1 capital ratio stood at 10.1% at the end of the first quarter.
“To best serve our sophisticated commercial clients, we will continue to aim to be more aligned with the country’s largest banks by rebuilding our capital levels, enhancing insured deposits and liquidity, lowering our loan-to-deposit ratio, and deepening our client relationships,” CEO Ken Vecchione said during a conference call to discuss quarterly results.
“We want to be seen as equal to these banks from our depositors’ perspective,” he added.
Executives shared some lessons learned after a large amount of deposits left the bank immediately in the wake of Silicon Valley Bank’s failure.
Deposits fell by 13% between Dec. 31 and March 20, to $46.7 billion, before inching back up by 2% over the rest of the first quarter. The bank added $2 billion of deposits between April 1 and April 14.
More than two-thirds of the deposits that left went to the money center banks, Vecchione said. Many of those clients still have accounts at the bank and employees remain in contact with them.
Western Alliance noted the importance of linking deposits to loans. About a third to 40% of the bank’s deposits were tied to loan commitments – and those didn’t leave, Vecchione said.
“Going forward, we now need to tie more of the deposit commitment to the loan documents such that if they do move money, the penalty pricing is severe,” he added. “Today, it’s a nuisance, but we’re going to tie and may get more severe in order to keep those deposits with us.”
The bank also drew a distinction between banking portfolio companies and venture capital funds. Deposits tied to portfolio companies “are less likely to flow in and out on the operating accounts,” Vecchione added.
Still, it is difficult, if not impossible, to deter someone in a panic from moving their money.
“It is hard to rationalize a person out of a situation they didn’t rationalize themselves into,” Vecchione said.
Executives also noted that uninsured deposits have fallen to 27% of total deposits from 55% at the end of last year. The bank said on March 13 that more than half of its deposits were insured.
Net income fell 41% from a year earlier, to $139 million, reflecting $148 million of fair value loss adjustments tied to moving loans to held-for-sale status and $12.5 million in securities losses.
The first quarter also included a higher loan-loss provision and a $40 million year-over-year increase in noninterest expenses.