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Western Alliance stock surge lifts First Republic as regional banks rally

Regional lenders that were at the center of March's banking crisis got a boost from news of a deposit inflow at Western Alliance

The stock of Western Alliance (WAL) surged roughly 24% Wednesday following an announcement that its deposits rose by $2 billion since the end of the first quarter, helping to lift First Republic (FRC) and other regional lenders at the center of last month's banking crisis.

The Phoenix-based institution was one of many mid-sized banks that came under intense scrutiny following the seizures of Silicon Valley Bank and Signature Bank, the 16th- and 29th-largest banks in the US. The stock of Western Alliance, which was 40th largest at the end of 2022, had been down more than 45% for the year before the stock shot up Wednesday.

"Deposit trends were better than expected,” Wedbush managing director David Chiaverini told Yahoo Finance, adding: “It does seem like the worst is behind the company." Wedbush raised its rating on the stock to Outperform from Neutral and added Western Alliance to its "Best Ideas List."

The investor reaction to Western Alliance boosted other banks that had affected by the turmoil in March, including First Republic and PacWest (PACW). First Republic's stock closed the day up roughly 12%, while PacWest was up 13%. Zions (ZION), another regional lender, was up 7%.

The stock surge for Western Alliance came on a day when it also disclosed that profits, revenue, loans and deposits fell when compared to the fourth quarter of 2022, although loans were up when compared to the year-earlier period. It lost a total of $6 billion in deposits during the first quarter, a figure the company disclosed earlier this month as a way of reassuring investors.

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Executives offered some new details Wednesday about how much depositors took from the bank during the panic triggered by the March 10 seizure of Silicon Valley Bank. The following Monday, depositors withdrew $8 billion from Western Alliance. The volatility lessened later that week and by March 20 deposits began to grow again.

“We've returned to a lot more calm as it relates to depositors," Western Alliance CEO Kenneth Vecchione told analysts on a conference call.

Another disclosure that encouraged investors was that its percentage of deposits covered by the Federal Deposit Insurance Corporation had risen to 73% as of April 14, up from 68% at the end of the first quarter. The FDIC insures up to a limit of $250,000 per account.

What that means is Western Alliance is now less dependent on funding from depositors who are considered a greater flight risk during periods of uncertainty. Silicon Valley Bank was seized by regulators after its depositors pulled $42 billion in one day.

Like many banks, Western Alliance has over the last year benefited from the Federal Reserve's aggressive rise in interest rates because it allowed the lender to charge more for its loans. Its net interest income, which is the difference between what a bank earns on its loans and pays out on its deposits, jumped more than 35% from the year-earlier period.

The concern now is that those margins could begin to fall across the industry as banks begin to pay more aggressively for deposits and lure new customers with higher rates. And at Western Alliance, this measure dropped more than 5% from the end of the fourth quarter.

Western Alliance is also bracing for more loan losses. It added a $19.4 million provision for credit losses in the first quarter, up from $3.1 million in the fourth quarter.

This post has been updated with the correct provision for credit losses. We regret the error.

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