Western Alliance Bancorp reeled in more deposits in the second quarter — at a cost.
The bank’s interest expense jumped more than eight-fold to $451 million from a year earlier, and was up 25% from the first quarter, according to a statement Tuesday. That left the firm’s profit at $1.96 per share, a penny short of analysts’ estimates.
The figures show the Phoenix-based lender made headway in rebuilding deposits — boosting them 7.3% from the end of March — after a flurry of withdrawals rocked midsize US banks. The tally has continued to climb this month, with the bank attracting an additional $3.2 billion in deposits as of July 17.
But the hunt for cash is taking a bite out of profit, with the bank’s total cost of funds increasing 58 basis points to 2.85% “due to higher costs on deposits and borrowings,” executives wrote in a presentation.
Western Alliance is among the first major US regional banks to post results from the period with investors closely watching the industry’s health. While banks are earning more from loans, they’re competing harder for the deposits that fund them — raising the interest rates they pay to savers and tapping other sources that can weigh on earnings.
The company’s stock slipped after the close of trading in New York, paring what had been an 8.1% jump during the day’s session.
Among firms in the KBW Bank Index, Western Alliance has the highest consensus rating, according to data compiled by Bloomberg. Based on analysts’ 12-month price targets, the return potential for the stock was about 38% through Monday — meaning analysts think the stock should rise that much over the next 12 months, based on their price targets.
The bank said it completed about $4 billion in asset sales in the quarter. That included roughly $3.5 billion in loans tied to commercial real estate, residential and commercial and industrial lending as well as mortgage servicing rights and a slug of securities that were primarily collateralized loan obligations.
Those sales were meant to improve capital and liquidity while reducing wholesale borrowing. To that end, the bank’s Federal Home Loan Bank borrowings fell $6.1 billion to $4.9 billion in the quarter. Reducing higher-cost wholesale funding was among objectives the bank described as “in progress” in a presentation detailing results.
(Updates with additional description of deposits, loan sales and wholesale funding starting in the third paragraph.)
