Western Alliance Bancorporation (WAL) Earnings Call Transcript & Summary

Kick it off. Western Alliance is a $70 billion asset bank. The company offers traditional commercial banking services in many Western U.S. states. It also has several attractive and highly profitable specialty national businesses such as warehouse lending, hotel franchise and homeowners association management, among others. Western Alliance return on equity consistently ranks in the top decile compared to peers. With me from Western Alliance this afternoon is President and CEO, Ken Vecchione; and Vice Chair and CFO, Dale Gibbons. Ken has been President and CEO since 2017. From 2013 to 2017, he served as President and CEO of Encore Capital and the Chair of Cabot Credit Management, Encore's largest international subsidiary. From 2010 to 2013, Ken is President and Chief Operating Officer of Western Alliance, and he served on the Western Alliance since 2007. Dale is Chair -- Vice Chair and CEO of Western Alliance since 2018. Prior to that, he was Executive Vice President and CFO of Western Alliance starting in 2003, where he witnessed the transformation of Western Alliance from a Nevada-focused institution to a $70 billion nationally focused bank. So welcome. Ken is going to start us off. He's going to do a brief presentation, and then we'll go to Q&A.

Well, good afternoon, everyone. It's late in the afternoon. So I'm going to assume these are all the 2 believers, out in the audience or those people that didn't get an invite to the Bank of America dinner tonight. So let us begin and tell you a little bit about Western Alliance. We had a real good third quarter. Let's just kind of go down the list. Our deposit growth was very vibrant. We grew $3.2 billion, and that's after paying down $441 million of broker deposits on an annualized basis, that's 25% growth. Our loan growth was a little more muted at $200 million, but that's what we expected. Our net interest margin rose 25 basis points to 367. And our net interest income rose $36 million, $37 million as well. Our operating costs ex deposit costs were flat quarter-to-quarter, deposit costs did rise that offset the net interest income increase. And for the quarter, we made GAAP earnings of $1.97. We compute that as operating earnings of $1.90. We ran an ROA of 1.24% and our return on equity was over 17%. And even in this market, we increased our tangible book value by $0.57. So we are very pleased with the quarter and the quarter's results. Took the market at least a couple of days to -- or a couple of weeks to understand it. So I can say that having the stock being up 8%. So some people are just slow learners is what I'm going to say. On asset quality, our asset quality looks good, and it's holding in there right now. So we were early in Q3 -- I'm sorry, Q2 to move a lot of stuff into special mention and substandard, but that flattened out quarter-to-quarter from Q2 to Q3, and you only saw it was a net $9 million increase. We had about $8 million of charge-offs for the quarter. And as I said, right now, everything looks rather calm. Our tangible book value as a company has grown as you go back the last 10 years, 6x that of our peer group. And so we always focus on improving tangible book value. And so regardless of where the stock moves up or down, you can always see consistent tangible book value increases. What's really misunderstood about our company is that over the years, we've been a fast growth company. And back when I joined the Board in 2007 or when I was President and Chief Operating Officer in 2010, people said, "Gee, you grow so fast. We look at your NIM, your NIM is too high. So you're going to have credit losses." And we said, "No, that's not true." But -- and we proved them wrong. Or they go back and they say, "You know what, we looked at your credit quality in 2006 and 2007. We're going to model the same thing for your bank today." Well, that's wrong because 2006, 2007, we were a $5 billion bank, mostly located in Las Vegas. Las Vegas was the Hiroshima of credit implosion. And we also had 70% of our assets in Las Vegas, in Nevada and 24% construction loan and development. We look nothing like that today. And Las Vegas is only 4%. So that doesn't make any sense, right? And as we continue to move and our loan growth continues to rise and we brought down our NIM, people said, "Aha, that loan growth is going to cause a problem for you. And then we're expecting higher charge-offs." Well, I can tell you, over the last 10 years, we've grown loans and deposits 25%, 26% each, and our total losses over the last 10 years have been a net $29 million. So how did we do that growing loans very quickly and also having very low losses. Well, it's the way we segmented the portfolio and developed the portfolio. So what's really unknown and not really appreciated is that 22% of our portfolio is insured. What does that means? We've got credit-linked notes, where we've already accepted the money in from investors, they take the first loss, okay? We are not going to lose money on 22% of our portfolio. The next 29% is resilient, okay? I'm not going to read the categories for you, but we haven't had a loss in any of those categories ever. And so we feel very comfortable that 51% of our portfolio has a great loss resiliency to it. Talking about resilient, 34% of our portfolio falls in the resilient categories. And there too, our loss expectations are very, very low. And in the more sensitive groups, which primarily are tech and innovation, that's where you could see a little bit more loss opportunity. But then we only look at something that could be maybe 11 basis points and topping out at about 71 basis points over time. But that's going to be for a small portion of our portfolio. One of the things we do is we always say that we have an early identification and elevation process. And that pushes us to move more loans into a classified status. And that's what this chart shows that. Generally, we are about 1/3 of the industry in terms of where our classified asset ratios exist. But when you look at the charge-offs, we're #1, meaning we have the least amount of charge-offs and the least amount of volatility around the average. And that's what we're very proud of. As it relates to capital and capital is the thing that all the banks are talking about today, we ended the quarter at 10.6% CET1 ratio. That is up from where we were a year ago from 8.7%. So we raised 190 basis points of CET1 ratio, tangible capital. And with that, we also deduct the AOCI cost in that. And we also deducted the HTM costs. And if you do that, the adjusted CET1 is 8.8%. And that, combined with our insured deposit levels puts us at the top of the chart here. And so we've got a lot of insured deposits and a lot of capital. And that is something that's very important for us, and I'm sure there'll be some questions about it on how we went out and talked to our client base to assure them that we were very stable and that we have a long and bright future ahead of us. I think that's the last chart, it's a quick overview. So I'll come back and we can take any questions that you have.

Okay. Sounds good. Just going back to sort of the March time period, Western Alliance is the most prominent bank to emerge from that crisis, still independent. Can you talk about sort of the lessons that you've learned and reflections and experience? And how is that changing your strategy?

Yes. I think the first thing we have to recognize is what we all saw on March 8, 9, let's say, March 8 was a Wednesday, I think, right? 8, 9 and 10 was a modern day banking, okay? SVB blew a hole in their balance sheet. We didn't have a way to cover it the following day. They saw $42 billion fly out on Thursday, they had $100 billion ready to fly out on Friday. You saw what social media did, which really highlighted or echoed the messages of that more liquidity was necessary. And you also saw that stock price performance as a drop was an indicator to many customers that there was a problem at the bank, and that just played upon itself. So we saw that, and we went through that as well. And so the first thing we decided to do -- and actually, I'm going to tie this to a story here that we recently had [indiscernible] come in and talk to our Board, and he was talking about all the things that he thought about and learned during the crises up in the year. And the first thing he said was, we had -- immediately, we had to separate the urgent from the important. And that's what we did over that weekend. The urgent for us was that we wanted to make sure that any client that wanted their liquidity was going to get their liquidity, come Monday morning, all right? Also, any client that was closing a loan, was going to be funded. Why? And this is what [indiscernible] said about, his issue, he said, "I never thought for one moment that we were ever going to crash or die." I would say that the whole management team never for one moment thought that we were going to fail in any way, shape or form. So it was important for us to keep those relationships, calm and steady with our client base because we were going to go back to them again. And like Dale likes to say, we're a bank for all seasons, meaning no matter what the macro environment we're operating in, we will always be there to support you. I mean terms and conditions may change, but we'll always be open for business. And so that was the first thing we did, the first couple of things. The next lesson was constant communication. Constant communication to our Board, constant communication to our clients, and also constant communication to the Street. I think we pushed out 8 or 9 8-Ks during a short period of time. And the communication had to be clear. It wasn't. We're in business for 150 days, and we're going to be -- 150 years and we're going to be in the business another 150 years. That would do nothing we thought for an investor or shareholder and client confidence. Instead, we said, this is where our deposit level is. This is what our insured deposit levels are. This is the liquidity we have to cover the uninsured. We made it very, very tangible with very few quotes, so people can make a -- an economic and a conscious decision to stay with us, both on the business development side and also as shareholders. The other thing we did, and we were pretty entrepreneurial. I always say our bank is very entrepreneurial. And most people think that means how we're going to grow the balance sheet. How we're going to grow the loans. How we're going to grow deposits. And it is true. We think about that, and we are able to establish and develop and roll out new business lines. Where we really are entrepreneur is how we solve problems. I'll give you an example here. It was actually our General Counsel, who said, "Let your large clients sign a nondisclosure agreement, and then go tell them everything you want about the company, they just can't trade." And so we went out early for our large clients, and we told them, look, this is what's happening under the hood. What was interesting number 1 is they never really asked what was happening under the hood. If I did that to anyone here, you would get down deep into the line items as I know you would. But instead, just offering that to them, gave them a great deal of confidence. The second, it allowed for us to tell them things that were going to happen well in advance of them happening. So for example, we knew that Moody's was going to downgrade us. And we told them that in advance and we said it's going to come in about 2 weeks, we're going to lose our investor -- long-term investment-grade rating. But our short-term ratings are going to be held. And by the way, if you're talking about our mortgage warehouse lending customers, we've talked to the GSEs and all that matters is your short-term raise, and then we had them talk to the GSEs and got them more comfortable. The net message was, when we did get downgrade and we called them up [indiscernible], they said, "Gee, can you tell us at 2, 3 weeks ago? That's old news." And we only got one phone call out of all our client base, one phone call after we got downgraded. So getting out early and being different and how we approach this problem helped a great deal. And so that was sort of basically the lessons learned, but what came out of it was more capital is important. And if I can -- I'll just say, let me just tell you another story. I know you asked a short question, but I have a long answer for you. We were here last year, Dale and I, we had dinner and we had 15 different investors sit in front of us during dinner. Anyhow, you know how usual dinners go. And for 2 hours, they peppered us with questions. The last 10 or 15 minutes, we get a chance to ask questions. And the question I asked was, I usually ask these, "What bank do you like the best?" And they always say the same, "Oh, we love you the best." This time, I asked a different question. I said, what bank would you not own? All 15 investors said the same bank, SVB. I was surprised because we're comparing ourselves to them. We're one of the 4 Horsemen, the only one alive today, by the way. And so we asked one, they said, "Well, listen, if they ever have a liquidity run, they're going to have a hole in their balance sheet, their [indiscernible]. And so we went back to our offices the next day, and we looked at that and we said, you know that's right. And we need to change around our whole model for running the business. And a year ago today, in our Q3 earnings call, we said 2022, we said, one, we're going to slow down loan growth. We're not getting paid for it. So we're not going to grow as fast. Number two, we're going to increase liquidity, faster than we have normally. Number three, we're going to grow our capital position, and we said we wanted to be at 10% by Q2 of 2023. We actually are at 10.6%. And so what happened here actually gave us the input to rethink our business model and help get us prepared for the crisis that we didn't know what's coming but it did come. So I'll kind of stop it there. There's other stories I can go on for a couple of days on, but I'll let Dale speak for a little while on any questions you have for him.

Okay. Dale, do you want to add anything to that?

No, I think that was fair enough.

Okay. So I think in my opening remarks, I talked about how different the bank is since when you started and I remember your IPO. It has changed dramatically since 2003 when you joined. How do you see it evolving further over the next 5 years? What capabilities you need? What business lines would you like to add? And would you expect to do that via acquisition or organically?

Yes. So I mean it's been pretty interesting as we've gone through this process. And the silver lining to what happened, we refer to it as March Madness, it really has given us an opportunity to really hone our business model. We had very strong growth as other institutions did during the pandemic. With that liquidity, we wanted to again maintain pristine asset quality. We were in the capital call lines. And we went into some residential real estate, which was a much better yield than certainly what was available from the Federal Reserve depository account. And -- but coming out of that, we said, "Well, gosh, you know what, I mean, we've got better opportunities in terms of spread than some of these capital calls." And so -- but rather than just exit capital call, what we've done is we have tightened the model with which we're operating and no longer taking $100 million chunks of some syndication by doing bilateral deals with one client where we get their deposits, which doesn't come in a situation when you're a participant in a syndication and also with an opportunity to basically offer our services to their portfolio companies. So these are the types of things that we've undertaken. One thing I like about kind of what we've done within our national business lines is we've been very eclectic about it. We're looking for business lines that first and foremost, have low credit risk. They also have operating efficiency. And I'd even go so far as to say that they're naturally scalable. So our Homeowner Associations business, for example, we just -- just as of September 30, we're now using industry data where we were the largest HOA depository in the nation. And more people are moving to communities that are bound by HOAs. And so it's got a growth trajectory faster than the others. We have a settlement services business. Again, that one is growing faster as well. So to the degree that we can be -- continue to be selective about what we get into, we think that's helpful. It's sort of frustrating for us because comparing ourselves to these other horsemen and our multiple lagged with these other players you had, and frequently, what we get back is, well, why is that? And they say, "Well, because they're just so simple. You've got a private bank, you've got the tech bank and you've got this quasi digital bank type of thing. You've got all these businesses." Well, no, we don't. We're just giving you more detail about them. Because I mean, if you look at our businesses, it's only a tiny fraction of all of this array of services that like a JPMorgan has, but we're eclectic about what we go into to preserve asset quality and to preserve better growth. And I think we can continue to do that as we layer in these things. I don't know exactly what they're all going to be kind of going forward, but we've been opportunistic about it. We picked up a Bridge Bank. That got us into the tech and innovation space back in '15. We bought the hotel book from GE Capital, and that's worked really well as well.

Okay. Just expanding on the HOA business. Does that -- is scale your competitive advantage with the HOA -- is that a scale business? Is that why...

It is a scalable business. I think our largest competitive advantage is we have APIs and AI embedded in our software that is used by our clients to give to their clients. So during the situation back in March, it would be very, very difficult for, say, an HOA property management company that maybe manages 200, 300 HOAs. To sit there and take action. I'm just sure about Western Alliance. Maybe I could take my phones out, and we would go, well, wait a minute, first of all, all that money is insured because all we get passed through insurance for each homeowner association there is. But second, when they think about it, they say, "Gosh, if I take my funds from Western Alliance, I'm going to disrupt every relationship I have with all of my clients." And it makes people [indiscernible] and we didn't just not have anybody leave. We didn't even hardly have any questions.

And besides, I would have turned off the system if they took the deposits. And so that's where they were locked into us, and that would have been a 9-month deconversion. So that was the beauty for that business or it is the beauty of that business.

When you think about maybe adding a business like [indiscernible] how do you evaluate that? You can probably come across a lot, you offer a lot of opportunities. What are the criteria to pick the ones that you actually bring [indiscernible]?

Well, we want something that we believe we can either acquire or have the skill set to be able to execute well. I mean I think that's first and foremost in terms of what's important. We like it to be able to kind of fit within what we're doing already, where we already have maybe leverages and existing expertise that we have. So we started a corporate trust operation earlier this year that came out of our business escrow services group. We hired the team that ran Corporate Trust at Wells Fargo and when they sold it to Computershare, and we're getting really good traction there. So -- and that's complementary to kind of what we want to do on our balance sheet in terms of kind of lower cost funding that we can then deploy into other assets. So it's really got a fit with what we have, and the people have to fit. I'll give you an example of something that probably wouldn't fit as well. So we've been pitched on consumer receivables. It's like -- we don't really have a consumer arm of any strength in terms of underwriting. We know there's greater risk there in terms of compliance. And one of the things, again, maybe this is a holdover from the financial crisis is we really want to maintain kind of our pristine asset quality. And we think that's important because I don't want anybody to go, "Aha, look what happened. See I told you." Finally, after 15 years, there's an issue that reflects the financial crisis." And consumer finance tends to have a higher burn rate on losses. That's one of the reasons why our ACL to some people screens low because they go, "Gosh, your reserve to loans is -- seems like relative to other institutions." So we're like, wait a minute, we don't have consumer losses, which [indiscernible] that have consumer, credit have consumer losses. And that's a big piece of what it is. And then if you look at our losses, Ken mentioned the $29 million. When you take that $29 million, put it in basis points and then divide that into our ACL and we have decades of reserve coverage, what our duration of our loan book is only is under 4 years. So we want to be able to maintain that. So it -- I did not -- I mean First Republic did have a phenomenal price earnings ratio, and I think a piece of that was because they were considered impervious to credit risk. And at the end of the day, that's not...

Okay. Moving more to the deposit side. You did talk about stronger deposit growth in the regional side on your third quarter earnings call. What's driving that into your core Western Alliance footprint. And then how does your deposit mix change from before March Madness to today? And then what do you think the outlook is going to be for the next 12 to 24 months? It was kind of a hard question...

So there are a couple of things there. So whatever I miss, Dale, pick up. For the quarter, we grew, as I said, $3.2 billion, 45% came through our regional banks. So Bank of Nevada, Alliance Bank, Torrey Pines Bank and Bridge Bank. And what we saw there was a return of clients, certainly in Bridge, which is our tech and innovation center, so we saw a return of clients, that's one. Number two, a continued focus more on C&I and bringing in C&I customers and also saying to all our business development officers, you don't get a chance to make a loan without bringing in deposits, and we changed that metric as well. So we had a good vibrant deposit growth in the regions. We also...

You changed the compensation in order to do that? Did you change the compensation?

No. But they get compensated on deposits anyway, depending on the price that we pay for them. But we also saw $800 million for the quarter come in through our consumer digital platform. And again, we tried to prepare for this, not knowing what this was when we left here a year ago and we took the next 6 months to develop a consumer digital platform that launched on January 4 of this year, and we built it up in January and February, and then we really turned it on in March when March Madness happened. And for Q3, we generated $800 million of deposits in high-yield savings accounts, which are about the same price or maybe slightly lower than we pay our commercial customers. So that helped as well. Dale mentioned some of these other business lines, which we started in 2018 and built them out in 2019, whether it be settlement services, business escrow services, Corporate Trust, which we recently launched this year. They're part of our 17 national business lines, and we've been focusing more on growing deposit businesses. Those all contributed as well. So if you're talking about baseball since the World Series ended, everyone up and down the line up got a hit, okay? Regional bank probably hit a triple and the rest of all hit doubles and singles. And so it came across the whole platform. For next year, as we look forward, we still see our guide was at least $2 billion of deposit growth for the quarter for next year, which is what we gave for this year as well for a second and third quarter, and we exceeded that. Q4 is always lighter just because of some seasonality, but -- and you'll see it to be a little bit flattish in Q4, but Q1 to Q3 for next year will grow.

I might just add that we have some things in the queue as well. So just like these other businesses that went over that we've brought to market, we have some things that I think are going to continue to give us momentum, particularly on the funding side. I mean obviously, in today's environment, bringing in the liquidity is paramount to driving your balance sheet larger and consequently, net interest income and EPS.

Okay. Kind of a follow-up on your comments on the return of clients. Now those were folks that departed during March Madness and they're coming back to you and they say, "I don't want to bank with XYZ Bank, and I like your service." So how much of that has come back? If that's half of it come back or 75%? Or how much of that can you recapture?

These clients never close their relationships. They move to cash. And during the days of 9,10, 11, 12, 13, 14 and 15, during that week or so, we soar quarter-over-quarter from Q1 of 2023 to Q4, so $6 billion leave us. $3 billion of that came out of our tech and innovation book, which wasn't a big deposit book to begin with. We only had 13% or 14% of our total deposits sitting in tech and innovation. And those are the deposits that have come back rather quickly. And year-to-date, we're up in deposits year-to-date from last year. So the customers came back -- what happens is they took $1 out and they probably came back with $0.33 and they added a little dime and another nickel, and you build back up again. Surprising and unfortunately for us, a portion of the money that left us in Q1 was scheduled to go out in the early part of April. We had very one large customer that was building up their liquidity in order to pay off a bond. And that was going to go out April 3. We had another customer that sold their business for a lot of money. They had a past payment that was going to be made April 9 or thereabouts. So that money was scheduled to go out. So it looked a lot worse than it was.

$6 billion isn't really as bad...

It's not as bad. It felt bad, by the way, during that time, but it wasn't as bad as it looked.

Yes. Okay. One more quickly from me and then I'll go to the audience. You were talking about the capital call lines and sort of the profile of that. With some of these other folks out of that business, and that has become a very [indiscernible] price. Has it improved? Has the pricing improved there? And is it easier to get ancillary services with that like you said in the...

Yes, I think pricing on the credit side is improved from the bank perspective across the board. I mean there's just less credit available. I think there's more concern about underwriting generally. And so we've seen spreads rise even and you can see this even in highly rated securities where the spreads are better. And that's really helpful for us kind of going forward, certainly because we're looking -- we think our margin dropped in the second quarter this year. And we're looking for continuous, not substantial but continuous improvement, almost regardless of the rate environment.

But you mentioned capital call subscription lines. One of the ways that we went on our risk-weighted Weight Watchers diet, which I think we've done a little bit before most of the other regional banks, was we got rid of all those clients because while the loan volume was there, the deposit relationships were not. And so we stepped away from that business. And at the time, when we were in the business, SBNY was really pushing down spreads. So for us, it was hard to get over a 2% spread. But we let that business go. Now the spreads have come back a little bit, but you don't have a full relationship there. And for us, it helped us get our risk-weighted assets down and improve our CET1 ratio.

Okay. All right. I'm going to stop there and see if there are any questions from the audience.

Ken, talking to your comments about being a high-growth company historically. And I know you had mentioned that fourth quarter will see a little bit of a seasonal dip and then the guidance kind of reiterated starting in '24. Just looking at the asset side of the equation, if the economy does remain unknown, the credit environment becomes -- remains a little bit unknown, is it fair to say that you guys will continue tapping the brakes on the loan side? Or is there enough kind of core demand there that you still plan on growing the asset side of the balance sheet at a similar capacity?

Yes. So our viewpoint is to continue to prepare for the recession that hasn't shown up yet. And for us, that means we're looking at loan growth between $0 million and $500 million, which isn't a lot for us, considering we used to grow multiples of that. So we're going to be very conservative in our granting of new credit. For the first part of the year, it's just going to be a fall-through for some credits that we already had that people are pulling down on lines. And then we're going to watch the macroeconomic environment and determine whether or not we're going to grow from there. But going into the year right now, we're thinking about $500 million per quarter. Now some of that helps us anyway because we want to get to a certain CET1 ratio, which is 11% as quickly as we can. As I said, we're at 10.6% now. So it will help us get there. And then once we get there and we'll also reposition our liquidity, we used to run with HFI to deposits of around 90% to 95%. We want to bring that to the mid-80s. And so all of this is actually helping us during the time when the economy is slowing. And so we'll reposition the balance sheet for that. And then if the second half of the year, it gets stronger, then we'll do more loan growth. If it's weaker, then we'll be very cautious. But again, some of our loan growth comes in areas that doesn't really carry a lot of losses to it or no losses to it. So if we can accelerate that, that's great. But a lot of our loan growth will also be liquidity driven, meaning as long as we keep improving our liquidity ratios, and we'll also put out the [indiscernible] liquidity for loan growth. And the other thing that we're doing here is building an HQLA portfolio, which we really didn't have before. So we got to do all those things, kind of reposition and re-platform, if you will. And then for the second half of the year, we're well positioned to go back to our more traditional growth model. Acknowledging that we're never going to go back to those big annual year-over-year deposit -- I'm sorry, loan growth numbers. We want to grow loans probably above the peer group level, but not exceeding above that level. We weren't getting paid for that type of the risk and performance actually.

Yes. Following up on [indiscernible] question. If you don't plan on growing loans a lot, and you expect $2 billion of deposits per quarter, what do you intend to do with those deposits? And how far out would you look to buy securities? I mean I think the industry is kind of shy about going too far out on the curve. And so what would your plans be with that money?

Do you want to take that?

Sure. Well, the first thing we're going to do is we're not going to do what you're alluding to, and that is have an extension of our assets. I think what we have been cautious about is what is the duration of DDA. We've kind of -- we shortened that up. Even before any of this started, we've said no DDA has a life of longer than 5 years. And I think that was really important in terms of compared to what some of these other players engaged in, in terms of they said, "Well, these funds are going to be here forever and [indiscernible] cost." so we would truncate everything at 5 years. At the same time, I think there's lots of opportunities here. So one of them is we brought down some other debt after the FHLB, which really put [indiscernible] all the liquidity we could back in the kind of -- back in the April time line. A lot those, we paid off in the third quarter. We're paying off some more of them now. There's a little bit more left to go that can save us money just in terms of substituting good -- cheaper, low-cost deposits for these other types of funding. AmeriHome has also had its own credit facilities. Those are priced at SOFR+ like 175 or so. And that's another couple of billion dollars that we can replace with something less expensive. We also -- our funding costs did increase because we were most concerned about kind of having liquidity, less concerned about price. We're in a situation now where we play this game, we call it a chicken. I'm sure everyone's played chicken before. But you go to a depositor and you say, hey, they're getting effective Fed funds plus 20 basis points. And you really can't negotiate with them because they'll just tell you they're going to yank everything. But you could just sit and say, "Hey, we're going to give you some notice, but in 60 days, we're going to cut you back some." We expect to do a rolling process with our higher cost deposits to be able to do that. So the more we can bring in low-cost funding, it's going to be worth it. At the end of the day, no, we're not going to stick it out in something with a longer duration. There's some good variable rate securities. We've had some in terms of like the CLOs. We've typically picked up the AA rated tranche by Moody's and S&P. That's going to give you a spread of 250 over silver, something like that might be something we do and those are variable rate.

I just wanted to follow up on that. So like the guidance that you guys have laid out with the $500 million loans, the $2 billion of deposits, that leaves $1.5 billion per quarter extra. And so obviously, you're building HQLA, you're paying down borrowings. Those are the 2 kind of sources of what you're going to do with that excess funding. But where do you need or think you need cash and securities to assets to get to, Dale, before you can kind of just maintain that level going forward? And how quickly do you think you get there?

We think we get there by the back half of next year.

Got it. Okay. And so if I think about the trajectory of your capital ratios and the fact that your RWA is going to be continuing to slow relative to the growth of your actual balance sheet, you should have a decent amount of excess capital generation just given the ROTCE by the time you get to the back half of next year. And so how do you think about deploying excess capital into share repurchases once you hit that 11% CET1?

Well, I appreciate bringing that up, Brody. So we think we did a fairly considerable improvement here. We were at 8.7% CET1 at 9/30 of last year. We're at 10.6% at 9/30 of this year. That's a 1.9% increase. We didn't issue any shares to anybody to be able to accomplish it. So what we can -- as we generate and that's the last slide that Ken showed, our capital creation -- organic capital creation is about 4x as fast as the average bank. And so that enables us to have that capacity to be able to do that. Yes. So with this growth, we're going to be in the 11th, we believe by that point in time. And with that, we think we have more optionality. We're there to be able to cover what we think we want to be at in terms of capital. We'll also be able to swallow our AOCI in its entirety, it's still probably about 10. And so we think that's strong enough. And at that point in time, I think we can talk about kind of repurchases. We have had a history of doing repurchases. During the pandemic, our stock came down. People were concerned erroneously about credit quality. We've proved them wrong. And with that, but when our stock was in the 30s, we purchased shares. And then we sold those shares when we were in the '90s just a couple of years ago. So we think we're going to be in an opportunity to be able to do that again, pick up something today cheaper, but I think maybe just pushing tangible book value, but certainly wildly accretive to our earnings per share.

Kind of along the lines of that question. You highlighted the 17% return on tangible common equity that you generated this quarter in the aftermath of the March Madness, very impressive. The title of the conference, can the industry achieve an ROE above this cost of capital? I would argue 17% is probably a bigger cost of capital, but the market doesn't seem like that's the case today with you guys trading at onetime tangible book or something along those lines? Is there a risk in your mind or what would be the biggest risk in your mind to not being able to sustain that kind of high teens type of or mid-teens type of ROE as you go forward?

Well, the risk of that would be outsized losses coming at us, and we don't see that right now from asset quality. The risk would be a greater slowdown than what we projected for the mortgage business. We see the mortgage business slowing somewhat as we go into Q4, which is seasonal. And also, there has some variability in 2024. I don't know where the 10-year ended today, but [indiscernible] it was trading during the day, a little less concerned about that. And as that kind of continues to come down, the fact that there are a lot of players in the mortgage business that have left, gives us an opportunity to garner more share. And so that will help support us along the lines of the mid-teens and greater return on tangible common equity.

All right. Terrific. Thank you very much. Please join me in thanking Dale and Ken.