Western Alliance Bancorporation Aktie

Thank you. Welcome to Western Alliance Bank's Third Quarter 2026 Conference Call. Our speakers today are Ken Vecchione, Chairman, President and Chief Executive Officer; and Vishal Idnani, Chief Financial Officer. Before I hand the call over to Ken, please note that today's presentation contains forward-looking statements, which are subject to risks, uncertainties and assumptions.

Except as required by law, the company does not undertake any obligation to update any forward-looking statements. For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements. Please refer to the company's SEC filings, including the Form 8-K filed yesterday, which are available on the company's website.

Now for opening remarks, I'd like to turn the call over to Ken Vecchione.

Good afternoon, everyone. I'll make some brief comments about our third quarter 2026 performance before handing the call over to Vishal to discuss our financial results and drivers in more detail. After reviewing our revised 2026 outlook, Dale, Tim and Lynne will join us for Q&A as usual. Western Alliance entered the quarter with 3 strategic objectives front and center, improve asset quality, lower deposit costs and accelerated share repurchases.

We exited the quarter having made significant strides against each of these goals, which I'm pleased to update you on today. Asset quality improved meaningfully in the third quarter. Nonaccrual loans declined 14% or $77 million from the prior quarter to $485 million exceeding the expectations outlined in our guidance update last month.

We successfully resolved 2 additional credits from the 6 identified at May's Investor Day and the remaining 2 are on a glide path towards resolution before year-end. Net charge-offs also improved, declining $9 million from the prior quarter to $46 million. Net charge-offs decreased 7 basis points to 30 basis points, combined with a 4 basis point increase in the allowance to funded HFI loans to 93 basis points the reduction in nonaccruals drove ACL coverage of nonaccrual loans sharply higher, increasing 22 percentage points to 118%.

Our second strategic objective was the intentional transition of higher-cost deposits off the balance sheet to lower our overall funding costs and improve balance sheet profitability. Here, too, we made substantial progress. During the quarter, we transitioned $3 billion of higher cost ECR-related deposits while keeping total deposits essentially flat compared with the prior quarter.

This was a Herculean achievement supported by a strong quarter of commercial banking deposit growth of $1.8 billion. These actions reduced deposit costs by $14 million from Q2 and supported a 10 basis point quarterly expansion in adjusted net interest margin. Importantly, this decline in deposit costs represents a positive departure from prior third quarters when funding costs have typically peaked.

We remain well positioned for additional deposit costs in Q4 with deposit cost reductions in Q4 as we realized the full quarter benefit of these lower balances. We exceeded our original deposit optimization goal by $1.5 billion, with $4.5 billion of deposits remixed over the prior 2 quarters, 1 quarter earlier than expected.

With another $500 million expected to transition in Q4, this initiative is nearly complete. Finally, our more balanced growth profile has enhanced our flexibility to prioritize share repurchases while maintaining robust capital levels. In Q3, we repurchased shares of $92 million against our $150 million target for the second half of 2026, representing approximately 1.15 million shares or roughly 1% of shares outstanding.

We have continued to repurchase shares at attractive valuations into Q4 and remain on track to achieve our second half repurchase objectives. Taken together, these accomplishments support sustainable risk-adjusted PPNR growth and increasing profitability, keeping us on track to achieve the medium-term goals outlined at Investor Day.

I'll hand the call over to Vishal to review our Q3 financial results.

Thanks, Ken. Western Alliance delivered another quarter of strong and steady financial performance with continued earnings growth, improving credit trends and strong reserve coverage alongside increased capital returns. PPNR grew 6% year-over-year to $419 million, while EPS increased 7.5% to $2.45.

Net interest income grew 8% or $57 million, driven by continued HFI loan growth while noninterest income increased 10% or $19 million, reflecting continued momentum in commercial banking fee income, partially offset by rate-driven headwinds in mortgage banking.

Net revenue increased $76 million over the past year compared with approximately $51 million of growth in noninterest expense and supported continued growth in pre-provision net revenue.

Credit trends also improved. Provision expense remained essentially flat year-over-year, while nonaccrual loans declined to 79 basis points of funded HFI loans and reserve coverage increased to 118%.

This helped drive net income of $277 million, up 6% from a year ago. And while our strategic actions have moderated balance sheet growth over the past 2 quarters, profitability has continued to improve.

ROATCE increased 20 basis points from Q2 to 15.5%.

Overall, we are encouraged by our financial trajectory. The actions we've taken over the past 2 quarters, many of which we outlined at Investor Day in May are strengthening the durability of our earnings and positioning us well as we move forward.

Turning to the income statement on Slide 5. Net interest income of $808 million increased 5.4% from the prior quarter on a linked quarter annualized basis benefiting from $1.5 billion of growth in average HFI loans. This more than offset lower average earning assets as our deposit optimization actions reduced excess liquidity and continued to improve balance sheet profitability.

Noninterest income increased $8 million quarter-over-quarter or 4% to $207 million. Commercial banking fee momentum continued to build, increasing $6 million sequentially and $26 million year-over-year. That growth, along with higher securities gains more than offset lower mortgage banking revenue.

Mortgage banking revenue of $80 million declined only $5 million from the prior quarter despite a challenging rate environment. Mortgage production decreased 4% and rate lock volume decreased 14% year-over-year, while gain on sale margins remained stable at 27 basis points.

Our use of private label securitizations helped support secondary market revenue, partially offsetting rate-driven pressure on origination volumes and margins. Noninterest expense decreased $12 million from Q2 to $595 million. As Ken mentioned, we were pleased with the $14 million decrease in deposit costs reflecting the $4.5 billion of deposit optimization completed to date with another $500 million expected to transition in Q4.

This quarterly decline marks a welcome shift from prior third quarters when we have typically experienced an increase in deposit costs as balances rebuild during the first half of the year. We expect a further reduction in deposit costs in the fourth quarter.

Taken together, the quarter reflects continued progress in shifting the balance sheet toward higher returning assets building our commercial banking fee businesses and reducing the structural cost of our deposit base.

Turning to the balance sheet on Slide 6. Securities and cash declined approximately $1 billion from Q2 to $25.6 billion, reflecting deployment into loans and the impact of our deposit optimization strategy. Securities and cash represented 26% of assets, while our HFI loan-to-deposit ratio increased approximately 1 percentage point to 75%, moving closer to our medium-term target of 77% to 80%.

HFI loans grew $600 million during the quarter, with more than half of the growth coming from C&I and a solid contribution from select CRE businesses. Total deposits declined by only $119 million despite more than $3 billion of deposit optimization during the quarter.

Commercial banking deposits helped to offset those actions, growing $1.8 billion in Q3 and increasing to 34% of total deposits. Another benefit of our optimization efforts was a 10% quarterly decline in period-end borrowings to $5.6 billion, which further supported quarterly improvements in both the adjusted and reported NIM.

Overall, total assets decreased $629 million from Q2 to $98.1 billion, while total equity decreased $188 million, primarily reflecting the change in AOCI from higher interest rates and our share repurchases. Tangible book value per share decreased $1.02 sequentially to [ 62.22 ] yet remained up more than 6% year-over-year. Looking at loan growth on Slide 7.

HFI loans grew $600 million in Q3 with continued strength across our commercial businesses. C&I loans grew nearly $350 million in the quarter and have driven approximately 90% of our $4.9 billion of HFI loan growth over the past year. We also saw solid growth in select CRE businesses. Commercial loan growth was partially offset by an approximately $350 million decline in mortgage warehouse and MSR balances as softer mortgage demand reduced line utilization.

We remain focused on moving our HFI loan-to-deposit ratio toward our 77% to 80% medium-term target and continue to expect commercial loan growth to lead us towards that goal. Turning to deposits on Slide 8. Commercial Banking deposits grew $1.8 billion in the quarter, increasing to 34% of our deposit base from 31% last quarter.

This strong commercial banking growth offset most of the purposeful reduction in higher cost deposits, resulting in total deposits of $81.8 billion, essentially flat from Q2. Our remixing efforts were concentrated in noninterest-bearing deposits with associated ECRs.

As a result, noninterest-bearing deposits with no ECRs now represent 39% of total noninterest-bearing deposits compared to 33% at the end of Q1 before we began our optimization efforts. Turning to our net interest drivers on Slide 9. Securities yields decreased 2 basis points from Q2 to [ 462 ] reflecting a modest portfolio mix shift while HFI loan yields increased 2 basis points to 5.84% due to higher commercial loan yields.

The FOMC rate hike occurred just 2 weeks before quarter end, so the benefit was not fully reflected in Q3 earning asset yields. The cost of interest-bearing deposits increased 2 basis points to [ 276 ] reflecting the active remix of our deposit base away from ECR-related deposits and into interest-bearing commercial deposits.

Interest-bearing deposits increased approximately $2 billion during the quarter as part of that remix. Overall, liability funding cost increased 6 basis points to 202 as borrowing and debt costs increased, partially reflecting the full quarter impact of the subordinated debt rate reset late in Q2.

Looking at Slide 10. Net interest income grew $11 million from Q2 or 5% annualized to $808 million, primarily reflecting higher average HFI loan balances. Net interest margin expanded 4 basis points to 357 as average earning asset yields increased 10 basis points, partially offset by a 6 basis point increase in funding costs.

Average earning assets declined $785 million from Q2, primarily reflecting a $1.7 billion reduction in average cash as our deposit optimization efforts reduced excess liquidity while average HFI loans increased $1.5 billion.

Turning to Slide 11. The adjusted efficiency ratio increased 110 basis points from Q2 to 50%. As mentioned earlier, noninterest expense increased approximately $12 million in Q3 as higher salaries and employee benefits more than offset a $14 million reduction in deposit costs. That reduction reflected lower average ECR-related deposit balances of $30.1 billion, down from $31.6 billion in Q2.

Higher salaries and employee benefits reflected an extra day in the quarter and targeted investments to support future growth and efficiency. These investments included additional hiring to support our lower-cost specialized deposit channels and new AI initiatives as well as converting technology consultants to full-time employees, which we expect will reduce contractor expense going forward.

On a sequential basis, net revenue and noninterest expense each grew approximately 2%, resulting in an essentially flat reported efficiency ratio of 58%. On Slide 12, we remain slightly asset sensitive on a net interest income basis. Of total earning assets, 66% are variable with 52 -- 52% repricing to so far, while variable liabilities represent 86% of total earning assets.

Nonmaturity deposit rates, including ECRs are estimated to have a 65% beta over the next 12 months. When we incorporate the rate sensitivity of ECR-related deposit costs and mortgage banking revenue, that asset sensitivity largely moderates and our modeling indicates a neutral position on an earnings at risk basis.

Turning to Slide 13. I'll echo Ken's comments and highlight the continued improvement in our key asset quality metrics. Classified assets declined $37 million to less than $1.1 billion, largely reflecting 2 additional nonaccrual resolutions previously identified with 2 more expected to resolve this quarter.

Nonaccrual loans declined $77 million or 14% from Q2 to $485 million, reducing the ratio to funded HFI loans by 13 basis points to 79 basis points. Classified accruing loans were essentially flat at $441 million or 72 basis points of funded loans, while OREO increased $39 million to $165 million.

Special mention loans increased $81 million as we continued to actively migrate loans to special mention in order to facilitate early identification, elevation and resolution. As shown in the appendix, Western Alliance continues to compare favorably with our $50 billion to $350 billion asset peers across special mentioned classified and criticized loan categories, both currently and historically.

The improvement in nonaccrual loans, together with stable classified accruing balances kept overall criticized loans relatively flat at $1.3 billion. On Slide 14, provision expense was $80 million, replenishing net charge-offs of $46 million and supporting incremental loan growth. The resulting allowance for loan losses increased 3 basis points to 83 of funded HFI loans, while our total loan ACL ratio increased 4 basis points to 93 bps.

Excluding loans covered by credit linked notes, the total loan ACL to funded loans ratio increased 6 basis points to $1.07 compared with 101 last quarter. Based on our C&I loan growth trends, we expect the allowance to continue to build in the fourth quarter.

Continued execution on nonaccrual resolutions together with the increase in reserves drove total loan ACL coverage of nonaccrual loans to 118%, up from 96% in Q2. Looking at capital on Slide 15. Our tangible common equity to tangible assets ratio decreased 10 basis points from Q2 to 6.9%, primarily reflecting the change in AOCI from higher interest rates and accelerated share repurchases, partially offset by earnings growth and the reduction in our balance sheet from the deposit optimization.

I'd also note that the vast majority of our securities are classified as available for sale. Our CET1 ratio decreased 10 basis points from Q2 to 10.9%, reflecting loan growth and share repurchases while remaining above well-capitalized levels.

During Q3, we repurchased $92.1 million or approximately one -- spot 15 million shares at an average price of $79.78. This brought cumulative repurchases since the program's inception to $212.5 million or about 2.7 million shares through September 30.

Turning to Slide 16. Tangible book value per share increased 6% year-over-year and has grown at a 16% CAGR since the end of 2015. Over that period, our tangible book value growth has been approximately 4x the peer median.

As a reminder, the pure comparison is presented on a 1-quarter lag with Western Alliance reflecting Q3 results and peers reflect in Q2. As Q3 results are incorporated across the peer group, we expect the comparison to better reflect the impact of the higher rate environment across the industry. I'll now hand the call back to Ken.

Okay. Thanks, Vishal. As I discussed in my opening remarks, Western Alliance made significant progress during the quarter against several of the priorities established at our Investor Day in May. The nonaccrual resolution and continued reserve build helped address a key credit overhang, while further strengthening reserve coverage.

Our deposit optimization efforts have positioned the balance sheet for improved profitability, benefits of which are already evident in our third quarter results. We also accelerated share repurchases, reflecting both the trajectory of our business and our confidence in the long-term value of the franchise.

Given our current valuation, we continue to view share repurchases as an attractive and disciplined use of capital. With that context, our updated 2026 outlook is as follows: Deposit optimization is now expected to total at least $5 billion by year-end compared to the $3 billion previously identified on our second quarter earnings call.

As a result, we are revising our deposit growth outlook lower by a comparable amount from $6 billion to a range of $3.5 billion to $4 billion. Strong momentum in commercial banking deposits, combined with encouraging growth from our newer deposit verticals and continues to support a lower cost and more durable funding base.

For the remainder of the year, the outperformance and deposit optimization naturally reduces the overall deposit growth outlook. I would also remind everyone that the fourth quarter typically experiences seasonal deposit outflows, which are incorporated into our forecast.

Loan growth is being revised lower by $1 billion, in conjunction with the transition of excess deposits off the balance sheet. In addition, warehouse lending activity is expected to be restrained by 2 factors: typically seasonal softness in Q4 and elevated interest rates, which continue to temper mortgage demand.

The higher marginal HFI loan-to-deposit growth should place us within our medium-term target range of 77% to 80% by year-end. Net interest income is now expected to grow between 11% and 12%.

The revised outlook reflects the purposeful actions taken within our deposit base and the corresponding impact on average earning assets, compared with our prior expectation of 12% to 14% growth. Our forecast incorporates a 25 basis point rate increase in December.

While we are pleased with the net interest margin expansion delivered in the third quarter, NIM typically experiences a 3 to 4 basis point headwind in the fourth quarter due to -- due to seasonal deposit outflows and the resulting increase in borrowings. Total noninterest income is now projected to grow between 18% and 21% compared to 13% to 17% growth previously.

This revision reflects strong Q3 performance and continued momentum in commercial banking fees. Mortgage banking revenue in Q4 is expected to be approximately $70 million, reflecting the seasonal slowdown in mortgage applications and the recent rise in mortgage rates.

Turning to noninterest expense. Our deposit optimization efforts reversed the typical third quarter increase in deposit force. We expect continued deposit cost reductions in Q4, supported by meaningfully lower ECR-related deposit balance of $26.7 billion at quarter end compared to $29.9 billion at the end of Q2.

Lower balances should move -- should more than offset the impact of the September rate hike. As a result, we are lowering the upper end of our deposit cost guidance range to $650 million to $675 million. Importantly, we continue to invest in lower cost deposit channels and AI initiatives, where we are beginning to realize benefits from earlier investments.

As a result, the operating expense range of $1.6 billion to $1.65 billion remains unchanged. Although based on Q3 results, we currently expect to finish towards the upper end of that range. With respect to asset quality, we are reaffirming our core net charge-off guidance of 25 to 35 basis points, consistent with our Q3 results.

We expect Q4 performance similar to Q3. We we also expect nonaccrual loans to continue to decline. And lastly, our 2026 effective tax rate outlook remains at 19%. Now Vishal, Dale, Tim, Lynne and I will be happy to take your questions.

[Operator Instructions]

Your first question comes from the line of David Feaster with Raymond James.

I wanted to follow up on the deposit optimization side. You talked about -- you got about $500 million optimization remaining I guess, after these deposit optimization efforts, how do you think about your ability to continue to fund accelerating loan growth with these lower cost deposits.

Given the hiring that you talked about, it sounds like you're prepping to be able to sustain the improved funding costs. So just kind of curious on that and then maybe how the impact on the mortgage deposits from the -- you talked about some of the higher rate impact on the mortgage market, how that could impact the mortgage deposit side too?

Okay. So we have about 5 or 6 deposit channels that report underneath Dale. And we expect, going forward, that those deposit channels will grow at a higher percentage -- or a higher growth rate than our traditional other channels.

Those channels, for the most part, are at a much lower cost basis. And so we expect to fund our growth through the business lines of HLA, Corporate Trust, Business Escrow Services, that's Florida, just to reference that will help propel our growth going forward.

I'll also say that our deposit growth, whereas previous years, go back to 2025, we grew about $10 billion in deposits. We don't need to bring in that type of deposit growth because we're also moderating our loan growth somewhat.

So we think we're going to have the opportunity here to pick and choose a little bit on deposit optimization in terms of what deposit channels we want to accentuate and where we want to go out and get our deposits. So that's that question.

On the deposits related to the mortgage business. Clearly, if the mortgage industry begins to slow down, you would expect to see some of the mortgage deposits also slow down with the volume. And so we are anticipating that for 2027. Offsetting that, though, is we've taken some opportunities to launch this year for private label securitization transactions.

So those are 4 PLS trades. And why do I highlight them? Well, first, the MSR related to those PLS trades is about 1/3 of the cost of our normal endosomes. So we get to hold an MSR balance that's 2/3 less than we used to hold, but we get to keep all those deposits.

Heretofore, we have a cap of 25%. And as you know, if you cross over 25% on the risk-weighted asset is very punitive in terms of being 2.5x the value of the MSR. So we'll be able to grow MSRs and keep those deposits with us rather than selling MSRs and sometimes when we sell MSRs, the deposits move away from us.

I want to say the MSRs that are -- sorry, the deposits that are attached to MSRs come in at roughly 20 basis points. So the PLS transaction has several benefits. One, it provides us extra margin, which is going to be helpful for the mortgage income. It also provides us with a smaller MSR balance and also allows us to keep and retain balances that are -- deposit balances that are very low cost.

That's super helpful. And the other kind of the other key initiative, right, has been credit. That's been 1 of the other things that's kind of weighed on the stocking. You've made a lot of headway on the credit side. Nonaccruals are lowest they've been every year. You made improvement in the criticized CRE too.

As you look at credit today, and obviously, higher rates could impact that. As you stress the book with higher rates, is there anything that you're watching closely? Anything within C&I or the CRE buckets and just maybe how you think about credit in the -- potential for credit leverage as we look forward?

Yes. So I think we did make great progress on asset quality. And taking a second to collectively pat ourselves on the back a little bit. We see continued asset quality progress heading into Q4 with NPLs, again, coming down from the Q3 levels as we complete the 2 credits that are still -- that still need to be resolved.

And again, as I said, we're on a glide path to resolving them and we have a very high confidence level that those will be resolved. And we also see charge-offs being no greater than the level they were in Q3, but more likely coming down from that as well. So that kind of gives you a little bit of a Q3 into Q4 viewpoint of asset quality.

As it relates to stressing the portfolio and looking at the portfolio, it is our nature that we always stress all credits before they're granted. And we put in different stress mechanisms. But generally, for the longest period of time, we stress all the credits up 150 basis points for the impact of rates.

So when we approve credits, we already are factoring in that rates will be 150 basis points higher than -- whatever then prevailing rate is. And if the deal works at that time with debt service coverage ratio and so forth, then we feel comfortable to approve it. Right now, we're not seeing any bubbles in the book all right? And we just -- we just do our reviews every quarter, and we always do it right before the earnings call.

So right now, there isn't any heightened concern in any 1 part of the book other than to say, as my Chief Credit Officer, sits and tells me, she always is nervous and is always cautious. But really, there's no big bubble that we see in the book at this time.

Matthew Clark with Piper Sandler.

Just on expenses, I think you mentioned during your prepared remarks that maybe the higher end of the range for the overall expense guide, that implies about I think $570 million for the fourth quarter. I know there's relief coming in deposit costs, but where else should we expect to see some relief in that run rate?

I don't know the word I used the word relief. I would say that in Q3, operating expenses rose because of the investments that we are making structurally in the business.

I think that's pretty important. To the first question that we received about where do you think deposit growth is going to come from. This quarter, Q3, we added more people count to a number of our deposit channels to begin to staff up for the pipelines that we currently have.

So we're putting money into the deposit channel businesses. That's 1 place. Second place, we're putting money is AI initiatives, and we're beginning to see some early signs of positive returns on what we're doing and other initiatives will take a little longer to be realized.

And then the third thing we're doing in the expenses is beginning to transition out consultants and hiring our own folks. And that will take probably another quarter or so before we begin to see the benefit and that will probably -- that benefit will probably come at us in the early part of 2027.

Yes. Matt, it's Vishal here. I agree with that. And I think what you're getting at is you do have the guidance range so you can back-solve into what we have for expenses. So obviously, you have the range for the deposit cost.

We did cut the top end of that down given the continued success we're having in the optimization. So we do think you'll see a further decline in deposit costs there. And then when you look at the noninterest expense, excluding the deposit cost, I do think you will see a reduction in the fourth quarter, given some of the things we did in the third quarter. So there will be a decline in some of those line items going into the fourth quarter, in line with the full year guidance we've given you.

Yes. I just want to add 1 other thing that Vishal hit on an important point with Q4 deposit force. The fact that we've taken off $4.5 billion or transitioned out $4.5 billion, you can calculate what the implied deposit cost rate is. But the savings on that $4.5 billion is able to absorb the 25 basis point increase on the ECR-related deposits in Q4 and still have a decline in overall deposit costs.

So that is a very important benefit on deposit optimization that we're also able to bring down our overall total deposit costs going into Q4.

Great. And then just on fee income, I just want to clarify the implied guidance there. I know your guidance includes gains, securities gains. So I just want to level set the fourth quarter. Is that $140 million to $160 million the right range to think about for 4Q? I got the mortgage revenue, which is helpful. I just want to make sure we're on the same page.

Yes. No, I appreciate that question. I think you've got it there, which is if you take the range we gave, which is up 18% to 21% and you back solve what the year-to-date fee income is, we are providing that number on an all-in basis. So that includes the securities gains in there. So what that would imply when you look at it is there would be a decrease from the third to the fourth quarter. It's hard to say exactly what that's going to be. Obviously, mortgage, we'll have to see where that lands up.

Our best estimate right now is down $70 million. I do think we're down to $70 million. And I think you will probably on the higher side of that range when you're thinking about fee income based on what we're seeing right now, but it will be dependent on mortgage.

Next question comes from Jared Shaw with Barclays Capital.

Just looking at credit, great progress on the NPLs and the 2 remaining. As we look out sort of once those 2 are resolved, how should we think about normalized net charge-offs for the company. Is that still in that 25 to 35 basis points once we're done with being resolved in the fourth quarter? Hello?

Jared, I said, yes, you're exactly correct. .

Okay. Sorry. I cut out there for a minute. And then when we -- just going back to the expense side, looking at the non-ECR expense, going into fourth quarter. Is that what's going to be driving that? Is that just more of a normalization on the salary side? Or is that a new base that we should be building from? .

No. I think there will be a normalization there. And so if you back out the deposit fees and you look at the rest of the noninterest expense ex deposit fees, given what we said here, you would see a decline there anywhere think about it, given we said the higher end of the range, by call it, 5% to 7%.

So there is going to be that decline that happens there in the fourth quarter, a little bit on what we were doing in terms of hiring that happened in the third, but there's a churn there as well. So I would not take the third quarter. That is not the new run rate to grow expenses off of.

The expenses ex deposit fees will be down in the fourth quarter. And I would back into it based on the full year guidance we've given you of that range and towards the top end of that range.

Next question comes from Ben Gerlinger with Citi.

Based on the 6 credits that are -- I'm just kind of 2 remaining. Could you kind of just talk through how they got resolved or they're no longer on that local list. Was it a sale? Or is there equity put in? I'm just kind of curious how they got resolved?

So sure, you came in a little choppy, Ben. I'm just going to restate your question, you're asking how did the 2 credits get resolved in Q3. Is that the question? .

The remaining -- the previous 4, but in general, yes see how they kick how better?

Yes. The 4 that we've been mentioning and tracking were ultimately sale of assets off the books and moved outside of the bank.

Got it. Was there a seller financing? .

We did not provide that. .

Got it. Okay. And then just lastly, it seems like you're alluding to improved credit in the end of the year and into next year. Is there anything on the REO perspective that would be like on the table here that should also be expected as well as we're just looking at these are the last 2 remaining ones in the year-end? .

So we're -- for the year-end, we're just looking at 2 more that will help reduce the NPLs. We -- we'll always be mindful and try to reduce REO. We use it. We use REO in a very strategic way. We take properties back. Generally, our whole REO book, I should say, has revenues greater than operating expenses, so it's a net contributor to earnings.

But really, the importance for us is to take the property back, put in the value add that's needed, and then increase the vacancy and -- I'm sorry, increase the occupancy, decreasing the vacancy and then move it off our books. And if you go back to say Q2 of 2025, you'll see our REO was as high as 218 in and then it came down by year-end to $137 million.

So we move things in and out of there, and we find it's better to take these properties back and make the changes that are necessary, increase value and then sell them back to the market. I also want to say, when we take the REO -- or we take the properties back to -- we do mark to market -- we do mark them to market. And so they all come in at current valuations.

And then if they're there any longer than a year, we also remark them again to make sure that the valuations are accurate. If not, then we take a charge for them. If they go up, we don't take any gain until we sell.

Next question comes from Timur Basler, UBS.

I wanted to talk quickly on the margin. I don't know if there was an outlook or just a reference point, but the comment that margin is typically down 3 to 4 basis points in the fourth quarter. Just how does that triangulate to this year where it seems like loan growth for the year has already been achieved.

You're asset sensitive on the balance sheet and the offset from ECR is somewhat mitigated given the fact that they're exiting here and you're getting the full kind of average effect in 4Q. So is the 4Q guide going to be more or less reference to that historical 3 to 4 basis point range? Or is there going to be more net asset sensitivity here in the near term as ECRs are less of a mitigating factor?

Yes. The Q4 guide is more directed to what has happened in this company historically. And where we've seen the decrease in net interest margin is because of a higher booking of mortgage-related deposits leave the bank, and we have to backfill it with other borrowings.

And other borrowings obviously cost more than the deposit cost, and it weighs a little bit more on the margin. these deposits then come back in, in Q4 and then the margin then returns move upward.

But historically, we've seen 3 to 4 basis points for the last several years of impact to the margin because of the exit or temporary exit of the warehouse lending deposits.

Yes. I would just say, while we typically have some compression in the fourth quarter exactly because of what Ken said, you've got the warehouse deposits coming out and you have to take out more borrowings dollars of NII will be flat to up in the fourth quarter.

When you're thinking about Q3 to Q4, I think you'll see the dollar NII up slightly anywhere from, call it, 1 to 2 percentage points, which you can kind of look at sort of what the full year guide is and back into it. But I think it will be up from a dollar perspective while there's going to be a little bit of compression on the NIM side.

Okay. And then maybe looking beyond kind of the near term, once the deposit optimization program is complete. What's the next step for Western Alliance? Are we going back to $8 billion on deposit growth, $6 billion in loan growth annually? Or is there going to be more of a consideration on funding of that loan growth. I'm just wondering, ECR-related deposits, what's the go-forward sort of the funding that's going to come from those balances?

Yes. We'll give you more specific guidance when we do our Q4 earnings call in January. But I think the guidance you can take away from Investor Day is what we're still continuing to follow, which is we're going to have slower or more moderate, I'll say, loan growth to be in the top quartile of our peers rather than to be outside the top quartile.

And by doing that, we're also going to have less of a need for deposit growth. And that's how we're structuring the business going forward. And then the excess capital that we generate assuming that the share price is where it's at, we will continue to be buyers of our shares.

Next question comes from Chris McGratty with KBW.

Great. The 16% to 17% ROTCE that you threw out it as medium term earlier this year, did about 15% in the quarter. I'm interested, I guess, in an update of timing given the shift in the balance sheet? That's the first question. .

Yes. I would say when we were at Investor Day in May, we said we were going to target that 2.5- to 3-year -- so I think just bring that in from there. So it's still sort of 2, 2.5 years is where we think we're going to get here. And remember, the hope to that range was it is where we can sustainably get to an ROE between the 16% to 17%, and we landed at 15.5% in the third quarter.

So we don't think we're that far from the end of the range. And the way we're going to get there is all the different things we're talking about here. And 1 thing I'd highlight is we're making a very big push on the treasury management side trying to bring in more fee income, even trying to get more of those core operating accounts, lower cost deposits.

There's a lot of different initiatives that are going on at the bank to get there. But I would say, Chris, call it, 2, 2.5 years from now, hopefully, we'll get there on the sooner side given we're at 15.5% today.

Great. And then on the buyback, I mean, just taking the $150 million that you put out earlier would imply some modest deceleration. I guess to keep at these levels or perhaps even increase, is it just Basel III final , obviously, the TCE ratio matters to some degree. But I guess I'm asking about sustainability of current buyback levels?

Yes. There are a couple of things that we will consider as we go forward and come out of '26 into '27. First, we do want to see the final Basel III rules will help inform us what we are going to be in '27 regarding buybacks.

But we also want to target -- continue to target that 11% area for CET1. And the reason why we're focused on that is that we're looking to get a upgrade on our short-term and long-term ratings -- credit ratings.

And while that's important, go back to the first call about where deposit growth is going to come from. We believe a higher credit upgrade will give us more ability, give us a greater ability to attract more deposits in some of our emerging deposit channels.

And so that's what we're going to balance it out against the short and the long term. Of course, if the price looks as attractive as it is today, we're going to be buyers, but we're going to try to balance that against the 11%. And I don't want to give short drift to the TCE.

I mean that we do think is important. And for us, we are working over time to bring our TCE, which only went down 10 basis points. And just so I can tell you that had we not done the deposit optimization, we probably would have been down another 20 basis points. So the deposit optimization added bps to TCE, and so our goal is to kind of bring our TC to TA up towards our peer group, which is in that 7.6 to 7.8. And that's 1 of our goals as well. But we're going to look at all those things together, Chris.

It's Vishal here. The only thing I'd add, obviously, is you can see where we bought back the $92 million at $79.78 in the stock right now is trading at $75 million. if you can imagine, we think this is a very attractive price to be buying back shares. .

Next question comes from David with Truist.

Can you talk a little bit more about where the loan growth is coming from? I guess just coming from the $8.7 billion in the fourth quarter of last year, imply another $1 billion or so in the fourth quarter to get right to the $4 billion target. So just speak a little bit about the types of loans you're expecting that to come from, please?

Yes. So the HFI portfolio grew 4% on a linked quarter annualized basis this quarter. And it was across regional banking, hotel franchise finance, tech and innovation, that growth, supported by MSR lending and note finance offset a mild decline in warehouse lending as mortgage production slowed in response to mortgage rates.

And I would perceive the same areas driving the volume going forward. But Tim Bruckner is our Chief Banking offer, Tim, do you want to add anything to that?

Yes. I just say I'm very pleased to see the growth in the specialty initiatives that we've identified and spoken about -- and that's paired with the corresponding growth in deposit and treasury management fee-related business.

It is a growth is a function of our strategy and now in action.

And then on the NIM for the fourth quarter. I know you mentioned historically, you often see a 3 or 4 basis point seasonal headwind from more deposit out being back to borrowings. But since you're almost done with the deposit optimization, should seasonality be less today and going forward than it has been historically?

I mean, we still have a fair amount of warehouse lending deposits, and those deposits will roll off temporarily and they do have to be replaced by other borrowings. So that trend is still going to continue.

Yes. So this is the typical seasonal stuff we see with the T&I payments. It builds up over the first 3 quarters of the year. You have those outflows in the fourth quarter. Then obviously, you see that spike back up in the first quarter. I think that's very typical for us. I think you do have the right point, which is while we do have marginally less warehouse deposits, you might see a little bit less seasonality, but there is still the remainder of the book that's there.

Next question comes from Jon Arfstrom with RBC Capital Markets.

Where would you guys like the reserves to go over time? Do you expect to continue to build that ratio?

Yes. The peer group reserves are about 1.18%. And our ACL is 93 basis points. Last quarter, I don't know what's going to happen fully this quarter. But last quarter, we went up 2 basis points and the rest of the peer group came down 3% in that narrowed group. .

So to be honest with you, Jon, we don't necessarily target an absolute number, but rather we target through our CECL process, the quality of our portfolio book, but we stress test it. We then make certain decisions like this quarter when we added overlays into the models for a higher interest rate environment, uncertainty with the macroeconomic environment and also some uncertainty with the geopolitical environment, and that kind of moved us up, all right?

In addition, as you've heard us say many times, we are moving away from being a little bit more CRE-centric to more C&I centric. And that combination of the portfolio composition change will kind of lead us upward. As we kind of look at where we're going for our strategic plan, we have just basically said Think of it as about 2 bps per quarter given where we see the composition of the loan growth moving throughout 2027.

Good. And then I guess maybe a financial psychology question for you, Ken. Do you like this strategy, you're comfortable with the strategy of the mid- to high single-digit loan growth and repurchases? Or do you feel like it's the more moderate loan growth approaches hold back your businesses at all?

Boy, Jon, I'm going to have to sit down or lay down on my couch for that one, and cut you a check for a couple of hundred dollars if we want to talk about that...

It's just working so far, but I'm just curious. Is it holding you back? .

It is. Well, it's my nature. -- to be more of an organic growing, right? And we've shown great results as a company growing that way through total shareholder return. We're -- we're reevaluating -- we don't have a broken company here. We are reevaluating how best to get valuation higher in this company, and we weren't getting rewarded for that excess growth above the peer group.

And so what we're doing is we're bringing in the excess growth, as you know, all right? We had a blip in Q1's asset quality. I think we're showing that, that was, in fact, a blip and you go back and look at 15 years of track record here, and we've averaged 10 basis points, go back over the last 5 years, and you see we've averaged 17 basis points of charge-offs, still lower than our peer group.

You can go back and look at our classified assets, our criticized and our special mention currently to our peer group. You can see that we're in the top quartile of all that. So we're bringing in loan growth. We're improving or reaffirming asset quality and we are rolling the growth of the balance sheet and not taking in deposits like we normally did, where we were making a smaller spread on the income because some of those deposits had some volatility to them in terms of how long we can lend the mouth for.

So therefore, we put them into HQLA. We're making a small spread. And hence, we're trying to get more out of our base and to grow our return on average tangible common equity and return on average assets. So that's the growth we're going to -- that's the plan, very clear about that on Investor Day, and we're still working towards that. And -- and so what that's going to mean and actually helpful somewhat is that Tim Bruckner sitting to my right, gets to be far more selective about what loans he wants and should, in fact, be able to bring in loans at higher spreads than just having to bring in all those deposit growth where you need to put it back out into lower loan growth. Tim?

Yes. Thanks, Ken. What's neat about this, the growth that you're seeing is exactly in the segments and sectors that we have indicated as being desirable. And it's bringing with exactly the deposit and fee business that we sought out. We are prescriptive in how we approach that growth, and we're seeing the results, those results are encouraging.

Next question comes from Casey Haire, Autonomous Research.

Great. I wanted to touch on deposit beta. Most banks just point to the last cycle and say that's a pretty good reference point. Obviously, Western Alliance a lot going on here. You've optimized a lot of the ECR deposits. Dale's got some new initiatives in the worst, which sound like they're lower cost.

It all adds up to potentially a lower deposit beta. When I look at you guys last cycle, inclusive of ECR I've got the deposit beta at around 75%. I'm just wondering if you guys have given any thoughts to where that would settle out in the next Fed cycle.

Yes. Sure thing, Casey. Obviously, these are estimates based on the best information we have right now. We are currently expecting our blended cumulative deposit beta to be about 65% and over the next year, and that includes both the nonmaturity deposits and the ECR-related deposits.

To your point, though, there is some nuance here between the types of deposits, so as we think about nonmaturity deposits, excluding ECR, we're expecting a beta anywhere from 55% to 60%. And when you think about the ECR specifically those deposits, you could see a beta of about 70% to 75%, given we do have those warehouse deposits, which come closer to a 90% to 100% beta. So hopefully, that gives you some color to get there.

Yes. Okay. I'm sorry. So which 1 is the -- all-in beta? .

60% -- 65%, is the all-in beta nonmaturity deposits plus ECRs. If you were to exclude the ECR 55% to 60% on the ECR specifically, call it 70% to 75%. So when you blend those 2 ranges, you'd get an overall beta of about 65%.

And just 1 more on the NPL resolution front. So I heard you guys talking about you stress the portfolio for higher interest rates. But what is -- do you guys have a line of sight on how much further the NPL resolution go about 14% reduction in the third quarter. We've seen others with credit issues, talk to the rising rate environment slowing down the resolution. Just wondering if there's any way you could quantify what you'd expect in the coming year?

Well, I'll give you the coming quarter and wait for the full year when we give you our full year guidance in January. But the coming quarter, we have a high degree of confidence that the NPLs will continue to drop from the $485 million level that we're at. .

As we've said, we've got 2 credits. One is figured say, it's just completed more or less. And the other 1 is scheduled for completion in the early part of December. And so that gives us the confidence that the NPLs will continue to improve from now through the end of the year.

Next question comes from Janet Lee with TD Cowen.

Hello, could you talk to us about the lending side on the competition. I get that much of the benefit from the rate hike in the third quarter is not -- was not showing up on the loan yields in the third quarter.

I do see that the CRE loan yields were down a little bit. I wanted to see if there's any meaningful changes in the competition on the lending side?

Sure. It's a competitive environment. And the acknowledgment of that is foundational in a plan that we've undertaken. -- we don't look at relationships purely on a loan yield basis. We look at that on a relationship basis. And we've done a really good job of maxing our relationship income, including deposits, including the fee business in the teens that we pursue and how we evaluate and pursue those segments. So we're pleased with what we're saying. If you approach this as a loan-only business today, it's a tough and competitive environment.

If we were to get more rate hikes, how do you assess -- how much deposit optimization opportunity is still available or remaining. I understand that you've executed on the accelerated deposit optimization and $500 million more left in the fourth quarter, are we at a good place? Or is it something that you could revisit?

Janet, right now, the $5 billion seems like the appropriate number. I said all along that this had to be finessed and in terms of how pleased we are, we were able to transition the $5 billion -- or soon to be $5 billion off the balance sheet.

We have not lost a single customer. We have lost any low tunities as well. And I think we're going to pause here and see how the rest of the year shakes out. We're -- not many banks could have the precision to take out $3 billion in a quarter and still keep deposits flat. I mean, I said it in my opening remarks, that's Herculean. I mean that is precision bombing okay, to be able to do that. This was no easy task and to also accelerate in the deposit transitioning faster than we expected.

So at this point, we're going to pause. $5 billion is significant, and we'll take a it look at it after we the end of the year if we need to do anything differently.

Next question comes from Bernard Von Gizycki, Deutsche Bank.

Just a question on fees. Just any updates on the expected settlements within Juris banking, leading to higher service fees. Is that not expected in 4Q still kind of like first half '27? Just any updates there? .

I believe it's really going to be in. There's a couple of big cases out there, otable, but that's still in a process, even though settlement discussions, I think, are well along. So that's probably '27 alone.

Okay. And just 1 more follow-up on the fee income. Vishal, I think in 2Q, you highlighted trying to hedge the volatility in the mortgage market, you'd sell some covered call options. Did you have any income from that during the quarter? And if so, do you expect that to continue? .

We did have a little bit of that in here. It's a couple of million bucks, nothing material in the quarter. And then I'd say going forward, opportunistically, we'll continue to look at that. .

Next question comes from Anthony Elian with JPMorgan.

Vishal, can you help us unpack the outlook for NII for flat to slightly up in 4Q. And following up on Casey's question on the beta, could you give us your expectations for deposit costs in 4Q relative to the 6 you had or interest-bearing in 3Q?

Yes, sure. Thanks. So in terms of the NII, I'd say a couple of things. So one, -- we've -- as Ken mentioned, typically in the fourth quarter, we do see a little bit of a contraction in NIM. And if you go back the last 3 years, you can take a look at that. And again, it's due to the seasonality in the warehouse business. As those payments come out as we kind of refund some of that with borrowings, you've got some higher costs there.

So that's why you see a little bit of NIM compression in the fourth quarter. That could be anywhere from, as Ken said, historically, it's been 3 to 4 bps. That being said, obviously, the balance sheet is continuing to grow. We do have optimization. We have a remixing on the balance sheet. So when we think about the dollars of NII, I think we're going to be flat to slightly up Q3 to Q4 from a dollar perspective.

So hopefully, that helps on the first question. On the second question about the cost of interest-bearing deposits, they were up 2 bps quarter-over-quarter from [ $274 to $276 ]. Obviously, we had the rate hike in September and the middle of the month. So we are going to see -- and we expect to see cost of interest-bearing deposits up into the fourth quarter.

When we look at where that sits today, if I look at the month of September, it was up to about 281, up 5 bps from where we were for the quarter, but that doesn't fairly capture the full projected increase, obviously, given the time of the hike. So I would say just going forward, based on sort of the beta assumptions we put out there and what we're looking at in terms of 25 bps, I think you get back into a range there for cost of interest-bearing deposits to go up, call it, anywhere from 10 to 15 bps.

There are no further questions at this time. I will now turn the call back to Ken Vecchione for closing remarks.

Yes. Thank you very much for your time today. We were very pleased with the quarter, very pleased against the progress we made against our strategic initiatives, and we look forward to talking to you again in early January. Thank you all. .

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, everybody. Thank you for joining us on day 3 of our Financial Services Conference. This morning, we're excited to have Western Alliance joining us and Ken Vecchione, the Chairman, President and CEO.

Ken, thanks for being here. Appreciate you making the trip out.

My pleasure. Thank you for inviting me.

Well, I think there's a lot to discuss clearly with Western Alliance. Maybe we just kick it off with, at Investor Day in May, you laid out medium-term targets. And later in the second quarter, you began acting on them, reframing the story from maximizing balance sheet growth towards optimizing profitability and returning capital. Walk us through what changed and how you think about growth versus value creation and what you want us to understand about the kind of company that Western Alliance is becoming over the next 2 to 3 years.

Yes. There's a lot to unpack in that simple question. So let me start with why did we pivot? We are generally an organic -- strong organic growth company. And what we found was that we weren't being paid for our excess growth, and it wasn't being reflected in the share price. In addition, the excess growth was being considered as risky growth, which also weighed on our share price.

And we saw our share price where it is and we said, look, the best thing we can do is buy back our shares, and we started to do that. So we took that excess capital and repurchased our shares with it. And we continue to do it. And what we think the market doesn't fully understand yet is the improvements we made in asset quality and where the business is -- how the business is positioned, the success we're having with our deposit optimization strategy. I assume all these things you're going to ask and that we're taking advantage of that by buying back our shares.

And so we had expected to buy back $150 million in the second half of the year. That's correct. We're buying a little bit more in Q3 than in Q4. As I said, the company is on sale, and we're taking advantage.

As it relates to the Investor Day targets, certainly around share repurchase, we only had $200 million to $300 million in there over a 3-year horizon. And here, we are buying back $150 million now, and we'll probably continue with that process into 2027. So we'll accelerate that on our way towards hitting our Investor Day goals of return on average assets of 1.20% to 1.30% and return on equity of between 16% and 17%.

Great. As you said, the focus has really shifted. Now it's really on deposit optimization on the right side of the balance sheet. As you move deeper into that, how do you decide which relationships are no longer earning an adequate return? And where is there still room to reprice or reposition funding without disrupting the broader relationship, I guess, given how many of these clients touch multiple products?

Right. So deposit optimization was clearly laid out as one of our key strategic initiatives at our Investor Day. So there's a 3-pronged strategy to the deposit initiatives. Number one, those clients that were carrying excess liquidity, we helped transition that to other banks. Second, for select clients, we changed the pricing grid and capped what we pay for deposits. And third, and most importantly, for our long-term growth, we are accelerating and putting more time and attention against our deposit-only channels such as Business Escrow Services, Corporate Trust, Juris Banking, our Digital Asset Group and HOA as a couple of them.

Now what does all this mean in the progress we've made? In Q2, we transitioned $1.4 billion of deposits outside of the bank. In Q3, we've already transitioned $2.5 billion. So now we are a total of $4 billion. We set as our goal of $3 billion for the year. So we actually accelerated deposits that we're going to transition in Q4 into Q3. We're now ahead of our full year goal at $4 billion versus $3 billion.

The net benefit of all this is several things you'll see. One, our deposit fees, which located in our operating expense line will be down near -- slightly over double digits in the millions, okay? So you'll see a significant improvement in deposit fees. That will lead to a higher adjusted net interest margin by several basis points. And then our headline NIM will just be down maybe about 1 basis point because of the deposit remix on the deposit optimization strategy.

So we're very pleased that one of the key items that we wanted to take care of coming out of Investor Day, we have done so, and we've done it at an accelerated pace. And so for the rest of the year, we're not going to look to move any more deposits out of the bank. We're going to review it again, and we'll get better -- we'll give additional guidance either at -- on our Q3 call or as we enter into the new year.

So that $3 billion is now $4 billion, but you're still seeing growth in the other areas?

Yes. So let me just say, the thing is not only did we get $2.5 billion out of this quarter, we expect to still be positive deposit growth. So that's kind of a herculean trick to be able to move that much out and be able to also grow.

Where are you seeing the most benefit or the most success on the deposit growth side in the areas that you're focusing?

So a couple of things. For this quarter, you'll see it, one in tech and innovation, that specialty finance line. There's a lot of venture capital financing and deposits are growing above trend for Q3. BES, which is Business Escrow Services, which caters to private M&A transactions, they are very busy, and they too will be above trend growth for Q3. Corporate Trust, which has a long or deep pipeline, will continue to grow as it has a couple of hundred million dollars per quarter, but they've got a deep pipeline. So those 3 business lines, which I just mentioned, have also lower cost of funds related to them. And over time, that will help change the mix of our deposit composition, but also lower our deposit costs.

I think the deposit optimization gets a lot of the attention, but you also have fixed rate asset repricing and securities being reinvested at higher yields independent of what the Fed does. How much of the next leg of margin improvement is driven by the asset side versus the funding side? And I guess what gives you that confidence in that 3.60% to 3.70% medium-term margin target?

Right. So the 3.60% to 3.70%, to be clear, is going to happen over 3 years. That's number one. Number two, yes, the deposit mix is helping and the growth of the deposit-only businesses should help change the overall cost of funds and lower that. And then also, as we described on Investor Day, we have a number of specialty finance businesses that are part of our S-curve strategy. And those businesses continue to build out and grow. And some of them are in lines of business that bring in above trend spread. And so we expect to continue that as well. And those things taken all together will drive NIM and then also adjusted net interest margin up over the next 3 years.

Looking at the loan growth side, you've deliberately scaled back some loan growth to lean into the buybacks, as you mentioned earlier, yet you still screen as a top quartile grower in the group. How should investors think about the pace of balance sheet growth from here as you keep reassessing lower return loan and deposit relationships? And what would pull you back towards that higher growth?

Yes. So I'll break my answer into 2 pieces, tactical and strategic. Tactically, I would expect that our total assets for Q3 will be below that of Q2 because of the acceleration of the transitioning of deposits. So think about $98 billion coming down from almost $99 billion for Q3. And I would not expect us to cross over into LFI territory until the end of the first quarter, okay?

As we look for -- going forward on balance sheet growth, we're -- right now, our stock is well below its intrinsic value. And I think there are 2 things that are embedded in the stock that we're taking advantage of in terms of buying back the stock. The first, which is very obvious, is the mortgage industry and what's happening to the 10-year yield and to mortgage rates, which we can talk about in a few minutes. And the second is the progress that we've made in asset quality that the market has not yet digested. And I assume we'll talk about that. But those things allow us to continue to buy back the stock.

Now relative to the market to the growth, as long as our stock is on sale, we're going to keep buying, but we're able -- we're one of the few companies that can actually buy back its stock and grow at the upper end of the peer. And our peers for us are between $50 billion and $300 billion, okay? Again, we weren't getting paid for the much higher growth rate.

And that's our way of saying that when you kind of raise up to a higher level, what are we trying to do as a bank? One, we're trying to lower our cost of equity. And we're trying to lower our cost of equity through having a lower beta. And we'll get a lower beta by having a more durable and sustainable earnings, which I think we have basically today; two, reducing asset quality; three, getting rid of any stories that get connected to us; and four, looking like everyone else, apparently being outside the box. If this is the box of growth and you're here, being over here, you're not getting rewarded for. So we're coming inside of the box, if you will. And we believe all those things taken together over time, will lower our cost of capital.

As we're doing that, as you mentioned about Investor Day, we're also doing a number of things to raise our return. So what we're trying to do is bring down the cost, increase the returns, make that gap wider and wider. That has yet to be captured in our share price. And until it does, we're going to go out and buy back our shares while still doing all the things we normally do, which is to grow organically.

I guess looking -- as you look into 2027, you talked about some of the specialty deposit verticals, HOA, Business Escrow, Corporate Trust, Juris, Digital Assets, and they've been compounding far faster than the rest of the bank. Which do you see carrying the most weight sort of going into next year? And are there newer verticals investors aren't paying enough attention to yet?

So we're not launching any new deposit verticals. We think the ones that we have are still in their early stages, and we are paying attention to those and continuing to put more technology behind them so that they can grow at a faster pace.

The nice thing about the combination of these businesses, let me just take you through them. HOA is a very stable business. We'll grow $1 billion every year in just in deposits on that business. And it grows below what our effective cost of funds rate is. So that's good. And what we do there, we use technology to drive deposit growth, technology that we have APIs that connect to the management company that then connect right to the HOA association. So it's a lot of connectivity. That connective tissue is very hard to separate, and we grow that business, as I said, about $1 billion a year, mostly in Q1, a little bit in Q2, flat in Q3, a little bit more in Q4, but most of it comes in Q1.

Then we have some of the other lines of business. The Business Escrow Services is M&A. Right now, the M&A environment is still strong. And as I said, this quarter, you're going to see us do rather well. But there will be times when the M&A environment pulls back and you'll see deposit growth in that business pull back.

Offsetting that is Corporate Trust. And we just continue to gobble up market share. We have a long and deep pipeline of clients looking to come on, and that will increase our deposits. But that is going to be one of these steady deposits. This is like -- it's been like the Pete Rose of our company, which is, they'll get up to bat. They'll always get a single, but more likely, they'll get a double every time. And that double is $200-plus million a quarter in deposits.

Then you continue to drop down and you say, well, what can really give you some outsized growth? Well, our Digital Asset Group, which is the business that provides bank rails for our digital asset customers that trade currencies on other platforms to move their cash 24/7. We went live with that last quarter. Transaction volume so far, knock on wood, is very good. Deposit growth will follow from there. And that will grow over time, and we believe it will grow at an outsized pace. What will determine that growth besides our service levels will be the price of the currencies and what's happening in the overall economy.

So those businesses together with also Juris Banking -- now Juris Banking is another interesting line of business. Deposit growth is somewhat contingent upon court cases, settlements and then distributions. But when that money comes with us, that comes -- it becomes sticky. So there's some up and down as when that happens. This quarter will be more or less in line, flat to slightly down, I think, in deposit growth. But in the previous set of quarters, they've been growing very steadily.

Now the thing that most people don't talk about with Juris and Digital Asset Group and BES and Corporate Trust, people forget about the fee income that comes with this. And so this will help us with fee income over time. So those are the deposit verticals that we're excited about, and we think will add value to the company.

Great. Credit, you touched on that a little earlier, and you're right, we have a couple of questions on credit. You've expected several larger NPL resolutions to improve reported metrics in the second half, setting those identified credits aside. What are you seeing in the new inflows and outflows of criticized and nonperforming balances, and where across your national footprint are customers still investing in borrowing versus showing more caution?

Okay. So let's start with -- we mentioned 6 credits. 2 were resolved in Q2. 2 have been resolved in Q3. So we're 4 down, 2 to go. And the other 2 are on a glide path to be resolved in Q4, okay? We expect our NPLs to come down about 10% this quarter in Q3. So they're going to move from $567 million to about $500 million. So that's very positive. We expect our charge-off rate in dollars to be under that of Q2. Again, so that's positive. So that asset quality story, as we laid out, is unfolding and tracking against our expectations and forecast.

The other part of the asset quality story, which is going to be helpful, is that our allowance for loan loss reserves continue to build. As we remix our balance sheet, we expect our allowance for loan loss reserves to grow a couple of basis points per quarter. So you have the allowance growing, okay? And certainly, in dollars, our ACL to where our NPLs will be at the end of Q3 will be well over 100%, whereas in the previous quarter, they're at 95%. So that asset quality story is taking hold, and we're excited by it.

In terms of -- the question was where is the rest of the growth coming or...

Where are you seeing customer sentiment, or, I guess, across the national footprint, where are customers still investing in borrowing versus showing more caution?

So tech and innovation, active. National homebuilder, active. Segments of our regional banking book are active. Still warehouse lending and MSR lending, I'm assuming the Fed is going to move today, probably won't be as active going forward, but has been active up to today. I think that's probably it in terms of the big areas.

Okay. Okay. Following Cantor and the other fraud-related credits, what's changed in how you evaluate collateral controls, counterparties and single source repayment structures? I guess how are those lessons being applied across the broader portfolio, including areas like lender finance and innovation banking?

Yes. So the Cantor and LAM to me is an old story. It happened. One was a fraud, which was Cantor, and the LAM for us is a breach of contract. So we think our positions there are very strong. We expect a favorable outcome, and that will just transpire over the next year or so. It's a long process once it gets into litigation.

As it relates to what we've learned, and I got to be careful, there's only so much I can talk about. I can say we brought in outside people. We did this immediately to ensure that our credit process was fine, and it is and it was. So where did the problems come? It came in the administration side, on how we administered titles and how we gave too much control to a large company to administer their asset quality, their cash flows. And that's where the mistakes were made, and we've changed that.

As it relates to the Cantor fraud and looking at the double pledging of titles, we found no other instance in our book of business other than what we saw with Cantor. So that's good.

Great. You talked a little bit about growing the ACL. Western Alliance has always had a relatively low ACL due to the structure of the lending book, along with some of the specific guarantees and insurance coverage. In light of the credit moves and the balance sheet shift, as you talked about, how should we think about the ACL normalizing longer term?

Yes. So in Q2, we added a couple of bps to the ACL. Our peer group came down about 3 bps. So if we keep that path going, it's -- we'll get to normalization a lot faster. Now first, we have to understand that our peer group is very different from us because they have a large consumer book of business. And we don't carry those loans, and so therefore, we don't have those losses. And so therefore, our ACL should be lower than our peer group.

Having said that, it would be nicer to be closer to them. So there's one less story I need to tell back to the cost of capital, that gets into the beta, right? So we continue to remix our book. We continue to see ACL kind of rising 2 bps per quarter, thereabouts. Our overall asset quality will continue to improve. And so for me, I look at the ACL compared to the NPLs to make sure we have enough coverage.

What I would say is that we do have a credit-linked note, a CLN, which removes up to 5% of residential losses from our balance sheet. By the way, we've never had a loss in our resi book. But if we were, the first 5% is eaten up by the CLNs. So that's the insurance policy. So when you take the monies that were still reserved for, for the residential book and move them over to the rest of the book, our ACL is closer to 1.01%. The peer group is about 1.2%. So we're not all that far apart. And we will, as I said, continue to work to close that gap. So I think we're making progress on that.

I just wish we'd get a little more credit for the CLN. It's there, it's insurance. People have given us the money. So if we have a loss, we give them back less money. I don't know why that's not considered a very strong ACL.

Okay. Maybe shifting a little bit to the fees and expense side. Service charges and fees have grown steadily, not just from the legal disbursements, but from commercial banking services like treasury management. What do you attribute the success in this area to? And what do you envision non-mortgage fee revenues growing to and contributing to the revenue mix?

Yes. So our growth in fee income runs in concert with the change in our strategy with our balance sheet. So we used to be more balance sheet oriented. That's fine. As we pulled back on the balance sheet, we're now becoming more revenue-centric to what the client is. To do that, we've invested in treasury management services and products, and we expect the TMS, Treasury Management Services, income to grow at an accelerated pace such that it will continue to help fee income move along.

The businesses of BES, some stuff in private credit, Corporate Trust, Digital Asset Group, those also begin -- they will, as they get bigger and bigger, grow fee income. So it's coming from there as well.

Because we're such a large spread business, and we don't have wealth management, we don't have credit cards. We don't have a bond trading desk. We don't have investment banking. We will move fee income year-over-year double digits in growth. But relative to our overall income, it's not going to move much. So it runs today, absent mortgage, about 10%. And it will stay above 10% because it's going to be hard to outgrow the denominator of our net interest income.

Yes. On the expense side, ECR and non-ECR expenses have been 2 of the hardest things for investors to model. What are the biggest underlying drivers of each today? And where do you expect scale or efficiency, including AI, to start providing more visible offsets?

Yes. So the ECR conversation also, I think, adds to the discount in our stock price. Sometimes you can actually see smoke coming out of people's ears when I have to explain it to them and what -- but I try to break it down and make things as simple as they were when I went to public school in Queens at P.S. 169, Go Tigers. And that is there are 3 businesses that contribute to the ECRs. Warehouse lending, which is warehouse lending deposits mostly coming from MSR relationships, HOA and then Juris Banking.

We have about $30 billion of ECR-related expenses or balances, right? What I would do in terms of if I had to model this, I would take -- that's my denominator. I would take the numerator, which is what are deposit costs. Come up with the ratio. And then you going to have to do here a little work and make your best guess on where you think those deposits are moving, right?

Certainly, the rate has to be coming down as we're transitioning off higher rate balances, all right? But mostly the improvement quarter-to-quarter, and there will be another improvement in Q4. I said we'll be down about $10 million in Q3. We'll be down again in Q4. But Q4 is going to be just because of the seasonal drop that we always see. I would factor that in, and I would go back and kind of look at what that path has been for the last couple of years quarter-by-quarter. And I think you can create a model that kind of kind of draws you to where you need to go.

And that's how I would think about the ECRs. With a rate increase sitting in front of us, the warehouse lending business runs about a 90% beta and the other 2 businesses run about 50-ish percent. And so I would keep that in mind as well. I hope that gave the answer to the test question.

Yes. You're approaching $100 billion, and you've already invested heavily in LFI readiness. How far along is that build-out? And once you're fully subject to the requirements that come with crossing the threshold, what should be the ongoing run rate cost and the timing benefit if the [indiscernible] threshold moves up?

Yes. So we're just about done with the LFI readiness program. We won't have to start filing the appropriate reports if we cross over by the end of Q1, assuming there's no tailoring changes. We don't start filing reports until -- most of them are filed in '28, not in '27. But we even still have time. But we put in about $25 million a year, $25 million to $30 million. That's going to be the run rate going forward to support the LFI. Whether tailoring happens or not, we're just assuming that it is. A lot of the infrastructure that we put in around capital stress testing, around liquidity management and stress testing, very valuable. We're keeping that. So that's going to just be with us regardless if we move -- if the LFI levels are moved.

But we're ready, and we'll just wait to hear. Hopefully, I understand there are going to be some speeches coming up soon, and one of them may very well be on LFI, I hope, and maybe we'll get a little more insight. We're going to be the first bank that crosses over organically, which is kind of interesting. And what I've said to the FRB is that you should use us as the model. I mean we started planning for LFI back in 2021, 2022. We started putting it into our cost base very slowly, and then we accelerated a little bit more recently. So we've been working on this for a while.

Okay. You talked about the buybacks earlier. You've increasingly emphasized buybacks relative to incremental growth, and you pointed to potential Basel III capital relief. What would make you shift capital back toward growth? And what could lead you to lean further into repurchases, including, I guess, how you deploy about 80 basis points of potential CET1 benefit?

Yes. Well, everyone likes a deal, and we're not paying full retail for our stock price today. So we're going to continue to buy. And we had our Board meeting last week. I showed these models to the Board and where we think intrinsic value is and what we need to do to kind of grow the stock price. And as we get closer to that intrinsic value, we'll probably slow down. But right now, I think there's a real sizable gap to where we think the company should be valued, and we're going to be continuing to buy.

One thing I'll keep noting is that we're continuing to grow. So that's very important. That organic growth is very important for long-term growth. I went back and I looked at some of the big money center banks over the last 15 years and what made them scale up and how were they successful? And a number of the large banks actually for an extended period of time, never saw their stock price move. It was kind of interesting. And you go to the top 2 or 3, one over the last 15 years has seen total shareholder return of about 1,100%. A couple of others have been in the 500% to 600% range. We, over that same period of time, grew 1,700%. Now we're not -- we don't have a couple of trillion dollars in assets, and I appreciate that we're a different model. But our model has worked over time.

And right now, one of the things we're trying to shift with our model is getting a higher PE will allow us to be more opportunistic in buying other banks. And when you look at these other money center banks, the way they got their growth -- their accelerated growth was having a foundational balance sheet, which is what we're trying to do. So we have got very strong CET1 now. We've got very strong liquidity. We're improving on the allowance for loan loss reserve, which is, I think, the last component. And so we'll have a very strong foundational balance sheet.

And if we have a higher PE multiple, we'll be in the right position, hopefully, at the right time to buy a bank if there's one that falls into trouble or if there's one that falls into our lap that meets our criteria. So that's sort of what we're thinking about in terms of the share pricing and also how to use capital versus growth.

If we get closer -- listen, if we're trading at 2x book, which we're not, but if we were, I'd just put the money back into organic growth. We've got an organic growth machine with all these S curves. And with all these -- we still have a number of new businesses we talked about on Investor Day that are in their infancy in terms of their growth. And we're just moderating them because we don't want to grow more than $5 billion in total loan growth this year.

Yes. You built this franchise almost entirely organically through new specialty verticals rather than M&A. As consolidation picks up across the space, does that create more opportunity for you to add customers and talent? Or does that make the organic expansion to certain markets harder?

I think it gives us an opportunity. We're -- when you just look at commercial banks, we're the 16th largest commercial bank in the country, right? Only in banking can you be $100 billion and not be big enough, right? And even the guys that are $500 billion and $600 billion complain that they're not $1 trillion and so forth and so on. But we're one of the larger banks that no one really has ever heard about, right? And -- but now as our profile has increased, we have people coming to our company that want to bring their expertise. And the reason why they want to bring their expertise is, one, access to me and the senior management team, the ability to prioritize their technology development, which is very important. That was Corporate Trust's whole pitch when they came to us.

How do I know that I'm going to get the time and attention? And they came from a very large money center bank. And I said, well, if you grow $1 billion to $2 billion over the next 2 years at this money center bank, it's not going to be noticed. Here it's going to be noticed. I'll make sure you get all the tech support. So we're bringing that in. So that's really an advantage to us.

If things slow and we have opportunities, possibly through M&A, and it's hard really to talk about that without smiling since we don't have the PE multiple, but we do track a number of businesses that we like. And if they become available and if the right circumstances line up, that will allow us to move into different territories and allow us to continue to grow that way.

Great. You talked a little bit about tech, but you've moved beyond broad AI experimentation into specific use cases and cited some productivity gains at Investor Day. Which applications are closest to a measurable P&L benefit? And how are you using AI to support the deposit optimization and relationship profitability effort without weakening the client experience?

Yes. We spent some time on this at our Board meeting. And I laid out 15 strong use cases for AI. We're going to focus on the top 5 first so that we can embed the cost into our models for 2027. And as soon as we see a return or a lack of return in these areas, we'll make our decisions and roll on to the next thing.

But where we're seeing initial early gains, let's go to Corporate Trust and their pipeline. We are consolidating the period it takes to onboard, which is incredibly important for us. So that's been positive. We've used AI in the mortgage business in terms of our pricing models. That's been a positive for us. So we have some very specific use cases that have worked out.

We're continuing -- actually, first thing we needed to do and what took us a little bit on a side road was when Ethos came out, we had to use our AI team to prevent AI from hurting us. And so that was our first goal, which is, hey, let's make sure the core of the business stays intact and everything else will catch up. Now we think we've done that, and now we can start putting the time and resources against AI projects that will help us.

But I haven't embedded any of that into our models yet. We're going to wait and see a definitive ROI on these businesses. Around the edges, we know they're definitely going to help. I just want to understand what the real return is for each business. But we're very positive about it, and we do think it will contribute.

Great. In the last few minutes, seeing if anyone in the audience has any questions?

I guess, Ken, when we're sitting here a year from now and if the market has rerated the stock toward what you think is the intrinsic value, what do you think will have driven it? And I guess what's the one thing you think investors most underappreciate about Western Alliance today?

That's a therapy question. So I'm going to sit down and get a couch for that one. Okay. What don't they appreciate about the bank is our long track record for providing value, our ability to find specialty finance businesses, craft them, take our time to understand them, roll them out, that's part of the S-curve strategy and then see the growth that follows. For a small bank, we run a very complicated operations. And so the management team, I think, is very gifted, and I don't think people appreciate that as well.

What will be different here a year from now is, I hope everything I talked about on the tactics, which is deposit optimization, share repurchase and the asset quality improving, leading to a lower beta and a lower cost of capital. That would be one of my goals. If that happens, I think the price of the stock is going to move up, and I think you'll see a higher PE multiple. And that's what I hope -- that's what I hope will happen next year at this time.

Great. Well, thank you very much. It was great to have a chance to talk to you.

Thank you very much. Appreciate it.

Thank you.

Good day, everyone. Welcome to Western Alliance Bancorporation's Second Quarter 2026 Earnings Call. You may also view the presentation today via webcast through the company's website at www.westernalliancebancorporation.com. I would now like to turn the call over to Miles Pondelik, Director of Investor Relations and Corporate Development. Please go ahead, Miles.

Good day, everyone. Welcome to Western Alliance Bancorporation's Second Quarter 2026 Earnings Call. You may also view the presentation today via webcast through the company's website at www.westernalliancebancorporation.com.

Our speakers today are Ken Vecchione, Chairman, President and Chief Executive Officer; and Vishal Idnani, Chief Financial Officer. Before I hand the call over to Ken, please note that today's presentation contains forward-looking statements, which are subject to risks, uncertainties and assumptions. Except as required by law, the company does not undertake any obligation to update any forward-looking statements. For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, please refer to the company's SEC filings, including the Form 8-K filed yesterday, which are available on the company's website.

Now for opening remarks, I'd like to turn the call over to Ken Vecchione.

Thanks, Miles. Good afternoon, everyone. I'll make some brief comments about our second quarter performance before handing the call over to Vishal to discuss our financial results and drivers in more detail. After reviewing our revised 2026 outlook, Dale, Tim and Lynn will join us for Q&A.

I am very pleased with Western Alliance's strong second quarter performance and our early execution against the objectives outlined at Investor Day. Results were highlighted by broad-based C&I driven loan growth strong net interest income, PPNR expansion, stable net interest margin and continued balance sheet strength.

Credit trends remain constructive with criticized assets and net charge-offs both declining from prior quarter. Ongoing resolution activity gives us confidence that nonaccrual loan balances will improve meaningfully during the second half of 2026.

Just as important, we have already begun executing several key strategic initiatives we discussed in May, including deposit optimization efforts designed to enhance profitability and a more robust share repurchase program supported by our strengthening capital position.

As we approach the $100 billion asset milestone later this year, Western Alliance is entering its next phase from a position of strength combining industry-leading growth, improving profitability and increased capital returns to drive long-term shareholder value.

Turning to our financial results. Quarterly held-for-investment loan growth of $1.8 billion was led by C&I growth across our commercial platforms. As discussed at Investor Day, we began executing our deposit optimization strategy during the quarter, reducing higher cost deposits by well over $1 billion towards quarter end.

While this contributed to lower period-end deposits, it positions us to improve funding costs and enhance profitability going forward. Early indication so far in the third quarter are that interest expense and deposit costs will continue to decline.

Strong average earning asset growth of $2.7 billion drove net interest income up $31 million or 16% on a linked quarter annualized basis compared to 14% year-over-year growth. This performance was achieved while maintaining a stable net interest margin. Quarterly noninterest income of $199 million was consistent with adjusted Q1 fee income, which excludes securities gains of $50.5 million.

Mortgage banking improved from prior quarter, though higher rates and tighter spreads are creating headwinds. Overall, we generated strong operating leverage as total revenue growth outpaced total expense growth by a 3:1 margin, excluding last year's quarter securities gains. In total, PPNR increased 25% year-over-year to $412 million.

Asset quality remains stable. Reductions in criticized assets, combined with quarterly net charge-offs declining to 37 basis points, reinforce our expectations for nonaccrual loans to decline in the second half of the year.

The increase in nonaccruals during the quarter was driven by the credit disclosed in the first quarter 10-Q, which remains current on all contractual payments. As a follow-up to Investor Day commentary, we successfully resolved two of the six nonaccrual loans discussed with the remaining four on track for resolution in the second half of 2026.

Before handing the call over to Vishal, I'd like to briefly preview our revised 2026 management outlook. Since the disruptions in 2023, Western Alliance has delivered one of the strongest regional bank growth stories highlighted by predictable loan growth, ample liquidity, robust capital levels and scaling PPNR. As a result, we remain confident in the strategic objectives and medium-term financial targets outlined at Investor Day.

A more balanced growth profile will create additional capacity for capital returns to shareholders. Western Alliance shares trade at a meaningful discount to our estimate of intrinsic value and the earnings call of the franchise.

Greater share repurchase activity around the current price represents an attractive investment in one of our highest returning assets, our own equity. Our competitive advantage going forward will be to pair industry-leading growth with disciplined capital allocation.

Vishal will now walk you through our results in more detail before I review the outlook.

Thanks, Ken. Turning to the income statement on Slide 4. Net interest income of $797 million increased 4% from the prior quarter, primarily from average earning asset growth of $2.7 billion, which included $1.1 billion of average HFI loan growth. NII also increased 14% year-over-year. Lower funding costs driven by declines in interest-bearing deposit costs offset the slight margin impact from remixing loans into C&I from CRE.

Net interest margin remained relatively flat as the deposit remixing strategy offset nominally lower average earning asset yields. These factors supported another quarter of NII growth.

Noninterest income of $199 million was essentially unchanged from Q1 when excluding $50.5 million of elevated securities gains realized last quarter. Year-over-year growth of approximately $51 million or 34% reflected building momentum in service charges and fees through greater commercial banking, treasury management and FX offerings.

Mortgage banking revenue was higher from the prior quarter and year-over-year despite the headwinds created by higher mortgage rates. Loan production and lock commitment volume were both up double-digit percentages from the prior quarter and year-over-year. The gain on sale margin did compress 8 basis points from Q1 to 29 basis points from lower secondary gains, which reflected softer investor demand due to higher rates.

Servicing revenue rebounded to $31 million, mostly from slower prepayment speeds in a higher rate environment. To hedge volatility in the mortgage market, we sold covered call options on mortgage bonds, which produced gains of $6 million and are embedded in fair value gain adjustments. We expect to regularly execute these types of trades and in fact, have already realized $3 million of income in July.

Noninterest expense increased less than $9 million from the prior quarter to $583 million. Deposit costs rose $16 million due to a full quarter impact of significant back-weighted mortgage warehouse deposit growth in Q1. Pre-provision net revenue of $412 million was 25% higher compared to Q2 2025.

And highlighting the continued growth in the earnings power of the franchise. Provision expense of $80 million was mostly a function of loan growth and net charge-off replenishment. Earnings per share of $2.36 and was 6% above our adjusted EPS of $2.22 in Q1 or 14% higher year-over-year.

Turning to the balance sheet on Slide 5. Securities and cash declined $2.4 billion, primarily driven by a $2.6 billion reduction in cash as we deployed more liquidity into increased loan growth. Securities and cash as a percentage of assets moved closer to the mid-20% area, while our HFI loan-to-deposit ratio increased to 74% and closer to our medium-term target of 77% to 80%.

Total quarterly HFI loan growth was $1.8 billion and generated mostly from C&I growth, an area which continues to drive overall loan growth momentum. C&I growth was spread across our commercial banking businesses.

As Ken discussed earlier, total deposits declined by $849 million during the quarter, reflecting the intentional reduction of approximately $1.2 billion of higher cost deposits as part of our ongoing deposit optimization efforts.

Total assets remained just below $99 billion, though total equity expanded $227 million, mostly from retained earnings growth. Tangible book value per share rose $2.10 from the end of Q1 to $63.24 or 13% over the prior year from retained earnings growth and modest relief in our AOCI position.

Looking closer at our loan growth trends on Slide 6. C&I growth continues to fuel our overall HFI loan growth. Over 80% of quarterly HFI growth occurred in C&I categories, from a business line perspective, Commercial Banking grew $950 million, primarily from our specialty commercial banking verticals and hotel franchise finance within CRE. Our multiyear diversification efforts have led to C&I accounting for nearly 49% of the HFI portfolio, while CRE ex construction has declined about 2 points over the past year to 19.5% of the book.

Looking at Slide 7. Deposits totaled $81.9 billion in Q2, an increase of $10.8 billion year-over-year. The $849 million decline in deposits from the prior quarter reflected our deposit optimization strategy, resulting in a reduction of over $1 billion in higher cost balances towards the end of the quarter with another $1 billion of additional reductions made during the first few weeks of Q3.

Growth in commercial banking and specialty escrow channels, particularly business escrow services as well as HOA helped balance the overall decline, demonstrating our early success in improving funding costs June's end-of-month total cost of deposits was approximately 1 to 2 basis points below Q2's total average cost of $1.78.

Turning to our net interest drivers on Slide 8. The securities yield expanded 5 basis points to 4.64%, reflecting continued reinvestment and higher yields. HFI loan yields decreased 3 basis points to 5.82% as a function of ongoing remixing efforts into more C&I loans compared to CRE.

On the liability side, interest-bearing deposit costs compressed 1 basis points to 2.74% from Q1. Overall liability funding cost declined 3 basis points from the prior quarter to 1.96%, which was helped by higher average balances in noninterest-bearing deposits. The cost of funding earning assets also declined as average earning assets grew 3% from the prior quarter to $91.7 billion.

Looking at Slide 9, net interest income grew $31 million quarterly or 16% annualized to $797 million, primarily from C&I-driven average HFI loan growth and higher average securities, which powered strong average earning asset growth. Net interest margin was relatively stable, compressing 1 basis point from Q1 to 3.53% as the interest cost of earning assets declined 2 basis points, while the earning asset yield declined 3 basis points.

Turning to Slide 10. The adjusted efficiency ratio of 49% increased 140 basis points from the prior quarter. When excluding the security gains of Q1, however, this ratio would have declined by about 150 basis points. On a year-over-year basis, the adjusted efficiency ratio dropped by almost 3 points.

As mentioned earlier, noninterest expense increased approximately $9 million in Q2 from higher deposit costs related to higher average mortgage warehouse deposit balances. Excluding deposit costs, noninterest expense decreased $7 million from the prior quarter. Excluding the Q1 securities gains, operating leverage resumed in the second quarter with revenue growing 3x more than noninterest expense on a quarterly basis.

We believe these trends position us well to continue improving operating leverage over time through a combination of disciplined expense management, deposit optimization efforts and continued business momentum.

On Slide 11, you see we remain asset sensitive on a net interest income basis. Among total earning assets, 67% are variable, while variable liabilities represent 87% of total earning assets. Non-maturity deposit rates, including ECRs, are estimated to have a beta of 59% over the next 12 months. When factoring in the potential impact on earnings from mortgage banking revenue and also deposit fees, our modeling now indicates we are rate neutral on an earnings at risk basis. Earnings are expected to rise 0.8% in both an up 100 and a down 100-basis-point ramp scenario.

Turning to Slide 12. We see core asset quality remains stable. Special mention loans decreased $87 million to $316 million and as a percentage of funded HFI loans dropped 16 basis points to 52 bps. Classified accruing loans edged down $15 million to $440 million or 72 basis points from 77 last quarter.

Nonaccrual loans increased $70 million, but nearly all of this change was related to the migration of the loan mentioned previously that is now current. As detailed in the appendix, Western Alliance continues to compare favorably to our $50 billion to $300 billion asset peers in special mention, classified and criticized loan categories.

On Slide 13, you see our allowance and coverage ratios. Provision expense was $80 million and replenished net charge-offs as well as supporting incremental loan growth, primarily in C&I. Our allowance for loan losses moved higher to $487 million or 80 basis points of funded HFI loans, and our allowance for credit losses also increased 2 basis points to 0.89%. Excluding loans covered by credit linked notes, the total loan ACL to funded loans ratio is 1.01%.

Regarding nonaccrual loan coverage, the loan previously discussed was the primary driver of ACL coverage dipping below 100%. We expect this to be temporary given stable core asset quality trends and expected near-term nonaccrual resolutions.

Looking at capital on Slide 14. Our tangible common equity to tangible assets ratio lifted approximately 20 basis points from year-end to 7% from solid retained earnings growth as well as a slight decrease in tangible assets and an incremental improvement in our AOCI position. Our CET1 ratio was maintained at our targeted level of 11%.

Turning to Slide 15. Tangible book value per share increased 13% year-over-year and has grown at a 17% CAGR since the end of 2015. The gap between historical tangible book value accumulation and peers stands at more than 4x.

Western Alliance has been a consistent leader in creating shareholder value over the medium and long term. On Slide 16, we have provided 10 metrics that highlight how we stacked against our peers on earnings growth, profitability and other critical factors that drive financial results and create durable franchise value. We view these metrics as important in compounding tangible book value and ultimately generating a long-term superior total shareholder return.

For the last 10 years, our EPS growth and TBV EPS accumulation have ranked in the top quartile relative to peers. We are also the leader in organic 10-year loan, deposit and revenue growth as well as adjusted efficiency. We continue to make strides towards achieving top quartile returns on average assets and average tangible common equity as well as our medium-term targets of 1.2% to 1.3% and 16% to 17%, respectively.

I'll now hand the call back to Ken.

Thanks, Vishal. As we outlined at our Investor Day, Western Alliance has spent the last several years purposefully strengthening the foundation of the franchise. We have materially improved our capital, liquidity and deposit profile, creating a more resilient balance sheet while preserving the flexibility to pursue attractive growth opportunities.

At the same time, our diversified business model and specialized platforms have continued to generate strong earnings momentum as we progress towards our profitability targets of 16% to 17% return on average tangible common equity.

Having achieved our targeted 11% CET1 ratio, we now have greater flexibility in how we deploy capital to maximize shareholder value. Importantly, our revised outlook continues to reflect growth among the strongest in our peer group, while enhancing profitability, compounding tangible book value and returning additional capital to shareholders.

With that as a backdrop, our updated 2026 outlook is as follows: in order to prioritize share repurchases, we are revising our loan growth outlook to $5 billion. Deposit optimization efforts prioritizing profitability have reduced higher cost deposits by approximately $2 billion, including $1 billion since quarter end.

As a result, we are lowering our deposit growth outlook to $6 billion, reflecting lower funding needs and our continued efforts to remix the deposit base in order to improve our funding costs. Our revised loan growth outlook will allow us to notably increase share buybacks with $150 million planned for the back half of 2026 and still maintain capital levels.

We are revising our net interest income growth forecast to 12% to 14% compared to our prior forecast of 11% to 14%. Our new outlook incorporates a 25-basis-point hike in September. We did not have rate changes assumed in our prior guidance. We expect NIM to remain stable going forward as double-digit average earning asset growth generates higher net interest income.

Total noninterest income is now projected to grow between 13% and 17% compared to 20% to 25% growth previously. We continue to see strength in commercial banking fees. However, the current geopolitical environment and the backup in the 10-year treasury note and mortgage rates will hold Q3 and Q4's mortgage banking revenue in line to Q2 level.

Looking at noninterest expense, our deposit cost range of $650 million to $700 million is unchanged. Deposit optimization efforts should lower average balances for ECR-related deposits and offset the impact of an expected rate hike. Operating expenses are still expected to land between $1.6 billion and $1.65 billion.

With respect to asset quality, we reaffirm our core net charge-off guidance of 25 to 35 basis points with non-performing loans falling in the back half of the year. Lastly, on a full year -- lastly, I should say our full year 2026 effective tax rate outlook is 19%.

With that, Vishal, Dale, Tim, Lynn and I are here to take your questions.

[Operator Instructions] Your first question comes from the line of David Smith with Truist Securities.

Could you speak a little bit more about the decision to pivot a little bit away from as strong balance sheet growth more towards buybacks? Is about the opportunity set that you saw for good loan deposit originations being a little bit reduced? Or does it just reflect the fact that you think your stock is undervalued and you haven't getting rewarded for pre-leading growth output? And then what do you need to see to return to putting that same priority on growth? Or do you think there's anything you can see to go back there?

Okay. A couple of questions there. Let me start with the pivot. So the revised guidance, as we said, reduced $1 billion in loan growth outlook. And that reflected a deliberate capital allocation decision. So we see an opportunity to enhance shareholder value by modestly reducing our loan growth and reallocating excess capital towards share repurchases.

Now redirecting the $1 billion of incremental growth capacity into an expanded repurchase program allows the company to capitalize on what we view as a meaningful discount between current share price and intrinsic value.

I want to say, even with the $1 billion loan origination reduction, Western Alliance, within the $50 billion to $300 billion asset peer group, would still post the highest organic year-over-year percentage loan growth, excluding any one -- any bank that did an acquisition. So we still outdistance peers, and we're also able to return capital to shareholders.

Now we did say on Investor Day that we -- and we did preview that we would do $300 million of repurchase activity. But I think you hit -- you asked and answered the question simultaneously, which is the share price doesn't reflect our intrinsic value, the growth of the company, the historical growth of the company and we're not getting rewarded for the excess growth. So we can still be the top performing loan growth bank inside of the peer group, but we're just better. We don't need to be better by a very wide margin because that wide margin we were not getting compensated for.

All right? And in fact, some people would say you grow so quickly that hmm, you must have more -- you must be taking on more risk. And we explained during the Investor Day how we have this S-curve philosophy and how we kind of grow our businesses. So we don't see it as taking on more risk. But we think this is a better positioning for the Street, and it moves us from maximizing balance sheet growth to maximizing value or value optimization of capital returning capital.

So would you kind of be open to leaning into the buyback on a continued basis if the share price isn't materially up at the end of the year?

Yes, we will do that. So we're going to have a -- it will be a constant review between loan growth, the adjusted risk returns that we see, keeping our capital at 11% and then taking the excess capital that we have and repurchasing our shares.

I'll also tell you that we'll wait for the Basel III rules to be finalized, but on the first reading of them, all right, we mentioned, I think, on the last call, we had 81 basis points of incremental CET1 that would be offered to us or delivered to us. We would use some of that as we move into 2027 as well to buy back our stock if we don't think it reflects the appropriate price or the appropriate value of our company.

Your next question comes from the line of Anthony Elian from JPMorgan.

On ECR deposit costs, you have a hike now in the outlook. 3Q is seasonally a stronger quarter for ECR deposits, but the guide for ECR deposit cost expense was unchanged. Ken, Vishal, is the ability to keep that range unchanged entirely due to the benefits you expect from the optimization you did in June and so far in July? And could you size up the magnitude of any more outflows you expect?

Yes. So I'll lead off and Vishal can pick up where I may have left off a fact or two. So let's talk about what we expect and what we've done. We took off about $1.2 billion of higher price or transitioned, I should say, $1.2 billion of higher-priced deposits to other banks. That's at the end of Q2.

In Q3, we already transitioned $1 billion, and we expect to transition another $750 million by the end of Q3. I should say we plan to do this all while continuing to grow total deposits in Q3 up or near $1 billion, okay? So Q3 is going to see $1.75 billion transition off the balance sheet, but yet, we're still going to grow -- it's our intent to grow $1 billion or just about $1 billion for Q3.

So that's the volume side. And then we also plan to take down Q4, I'll say, by several hundred million dollars. And all in for the year, we're expecting to target $3 billion, and then we'll wait, we'll pause, we'll look at what we plan to do in 2027, and we'll make our next set of assumptions to move forward based upon our 2027 plan.

As it relates to your specific question on deposit costs, we do expect deposit costs to decline in Q3 and some -- and in Q4 from the deposit remixing optimization strategy. But in Q4, you're going to see the impact of the 25 basis points times the beta of the outstanding ECR balances that we have that will offset some of that impact in Q4.

So all in, what we've given guidance is our total deposits from the last guidance to this guidance, remained flat, but we're able to absorb the 25 basis points of increase to the ECR deposit levels.

Yes. I completely agree with that. That's exactly what's going on here, Tony. So in the fourth quarter, with the 125 bp rate hike, obviously, that's back weighted towards the end of the year. So the impact will be a little bit more muted for the full year, but that's how we're able to offset it.

So the deposit cost would have gone up a little bit because of the rate hike, but due to the $3 billion optimization program that's bringing the number back down, I would also just add that the majority of the $3 billion we're targeting does hit that sort of ECR deposit balance.

And everyone talks about deposit costs as it is asymmetrical. I just want to make sure you know that when deposit costs go down, there's also a decline in net interest income because we're not putting those deposits out into investments, right? So the net impact to the balance sheet is much smaller than calculating just what the deposit cost reduction is within operating expense.

And then my follow-up, are there other parts of the balance sheet or the company you would be looking to optimize to improve profitability, whether this involves taking a closer look at certain parts of the loan portfolio, contemplating asset sales or adjusting headcount? And could you end up with a smaller balance sheet once the optimization strategy is complete?

Yes. I think the balance sheet will continue to grow just naturally given the opportunities that we have in front of us. Just to remind folks, at the end of Q1, we only grew $400 million. And we said that we had a very, very strong pipeline moving into Q2. And in fact, we did accomplish that by generating $1.8 billion of loan growth.

We still see a very good loan origination pipeline, all right? And what we did with taking down the loans by $1 billion for the full year, that was the beginning of the optimization. We will continue to look at that going forward. But my sense is that the balance sheet will continue to rise over time.

As it relates to optimizing the P&L or looking at our operating expenses, this quarter, we ran 3:1. We have a very good efficiency ratio. We continue to look at that all the time. I think what we don't get credit for is the fact that we have absorbed a great deal of the expense to prepare to go over or crossover into LFI status, a $100 billion threshold. We absorbed that and our efficiency ratio has remained steady to actually drop during that same time. So I would say that's a pretty nifty trick being able to absorb that increase in LFI preparation costs as well as bring down our efficiency ratio.

Your next question comes from the line of Jared Shaw with Barclays.

Maybe I guess sticking with the deposit theme. When you look at the growth that you are bringing on as you roll out that $3 billion, but still see that good growth coming in, is mostly -- is that mostly an interest-bearing products then? And if so, what do you bring that on at, or if it's in ECR deposits, is that just better pricing on those?

Yes. So I'm going to return to one of the things that we said during Investor Day, which is, we've got a number of deposit channels, HOA, business escrow services, corporate trust, insurance banking, our digital asset group, which all have basically lower cost of funds than more of our traditional business lines. And it is our expectation to grow those business lines or those deposit channels at a faster pace than our traditional channels. And by that, I also mean our warehouse lending/MSR group, which usually brings in somewhat of the higher-priced deposits.

Yes, I think that's exactly what we're trying to do here. We've got all these different deposit initiatives. The cost is very attractive to them. When you think about each one, the cost is a little bit different there, but that's really the plan going forward is a remixing. As those lower-cost deposits come in, we're going to reduce the higher-cost deposits, net-net, as Ken mentioned, we're going to grow deposits in the third quarter. But we do think the cost is going to continue to improve from here.

I'll give you just sort of where we are from a spot perspective so you can kind of see the early efforts here. And it's not just the ECR deposits, it's across the bank. We're trying to see where there is potential reductions. So our cost of total deposits in the second quarter declined 3 basis points from 1.81 to 1.78. As we're coming out of June, we see that trending down 1 to 2 basis points.

And when you look at cost of interest-bearing deposits was down about 1 basis points in the second quarter, 2.74 from 2.75. We're also exiting June with that being down about 1 to 2 basis points. So I think the direction and the trajectory looks encouraging from here.

This is Dale. I might also add that during our Investor Day, we talked about our new deposit businesses and what growth they have. Well, in the past year, they have grown 2.5x as fast as the rest of the balance sheet. And they've also had a decline in their funding costs at a steeper rate and what the rest of the balance sheet has been.

I think that's going to continue into third and fourth quarter given the declines that we're going to continue to see in kind of mortgage warehouse deposits that Ken outlined. And again, so the mix is going to be changing to lower cost more diversified and faster-growing sources than we've had in the past.

Okay. All right. Maybe shifting over to the fee income side. I guess it feels like that, that guide seems pretty conservative just given even with the flat mortgage just sort of given where we what we've already seen in the first half. Where -- I guess where do you see pressure apart from mortgage on core fees there to sort of bring that guide down lower?

Well, the guide was really lowered from several vantage points. First, the mortgage and that goes without saying the macro environment, economic environment, geopolitical environment is -- just has some natural headwinds there. And so we will be pleased if we continue to see mortgage income in Q3 and Q4 consistent with Q2. We hope to do better, but that's our baseline approach.

In the first half of the year, what we saw was, and then maybe I'll turn this part over to Dale again because it's his business. But Juris Banking has a component in there called DST. That's our payment network to handle large claims, and we make fee income as we handle those large claims. We had a couple of them that were in the first half of the year that accelerated income, which we thought would be in the back half to the front half of the year. Dale, do you want to pick that up?

Yes. You may recall, I think we discussed Cambridge Analytica before, but we had a significant volume in terms of payments in the fourth quarter running into the first quarter, I thought it'd be a little bit earlier. And I would tell you, our queue in this particular channel is very strong. What we have difficulty doing is pinning down exactly when those revenues are going to come in because they're subject to motions, the federal court system and a number of other variables that we don't control.

But that said, we do see this picking up. We don't see it picking up immediately. But maybe by fourth quarter and certainly into 2027, we have some big cases that we think are going to be coming to fruition for distribution.

Your next question comes from the line of Ebrahim Poonawala from Bank of America.

So I guess maybe, Ken, this whole notion of you're not getting rewarded for performance, slowing down loan growth to sort of lean into buybacks. One, given your view of the stock and the value, should you be doing more in buybacks if -- given just how compelling it is relative to the performance and the return profile of the bank?

And second, if we sort of assume that this recalibration of growth continues, does this also have an impact in terms of headcount and the amount of bankers you have? Like, are there other changes that may get instituted at the bank, if you are resetting the bank to a little bit of a slower trajectory of growth? Just talk to us about how we should think about that beyond the next 2 to 3 months, into next year around the growth versus buybacks, and operationally, what that means?

Yes. Okay. Thank you for the question. So let's take the first one on capital allocation. One of the factors that we have set up in our model is maintaining a 11% CET1 ratio. Now many of our competitors will run between 10.2% and 10.5%. right? And we're very aware of that. But for us, keeping the CET1 ratio 11% allows us to have the right credit rating that affords us the ability for Dale's businesses that he just mentioned, the BES, the corporate trust, digital assets, I'm sure I'm missing a couple off the top of my head, but those five to six businesses to grow at an outsized pace.

So we're trying to optimize the balance sheet also through lower deposit costs. We need to keep that 11% CET1 ratio there to maintain our investment-grade rating or actually improve it as we go forward to help bring in the lower cost of deposits. So that is a factor that we keep in mind when looking to buy back shares.

Now if the stock is undervalued and continues to be undervalued, do I want to buy back more shares? The answer is you bet. And we're going to look for -- or look towards two things. One, if we see continued spread compression at a point where we don't like the risk-adjusted returns, we may slow down loan growth again and still be ahead of all our peers, by the way, and buy back more shares and/or let's see what happens as we get to the end of the third quarter when we believe the Basel III rules will be published.

And at a minimum, we hope that the 81 basis points that I already referenced will be available for us to use to buy back more shares and/or increase our CET1 ratio and/or also support greater growth if we have it, if it's an opportunity for us for for -- based upon our loan origination channel.

So we kind of look at all three of those, right? And it's dynamic. And we do think that being in a place where you can actually grow faster than peers and also buy back shares positions the bank to be in a good place in terms of delivering -- continuing to deliver value both in the short term and in the long term for shareholders.

So you asked a short question, I decided to give you a long answer on the first item.

On the second one, on operating efficiency, we are always focused on operating efficiency. And what we do there, to be honest, is we'll trade off a little -- since we have our operating efficiencies generally so much lower than the other banks, and again, we absorbed $25 million a year for the last couple of years in terms of being LFI ready and compliant, right, that we will use some of those funds to continue to look at opportunities to either bring on new business development officers in channels that we think provide us with a good risk-adjusted return or continue to build new deposit channels that we're always looking at as well or even new loan channels or businesses.

And so we continue to do that. Plus, we're putting money into our -- a bunch of AI initiatives inside of the company. And that's going to cost some money. And we have nothing to report on what the return on that is yet. Right now, we're seeing just benefits around the edges. But we're trying to mobilize that inside of the company to make that a more significant event or production going forward -- for return, not production, I should say, the word return going forward.

Got it. And I guess maybe just tied to that, so back to in terms of getting the stock to reflect the performance. Part of it is credit quality. The other is, I think, Vishal mentioned cost of interest-bearing deposits [ 274 ], probably among the highest in the group. Is there a way -- so Dale mentioned some of the initiatives. Is there a way where that deposit costs relative to where the Fed funds is can meaningfully decline?

I would argue that that's probably part of the reason why your stock trades varied in terms of the valuation multiples given the initiatives you have underway. So assuming the Fed doesn't do anything over the next year, could we see a discernible meaningful decline in what it takes to sort of in terms of cost of funding for the bank?

Yes. Sure. I think, Ebrahim, that's -- you've hit one of the points there, and that's something we're clearly focused on. That's the whole point of the deposit optimization program. As Ken has mentioned before, there's definitely -- and these are long-standing client relationships that go back a long time and where this is definitely going to involve some finesse in terms of how we're working through this. So it's hard to tell you right now sort of what the end state is.

What I would tell you is we're very focused on this. We're working to bring the cost down. We've gone across the bank. We're looking at some of the most expensive deposits that we have across the different business lines. We are trying to see where we could reprice it down with our six different deposit initiatives, where we're having a lot of success there.

And a lot of the cost I'll tell you, like business escrow services, the cost is well less than 1%. And really, we are having traction getting these lower cost deposits in, but it naturally will take some time for us to do this. I wouldn't expect anyone to think this is going to change overnight. But over the medium term, we think we will be able to move the needle here.

I just want to add something else to that. Deposit costs, interest expense, they're just one or two of the inputs to the output, which is PPNR growth. And our PPNR growth is rather robust. This quarter was 1.68% of average assets and look at that PPNR growth and look what we're doing with it, right? This quarter, we also put an additional $14 million into the loan loss reserve. That's worth about $0.10 to us because we continue to move forward more with C&I loans and deemphasize, say, the residential loans. And so the PPNR is what we really focus on.

Net interest margin should rise in the future with the activities that we're talking about. Adjusted net interest margin, that's where we moved the deposits out of operating expense into revenue that should increase over time. But the benefit here -- well, that will be to the benefit of a higher PPNR which will give us all the flexibility that we want going forward to our long-term goals of getting to a return on average tangible common equity of 16% to 17%, which, by the way, we were at 15.4% for this quarter.

Ebrahim, the only other thing I would add is also we're having a lot of traction on the treasury management side as we're targeting more C&I loans and focused on our commercial clients, you actually see like a noticeable uptick so far in our treasury management fees, and we think that direction is going to continue going forward.

Your next question comes from the line of Janet Lee with TD Cowen.

Are you able to give a little bit more details around or quantify how much of the non-performing loan decline we should expect in the second half of 2026, given the progress you're making on the resolution? And based on your updated guide, I mean, which was maintained for your NCO for 2026, should we still forecast net charge-off in the second half to be in that mid-20s to get into the midpoint?

Okay. So we've got several things going on for the back half of the year. We said there were six credits that we needed to resolve to bring the NPLs down, two of which have been resolved by the end of the quarter, a third should be resolved in the next 1 week to 10 days. We've got everything signed up, ready to go. We just got to close. We have -- that's 3. The fourth one is being targeted and looks like right now, it's on track for the end of Q3, with the last two to happen in Q4, all right? So that's the path, that's the track. We're still on the same track as we disclosed on Investor Day.

Could one of those credits move out of Q3 into Q4? Yes, you bet. But the trend will be down between now and the end of the year, all right? And that's what we're focused on. And we also think that the charge-off level or the dollars have peaked, the charge-off rate has peaked in Q1 and Q2, you could see they both remain flat, actually charge-off rate was down a couple of basis points. And we see that with a gently sloping coming down in Q3 and Q4. And I'll look to Lynne, and I take everything away from you, Lynne. Lynne Herndon is our Chief Credit Officer sitting in here today. You want to add anything to?

Yes. exactly what you said, high confidence in those six assets resolutions and continued focus on the rest to bring that nonaccrual number down.

And I'll also just say, I mean, it's worth you to look at the appendix here of this deck and just look at how we compare on special mention loans, criticized and classified loans relative to the peer group. We're not just a little better we are significantly better. Yes, our NPLs are a little bit higher than we'd like, and we're working on them, bringing them down. But overall, the asset quality is rather firm here.

Yes. Janet, it's Vishal here. I just want to hit the second point of your question about the charge-offs and what to think about for the back half of the year. So we're still reaffirming for the full year will be between the 25 to 35 bps. And I understand your point about what would you put at the back half to get there. I would say right now, it seems like we're tracking a little bit above the midpoint of that 25 to 35 bps when you think about charge-offs for the back half of the year as you're doing your modeling.

Got it. And just making sure that I understood the comments earlier around your fee income guidance. So your fee income guide of 13% to 17% year-over-year in 2026 does not contemplate any uptick or outsized uptick in service charges in the fourth or later in 2026 and you have a good line of sight into that popping up again in early 2027. Am I interpreting it correctly?

Somewhat. For the back half of the year, the service fee charges coming out of the Juris Banking group, should be less in the back half of the year than the first half of the year. The service fee charges, treasury management services that come out of the rest of the bank, regional banking and our commercial business lines that Tim Bruckner runs sitting across from me, those should tick up somewhat, but it will not pick up to the extent that you have those big settlements that you had in Q1 and Q2 from Juris.

So though the fee income -- total fee income will be down compared to Q1 and Q2, the other things are that are important to note, what was in Q1 and Q2? Well, we started this new program, and we're excited by it, which is this, we're hedging the mortgage business, I'll say, at the corporate level, by selling options against MBS bonds.

We made $6.2 million in Q2. We already locked in $3 million in Q3, and we hope to kind of do that going forward as somewhat of a hedge against the AmeriHome business. So that's new that you'll see going forward.

The other thing in Q2 that you had that it's hard to predict when it happens in Q3 and Q4 is in our Tech & Innovation business, it's common or it's not uncommon, I should say, to get an exit fee or a warrant position attached to the credit that we're giving to some of these tech and innovation companies.

And when those companies have an exit event and we have warrants attached to that, then the value -- we obviously received the value, okay? Sometimes we receive it right away if it's an exit event that has a bonus fee attached to it. Sometimes, we have to wait a couple of months if it's attached to an exit where we have to hold on to the stock, if something went public.

But that was in Q2. Hard to predict when those things happen in Q3 and Q4. And so for us, we have very low expectations of that just as a general rule. And when the good news comes in, we do the happy dance when it comes in.

So that's how we kind of project it out for Q3 and Q4. I would not project anything into 2027 for DST. I'm excited about the pipeline, and I've learned one thing working with Dale, the pipeline always looks great, but somehow lawyers get in the way of it, motions get in the way of it, judges that have different rulings or change their minds and then everything just keeps moving back versus what I expected. So I've tempered my enthusiasm short term, but long term, that pipeline continues to grow.

Your next question comes from the line of Casey Haire from Autonomous.

One more on credit. Just wanted to ask about the ACL ratio. I know you guys said at 89 basis points. I think you guys have talked about it going to low 90s. Any updated thoughts to potentially pushing that even further? Where does that ultimately settle? I know there's a remix in the C&I, which is driving that. But just any updated thoughts as to where that ratio lives going forward?

Casey, it's Vishal. Thanks for the question. I think you're spot on I think the reserve is going to continue to move up incrementally from here. That's driven by we're reducing sort of the growth on the mortgage side and moving more into the C&I side. As you could see this quarter, we had the $1.5 billion of the $1.8 billion came from C&I. And when we look at the loan pipeline, that's where we're seeing a lot of the growth.

So I think what you're going to see is a comparable increase that we had in the second quarter, which is the 2 bps. I think you could see a comparable increase in both the third and the fourth quarter. So I think that ACL will move up from here given sort of the mix of the loan portfolio going forward.

And, Casey, an interesting data point that we monitor, the peer group banks probably brought down their loan allowance for loan loss reserve or ACL, down about 3 or so basis points on average as a group. We've come up 2 basis points. So we've closed that gap by 5 basis points. And so as the other banks continue to bring that down, we're continuing to rise upward. And over time, the difference or the gap between where we stand and where they stand will be different -- will be smaller.

The other thing I just want to bring to your attention, and we said this many times, we really look at our ACL to be over 1%. You cannot ignore the fact that we have CLNs on our residential portfolio, right? And the CLNs is an insurance policy, whereby we've already received all the money in. It's sitting on our balance sheet, and we can use that money if there are losses against the residential book. So that's protecting our business. And so we really kind of see our position closer to 1%. Notwithstanding that, it will rise very naturally, as Vishal said, as we remix the loan composition.

Okay. Great. And then just, Ken, a question for you on the strategy pivot. It sounds like it's got some duration, and I think everyone understands the rationale, and I think shareholders like to move. But the -- what about the clients? I've heard you talk about loan growth is not something that you just switch on and off. It takes a while for pipelines to build and WAL has a long history of standing by clients when other banks kind of walk away. So I guess, how do you make this strategy pivot and not risk kind of long-term franchise value with the client base? Like how quickly can you get back to running to the speed that we're accustomed to with Western Alliance?

Yes. I think that question can be also be put to the deposit side as well as the loan side. I'll start off, and I'll turn it over to Tim Bruckner. First on the deposit side, I keep using the word finesse, all right? And we're helping our clients transition their deposits to other banks who are willing to pay the price that we're paying or even a higher price to get those deposits.

So we've got to give them ample notice, right? We're not looking to push anything out of the bank. We're looking to transition with them, all right, and keep the relationship as robust as it is because there are other aspects to it. There's the loan origination aspect, there is operating accounts that come with it as well and of course, treasury management services.

On the other side, on the loan side, we have and maybe this is the lead for Bruckner. We have just so many different loan verticals that we can move on and off of. Tim, do you want to take it from there?

Yes. I'm glad this question was asked. We have an incredibly broad bank. We've taken every opportunity to tell anyone we can about the different S-curve engines that we have, the different businesses that we have. Generally speaking, as we have slightly slower growth, we're allocating from non-relationship lending, in some cases, and to full relationship banking. So when we -- and you can see it in our numbers. You can see where the investor commercial real estate has come down and the C&I numbers have gone up.

At the same time, for the past 3 years, we've put incredible product improvements into our treasury management complement, and we're now seeing the benefits of that. So there is no difficulty in relationship continuity. In fact, we're moving to relationship, and we're deemphasizing some of the lending that we are doing that didn't have that depth of relationship in cross-sell.

Your next question comes from the line of Bernard Von Gizycki.

Just on the lower loan growth guide in addition to optimizing the balance sheet, I just know on the NBFI loans. I know you show your exposure ex mortgage warehouse, which is a safer asset class. But does your slower growth incorporate wanting to reduce the NBFI exposure, just given in totality, it's an outlier?

So some of that will be a natural outcome of that. So for example, we will not look to push as hard on capital call and subscription lines where we see those spreads compressing at a very fast pace. So yes, you could see that. The other thing on the NBFI also is a reflection of what we're doing in warehouse lending and MSR lending, which is a reflection of the mortgage market. So the mortgage market has pulled back somewhat, and therefore, the amount of credit that our warehouse and the clients need has dropped back as well.

The only thing I want to reemphasize something Ken said before, which is even though we have a pivot here, right? So the loan growth, we projected about 10% growth now coming to 8.5% for the year and deposits were about 10.5%, now about 8%, I just want to reemphasize, these growth rates are top quartile growth rates, not only top quartile, but when we looked and I appreciate estimates are moving around, it really put us at the #1 or #2 when you look at all banks between $50 billion to $300 billion from a growth perspective this year.

So I think it's a very unique thing we're able to do here, which is still have top quartile growth and high risk-adjusted returns, but at the same time, see the opportunity in our share price being undervalued and go out there and do a significant share repurchase. So I think the combination of the two, I think, is a very attractive opportunity moving forward.

And just a follow-up, just on the loan growth for the second half of the year. Just given the pipeline you're seeing now, the revisions you just made, can you -- I think you cautioned if you see continued spread compression and don't like the risk-adjusted returns, you could slow the loan growth again. Would that imply that the loan growth, at least expected at this point in 3Q, is likely going to be probably a bit higher than the 4Q? Just any comments you can provide on that?

So we grew on HFI loans $400 million in Q1, $1.8 million in Q2, so that's $2.2 billion. We said $5 billion. So you're looking at $1.2 billion to $1.3 billion in each of the next 2 quarters. Our pipelines indicate that, that's what we're going to achieve.

Your next question comes from the line of Gary Tenner with D.A. Davidson.

Just had one follow-up question. Hopefully, I didn't miss it earlier. In terms of that credit that was disclosed in the 10-Q, I think at the Investor Day, you all said that there was an updated appraisal in progress. I don't know if you could share anything with us on that at this point?

So what I'll share on the credit -- and first of all, we haven't got the appraisal in. So we just start with that, okay? But what we share on the credit is, the borrower has brought the credit current. So that's good as of the end of June, they brought it current. They have indicated that they're going to make the next one or two payments going forward because they have a tenant -- potential tenant, I should say, that is looking at taking a sizable piece -- renting a sizable piece of the building.

And so we think, at this moment, based on all the facts that we know that we have that property fairly valued on our balance sheet. And I don't want to say I'm optimistic about how this thing is going to be resolved. But I am pleased that the borrower brought the credit current as of the end of June and has indicated that they're going to make the next couple of payments, the next couple of monthly payments. As they work and we help them bring in a potential tenant to this building.

Your next question comes from the line of Timur Braziler with UBS.

And looking to maybe scope the magnitude of the deposit optimization, I get the $3 billion this year, but on a base of, call it, $30 billion and just ECR-related deposits, it still seems kind of small. I guess what's the end game here and the ability to further reduce those deposits?

Will that be driven by some of Dale's initiatives? Does the $100 billion getting lifted and all kind of influence that trajectory? And then I'm thinking in terms of 2027 and beyond balance sheet growth, the levels this year, is this kind of a good jumping off point for what we should think about '27 growth?

You've got a couple of things there. First, getting ready to cross over $100 billion has not influenced any of this. There is a byproduct of it, which is you've got to be, on average, the over $100 billion to be considered into Category 4 and the fact that maybe we've slowed down growth by a quarter or so, puts us into that next category next year, but the filing of the number of reports actually gets extended for months after that, actually quarters after that.

So it just gives us more time to be prepared. That's sort of just a regulatory thing. But nothing that we're doing is designed -- purposely designed to bring down the growth so that we could stay under $100 billion.

At this point, and I'll come back and say, we're really finessing what we do here. And so we're looking at taking down overall deposits in ECR land by about $3 billion by the end of the year, all right? That's pretty considerable, all right? And also looking to improve total deposits in Q3 by $1 billion and roughly staying flat in Q4, which is, as you know, our seasonal drop-off with warehouse lending clients.

And so at this point, $3 billion looks pretty good. We'll give you a little more guidance as we get closer to 2027 on what we plan to do. A lot of that is going to be predicated upon opportunities we have on the loan side, where we want to place our loan-to-deposit ratio, which we continue to bring up. It's now 74% and change where it used to be 71% and change. We can bring that up a little bit. So I'm not going to commit to what the '27 levels are going to be at until we do a little bit more planning.

We are -- you have to appreciate. We're in early stages of doing this in terms of remixing. We mentioned it on May 12. We said we have to give plenty of time for our clients to reposition their deposits. We want to work with them because we have so many other relationships with them.

Okay. Got it. And then just one last one on credit. You had said two of the six loans that were previously discussed on were already resolved. I think one of them was that $99 million life science loan. What was the other loan that's already been resolved?

Yes. So actually, the six loans that we mentioned at Investor Day did not include the life science loan that Ken was referencing a little bit earlier. We are clearly working to expedite the resolution of that one as quickly as possible. But the six that were mentioned there specifically don't include that. Again, two of them have already closed and are off the books. And we're working really quickly on the one to two that we do expect to close in this quarter.

Okay. So was it that life science loan that was brought current? Is that the loan that was referred to?

No. No. The life science one was brought current. It's still in NPL, and we have not forecasted and at this point, are not forecasting that to roll out of NPLs, yet we're still telling you that total NPLs will decline in the back half of the year.

That's right.

Your next question comes from the line of Chris McGratty with KBW.

Great. Tangible common equity, how important is the TCE ratio in this discussion with CET1?

I think the TCE is at a reasonable level right now at the 7%. I think when you think about it, we tend to manage more to the CET1 ratio, appreciating we look at all the different capital metrics. As You've heard us say, 11% CET1 is the target.

The reason we're okay at the 7% level, TC to TA, we believe it's solid. I would point you to, Chris. Obviously, if you look at the assets, 27% of our assets are sitting in cash and securities and 1/4 of our loan book is sitting in like resi mortgages, low LTV, high FICO. So we feel good with the TCE where it is.

I think depending on where rates go, AOCI and how we kind of continue to optimize from here, you could see it go up, but we feel good about the 7%.

Yes. And the deposit optimization program has a benefit of bringing up the TCE to TA. And so that will -- we should see an upward bent on that ratio as we move forward into the back half of the year.

This concludes the question-and-answer session. I will now turn the call back to Ken Vecchione for closing remarks. Ken, please go ahead.

Thank you all for your time today. I hope we thoroughly answered all your questions about the second quarter. And we look forward to having another call with you soon to talk about our Q3 results. Enjoy the rest of the day, everyone.

This concludes today's call. Thank you all for attending. You may now disconnect.

Please welcome, Miles Pondelik.

Good morning, everyone. I'm Miles Pondelik, Head of Investor Relations and Corporate Strategy. Welcome to Western Alliance Bank Corporation's Inaugural Investor Day Conference. As you'll see today, Western Alliance has built a high-performing national bank through disciplined execution, purposeful diversification and continuous innovation. That combination has driven durable earnings and returns, and we believe positions us to continue to create long-term shareholder value.

Please note that today's presentation is available to download and via webcast through the company's website at www.westernalliancebankcorporation.com. In addition to Ken Vecchione, our President and Chief Executive Officer, and Vishal Idnani, Chief Financial Officer, we have a number of executive officers and senior leaders here today to talk to you about our company.

Throughout the presentation, we have 2, 10-minute Q&A sessions with specific business leaders as well as a 30-minute session at the end of the day, with senior leadership, we hope to use that time to ask relevant questions about the business and about their areas of expertise.

Now the fun part. Before Ken takes the stage, please note that today's presentation contains forward-looking statements, which are subject to risks and uncertainties and assumptions, except as required by law, the company does not undertake any obligation to update any forward-looking statements.

For a more complete discussion of the risks and certainties that could cause actual results to differ materially from any forward-looking statement, please refer to the company's SEC filings, including the Form 8-K filed this morning, which are available on the company's website. Now please join me in welcoming Ken Vecchione to kick off Western Alliance's 2026 Investor Day.

Well, good morning, everyone. First, let me say that during all our practice sessions, no one on the management team gave me a round of applause when I stepped up. So right now, I just feel I'm way, way ahead of the curve, and thank you all for coming.

So for those that I haven't met yet, I'm Ken Vecchione. I'm President and Chief Executive Officer of Western Alliance Bank, and I've served in that capacity since 2018. Today is an opportunity to meet more of our executive and business leadership team and to understand what really makes our bank tick. And what drives our superior growth and financial returns we report quarter after quarter. Our theme for the day is where diversification meets innovation. And we will connect that theme directly to our strategy, our operating model and our performance.

You'll hear today from the leaders who run our major businesses and functions, including our Chief Banking Officer, Chief Risk and Chief Credit Officer, Chief Information Officer and Chief Financial Officer, along with many of the other senior executives who lead our specialty verticals. By the end of today's discussion, you will have a clear understanding of how Western Alliance Bank delivers industry-leading PPNR and durable revenue growth through the launch and maturation of multiple S-curve businesses and how those businesses position us to achieve our medium-term financial targets.

You will see how we continue to drive industry-leading deposit and loan growth while diversifying risk, maintaining strong credit discipline and consistently expanding return on average assets and return on tangible common equity over the coming years. We will also demonstrate how we grow the size of a high-performing regional bank organically each year without relying on acquisitions by targeting thoughtful, regional expansion driven by client growth.

You will learn how we have built several industry jewels within Western Alliance and how we intentionally cross-pollinate our businesses to deepen client relationships and enhance lifetime value. In addition, we will outline how we generate capital to support balance sheet expansion while maintaining targeted CET1 ratios and continuing share repurchases as loan loss reserves continue to move higher from greater C&I loan growth. And finally, we will highlight our entrepreneurial organic growth culture, consistently delivers strong, sustainable profitability and returns and how our entire management team remains fully committed to the shared vision we are presenting today.

So with all that as a preamble, let's get started. Western Alliance is a premier national commercial bank with durable earnings and superior growth. And that combination is the product of deliberate strategy and disciplined execution. As of March 31, 2026, we had $99 billion in total assets. And we serve commercial clients in all 50 states. Our results speak to the strength of our model, 15% return on average tangible common equity, 1.12% return on average assets and 23% year-over-year EPS growth in 2025.

We have paired that profitability with efficiency and disciplined growth, including a 50% adjusted efficiency ratio and a 9.3% loan growth for 2025. Importantly, these results are supported by a fortified balance sheet and liquidity position, including $83 billion of deposits, a 72% loan-to-deposit ratio and $9 billion of total capital. The reason we believe our earnings are durable is that our diversified line of business and S-curve strategy are designed to create multiple engines of earnings growth rather than relying on any single business or external growth driver.

We are on the verge of crossing $100 billion in assets and the bank has materially changed since we were founded as a Nevada focused community bank. Our evolution, especially coming out of the GFC era, reinforced a core priority that still guides us today. Diversification and bringing differentiated value to clients through sector expertise and superior client service. The headline takeaway from this slide is simple.

We built this franchise through disciplined execution primarily organic growth and continuous investment in scalable capabilities that support a national commercial platform. Since 2018, my priority has been building a premier national commercial bank with the scale and operating model to keep compounding from here. We are building a bank that can grow and endure in all business conditions and economic environments and become the preeminent and only large commercial bank in the industry.

Western Alliance you will learn today is where diversification meets innovation. Our nearly 30-year history reflects consistent expansion evolving from a community bank to a regional bank to a national bank demonstrating the scalability of our business model. Over the past 3 decades, we have scaled with purpose. And today, Western Alliance is the 16th largest U.S. commercial bank by assets. We did not grow for size's sake. We grew because we have a disciplined approach to existing and new business generation, and we scale where we see durable client demand and attractive risk-adjusted returns.

Our scale matters because it strengthens our competitive positioning, expands the markets we can serve, improves operating leverage helps distribute technology and investment spend and support a more durable earnings profile, without compromising credit or risk management discipline. At its core, Western Alliance is a commercial bank with 75% of our loans to commercial clients competing through deep sector expertise and a relationship model focused on solving client needs.

The bank is organized into 3 primary components. Our commercial bank franchise is structured similarly to many of our competitors. However, we benefit from entering these verticals later than our peers, which allows us to build the businesses deliberately. Delivering high service levels, leveraging more modern, efficient technology and having senior management take an active role in securing new business from the outset.

Our second engine is deposit initiatives, which represents 37% of our deposit mix. These are technology-enabled verticals embedded directly in client workflows, including specialty escrow channels, HOA Banking and Consumer digital, which create growth opportunities, most banks will find difficult to replicate.

Mortgage banking adds meaningful earnings diversification across rate and economic cycles through a differentiated platform, packaging and selling GSE-approved loans, a high-quality consumer residential mortgage portfolio further contributes to stability with high FICO scores and low risk, add the $8 billion in residential CLNs and you can see why our LLR, loan loss reserve, is appropriate.

Together, this purposeful diversification anchored by our relationship model, drives retention, client product expansion, PPNR and reduces earnings volatility -- sorry, reduces earnings volatility, enabling Western Alliance to compound durable performance during through cycles.

Western Alliance has a broad national footprint, which often surprises investors. We have intentionally built a national bank that is not reliant on any single region while remaining proud of our origins in the Southwest. The specialty loan and deposit verticals you will learn about today provide the template for our national expansion. While many competitors have pursued growth through acquisition in the Southeast, we have taken a different approach. We have organically built a strong regional franchise with approximately $8 billion in loans and $11 billion in deposits.

In the Southeast and Texas, we have planted our flag and continue to grow loans and deposits by serving our commercial clients. Regional growth was not accidental. Our business lines have followed our best clients and expertise into these markets, creating beachheads where we can dedicate additional resources and continue to expand in a disciplined way. We continue to see exciting opportunities in the Southeast and Texas. The organic S-curve strategy has helped build leadership positions in high-value specialty markets, including HOA Banking, AmeriHome, Innovation Banking, Corporate Trust and Hotel Franchise Finance, along with recognized innovation in digital disbursements. I'd like to take a moment to focus on management leadership.

Western Alliance's successful track record is a direct reflection of the management team you will meet today. Most members of our senior leadership team have long tenures at the bank and are seasoned banking veterans who have navigated multiple market disruptions, economic cycles and periods of industry and market consolidation. They are resourceful, resilient and relentless. The success and growth we have achieved is not accidental. They require driven, accomplished individuals with the energy and the discipline to consistently compound results year after year. I genuinely enjoy working with this team. They enjoy working with one another. And together, they have built a bank that is truly special and distinct. It will be my pleasure to introduce them to you today. With respect to my tenure as CEO, I, of course, serve at the pleasure of the Board.

That said, I have no interest in slowing down or missing the opportunity to continue building -- continue building and organically expanding this bank. Since joining the management in 2010, my objective has been to build an institution that can endure through all cycles. Quite simply, I'm having too much fun to stop now. But at the same time, good governance requires thoughtful and disciplined succession planning. The Board reviews and discusses succession planning at every meeting and ensures our senior leaders have opportunities to continue rounding out their experience in preparation for the next steps in their careers.

Our differentiated business model with complementary business lines strengthens the entire enterprise by sustaining earnings momentum across cycles. First is commercial banking, our original core competence. This is where narrow and deep client focus continues to drive powerful organic client growth. We're also continuing to create new expertise-driven specialty verticals, including specialty escrow deposit businesses and commercial lending in areas like aerospace and defense, entertainment and media and our newest recently launched health care vertical. We grow these businesses through sector expertise and our client relationship model. Second is AmeriHome, our correspondent mortgage platform. It provides countercyclical earnings hedged through originations and servicing.

And importantly, AmeriHome also brings interconnectivity across the national mortgage ecosystem, including retail relationships that provide early refinance market access. Third is Corporate Trust, a differentiated funding and fee platform that provides institutional trustee capabilities beyond the core bank and connects well to our lender finance platform. In just 3 years since launch, we are now the sixth largest CLO trustee in the entire country. We've built deep structured credit relationships across institutional capital markets, thanks to 3 things: an industry-leading proprietary technology platform, best-in-class client service and of course, deep expertise.

The takeaway is that these platforms diversify earnings, deepen client relationships and reinforce resilience across cycles. Through the continuous efforts to innovate and provide helpful client solutions, the bank continues to diversify. Now foundational to how Western Alliance grows loans and deposits faster than our peers is our S-curve growth strategy, where we fuel enterprise performance by consistently developing new businesses that sustain an S-curve of growth. As one business matures, another gains momentum.

And this is a repeatable framework we have used to launch and scale new businesses. Step one, we start by identifying established industry verticals with underserved growth potential. We assess client needs, market gaps and alignment with Western Alliance strengths and risk appetite. We pick markets where we can provide unique client value, effectively scale and defend our leading position once established. Step 2, we determine the implementation strategy. We build policies, establish underwriting frameworks and put in place the right leadership and operating model. We then leverage technology as a key enabler by identifying and deploying solutions that support client business models.

Step 3 is launch. We launch at a controlled pace so we can closely monitor and refine credit quality, deposit flows and controls along the way. And step 4, once proven, we accelerate growth in a disciplined manner, all the time managing balances and profitability until the business becomes a repeatable contributor to enterprise value. This is Western Alliance's superpower that produces superior results and success. The flagship S-curve proof point at Western Alliance is HOA Banking. A market-leading deposit-rich vertical fortified by deep and a growing client base and continued innovation. The business has approximately $11 billion of deposits and leading market share, supported by sustained outperformance and growth. Despite being one of our oldest business lines, HOA deposits have grown at a 25% CAGR since 2013. And after 13 years, the HOA business has yet to see growth flatten. Now later today, we're going to spotlight this business for you. The HOA S-curve is not a one-off phenomenon. It sits inside a broader S-curve deposit strategy built on a consistent playbook.

Since 2009, we've launched 7 deposit verticals, nearly one every other year, each focused on a specific line of business where we identify a clear competitive differentiator and an opportunity to establish leadership. A review of the compounded growth rates show that none of these businesses have experienced a flattening of growth. In fact, as Dale will demonstrate shortly, our newer deposit verticals, Corporate Trust, Business Escrow Services and Digital Asset banking are generating accelerating growth rates that exceed those of our existing deposit verticals while generating lower cost deposits. This accelerated growth is a key driver in bending the deposit and interest expense curve over time. Taken together, this disciplined, repeatable approach to launching differentiated deposit verticals compounds into scalable, low-cost funding that supports net interest margin, improves operating leverage and sustains strong PPNR performance.

Now I want to show that the same S-curve discipline that applies on the lending side, using Resort Finance -- so I want to show that the same S-curve strategy we use on the deposit side can be used on the loan side using Resort Finance, our first S-curve product launch as an example. Resort Finance is a proven specialty vertical with $1.8 billion of loans, and it demonstrates how focused specialization can produce scalable, capital-efficient returns. It also illustrates what we look for in specialty lending, -- few competitors, pricing stability, high operating leverage and minimal risk of credit losses. I want to stop here and say you're all thinking, how can there be few competitors? Well, let me tell you, there are. In resort lending, maybe 3 or 4 competitors. In innovation that we will hear about a little later on, maybe only 4 or 5 competitors.

In homebuilding, national builders, there's maybe only 4 or 5 significant competitors. And those competitors or lack of competitors gives us pricing discipline and/or pricing stability along with producing great operating leverage. Since 2012, pre-provision net revenue for resort finance has compounded 14% on average, demonstrating how opportunistic diversification can produce scalable, capital-efficient returns. By the way, resort lending has never had a loss, and the group running resort lending has not had a loss in 35 years. In fact, they've never had a loss. And I'll add just one other fun fact to this business. Its direct efficiency ratio: less than 7%.

Now moving to the broader lending portfolio. Our S-curve philosophy and approach are clearly on display. Few competitors develop business lines that offer the same combination of pricing stability and at times, pricing power while operating with high leverage and minimal credit losses. Mortgage banking, builder finance and the previously discussed resort lending are examples of verticals that have never experienced a loss. Most other lending verticals have incurred only modest losses. Now the exception to this is our office portfolio within institutional CRE, which Lynne Herndon, our Chief Credit Officer, will address a little later. Overall, the consistent performance of the portfolio reflects strong underwriting discipline grounded in deep industry expertise. The question we are most frequently asked is why other banks do not follow the same S-curve model.

And there are several reasons for this. First, the strategy is easy to articulate. It is difficult to execute. Second, business development officers and business operators are drawn to our company because they have a direct access to senior management and are provided with the tools, the technology support and the capital allocation needed to grow their businesses. Third, we compensate very fairly, rewarding not only the business individuals drive, but also their commitment to being a strong corporate citizen who promotes cross-organizational growth. This helps explain why very few business development officers have left our company. And finally, many banks remain oriented towards an acquisition-driven growth model, believing scale is best achieved through size.

At Western Alliance, our goal is not simply to get bigger, but to get better and institutions focused on acquisitions often struggle to shift to an organic growth mindset. The combination of this S-curve approach and the management capabilities have driven our industry-leading growth and long-term value creation. We consistently deliver top-tier growth with strong returns compared with peers as the positioning of the left chart highlights. And our superior tangible book value growth of 17%, approximately 3.6x peers underscores a track record of long-term shareholder value creation. Our strong tangible book value growth highlights a track record of shareholder value creation, as I said, and these results affirm our strategy that we have executed on since we began rolling out our specialized business units.

From the outset, disciplined execution has been central to our approach as we pursue attractive risk-adjusted returns. While our P/E multiple has lagged our peers, our earnings generation has been consistent and resilient, even though -- even through the most challenging of periods. In our view, the intrinsic value of the enterprise exceeds the current market capitalization. Moreover, the strategies we expect to roll out and execute over the next several years have the potential to further elevate that multiple, all while maintaining a disciplined risk profile and avoiding excessive risk taking. Since 2011, Western Alliance's total shareholder return of over 1,000% okay, 1,000% has exceeded our peer median by 3.5x. This significant outperformance coincides with the expansion of the bank into numerous specialty businesses outside of our original geographic footprint.

The bank's developing businesses have produced superior returns over the past 10 years, superior loan growth, superior deposit growth and asset quality performance that is equal or better than peers. Strong underwriting standards and risk management are viewed as a competitive advantage inside the company that has provided durable earnings and consistent return metrics. Starting with getting to know your client, consistent underwriting standards, active management and commercial line specialization and expertise drives asset quality performance. Our underwriting standards and diversified loan book have resulted in only 10 basis points of charge-offs over the past decade. compared to 22 basis points for peers. Over the last 5 years, our net charge-offs were only 17 basis points despite the recent fraud charge-offs as that compares to 18 basis points for peers. West Alliance is built to outperform, and the reason starts with client value.

We win because we deliver what our clients value most, expertise, responsiveness and solutions that fit their business needs. We are specialists, not generalists, focused on defined high-value commercial verticals, and that specialization is hard to replicate. We are one bank with broad capabilities, offering a wide range of solutions across lending, deposits and fees, and that full platform approach deepens relationships and drives client retention and expansion. We compete on differentiated capabilities. We bring timely decision-making, senior management engagement and pair it all with technology-backed service that enhances client experience. Added together, specialization, relationship depth, disciplined execution and technology creates a durable competitive moat and the S-curve engine can scale growth without sacrificing or risking or without sacrificing underwriting or risk management discipline.

Finally, the bank's management team is clearly aligned around a shared strategy and vision. There is strong accountability to our stated tactical and operating goals, evidenced by our consistent historical performance. And just as importantly, we have a genuine affinity for one another and operate as a true team. working together, succeeding together with compensation aligned across the company to the same metrics and overall business performance. We have a clear path to top quartile growth and returns, and this is not aspirational. It is driven by 6 visible, repeatable engines. First, we continue to scale proven businesses through our S-curve strategy. Second, our deposit franchise provides diversified funding that supports margin expansion through further deposit and optimization. Third, we are expanding our commercial banking platform in high-growth markets while continuing to grow fee income across the franchise. We also benefit from our mortgage banking flywheel with AmeriHome well positioned to capture volume and margins as rates decline and offers a countercyclical protection.

And finally, we see meaningful operating leverage as we continue to optimize technology, drive efficiency and see loan loss reserves rise as loan composition shifts. Together, these drivers support our medium-term targets of 16% to 17% return on average tangible common equity and 1.2% to 1.3% return on average assets and an adjusted efficiency ratio of approximately 48%. These return metrics do not reflect several meaningful more recent developments. Specifically, they do not capture the implications of the Basel III notice of proposed rulemaking, right, further stock repurchase programs or the benefit of higher mortgage fee income driven by lower interest rates. We believe the current earnings power and capital flexibility of the franchise should support this guidance.

The business strategies you'll hear through the rest of the day will lay out exactly how we plan to achieve these financial results. Although Western Alliance is a high-quality franchise with a compelling valuation that consistently generates industry-leading PPNR and tangible book value per share, along with a fortified balance sheet and a clear path to generating upper teens return on average tangible common equity in the future. This strongly supports our viewpoint that the intrinsic value of the enterprise exceeds the current market capitalization.

With that, I'll welcome the first of our leaders of our firm to the stage to give you a look behind the curtain at what I believe what makes Western Alliance one of the best banks in the country. So I'm going to ask Dale Gibbons to come on up, and thank you all very much, and thank you again for being here.

Please welcome, Dale Gibbons.

Good morning. Great to see you all. I'm Dale Gibbons, and I started my banking career as a part-time teller while I was still in school when there were 4x as many banks as there are today. I was CFO at Western Alliance for 20 years, then I elected to move to promote our innovative deposit businesses. The expertise of our teams, coupled with our technological agility have made us winners in these verticals. They give us stable low-cost funding, which I have learned from banking's decades-long consolidation is the most important foundational element of a strong financial institution franchise.

Today, I'll walk through our deposit initiatives business, a core performance engine for the bank that drives improved funding mix and lower costs. This strengthens PPNR while also establishing repeatable compounding fee income streams that will support expanding ROA and ROE. At its foundation, the business is about building high-quality deposit franchises through a combination of deep client relationships and purpose-built solutions that embed us directly into our clients operating environments. For these businesses, we zero in on creating fulsome multifaceted ties in each vertical that becomes its own ecosystem. There are 4 key messages I'd like to highlight. First, integrated relationships. Rather than focusing on building a moat around one product, it's the integrated solution that truly becomes embedded. This produces deeper client relationships and value-added services that drive stickier, more durable deposits over time.

Next, intentional design. This is how we enable the integration. Technology is really the key to our success with proprietary solutions for clients that often streamline the operations of our clients' clients. Third, repeatable execution. We've done this a dozen times and have a deliberate repeatable process for identifying and developing winning solutions. Ken mentioned this in his discussion of the S-curves. This is disciplined growth. We continually debate new ideas and queue those most actionable for staggered implementation. This has given our lower-cost deposit growth channels -- perpetual adolescence as one channel approaches the top of its growth curve, another is just getting started on its growth spurt.

And finally, scalable, efficient expansion. This model delivers a full solution for clients while also enabling cost-efficient scalability. In some cases, it broadens our clients' reach with white-labeled solutions that they market to their clients. Consistently, we are expanding our market share in these endeavors that are designed to compound from inception. Deposit initiatives represent a major growth driver of our overall deposit base. The business contributes over half of bank-wide deposit growth while representing 37% of the bank's total deposits, all at a cost under 2%.

But importantly, as Ken mentioned, this is not about growth for growth's sake. These initiatives are central to the bank's strategy of improving our funding mix as these lower-cost sectors are growing 3x as fast as the bank overall. And this is where our S-curve model becomes critical. It allows us to build and scale new verticals in a way that structurally reduces reliance on more traditional and often more expensive sources of liquidity. In addition, these businesses are not purely balance sheet driven. They are increasingly contributing to fee income with strong momentum in areas like Juris Banking's claims settlement service.

More broadly, they strengthen the diversity and resilience of our overall funding base by reducing reliance on ECR-heavy mortgage banking deposits. We've built leading positions across a set of high-value specialized deposit verticals. Each of these businesses is intentionally designed to be difficult to replicate with low balance volatility largely because we are deeply ingrained in our clients' workflows. Across the portfolio, we operate multiple distinct verticals with intentionally limited overlap, which gives us several independent growth channels rather than relying on a single strategy. While most of these initiatives are business focused, we do have a consumer digital offering that also plays an important role. It serves as a liquidity lever from fluctuations in banking activity while evolving from a third-party service model into a broader in-house product and service platform.

Our oldest and largest deposit vertical is HOA Banking, which had a seasonally strong Q1 deposit growth of over 30% annualized. Juris Banking grew over 45% on an annual basis in the first quarter. And while its funding cost is presently higher than others, the business also contributes the highest proportion of fee income stemming from its digital disbursements business. Digital assets grew more slowly in Q1 at a 13% annualized rate as we have been focused on enhancing the functionality of our 24/7 cash settlement service. As this project was completed in April, we now look to reaccelerate its growth trajectory. This business is our fastest-growing initiative from inception.

Corporate trust deposits were also up over 30% last quarter to $1.5 billion, which excludes another $400 million that is carried off balance sheet. Business escrow deposits were flat in Q1 at $1.2 billion, but are expected to resume growth again this quarter. This vertical has the lowest cost of funds of all of these initiatives. Consumer digital balances were essentially flat in the first quarter, consistent with its role as a scalable source of market rate liquidity. Planned feature and functionality enhancements in 2027 are expected to ignite an S-curve growth trajectory for this line.

One of the most important aspects of this model is the consistency of our growth. We're seeing clear compounding expansion across verticals with each new business adding to the overall S-curve of the platform. Not surprisingly, the growth trend of newer verticals generally have higher slopes than more established channels. But what's particularly notable is that newer lines are scaling faster than earlier ones did at the same point in their life cycle. For example, digital assets and Corporate Trust have demonstrated significantly higher early-stage expansion rates. At the same time, our more mature HOA and Juris Banking lines continue to deliver strong, sustained growth. We have a proven ability to identify, recruit, launch, test and scale new businesses with strong performance.

Turning to 2 of our more scaled businesses, Business Escrow and Corporate Trust, our strong franchises are -- that combine durable deposit balances and compounding fee income avenues with relatively -- with relationship-driven growth and meaningful cross-sell opportunities. The more complex the transaction, the more valuable our role. In Business Escrow, we serve as a critical infrastructure partner for such transactions, having supported nearly 2,000 mergers and acquisitions through earnout, rep and warranty and other escrow structures as they sell to larger corporations. Our services are core to the deal process as we work closely with strategic buyers and private equity sponsors from solicitation through closing and beyond.

Our success includes supporting transactions of all the industry leaders such as OpenAI, Boston Scientific and Instacart as well as many other public and private companies. Deposits per transaction have grown significantly in the past year, reflecting a shift toward higher value and more complex deals, which in turn support cost-efficient scaling and PPNR acceleration. However, our role extends well beyond holding funds. We provide tailored paying agent solutions, escrow structuring, post-close administration, driving repeat engagements and long-term client relationships.

These services support a growing fee income model driven by transaction-based economics and the breadth of services delivered around each deal. As deal complexity increases, these engagements create natural cross-sell opportunities and deepen client relationships over time. This same relationship-centric model carries through to our Corporate Trust operation. Our innovative tech-first platform is purpose-built to support complex structured products. Corporate Trust has delivered sustained growth, scaling to $1.5 billion in deposits alongside fee income expansion driven by continuous innovation, repeat mandates and deeper client penetration.

As client platforms grow, our Corporate Trust operating model drives long-tenured relationships and repeat engagements resulting in durable activity linked deposits over time. That said, what truly differentiates Corporate Trust is its dual role alongside lender finance, serving not only as a revenue and deposit engine, but also as a structural risk management mitigant embedded directly within the same transaction. You'll hear from our Corporate Trust and Lender Finance leaders on this business later today.

Looking ahead, we see additional growth runway as we expand the platform into municipal trust and it's another impetus for growth with more to follow in the coming year. Importantly, across both businesses, growth is rooted in trust with long-standing client relationships that business leaders often built over decades and bring with them from their prior work experience. Our digital asset platform is an example of how we apply S-curve models to emerging complex markets. We believe that the convergence of value trusted fiat currencies and the instantaneous transaction speeds of blockchain provide a compelling case for the digital asset space and stablecoins in particular.

Today, our digital asset business holds approximately $2 billion in deposits across more than 130 clients with an average balance of around $15 million, reflecting a clear institutional focus. Client deposits are diversified across institutional use cases, including stablecoin reserves, operating funds and company savings balances, supporting the deposit durability within the vertical itself and reflecting how deeply ingrained we are in our client workflows.

Our approach here is deliberate and iterative. We test, learn and validate demand before scaling. But what truly sets us apart is that we have led with regulatory readiness as a core design principle from the outset, building a platform that meets institutional and supervisory expectations while remaining agile in a moving market, a balance that has proven difficult for many peers and has been a meaningful differentiator for us. At the same time, as regulatory clarity improves, institutional activity is increasingly gravitated toward bank partners with established compliant infrastructure, positioning the digital asset sector for acceleration. And consistent with our broader deposit initiatives, we maintain clear boundaries, ensuring no single business becomes a predominant source of liquidity nor will we hold digital assets on our balance sheet. We're not chasing growth at the expense of risk.

This brings us to Juris Banking, our specialized settlement payments and escrow platform for the legal industry, supporting the secure administration and distribution of funds across complex litigation matters, mass tort and bankruptcy. Juris Banking is a prime example of a franchise generating both strong deposit growth and scaled fee income, creating a more diversified and resilient earnings stream. This growth is driven by our strategic partnerships and a leading digital payments platform whose AI-enhanced was recognized anti-fraud capabilities by American Banker's Innovation of the Year for 2025 in the cybersecurity and fraud category. These capabilities enable us to scale efficiently across complex settlement and disbursement use cases, creating infrastructure that is difficult to replicate.

We have become the leading distributor of digital settlement payments, processing 31 million in 2025, 6x the number we did just 4 years prior. Across payment rails, we distribute funds via PayPal and Venmo while also using traditional bank systems. And we are the nation's leading business-to-consumer funds distributor on the Zelle network. Reinforcing our scale and rooted position in our client work streams. Building on this foundation, we recently launched NewLaw Banking, a new S-curve extension of the still climbing Juris Banking S-curve, expanding our offering into comprehensive end-to-end banking solution, purpose-built for law firms. This evolution builds upon our settlements foundation by extending into working capital, credit and treasury management products, strengthening existing relationships and fostering new ones while driving incremental fee income and lower deposit costs. Importantly, the economics of Juris and NewLaw are complementary.

Juris carries higher deposit costs and generates outsized fee income, while NewLaw introduces a source of lower funding but with more standard fee income potential. Together, these capabilities illustrate our core deposit initiatives model in action, purpose-built technology-enabled solutions that integrate deeply into our client workflows and scale through disciplined execution. We don't just serve clients, we become part of how they operate. Stepping back, Juris reinforces how this model creates long-term value through sticky deposits, diversified funding sources and durable fee income as we stack S-curves. We scale revenue without scaling cost. One of the clearest examples of this model in action, as Ken mentioned, is our largest and most seasoned deposit initiative, Homeowners Association Banking. HOA Banking exemplifies our solve today, succeed tomorrow approach by pairing near-term execution with long-term scalability.

To provide an overview of our HOA Banking business, I'm pleased to introduce Craig Huntington. Craig joined us with the inception of the HOA business from the then-largest depository for HOAs. He brought in our first account and now leads the division that has grown to be the industry leader.

Awesome. Thank you, Dale. Like you, I have a real passion for our deposit franchises. Western Alliance Bank holds a clear leadership position in the large and growing HOA Banking market, a market that adds 3,000 to 4,000 potential association clients annually. We've had 34 consecutive quarters of deposit growth. And based on my experience and knowledge of competitors in the space, we are the largest HOA deposit-focused banking program in the United States. I'll say that again, 34 consecutive quarters of deposit growth, largest in the space. Over the last decade, we've made this a true technology business through constant innovation, and we are deeply integrated into the managed companies servicing HOAs. Companies choose us because we make it easier for them to service their clients as an integrated part of the HOA Banking ecosystem. We support our partners through the complete HOA financial experience from collecting and processing millions of HOA assessments each month to providing funding for new roofs or more exciting projects like playgrounds and clubhouses that bring communities together.

The business is also attractive because of its inherent stickiness. This stickiness results in a very low attrition rate driven by 3 key relationships within the ecosystem. First, we maintain a deep relationship with the management company. Second, the management company delivers our advanced deposit and treasury management services directly to the association, establishing an additional banking relationship at the HOA level. And third, the association's assessment collection process typically connects us directly to the homeowner through our various accounts receivable payment channels. Unwinding our banking relationship impacts everyone in this ecosystem, the management company, the association and the homeowner. No one wants to unwind these relationships. Even as Western Alliance's original S-curve, HOA Banking remains early in its journey with significant runway ahead as deposits, clients and penetration continue to grow.

We think of ourselves as being in the right business in the right markets with the right clients. According to the Community Association Institute, in 2025, 66% of homes built and 81% of homes sold were in community associations. Many municipalities also now encourage and in some circumstances, even require that new homes be built in community associations. So we'll continue to see outpaced market growth. Migration across the U.S. has also driven significant growth in the South and Southeast housing markets, where states like Texas and Florida are outpacing the rest of the country in HOA growth. As you can see by the map, we are already positioned to take advantage of these markets. This is further evidenced by 73% of HOA Banking deposits being concentrated across markets with leading association growth.

We also attract the right clients from large self-managed HOAs to startups building their business to the largest and most sophisticated public and privately held management companies. These clients grow and expand. And as I often say, smart management companies choose Western Alliance Bank and smart managed companies outpace the growth of the competition. We are not just growing our business alone, our customers are also growing our business. What emerges is multiple reinforcing S-curves and a true powerful growth engine. We win when we take market share from competitors. We win again when our smart management company partners onboard new associations, and we win yet again when our management company partners acquire other management companies.

This growth engine and reinforcing S-curves can be seen in the number of individual HOAs that we bank, which has grown at a 12% CAGR since 2021. At the same time, and adding a fourth S-curve, we continue to deepen wallet penetration within our installed base. The average deposit per HOA grows at a 6% CAGR since '21. Together, these dynamics create a compounding growth story that demonstrates clear organic runway without needing a new playbook. Our purpose-built technology is also embedded in the clients' workflow. Our platform integrates into the managed company's electronic recordkeeping system, making accounts receivable -- excuse me, making accounts receivable, reconciliation and other banking services smarter, faster and easier.

These integrations and payment systems increase switching costs and improve retention as the platform extends the banking and payment ecosystem directly into the managed company's office. It's important to think of this as a true platform business, not just a deposit book. I love this business and could spend the entire morning talking about how great our HOA Banking program is, but it's probably best that you hear it from one of our customers.

[Presentation]

We'll now open the floor for a 5 to 10-minute Q&A session on these initiatives if you have any questions. I think we have somebody with a microphone.

Ryan Kenny with Morgan Stanley. When you think about the deposit initiatives, are there any segments or markets geographically where the competition is getting more intense? And how are you addressing higher competition?

Well, there are. I mean, I think it depends on areas that are maybe in the news a little bit where they have some really tangible types of directions, like HOA, would be one of those. Our digital assets is kind of all over the place. So there are people getting into that space. I'm sure you've heard about that.

Others, though, are maybe a little bit sleepier in terms of what we've done in Corporate Trust and Business Escrow, those aren't new concepts, but we brought in team members that understand exactly what the clients want. And they go to them, when they join us, we give them basically the ability to underwrite what they believe needs to be done from a technological perspective. And then they call them and say, "You know what, all those things have frustrated you about ABC institution. I've got them taken care of here." And that's really been a driver for something that is otherwise, there's -- those businesses have been around for some period of time.

And think about your footprint, you're moving from a regional bank to more national. Are there any areas nationally where you need more density in your footprint?

Well, we could always use more density. I think that where we are, we're into where the places are where people are moving to. We talked about the Southeast and Texas, also even in the West. And so, yes, I mean, I think we're going to the -- maybe the better places first. But yes, but sure, there's -- geez, it's a big country. There's a lot of opportunity.

Yes. No, I don't think we have a good density in the Southeast and the HOA space, particularly.

Chris McGratty from KBW. Dale, if I look at Slide 29, the HOA business is -- you've grown to be $11 billion. Which of the incubators, if you will, has the greatest potential to be where HOA is in the next 5 years?

Gosh, we've got some people here that manage these, and they would probably argue about which one they can be with. And without naming a name, the manager of our Corporate Trust operation had a $40 billion deposit portfolio. And obviously, that institution or -- actually, it's Wells Fargo is larger. And so there are some elements there. But we see trajectories that I think will take all of these to 8 figures that -- the one that Craig Lee manages is already.

Tony Elian, JPMorgan. Dale, on the deposit initiatives, I think it was a few quarters ago, you talked about how the lower cost sources should help improve the mix of ECRs away from the higher cost into lower cost. Can you give us an update on this effort and when we on the outside can start to see progress on the funding mix being improved?

Yes. So it's interesting. The mortgage banking operation is our largest kind of deposit sector, and it's really given us some good growth in terms of the liabilities that we've been able to deploy in terms of earning assets. That said, I think -- I want a more distributed model. I think one of the strong points about Western Alliance is, it's like, it's got different things. It's not reliant upon one particular category, one particular situation or whatever cycle that we can all -- we can keep going and have that diversification, both in funding as well as in assets.

And so we're not going to be necessarily reducing the dollar balances within mortgage warehouse, but they will fall as a percentage of the balance sheet overall as we grow as that becomes a little more flat. We've talked about that even in this quarter, we expect to see some of those balances leave because of things we're doing on pricing and ECRs in particular.

So -- and yet, those that we're talking about here today and the deposit initiatives have blue sky in front of them. They have resources and technology to be able to execute so that we can take advantage of that blue sky. So I think you will see it. It is a multiyear type of process, but it begins now.

Timur Braziler with UBS. Lots of conversation right now on just deposit costs in a higher for longer environment. And I'm just wondering with some of your particularly lower cost categories, like escrow, like HOA, what's the incremental risk from things like AI, kind of smart repricing, those types of dynamics? Is there an inherently higher risk, maybe, in some of those lower cost categories from costs creeping higher, maybe at an accelerated rate?

Well, we're employing AI to make these better, as I alluded to one regarding kind of the cybersecurity situation. So we think that we're ahead of that curve in terms of what that can drive. But again, it is about these technological solutions. We stay on top of them with dedicated teams for each of these verticals of IT resources. So it's like, oh, so and so is doing this, does that make sense? Is that something we should do? Can we do it better?

Yes. I think in the HOA space, I would add that I think AI could be a tailwind for us in terms of our -- our customers are going to be looking for banks that have the expertise to support them in more ways with the advent of AI or the increased usage of AI. So if anything, it could drive additional deposits to us.

David Smith, Truist Securities. Dale, you mentioned some tech innovations on the retail digital deposits potentially getting an S-curve there next year. Given your growth aspirations for the other deposit initiatives, like, is that something that's really needed? Or do you have outsized plans from a loan growth side where you would need that extra funding? Could you just expand on that a little bit, please?

Yes. I'm not particularly interested in expanding a vertical into something that provides market rate liquidity per se. I think it's a good channel to be able to have. It can be a valve that we can pull in at various times. And if you pay a market rate there, I mean, the balances are averaged about $45,000, money just comes. And it's really impervious to other things that might disturb, say, deposit flows for an institution like the news cycle or something like that. So I think that's a good channel to do.

We have an idea that we're probably not going to discuss today, but we'll get into next year, in terms of how I believe we can take that deposit vertical as we're bringing it in-house, we've looked at what do all these other players have in terms of feature functionality on their initiative. How can we beat that? I think we can beat it substantially. And I think we have a method to be able to find clients, potential clients nationwide to be able to deliver that. So that's something on the come. But I expect that, that will be a lower cost initiative over time. But we'll probably always have kind of a higher cost element to it. I want to differentiate it such that they don't necessarily kind of compete or cannibalize each other.

Janet Lee from TD Cowen. Where does digital asset banking deposit stands in terms of your strategic deposit priority? And could you just give us more color around what kind of platform this is and what kind of institutional clients are using this for? Whether it's the mix or how it's just being used? Is there like a separate platform?

There is. It's basically APIs. And you would -- household names, the largest exchanges in the country, the largest stablecoin issuers in the country. We have a relationship here. And we provide -- maybe the key element is we provide 24/7 processing for them because, as you know, exchanges operate 24/7. And so they can come to us within our walled garden and say, "You know what, I'm somebody who wants to buy X dollars of Solana." That's going to come in. It's going to come in and they're going to want to be able to pay for that, say, with a stablecoin. And that can happen midnight on Saturday. That's a key feature that they -- these institutions need.

I personally believe that really what's going to happen is that it's so compelling in terms of the audit capabilities, the speed, the data tracking you can do with stablecoins in particular, where you're not depending -- well, what's Bitcoin going to be worth? It really doesn't matter. We know what the dollar is, everyone uses a dollar, and we're going to be able to support that such that you can make these transactions. I know there's other ways to do this in terms of -- but like Swift, Swift takes like 3 days to send money to somebody in South Africa. I can do this using USDC in 12 seconds.

All right. Thank you, everyone. Time is up for this. We're going to take an abbreviated break now and then be back, I think, in about 5 minutes or so to kick off the next section.

[Break]

Good morning, everyone. I'm Tim Bruckner, Chief Banking Officer for Commercial Banking. I've been with Western Alliance for over 10 years now. Prior to assuming the President role, I was the Chief Credit Officer for the bank. I came to Western Alliance from much larger banks to be part of this great story. I was attracted by the dynamic management team and the entrepreneurial spirit of the bank. During this time, we've grown the bank from $17 billion when I joined to nearly $100 billion today.

2026, what a year. We've had a lot of changing landscape in banking and a lot of changing landscape in the economy. Now let's talk a little bit about how we're winning in this market and how we'll continue to win and build share as we move forward.

In Commercial Banking, we're building on the strong operational, strategic and risk foundation of the very successful National Scope business segments that you've heard about today. In these segments, we address very specific client needs and with expert products, technology and people, we create a protective moat around the clients that we serve.

We're leading our peers in one of the most competitive sectors and the most competitive economy in the world, the very bedrock of capitalism. As you know, our industry is exacting and unforgiving. If all you have is price, the market doesn't give you any lasting advantage. Our strategy is built on adding value, integrating with critical business processes and achieving a defensible yet differentiated high-value experience in very specific segments. This is how we time and time again achieve and sustain above peer performance, replicating our business model as we add new segments. Execution of this approach is what results in the S-curve performance that Ken and our team has so passionately spoken about today.

As we move through this presentation, I'd like to anchor on 4 key messages. This is a relationship model. First and foremost, strategic differentiation is at the core of this model. And as we differentiate, we go narrow and deep with our customers, not broad and generic. That's how we protect these returns. That's how we create durability in the relationship.

None of this happens third without technology and process. The technology, product and process enhancements are now fully enabling cross-sell across the franchise. We combine these into a solutions-based approach. This allows us to meet our returns through structure and solving problems, not just chasing volume. These elements are foundational in driving the long-term differentiation, defending from competition, maximizing value for our shareholders and building this bank that we've come to love.

Commercial Banking is the single largest component of our banking franchise, and we're on a proven path to scale. This represents the majority of our earning assets and a growing share of our deposits. Scale alone isn't the point. It's really how we grow that matters. We're scaling through specialization, disciplined credit and a model designed to monetize the full relationship, not just loans. We do this right as we demonstrated, our margins will expand as they have, and our customer relationships will become deeper. This sets us apart from our peers who often prioritize growth for growth's sake.

I want to talk through our story. This captures both our journey as well as our path forward. Over the last several years, we've intentionally rebuilt commercial banking. We've rebuilt the engine, investing heavily in what matters most. We've upgraded technology, strengthened our treasury management capabilities, and we've significantly top-graded our talent, expanding all the while into specialty industries where we can retain competitive advantage and margin.

We expand geographically using our specialty businesses. This way, when we arrive in new markets, we arrive as well-known experts in the industry with deep ties to key industry players. Looking ahead, the focus is very repeatable. We build a stronger funding base, go deeper in specialty verticals where relationship and capability matter. We build durable ties with our customer, expand fee income, investing all the while selectively in talent and geography. This demonstrates improved economics through deeper connection and deeper share of our clients' revenue.

Three complementing business segments make up Commercial Banking: the Specialty Commercial Group, the Community Banking and our Commercial Real Estate Finance unit. Structure is not about silos. Here, each segment has a clear value proposition, matched with business process and excellent technology with accountable leadership at the head of each business that understands our framework and is accountable to achieving our common goals. This alignment allows us to be best-in-class for very different client needs while operating on a common relationship and risk framework across the bank.

Community Banking anchors the franchise with over 26,000 long-standing relationships that we've gained as a bank over the last 20 years. With the changes we've made, we built a model to cross-sell through treasury management, deposit and credit products, expanding and deepening these relationships. Specialty Commercial Banking serves as the primary engine of funding strength, while representing 54% of total banking deposits and 39% of our loans, Commercial Banking is on right now one of the fastest paths for growth. Commercial Real Estate complements with strong through-cycle returns.

Never before have we had an opportunity like we have right now to capitalize on the advancements in technology like we're seeing with integrated AI and our connectivity that we have through the deep AI connections that you've heard about today. This business has been a low-cost deposit engine for Western Alliance for a number of years. And through intelligent, deliberate realignment and upgrade of our processes and platforms, community banking is being repositioned into a client-focused deposit powerhouse for the entire bank.

Combining local bankers with strong digital payments, treasury capabilities and industry-leading integrated customer interfaces allows us to scale revenue with customers that already know and recognize us as well as our strong value proposition.

Refining our processes with deeper connectivity to technology allows us to accelerate customer acquisition and drive deposit growth. The objective is very simple: lead the relationship, solve the complex business needs, do this with integrated solutions and earn the right to be the client's primary bank. When we do that well, clients consolidate their banking relationships with us. Today, this segment provides a foundational leg to our funding platform while providing over $13 billion of the lowest cost deposits that we have in the bank. These are sticky, low cost and very broad.

Specialty Banking is powered by specialized capabilities where we go narrow and deep. This is where you see the strategy that we talk about the most. We don't play at the category level in this segment. We play at the niche level. These are verticals where expertise matters, where tailored client solutions, speed and consistency are demonstrated through all cycles.

Our models pair specialized bankers with credit and embedded treasury and payments, creating durable relationships that scale over time. This has allowed the collective group to demonstrate growth well above market and well above our peers. Our well-established units in this segment still maintain growth rates over 12% annually and the newer units that we'll talk about are doubling or tripling year-over-year as they build on a lower base.

By focusing on delivering value to a specific segment, we demonstrate that we can deliver outsized growth, presence, client satisfaction and retention when compared to our peers. In the last 2 years, we've launched and grown aerospace and defense, entertainment and media and food and agriculture and our health care group.

Also of note in this segment is where we have this model employed, we also experienced some of the lowest risk profile. Collectively, this segment is among the lowest in the bank. Most of these segments have no loss in their history and gaming, as an example, is less than 2 basis points over a 10-year period. That's a strong indication of the intersection of specific management and dynamic leadership in the specialty units.

Commercial Real Estate finance is a specialized capability set. It's not a broad commercial real estate lending platform. We focus in this segment on narrow-defined appetites, homebuilder finance, resort finance, hotel franchise finance and institutional and commercial real estate where we reduce our exposure in office. We play in spaces where structure, sponsorship and repeatability really matter.

Though there's not a significant cross-sell opportunity in this segment, this is structured and disciplined credit that complements the broader commercial franchise. This offers some of the highest risk-adjusted returns across the segment, though we'll remain active in this space for the strong returns in our targeted appetites, Commercial Real Estate will actually decrease as a percentage of total loans as we continue to build our full relationship book that we've been talking about.

Growing up in a rural environment, I learned early that if you're not cutting wood, you'd better be sharpening your axe. Preparation is what make speed look effortless. This represents the center of the model shift that we began to make a few years ago. As credit spreads compress, the winners will be the banks that monetize relationships through operating deposits, payment rails and fee-based services. We saw this and spent the last 3 years rebuilding our capability by rethinking our processes, upgrading our talent and significantly upgrading our platforms.

We're now in the top quartile of product capability in the niche segments we've targeted. Treasury management, merchant services, cards and global markets work together to deepen relationships and improve economics, all while strengthening funding quality and diversity. We brought the right capabilities that are specific to sectors, and we've -- and this has given us the ability to attract and retain our clients.

The proof is in this slide. This is a lot of work that started several years ago, and we look at it today, we've got 74% increase in ACH revenue, 42% on Positive pay. We've doubled our fee-based income in commercial banking over a 2-year period. We're on a great trajectory with a strong foundation in this space. And we're seeing it now in the numbers, and it's something that as a bank, we're very, very proud of.

We talked a little bit about growth, and I appreciate the questions that we had earlier. We follow our strength into the markets that we serve. When we see the sweep from West into some of the Eastern markets, these are following our key businesses. We land in a market as well-known experts. When you're good at something, you don't need to tell everybody that you're good at it. Your track record speaks for itself, and your customers will expand your presence for you. This is what we've learned with our approach.

We deliberately scale into markets where we're recognized by virtue of a market-aligned strategy in one of our specialty platforms. From there, we build out and broaden with our additional platforms. We focus on geographies where we already have density and competitive advantage. You heard about some of that in Ken's presentation today, then we leverage our presence through additional segments.

None of this works as well as it works here without having dynamic industry-specific experts leading each of our businesses. I want to introduce you today to Mike Lederman, a 25-year veteran of the tech industry. He runs our Investor Defandant segment. He's been with us since the acquisition of Bridge Bank, and he's going to talk a little bit more about how we do this at the business level. Thanks, Mike.

Well, good morning, everybody. My name is Mike Lederman. I run our Innovation Banking Group. I've been with the bank, as Tim said, for over 20 years. I'm based in our San Francisco office.

As you may know, lending to emerging growth innovation companies is a very specialized business. There's only a handful of banks that we regularly compete with. Many banks have tried to start innovation banking practices and have learned the hard way that it is not an easy thing to do. We've been successful in this business based on our tenure in the space and the quality of our innovation banking leadership team, which averages 25 years of industry experience. Today, I'm going to focus on how Innovation Banking has become a scaled, high-quality growth platform built to perform across cycles while delivering strong risk-adjusted returns for Western Alliance.

Innovation Banking and Tech Sponsor Finance are not new businesses for us. We've been active in this market for over 2 decades. Today, the platform supports nearly 1,800 client relationships and over $5 billion in loans across the innovation economy. We lend primarily to revenue-generating businesses with strong institutional backing. Over 97% of our loan clients are backed by venture capital or private equity firms. The portfolio is well diversified across Innovation Banking, Sponsor Finance and Fund Banking and across stages, sectors and geographies.

While we love the business, we also want to be mindful of the inherent risk, and thus, loan sizes are deliberately controlled with an average of $4.6 million. While credit losses do occur, our historical average loss is only 30 basis points and warrant income has historically exceeded the group's net charge-offs. The combined economics of lending, deposits, fees and equity participation enhance long-term profitability.

What really differentiates this platform is full life cycle coverage combined with relationship continuity. We support companies from early growth through liquidity events, which enables us to retain the relationship as they scale. We work hand-in-hand with the Private Client group to bank the founders and the management teams of our clients. Clients benefit from a single relationship manager over their entire time with the bank, which improves transparency, underwriting quality and long-term retention.

We think about the market across 4 stages: early, emerging, growth and later stage. As you can see here, most of our portfolio lies in the emerging and later stages, which helps mitigate the risks associated with this business by focusing on established and growing companies with operating and financial flexibility.

Importantly, we also bank the sponsors behind these companies through our Fund Banking Group, which strengthens information flow and alignment across the ecosystem. Our Fund Banking clients utilize loan products such as capital call or subscription line facilities. This enables us to underwrite the sponsors themselves and how they do business. This continuity drives better credit outcomes and creates a defensible relationship-based franchise rather than a transactional one.

Risk in this business is actively managed and not passively held. The portfolio is characterized by relatively short loan durations, frequent monitoring and regular re-underwriting. Loans naturally delever over time and exposures are reassessed as companies raise capital, adjust strategy or move through their life cycle. Our underwriting places heavy emphasis on the total addressable market, the quality of the investor syndicate, the strength of the management team, access to capital and liquidity runway. This is reviewed monthly to track ongoing performance to plan. This approach has allowed us to maintain strong credit performance through multiple economic cycles.

Key topic today, of course, is AI and its impact on software companies. We do not view AI as a systemic risk to our portfolio. Most of our software exposure is low leverage, mission-critical solutions with strong institutional sponsors. In many cases, AI enhances product value and efficiency. Risk is controlled through defined maturities, covenant structures, amortization, cash flow sweeps and enterprise value analysis. Software is evolving and much of our software portfolio is AI native. Thus, AI tends to support and enhance functionality and efficiency rather than disrupt their core business model.

In summary, Innovation Banking is a scaled cycle-tested growth platform with diversified exposure and disciplined underwriting. We've shown strong credit performance supported by active portfolio management. This group provides a meaningful driver of growth and attractive risk-adjusted returns for the bank. As I mentioned earlier, our strategy is to expand relationships with our clients to support their growth. Let's hear directly from Hadrian about their experience with us.

[Presentation]

Please welcome, Brent Edgecumbe.

Good morning, everyone. I'm Brent Edgecumbe. Together with Jocelyn Lynch, we oversee the Lender Finance & Corporate Trust business. This is a deliberately conservative business. It's built to generate consistent returns, fee income while controlling credit risk through stress cycles.

First, over the past 9 years, we've built a strong institutional relationships that drive repeat persistent deal flow. Second, we've created a differentiated middle market structure integrated with Corporate Trust. Third, our exposure is diversified and institutional with highly structured facilities that limit risk. Fourth, this is a scaled repeatable platform with proven loss performance -- proven low loss performance. And finally, this business resilience is not driven by underwriting a loan, but by the embedded structural protections.

Stepping back, the structured products market is well tested through cycles. According to Moody's, in the 30-year history of CLOs, no A-rated tranche has ever experienced a loss, and our business focuses on AA and AAA attach points. Attach point is an industry term describing how much equity cushion is below you in the facility.

Let me ground that in performance. In our portfolio, we've had no criticized assets in the lending book. Our borrowers, the private credit managers we lend to, are averaging just 50 basis points of loss, which compares favorably to the broader BDC space, which is currently reporting about 2.5% of default. We lend to large institutional private credit managers with over $100 billion of AUM on average. These are not emerging platforms. They're diversified institutional organizations with established processes.

As well, my senior team averages more than 20 years of lending experience. We came up as credit investors first and moved into structured products deliberately. This was largely because we saw documentation weaken in parts of the broadly syndicated loan market. This background matters when we sit across private credit managers. We understand their underlying risks and where downside protection really comes from. It allows us to structure facilities that work for their funds and remain defensively positioned for the bank. And candidly, negotiating with other lenders who share a credit mindset rather than sponsors pushing for leverage leads to better outcomes.

We intentionally focus on core middle market managers, those who are using modest leverage and stronger covenant packages. This has been very important in the current market where a lot of the upper middle market managers have moved into the high net worth channels, which have made up most of the redemptions that you've seen. So as a result, our portfolio has experienced very low redemption activity. In fact, across the roughly 30 managers we lend to, only 2 received redemption requests and both of those remained well within liquidity and structural limits.

And lastly, on this slide, I want to point out that 85% of the time we lend to a fund, we receive a trust mandate that drives a deposit-to-loan ratio currently north of 50%. Diversification is also a real strength here. Across the roughly 50 facilities that we lend to, we have exposure to more than 2,000 underlying operating companies. No single obligor is more than $30 million funded and the average exposure is under $2 million.

As you can see from the pie chart, our sector exposure is balanced as well. Technology represents just 11%, software is under 5%, and recurring revenue models represent less than half of 1%. This is a very granular portfolio of cash flow-oriented middle-market loans.

Advance rates tell another important part of the story. In public markets, AA CLOs will typically advance about 65% to 68% against collateral, and our facilities are typically capped at 65%. But once eligibility rules, concentration limits and marks are applied, our effective advance rates are around 53%. That creates over 40% first loss buffer on loan collateral before considering the equity ownership of sponsors, which can often double the amount of equity capital beneath our tranche. That means for us to lose $1 in our facilities, the PE investment has to be completely wiped out and then the diversified pool of first lien loans has to take greater than 40% losses. Losses, not defaults.

Duration matters, too. Most of these loans are structured with a 3-year reinvestment period, but since facilities are effectively renegotiated every 2 years, which gives us the opportunity to get out of these loans early if we don't like performance. The main reason we do that is managers lack of leverage discipline. And we don't renew and we have a demonstrated track record of doing so.

When you look at the distribution of our customer types, it's primarily core middle market borrowers who are structuring more traditional loans with full covenant package. A key metric that we look for in our facilities is look through leverage. That is our advance rate times the leverage of the underlying obligors. For the life of this business, it is averaged below 2.5x. The underlying obligor average leverage is roughly 4.5x. We land at 53%. The math is pretty easy. As well, interest coverage is a healthy 2.3x at the underlying company level. These are conservative metrics for this market, and they reflect our sustained alignment with disciplined managers.

The way we reduce risk here is mechanical. Let me walk you through all the controls and protections and how exposure comes down before defaults, not after. Our borrowing bases are remarked dynamically. Each facility is structured with multiple concentration limit. We have controls for the largest obligors, largest industries. We cap all the key risk buckets, CCC, second lien, covenant-light, PIK. For example, right now, in our portfolio, fully PIKing borrowers make up less than 1% of our collateral. And if any of these buckets are exceeded, the eligibility automatically comes out of the borrowing base.

As well deteriorating loans are removed from eligibility based on negative movements in individual leverage or interest coverage, which triggers rapid exposure management. And last, if needed, cash sweeps activate without debate. None of this is discretionary. There are multiple independent layers of control, each operating autonomously. And because we control the cash flow through the trust structure, compliance isn't negotiated, it's enforced.

Monitoring frequency is another core differentiator for us. Daily, we receive cash funding and collections reporting. And because trust controls the cash flow, we know same day if one of these underlying obligors misses a payment. Over the past year, it's actually happened 3 times. In each case, the trust team alerted us that morning, the asset was automatically redeemed and eligible was removed from our borrowing base. And by the end of the day, the asset manager itself reported with a remediation plan involving both the borrower and the equity sponsor. That's what we mean by exposure reducing before the default. It's driven by the structure, not discussion.

Monthly, all of our borrowing bases are recalculated, compliance certificates are delivered and any intra-month draws trigger new borrowing bases automatically. Quarterly, we conduct full obligor reviews for the portfolio with trend analysis reported to a broad internal audience. And as I said before, underperforming collateral is at that point, remarked and often removed from eligibility well before losses materialize. In fact, one of the more visible defaults that made headlines late last year involved an obligor that we remarked and migrated out of our collateral pool a full 8 months before the default occurred. By the time losses were recognized elsewhere, our exposure was zero.

Then annually, the entire control framework, collateral cash flows, processes is reviewed by a big 4 auditor for each facility. This isn't a backward-looking credit review. It's real-time exposure management. And that brings me to Jocelyn, who leads our trust platform and makes this level of oversight possible.

Thanks, Brent. Well, good morning, and thank you for joining us. My name is Jocelyn Lynch, and I'm the CEO and President of the Western Alliance Trust Company. I have over 30 years of experience in both trust and custodial capacity, working both at BNY and Wells Fargo.

Myself and a number of my colleagues joined our firm, the Western Alliance Trust Company about 4 years ago with a clear objective to build a state-of-the-art corporate trust technology platform to support the rapidly expanding loan and structured credit market. Western Alliance was eager to expand into this business, recognizing a clear opportunity to invest in people, technology and a platform that larger providers just had overlooked. Most importantly, they understood the powerful combination of this business would turn out to be with our lender finance book Brent just spoke about.

We went live roughly 3 years ago, initially focused on bilateral lending structures and then expanded into the CLO servicing market in 2024. Today, we serve a broad set of institutional clients, including hedge funds and investment banking partners with approximately -- what is with approximately a $1.5 trillion addressable market.

Corporate Trust has quietly become one of the most differentiated franchises at the bank and really reflects the kind of specialized sector-focused verticals Ken talked about earlier today. Over a relatively short period of time, we have scaled from a modest capability into a top-tier national CLO trust franchise, supported by a highly experienced team of approximately 50 professionals and a modern technology infrastructure designed for complex structured products, something that our competition just lags behind. Today, we rank as the sixth largest CLO trustee in the U.S., which is notable given we only began servicing CLOs in 2024. Existing providers have been in this space and market for over up to 20 years.

Importantly, this growth has been intentional, not opportunistic. So how did we do it? We invested early in systems, governance and specialized expertise to ensure we could scale without sacrificing control or client service. That strategy is clearly reflected in the numbers. Deposits have grown from roughly $200 million in 2023 when we started to $1.5 billion at the end of 2025. Fee revenue has increased meaningfully as well, driven by both higher transaction volume and deeper client penetration, which is up 200% just in 2025.

And overall activity continues to scale rapidly with transaction volumes and mandates growing well over 100% year-over-year. As of today, we have 237 transactions with over $52 billion of assets and track over 5,000 loans. And many of these transactions come with sticky balances, 5% to 10%. And these deals typically refinance after 2 to 3 years, meaning our deals will roll off at a minimum 5 to 7 years and many times much longer.

What's equally important is the quality and durability of this growth. Much of our expansion has come from repeat mandates with existing clients, reflecting a sticky relationship-driven franchise where trust, execution and consistency matter. And we have only scratched the surface of this $1.5 trillion market.

And this is not a stand-alone or ancillary product. Corporate Trust now services approximately 60% of our lender finance portfolio, meaning it is deeply embedded in the same ecosystem where we deploy balance sheet capital. That proximity drives stronger client connectivity, better coordination across products and reinforces our positioning as a full-service partner in the structured and private credit markets.

Beyond growth, Corporate Trust plays a critical role in how we monitor and manage risk across the platform, and it is a key part of the disciplined risk and credit approach we've been talking about throughout the day. As a trustee, we sit directly on top of the same collateral pools that lender finance lends against, but from an independent and structurally senior vantage point.

At a fundamental level, our role is to ensure each transaction operates in strict accordance with the governing documents, including covenant compliance, collateral eligibility and cash flow distribution mechanics. We provide daily, monthly and quarterly reporting, collect and reconcile principal and interest payments on the collateral and perform ongoing monitor of each underlying loan in that pool. This creates a continuous independent validation layer for the bank.

Each time collateral is added or modified, we perform a third-party borrowing base verification, allowing us to identify inconsistencies or emerging markets -- or emerging risks early in the life cycle of the transaction. More broadly, the role provides real-time visibility into collateral performance, cash movements and structural compliance, which is critical in the structured credit environment.

In practice, this means credit by credit stress, concentration changes or performance deterioration often surfaces quickly at the trust level, well before they translate into broader portfolio impacts. That independence is key. We are not part of the underwriting process. We operate as an objective control function, enforcing deal structure exactly as written while enabling transparent information flow back to the lending teams we support. The result is a better-informed credit oversight, stronger governance and earlier risk identification without changing who we lend to or how we deploy capital.

In closing, ultimately, Corporate Trust is both a commercial engine and a structural differentiator for the bank. It drives deposits, fee income and client stickiness, while at the same time, enhancing our risk management framework and visibility across the lender finance portfolio. Few institutions have this level of embedded connectivity across both sides of the balance sheet. Our strong client relationships, integrated trust oversight and structural, not discretionary risk control come together to support durable fee-based earnings and create a repeatable, low loss growth engine for the bank. We believe that, that positions us uniquely as well, as structured credit markets continue to grow and evolve. Thank you.

Please welcome, David Bernard.

Good morning, everybody. I'm David Bernard, and I lead our Specialized Mortgage Finance business. This is my 13th year at Western Alliance Bank, and I've been in mortgage finance sector for 23 years.

I'm proud to say the strategic growth of our business has been one of the bank's most notable successes. We have purposely focused our business to maximize holistic client relationships, resulting in a business that has grown steadily from its inception and is self-funded. We know this business deeply. Our close hands-on relationships with clients, combined with a disciplined focus on collateral quality and controls has allowed us to operate this platform for 15 years without a single credit loss. That track record is not accidental. It reflects how deliberately this franchise has been built and managed.

Mortgage market is large and highly specialized. Most of our customers, midsized mortgage bankers are called on by 3 or 4 groups from large banks or have one product relationship with smaller banks. Their relationships with banks tends to be highly transactional. We started this business not by selling a product, but by telling prospective clients that we wanted to be their full-service bank to help them grow their own businesses.

Our account officer wants to be a banker. This disciplined strategy to continuously deepen client relationships through enhanced products has resulted in us being one of the leading full-service providers to the mortgage industry and our customers. We have multipronged relationships with customers that generate stable earnings even when the market is soft. We have an embedded upside when rates fall as the businesses we operate are scalable and offer significant operating leverage.

Our mortgage banking business consists of complementary countercyclical businesses that are entirely self-funded. Mortgage banking makes up a meaningful contributor to the bank's loans and deposits. Many of our relationships start with a low-risk warehouse line where we become familiar with each other. The relationship often expands to MSR financing.

As part of providing MSR financing, we require the customer to maintain custodial account deposits with the bank. Through our dedicated treasury management team, we do an exceptional job with the custodial deposits based on a deep expertise with the product. As the relationship grows, we often win the core operating account business.

When the bank acquired AmeriHome in 2021, that added an important new dimension to our product offering. We can buy loans at scale. Today, WAL can fund your loans, we can buy your loans, we can finance your MSRs and most importantly, we can handle all of your treasury management needs.

We started the Specialized Mortgage Services business by entering warehouse lending in 2010 after the GFC. Liquidity was tight and other banks had exited the business, which created an opportunity for us. Today, this business represents $3.5 billion in loan balances and $900 million in deposits. Warehouse lending is the anchor product that allows us to interact with our customers every single day.

I want to emphasize, we are not a price leader. We are a leader in creating value for our clients through these custom mortgage solutions and by delivering superior execution. Our go-to-market strategy focuses on the fact that we understand the mortgage business and are a stable through-cycle partner. We shine during tough markets.

One of the best measures of success in this business is the strength of our relationships. Our top 20 clients have been with Western Alliance for an average of more than 10 years. That longevity speaks to the value we provide and the trust we've built over time.

Importantly, this is not a static franchise. While we continue to serve large, long-tenured clients, we've also been very successful in expanding our small and midsized client base, in particular, with treasury management, growing these relationships at a rate more than 5x faster than our largest customers. That diversification has strengthened the overall franchise through lower costs with stable and growing clients.

As Ken mentioned during our last earnings call, and, I believe, Ryan, to answer one of your questions from earlier, the depth of our client relationships is what allows us to effectively execute on this strategy and engage constructively with clients. We are actively working to finesse deposit balances to increase profitability, whether that means moving excess liquidity outside of the bank or repricing deposits to better reflect relationship economics. And this is where tenure matters. Many of these relationships span a decade or more, which allows us to approach optimization collaboratively. We are not disrupting relationships. We are evolving them in a way that works for both sides. These are symbiotic relationships and as our clients grow and adapt, so do we.

Optimizing the size, cost and predictability of deposits within the mortgage warehouse business will remain an ongoing focus, but always executed with discipline, transparency and respect for the long-term value of these relationships.

MSR Finance. In 2013, WAL entered -- expanded from warehouse lending and entered MSR financing with some of our best customers. We were an early reentrant into the market after the GFC and are an acknowledged expert in financing, the MSR asset. AmeriHome, one of the largest manufacturers and sellers of MSR assets, contribute significantly to our reputation as a sophisticated player in the space. Today, we have over 45 active MSR customers with loan balances of $4 billion and deposit balances of $14 billion. The lending business enjoys good margins and is fully funded with the custodial accounts.

From a credit perspective, we like the business because the bank provides reasonable leverage on an asset that generates strong and predictable cash flows. Our deals have strong debt service coverage. Also, the collateral is highly liquid in the event the borrower has an issue. We also like the fact the business is countercyclical and a natural hedge on the borrower's origination business. When rates are rising and loan volume is falling, MSRs become more valuable. When rates are falling and the MSR becomes slightly less valuable, their origination business is picking up. We're lending them more money on warehouse finance.

Looking forward, as the bank approaches $100 billion and AmeriHome has operated successfully under the bank's umbrella for 5 years now, we have strong opportunities to grow and scale this vertical through synergies with AmeriHome, given their central position in the mortgage ecosystem as the largest bank-owned correspondent originator. As a result, we believe we can generate incremental lending, treasury and fee income opportunities in this business.

Let me illustrate the client journey through the growth of 3 relationships where the bank has executed its relationship strategy. Let's walk through the first one. This relationship started as an inbound request from a customer looking for a warehouse line to grow their warehouse capacity for their business. During negotiations, we saw they were a little tight on cash, but had an unlevered MSR position. We did a two-fer, proposed an MSR line along with the warehouse line. We closed on both transactions and moved the custodial accounts seamlessly.

A couple of years later, we won their operating account business. They were reluctant to enter the non-QM market or nonqualified mortgage market after the GFC, having had a few repurchases of Alt-A loans. We co-developed a program with strong underwriting guidelines and have bought $2 billion of non-QM loans into our portfolio over the years. More recently, they have developed a strong relationship with AmeriHome and have sold us $2.7 billion in agency and FHA loans. On top of that, we've handled opportunistic owner-occupied real estate transactions as well as some personal deposit business.

I think depicting our business sales process as a journey is an accurate way to describe how we approach our customers. We are always probing, but we never push too hard. We stay in constant contact with the customer and wait for the right time to make the sale. However, our goal over time is to build out a full-service banking relationship with each and every one of our customers.

I'd now like to share a client testimonial that highlights how the partnerships we fostered go beyond providing capital and plays a meaningful role in enabling our clients' growth and long-term success.

[Presentation]

Please welcome, Josh Adler.

Hello, everyone. I'm excited to be here today to talk to you about AmeriHome Mortgage. I'm Josh Adler, CEO, and one of the original founders at AmeriHome.

Before I get into the details of AmeriHome, let me start with 4 key messages that I'd like you to take away from this. First, AmeriHome is a scaled, efficient, diversified mortgage platform. We are not a traditional mortgage originator, but a capital markets-driven loan conduit with leading share in the correspondent channel. Second, our business model is designed to perform across different rate environments. Our loan production and our servicing portfolio act as natural counterbalances to each other. Third, we benefit from real structural advantages, including our scale, our technology, the funding cost and liquidity benefits we get from being part of the bank. And fourth, we see a lot of upside from here, which could come from more favorable rate environment and from several growth initiatives that we have going right now.

So with those themes in mind, let me walk you through the business. At its core, AmeriHome is a scaled, efficient, diversified capital markets-driven platform. We've been in business now for over a decade. And today, we operate 2 primary businesses: Loan Production business, Loan Servicing business. We primarily operate in the correspondent channel, purchasing closed loans from over -- about 800 mortgage companies nationwide. And at this point, our mature model allows us to grow very efficiently by adding only minimal variable costs, which gives us a lot of operating leverage. And as a result, we are the sixth largest mortgage lender in the U.S. We're the second largest correspondent lender. We have about a 10% market share in the correspondent channel.

We basically operate a $60 billion a year loan conduit, where we are primarily securitizing loans and retaining servicing. We primarily buy conforming conventional agency and government loans. And really importantly, this is where our structural advantages really start to add up. Because we sit inside Western Alliance, we finance loans at a low cost before we sell them. Our servicing assets are self-funded using very low cost of deposits. usually average around 20 basis points. And on top of that, we get the liquidity of a bank, which are all very meaningful economic advantages, especially versus our mostly nonbank competitors.

So how do we make money? This is really where our balanced earnings model comes into play. We generate revenue from 3 primary sources. First, gain on sale from our loan purchase and sale activity. In correspondent, we're bidding on $1.5 billion to $2 billion in loans every day. We use internally developed AI models to optimize both our pricing, maximize our production revenue. We also have a retail call center where we originate loans directly to support refi activity in our servicing portfolio. We've also incorporated AI models in this channel to help us optimize our lead sourcing. Really, these end up being our most profitable loans.

Second, we make money from secondary marketing trading activities. Our scale allows us multiple options to get at best execution and maximize profitability, whether it's through securitization or whole loan sales or creating custom securities for the Street, we are really wired to seek out every basis point available. Having scale is a real execution advantage, bigger pools trade better.

Finally, our servicing portfolio, we generate reoccurring fee income from our servicing port. We usually keep that servicing portfolio between $75 billion and $80 billion in size. So if you look at last year, about 43% of our revenue came from that initial gain on sale, 34% came from trading activities and 23% came from servicing fee income. It's really that earnings diversification that enables our business model to perform across cycles.

Our earnings profile does change depending on the interest rate environment, which is really the centerpiece of our story and ties directly to my second message around through-the-cycle performance. Our 2 businesses, Loan Production and Servicing act as a natural macro hedge within the business. So when rates fall, we see our production volumes increase, income increases, our margins can expand. But on the servicing side, our income does decline as short-term prepayment speeds increase. Flip side, when rates go up, our production slows, but we make more money in servicing.

So I should point out that we are set up to really balance out the bank's interest earnings profile across the entire enterprise. So the way we're set up, AmeriHome does much better when rates go lower. We really outperform on that side.

If you look at where we're sitting in the market today, we've been above a 6% mortgage rate for a few years now. And in fact, 27% of the mortgages outstanding have rates above 6%, which creates a meaningful market opportunity if rates move below 6%, which is where we were headed at the beginning of this year before the Iran war started, which hopefully will end soon.

It's important to note that this macro hedge can have timing mismatches, though. MSR values are adjusted daily with changes in rates and production can come in over time in the correspondent channel. That can happen 30 to 60 days after a rate move. So we don't completely rely on the macro hedge to manage our earnings risk and volatility. We also financially hedge the MSR to create even better earnings stability.

For our servicing business, we have never wanted to bet on interest rates. Instead, we want to focus on earning the yield of our MSR port. We hedge to protect our earnings from changes that can happen to MSR valuations when interest rates change. Our MSR hedging program has really been effective, 99.9% effective actually, over the life of the company, which reflects a long-standing, disciplined financial risk management approach and shows the high value that we put on stability of earnings even in volatile markets.

Finally, let me come back to my fourth key message, our upside from here. And there's really 3 dimensions to that. First, scalability. We have a highly scalable mortgage platform with significant embedded operating leverage. There's really a few reasons for that. Our mature correspondent dominated model now operates at a variable marginal cost, meaning that when market volumes increase, we can scale efficiently without having a proportional increase in our overall expenses. We have a technology-enabled platform. We've invested heavily in automation and AI, particularly in pricing and our operational workflows. We're really able to increase volume without a material increase in head count which drives margin expansion.

Second, market upside. I've touched on that a little earlier. If we get a move back down below 6%, we see a significant opportunity for increased origination volumes, margin expansion with our operating leverage, but we also have a lot of opportunity in our call center for higher revenue refinance activity, thanks to low-cost leads that we get from that portfolio.

And then finally, we have a number of structural growth opportunities underway. We are expanding into non-agency now and non-QM products, which is about 15% of the market. It's a way to get more market share from our clients. We've been expanding our trading capabilities into a private label securitization. In fact, we did our first deal in beginning of April using agency collateral actually. And this is really going to be a great platform that we can leverage for our non-agency products as soon as those get to scale.

But really in looking at our biggest opportunity out there that we're evaluating is entry into the wholesale channel. This is about 20% of the market overall and a great way to leverage our current platform with a new revenue source. So we are really just beginning at the beginning of the S-curves for all of these growth initiatives. They build on our existing infrastructure and our client relationships. We're excited about those.

So let me close by just coming back to my 4 key messages. First, this is a scaled, efficient platform with a leading position in the correspondent channel. Second, this business is designed to perform across all rate cycles. We really have a balanced business model that lines up well with the bank's overall interest rate profile. Third, we have some real structural advantages from scale, technology and bank ownership, that really drive superior economics, especially versus our mainly nonbank competitors. And fourth, we see meaningful growth upside from here, both from a cyclical rate recovery and our growth initiatives. And when you put all that together, we believe AmeriHome represents a high-quality, scalable mortgage business with really stable earnings power and significant upside from here.

So thank you for that -- for your time. We're going to take a few minutes, set up some chairs and do Q&A. So thank you.

[Break]

We will now begin a Q&A session with our executive team.

Team is on the clock. Any questions in the audience? Tony, we'll start with you.

Tony Elian, JPMorgan. For Tim, on Slide 45, you outlined the different -- the 8 different specialty businesses you have on the lending side. Does that feel like the right number? Are you exploring entering any others? And what characteristics would you be looking for?

Great question. I'm going to start by answering or at least identifying the characteristics of why health care, why aerospace and defense, why -- we picked these most recent segments in part because of their strong stability, their core component representation of GDP. And then we identify the niches in those segments where we can actually utilize a lot of the capabilities that we've built.

So when I say we're in food and agriculture, for example, we're in the aspects of food and agriculture where we can use our supply chain capabilities and leverage those as opposed to leveraging a credit only. So we're in leaf and root vegetables in the West Coast. We're not in large wholesale commodity-based segments. We still gain the segment stability of the core GDP sector alignment.

So in no way are we stopping, but we'll employ similar philosophies as we grow and add additional segments. Each will be thoughtful. Each will have a defensible core need that we're meeting and satisfying where we believe our margin could be retained over time. And we stick to that approach you'll see a much more broad-based commercial bank. This gives us the diversity we want, the granularity and takes the beta out of the portfolio performance.

Next question?

Ryan Kenny with Morgan Stanley. Thank you for walking through the multiple structural protections on the lender finance side. Clearly, it's a focus of the investor community right now. So just wondering, are there any changes in loan structure over the last year or so that you're making? Any signs of stress and any changes in risk appetite over the last year or so?

Yes. I'd say the main trend is as we've seen -- it's really very recently, just the last quarter or 2 that you've seen default rates start to tick up a little bit. And so what I've noticed on our behalf and on the behalf of some other managers is that when we remark names on a quarterly basis, the marks are getting more severe, right? If you overlay a macro assumption that the market is weaker, when you might have marked a name to $0.50 on the dollar from par if it was -- leverage was going up, now you're going to mark to 0 or $0.20. That's been the main change.

Structurally, the documents haven't really moved much, like when we've actually talked to arrangers and counsel about this to make sure like you're seeing everybody's deals, our terms moving. And the way AA, AAA loan documents have been structured is very consistent for almost a decade.

Timur Braziler, UBS. It looked like yesterday in the 10-Q, there was a mortgage finance loan that showed up on the problem loan list. Any additional color you could provide on that $68 million credit?

David, do you want to...

Yes, I can take that. Thanks for the question. So that loan was a borrowing base customer in our note finance business. And the asset, in particular, is really kind of a special mention asset. But for the -- given the timing, we had to mention it. This is really not any kind of a headline news. It's just the timing had us mention it. So loans kind of flow in and out of special mention as we work with the customers. Generally, we give them a little time if they have to remediate loans that they pledge to the borrowing base and depose them, whether they pay them down, they sell them or they're restructuring their loans. So just unfortunate timing, but really a no news update from us.

David, that's a great indication of the real difference between regulatory and bank methodology and nonbanks. That's a situation where we're extremely well secured. The asset performance at the asset level is not in question. The operating performance was below expectations in that case, which precipitates a downgrade and, of course, the elevation of remediation activities, but a well-secured transaction.

David, you mentioned to me about the security of the collateral, what -- how many times you think you're good?

We have very strong collateral position and a cash collateral position, I think, 4x.

Next question? David?

Brent, Jocelyn, could you speak a little bit about lessons learned from some of the credit events over the past couple of quarters, how the underwriting and monitoring process has changed as a result?

Well, you can start on the credit side and I'll talk about monitoring.

Yes, I'll talk on the credit side. It was market practice mainly to do most of your work on your borrower, right, which would be an asset manager of sorts. Given the fraud that the market has experienced, we've now really embarked on doing the work that we expect our managers to do as well. So I mentioned in my slides, that our whole process per facility is audited by a big 4 every year.

And so instead of just auditing our managers' process, we're actually doing the underlying work of that manager now, too. It's a little extra money, but it's not that material to actually do test calls underlying collateral, and making sure we've really buttoned up everything. The loss that we had also wasn't in a traditional trust structure was in an adjacent ABL business. And so in the core middle market business, you have true control over cash flows, which was differentiated with that other business.

I might add on to that, just because anything like this, particularly in our bank isn't something that happens just at the line of business level. Early in my career, and I somehow realize I'm now older than probably most of the people in the room, came as a surprise.

Earlier in my career, I was pulled into work on Montgomery Ward's bankruptcy. And a very senior executive walked in the room and said something I'll never forget. You're about to get the most expensive MBA that anyone ever received. That's something that our organization carries through in situations like this. So you've got the intersection of a robust and well-developed second line. You've got a very effective credit team. And then over the back of all that, you've got the third line, our internal audit that comes over the top and make sure that we're all working in concert.

So I really -- I want to say to this group, you can bet, we got a heck of an education and that we put that into practice and that we've closed as a result, the loopholes or potential cracks that can let something like this happen. I did want to say that.

I'd just say, in general, over the last 2 or 3 quarters, I work with most of the major investment banks that are doing private credit lending to collateral pools. And I will say a number of them have been more aggressive around making sure that we're providing the daily reporting that they're looking at it. So that's been a trend that I've seen from my perspective.

Time for one last question.

Janet Lee from TD Cowen. For the Innovation Banking segment, that loan has been growing very nicely over the past couple of years, and you've noted the risk around software and AI is limited. Could you comment around how the credit quality metrics, whether that's potential problem loans or criticized has been evolving in that segment over the past couple of years? And what gives you comfort to say that the risk is limited?

Yes, why don't you go ahead and take that?

Sure. So I'd say it's measured. It's very similar risk. It hasn't really increased over the last few years as our loan growth has increased. I think part of the reason for that is the way we actively manage our portfolio, combined with very strong sponsor relationships that provide that early identification and communication of any potential problems that we can address before they occur. So this is a very actively managed portfolio. It does have, very similar to David's comment, transitory special mention credits are part of the process, but that doesn't necessarily mean it's elevated credit risk. It's just that early identification.

Mike, anything on just your RML trend.

Yes. Remaining months liquidity, RML, is a huge part of our tracking mechanism to ensure that our clients have significant runway prior to the next equity round. Many times, a venture-backed company will use our debt to extend runway in between rounds. And so RML, remaining month liquidity, might drop and then it's going to increase again as that next round closes. That's a very common practice. And that has a lot to do with our internal grading as RML might decrease. And then as it increases, it's an upgrade.

I'd just add, over the back of that, we have very sophisticated valuation methodology that apply to all the subsectors within Mike's business segment. And as the landscape changes in the economy, we make those adjustments out in front of how we fund each component of the business. That's been a big component of how we mitigate loss.

Great. Thank you, everyone. We're going to take about a 10-minute break now before our next session.

[Break]

Please welcome, Emily Nachlas.

Good morning, everyone. I'm Emily Nachlas. I've been the Chief Risk Officer here at Western Alliance since 2019. I spent the last 25 years working in risk management organizations of both regional and large banks throughout the U.S. I'm pleased to be here today to share how our risk infrastructure is not only keeping pace with our growth, but actively enabling it.

Let me start by anchoring us on 3 key principles that define our approach to risk. First, our risk culture is a franchise asset. It's why clients trust us. Responsibility for risk ownership sits with the business, supported by independent oversight. This model is intentional. It ensures decisions are made by teams with deep expertise and direct accountability.

Second, risk management serves as a competitive advantage that enables safe growth and innovation. Strong risk discipline allows us to pursue opportunities in a controlled and informed manner. By clearly understanding our risk appetite, we support innovation while operating within well-defined risk tolerances.

And third, our risk oversight, internal controls and governance framework are effective and have been designed to be scalable. These processes are embedded across the organization and continuously enhanced to keep pace with the size and complexity of the bank. As the franchise grows, the framework grows with it.

Building on these principles, let me talk about how risk management functions as a strategic differentiator. Our risk taking is deliberate and measured. We maintain a balanced approach to risk and return supported by appropriate expertise. Our risk appetite is clearly defined and embedded into strategy from top-down strategic planning to the day-to-day programs. Risk is not a separate function. It's integrated into how decisions are made. Our risk framework enables sound and agile business growth. As we've grown from $50 billion in assets in 2021 to $99 billion today, our risk and control programs have evolved alongside the business.

We have a proven LFI-ready infrastructure that ensures second line of defense oversight across the capital, liquidity, governance and internal control components, all subject to robust oversight from our engaged Board of Directors. Enhancements to the control environment implemented over the past few years are operating sustainably and integrated with risk appetite to guide disciplined growth. Regulators have clear visibility into how we identify risk, make decisions and execute, which supports confidence as the organization continues to scale.

And finally, our proactive approach creates strategic advantage. Risk and revenue capabilities are developed in tandem, allowing risk oversight to support decision-making rather than slow it down. We analyze new products and services in real time, reducing friction, clarifying trade-offs and enabling timely informed action. Risk helps the business get to yes with the appropriate guardrails. Altogether, this is how risk management supports growth, reinforces resilience and strengthens the franchise.

Since 2021, the risk organization has been deliberately preparing for the bank's next stage of growth, positioning us to move from a smaller regional franchise to a well-designed and prepared Category 4 LFI. We've operationalized a sustainable risk management framework with LFI-ready risk identification, measurement and mitigation components. Our remaining LFI-related preparations are centered around regulatory reporting submissions and data program enhancements, all of which are on track to be completed within the regulatory time lines.

Although regulatory tailoring changes are expected in the near future, we have continued our efforts to be ready now. Our entire organization is ready now. We've added senior risk leaders with LFI experience, leaders who have operated in more complex regulatory environments and understand what good looks like at scale, while remaining aligned with the bank's entrepreneurial spirit.

Risk currently represents 7% of the total company employees, which is in line with other LFI organizations. We invested heavily in our credit risk and loan review function, building an enterprise-wide independent oversight program that conducts ongoing loan level reviews and portfolio surveillance across all lending businesses. This team provides credible challenge on reserves, concentrations and capital stress. The structure and operating model are fully aligned with large bank supervisory expectations and ensure we remain scalable, resilient and LFI-ready as the balance sheet grows.

We've strengthened our oversight across capital, liquidity, interest rate risk and mortgage capital markets over the past few years as well. The focus for the financial risk management team centers around monitoring, measuring and assessing risk that ties directly to the company's financials. Also, we've integrated stress testing and scenario analysis into our risk limit framework, which allows for independent challenge of assumptions and results. And we developed the BSA/AML Financial Crime Center of Excellence, combining deep expertise with scalable processes and technology to support growth across products, geographies and client types, all while maintaining strong consistent controls. Collectively, this work established a strong, durable LFI-ready risk foundation.

As we look to 2026 and beyond, the focus shifts from building risk programs to optimizing and enabling growth. We're driving optimization through the targeted use of AI. This includes automating and streamlining manual processes, improving the reliability of data, increasing efficiencies and enabling teams to focus more on analytical judgment and decision support. Risk is prioritizing high-impact use cases within BSA, appraisals, loan review and enterprise risk management.

Another priority is strengthening alignment between strategy and business expansion. Integration between risk appetite, strategic planning and business expansion continues to evolve, ensuring growth initiatives are evaluated through a consistent risk lens, supported by appropriate controls from the outset. Overall, this next phase is about building on the LFI-ready infrastructure already in place to support growth, improve efficiency and enable innovation while maintaining the same level of risk discipline and oversight that has supported the bank's previous growth. And now I'll welcome Lynne to the stage. Thank you.

Good morning, everyone, and thank you for coming. Hello. My name is Lynne Herndon, and I am Western Alliance's Chief Credit Officer. I have over 35 years of banking experience in a variety of sales and credit roles. Following a long tenure at BBVA and PNC, I assumed my current role in January of 2024.

Western Alliance's asset quality performance over the prior 15 years has been very strong on an absolute basis and compared to peers. This performance is notable because it coincides with the bank's robust growth and expansion into new business lines and markets. I attribute these results to our significant product and industry expertise as well as the careful evolution of the composition and growth of our loan portfolio. I am excited to explain the drivers of our successful credit track record in more detail and most important, while we expect our performance to remain better to in line relative to our peer banks even with our stronger growth trajectory.

Diversification, deep expertise and disciplined underwriting are the key contributors to our strong asset quality track record. First, our portfolio construction is intentional and highlighted by limited single-sector concentration. We operate in many low loss categories, making the inherent risk characteristics of the portfolio very manageable.

Second, our diversification is reinforced by deep sector expertise. This product and industry expertise that is so important to our strong revenue growth is also embedded in our credit team, which informs how we evaluate credit opportunities. Third, specialty vertical knowledge produces better underwriting, credit decisioning and diligent portfolio management. Our adherence to lending with low advance rates and requiring significant equity upfront from our borrowers is applied across the loan portfolio. Our expert credit team has considerable experience at larger institutions, which is critical to making decisions that lead to low loss outcomes. Collectively, these best practices have delivered strong historical credit quality and position Western Alliance to perform well through the cycle.

Our loan portfolio stands at $59.1 billion with no single nonresidential segment exceeding 15% and with most others below 10%. This diversification and granularity provide multiple avenues to achieve our growth objectives. Therefore, if an industry or product type experiences reduced credit demand or competitive pressures which make loan pricing and/or structure unappealing, we can maintain discipline and modulate growth in specific areas without impeding overall growth. This means we can effectively manage through isolated credit deterioration with no individual part of the portfolio having outsized influence on our overall performance.

Furthermore, approximately 2/3 of these sectors have experienced little to no historical losses. Let me repeat that. 67% of our portfolio categories have produced virtually no losses in the history of the bank due to our strong collateral and underwriting practices.

We have materially reshaped the loan book by growing C&I loans since 2010. C&I has grown from 19% to 48%, while CRE has moved from 52% to 21%. The emphasis on C&I growth reflects the sector expertise we have cultivated across the bank to capitalize on attractive risk-adjusted opportunities within certain industries as opposed to arbitrarily deemphasizing CRE and residential simply just to change the mix.

Here, you can see the result of this transformation, which is a more resilient, capital-efficient portfolio. I want to highlight that as we launch into new sectors, most recently in industries like aerospace and defense, entertainment and media and health care. We have hired experts, both on the sales and credit side, who bring deep relationships as well as industry and product knowledge to drive good business development and credit decisioning outcomes. These capabilities result in a sound and swift process for our borrowers, which make Western Alliance an appealing bank partner across our client base.

Our commercial loan portfolio is also geographically diverse. Our top 10 states represent 79% of this portfolio. The breadth and depth of our business lines have extended our reach throughout the country. While we have leading market share in our traditional regional footprint in Arizona and Nevada and significant market share in California, we also have meaningful exposure in Texas, New York and across the higher-growth Southeastern states.

Tim mentioned it earlier, but we are utilizing our industry expertise to drive growth across these geographies, building a foundational presence with centers of competence. We are leveraging well-developed and proven business and credit risk strategies to support market expansion in areas with strong commercial growth opportunities.

Highly disciplined underwriting and ongoing portfolio monitoring are hallmarks of our credit strategy. To accomplish this, we employ a variety of levers. One, we prioritize collateral and structure over yield. We first make the credit decision and then we determine if the return is acceptable. Two, we screen clients and sponsors selectively. We favor businesses with repeat customers and proven track records. Three, deep vertical knowledge on both the sales and credit teams support prudent loan growth and performance. Also, informed monitoring of trends allows us to identify credit weakness early. And four, obligor limits and underlying sources of cash flow are important factors to determine deal size. Said differently, we have lower limits for single asset, single source of repayment loans and higher limits for diversified collateral pools with multiple diverse sources of repayment.

Here, we highlight 2 topical sectors that while not new to Western Alliance, have unique portfolio characteristics, which minimize credit losses and make the loans attractive to the bank. In each of these businesses, there are unique key drivers of successful performance. We customize our underwriting, structuring and ongoing monitoring to facilitate the best outcomes. It's not a one approach that's all philosophy, it's a customized approach that allows the bank to better manage credit risk.

Let's highlight a few points. Our Note Finance business began in 2012 with a loan-to-balance average of 48% and a loan-to-value average of 22%. We maintain significant coverage for these facilities, along with multiple exit paths for the bank. Lender finance is primarily structured borrowing base credits to middle market companies with higher leverage. The diversification in the number of obligors as well as industries, coupled with low attachment points provide ample cushion before we experience a loss and therefore, minimize risk of facility default. The low average commitment and average funding of 48% and 22% -- sorry, excuse me, of $4 million and $2 million, respectively, speak to the granularity of the portfolio. And finally, a third-party trustee managing cash flow and cash trap, if necessary, ensures the repayment of the facility in an accelerated fashion.

As I just spoke about businesses whose loans are characterized as loans to nondepository financial institutions, I think it's illustrated to take another look at the NDFI comparison metrics we have included in earnings presentations for several quarters.

Here, you see our limited exposure to non-mortgage credit intermediaries and private equity funds. For Western Alliance, our business credit intermediary exposure consists primarily of our lender finance book, which Brent has already discussed. The granularity, diversification, low duration and structural protections in this portfolio continue to make us comfortable banking with these clients.

Western Alliance has a long-standing track record of outperformance compared to peers for several important credit quality metrics. Whether it's special mention, classified or criticized, which is the combination of the 2, we have outpaced peers over the past decade. This performance was maintained through several periods of stress, and we view these credit outcomes validating our risk return balance.

Taking a closer look at criticized loans, Western Alliance's peak quarterly criticized loan ratio over the last 10 years or 40 quarters is lowest among 22 peers, underscoring the result of our disciplined underwriting and credit decisions through multiple stress environments. Not only are peaks lower, but average criticized loan levels are also below peers, reflecting consistency, sustainability and durability of our credit performance. These data points reinforce that growth has not come at the expense of credit quality. Instead, credit quality has complemented growth through the years.

Let's speak about charge-offs now. As you know, we reported 2 fraud-related charge-offs in Q1, along with business-as-usual-related charge-offs of 39 basis points. Inclusive of these numbers, Western Alliance's 5-year average net charge-off rate is 17 basis points, which is in line with peer median and achieved with loan growth higher than peers. As the bank has been shifting its mix to higher C&I, our charge-off rate has increased, but still remains in line with our peers.

Our loan loss reserve has accordingly also moved higher. We do intend to pursue recoveries aggressively on the 2 fraud-related charge-offs, but emphasize that these recoveries will not occur in the near term.

Today, our office portfolio represents only 4% of the total portfolio. Our strategy for office entails significant upfront equity of 40% to 45% and deliberate client selection with proven track records. Our loans have performance triggers, both to qualify for an extension and also to monitor along the way with remargin as an option to remedy lack of performance.

Western Alliance made the decision to extend loans post-COVID, again, with our significant upfront equity and our proven sponsor track record. As a result of the slow return to work in states like California, some of the bank's 2020 to 2022 vintage assets experienced declines in value due to slow leasing as well as higher cap and interest rates, influencing stabilization periods and ultimate values. The asset mentioned in our subsequent event disclosure in the Q1 10-Q is of this vintage. The loan was a year away from maturity when we learned of the borrower's decision to no longer support the asset. While we are disappointed in this outcome, I want to remind you that churn, and I call that credit standing credits out, is normal.

To that end, I want to share some positive updates on 6 loans that demonstrate our confidence in nonaccrual loans declining in the second half of 2026. One, we accepted an LOI to purchase a property that's funded by a $60 million loan. This was also noted in the 10-Q. Two, we are holding active LOI discussions on 3 assets that are currently in NPLs. Three, a sponsor has agreed now to resume payments on another NPL, which will lead to an upgrade after a short period of performance. And four, we are working on a modification on another NPL that will result in an upgrade to pass. These updates are emblematic of the accelerated resolution strategy we expect to be more evident in our asset quality metrics later this year. We will continue to track leasing and risk rate accordingly as well as follow our appraisal practices.

As it stands today, over 85% of this vintage that I have mentioned has either performed, i.e., debt yield greater than 10%, then modified with remargins to debt levels of acceptable performance or is rated non-pass as we work with the sponsors for acceptable resolution.

I'd also like to point out that CoStar data indicates office values across key MSAs have been bottoming since 2025 with near-term appreciation expected to resume shortly. We have seen this very trend in our reappraisals. To put it more plainly, we are working through the primary driver of our nonperforming loans and see notable improvement in NPLs on the horizon for the second half of 2026. With 67% of our portfolio consisting of loans and no to minimal loss areas, it's not surprising to see the risk profile of our portfolio is inherently among the lowest in our peer group. Using the scoring system identified in the left-hand table, we compared our loan portfolio with peers using regulatory data from year-end. Our risk score of 1.43 approximates the best scoring peer.

In conclusion, Western Alliance's credit quality remains stable for all the reasons that I have highlighted today. We expect criticized loan levels to remain in line or better than the peer median just as they are today and charge-offs, exclusive of the 2 fraud-related events, to be around the midpoint of our 25 to 35 basis point guidance for 2026. Thank you.

Please welcome Sonny Sonnenstein.

Good morning. By way of background, I've been at the bank a little over 1.5 years, bringing a deep industry background and LFI experience to leading our technology teams. Over the course of this morning, you've heard how we leverage technology to create innovative value propositions that allow us to win. Let me give you some insights on how we do that.

There are 3 key messages I want you to take away from this morning. One, we've built a strong modern technology foundation to serve and protect our clients now and in the future. Two, we take a business-led technology-enabled approach that creates distinctive advantages for the bank. Our investments in our technology building blocks are a key enabler of how we grow and win while keeping the marginal cost of expansion low. Third, our technology and AI investments position us to drive innovation, productivity and growth now and into the future.

Let's start with our technology foundation. We've made significant investments in technology talent, infrastructure and leadership. Let me give you some proof points on this. Since 2022, our technology spend has increased 90%, and our IT as a percentage of OpEx and revenue is in alignment with peers. Since I joined, we've added 70% more senior engineering talent, significantly strengthening our software delivery capabilities. And in addition to myself, we've added a new CISO with significant G-SIB experience in the last few months, and we've added numerous other leaders in tech and cyber with LFI and extensive tech and cyber experience.

Turning to the right-hand side of the page. To support and protect our national franchise, our technology operating model with tech hubs in Columbus, Dallas and Phoenix allows us to operate on a 24/7, 365 basis. In other words, at the pace of the modern world of finance and banking.

Let's move on to how we build technology that creates distinctive advantage, drives efficiency and lowers the marginal cost of growth. Through our modernization and automation efforts, we've been able to change the mix of run, which is maintenance support, infrastructure network, things like that, versus grow, building new and enhanced capabilities. And we expect to focus more and more of our resources on growing the future.

Let me give you some a bit of more context than even what's on the slide. In 2022, this ratio stood at 80:20. In 2024, it stood at 75:25. In 2026, today, it stands at 70:30, and I've established a long-term target of 50:50 for the organization. We've made this pivot through our modernization efforts that have established a strong technology foundation and more recently through our automation and optimization efforts that make our run operation more efficient. This also lowers risk, frees up capacity to invest in growth and ultimately will drive improved operating leverage.

Turning to the investment. Of the $250 million we've invested in technology over the last 3 years, about 20% has been spent on data and applications in support of our LFI readiness. The majority of the spending has gone to enhanced data capabilities, to give you a sense of the scale. We've added over 1,000 data elements to our cloud-based enterprise data platform, which should have benefits well beyond LFI. We've also enhanced our financial systems, we put in a new treasury system and a new regulatory reporting platform. In short, we're ready to cross over $100 billion.

Turning to the bottom right, run the bank. I want to focus on the modern technology for the bank we've established. We have 100% of our business applications in the cloud or in a hosted environment. About 50% of that is SaaS and PaaS, about 50% of that is in our private cloud. Within the private cloud, half of those are commercial off-the-shelf software and half of them are custom in-house built applications. We leverage SaaS, PaaS and commercial off-the-shelf, which represents about 75% of our application estate for commodity capabilities. It allows us to be efficient with our spend and put the remaining focus of our software build efforts into our S-curve specialty businesses.

I will say also being in the cloud gives us the things you expect from the cloud: scalability, resiliency, security, efficiency, but more importantly, for the future, it gives us proximity to existing and emerging AI capabilities. I'll come back to AI in a bit.

Pivoting to grow the bank. Significant investments in our building blocks improve our speed to market responsiveness and reduce the marginal cost of growth. So our building blocks include investments in a fully integrated modern payments hub, an advanced API gateway with a set of open banking and purpose-built API capabilities and advanced data and AI capabilities. This allows us to create innovative digital platforms, build distinctive AI-based capabilities and to leverage AI-driven capabilities that result in tight operating linkages between the bank and our clients. This allows us to build long-term relationships and minimize attrition.

Let me give you an example of how these building blocks come to life. You heard from Dale earlier today about our settlement businesses. Well, in there, we use our APIs and payment hub foundation to enable Juris Banking to offer more settlement payment options than others, Zelle B2C, PayPal, Venmo, ACH Check and an ever-growing array of options. At the very low incremental cost to build that solution, it's a real advantage for the bank. And I will say many of the elements for that build will be reusable as we continue to innovate in other businesses. Think of the building blocks as LEGO blocks. What we've built is a set of LEGO blocks that we can put together for different businesses. So as we come up with new S-curve ideas, we're able to support them from a technology standpoint.

As you've heard throughout the morning, we use technology to differentiate via tailored platforms that allow us to deliver on our S-curve strategy. One of the keys to our success is that we dedicate persistent teams to persistent capabilities. Our agile continuous delivery teams are aligned to each business to allow for continuous, not episodic investment and innovation based on customer feedback. We often co-create our solutions with our clients to make sure we're adding features and capabilities that they most want and need.

Since you've already heard about many of our S-curve specialty businesses and the role technology plays today, let me share a bit more about how we win with people, process and technology and business escrow services.

The bank started the business with the idea that technology would be a key differentiator in this space. This is a market where clients care about certainty, transparency and speed, especially in M&A-related transactions. We've built a technology-enabled escrow platform that digitizes onboarding, transaction setup and ongoing administration. Complex escrows are established quickly with deferred workflows -- defined workflows and a strong controls rather than manual one-off processes. All stakeholders, buyers, sellers, advisers, have real-time secure visibility into balances and activity through our client portal, which reduces friction and operational risk for them. Because escrow events are workflow-driven, we can support large balances over extended durations with real operating leverage. The result is a better client experience and stable low-cost deposits for the bank.

Let's pivot to my third key message for today that our technology and AI investments drive innovation, productivity and growth. All right. It's Investor Day, it's 2026. There had to be an AI slide, right? So this is it. Let me -- I want to focus on 2 aspects of our AI transformation, what we've accomplished and where we're headed.

Speaking to today, our AI capabilities have been rolled out across the bank to 100% of our employees with an estimated $10 million in productivity gains saved from 150,000 employee hours in the last 12 months. In addition, all of my technologists have access to AI coding tools, which I believe will allow us to continue to accelerate our ability to innovate and differentiate across all our business lines, but especially in our S-curve businesses. We continue to make investments in these capabilities and training to drive personal and team productivity, and we believe we're just scratching the surface of what's possible with AI.

A big part of what's possible is found in the burgeoning use of agents. And I'll give you a window into this with 2 examples. The first example are 3 agents that we built to support our bankers and customer support specialists in our branch and small business banking. First one is called solution pilot. This handles the operational and technical questions bankers face every day: process questions, system questions, documentation support. The second one is called sales pilot, which is a sales assistant and tutor all-in-one. It helps bankers research clients, identify opportunities and build stronger discovery conversations. The third one is called relationship pilot, and this allows a banker to answer 6 or 7 questions about a client. And in a couple of minutes, they have a full picture of the client with opportunities, next best actions, call and e-mail scripts, a relationship health summary and a page we're really ready to take into a client conversation. So far, the reception by the bankers using these tools have been really positive, and we expect great outcomes from them.

The second example I'll share is a more sophisticated multi-agent solution that takes thousands of pages of documents we get from our third-party vendors, financial docs, security docs at all, analyzes those documents and prepares the data for human-in-the-loop reviews by our subject matter experts. What used to take 36 to 48 hours per vendor, now takes 10 to 20 minutes. I will say the same base capability is actually being used for credit agreement reviews and data extraction and corporate trust, and in about 5 or 6 other areas today with many numerous use cases we expect over -- across the bank over time.

Speaking to tomorrow and turning to the bottom row, we think there are significant opportunities in 4 areas where AI will have a significant impact. The first is a lending life cycle redesign and reimagination, where we expect to see significant cycle time improvement. The second is in financial crimes and risk management. An example of this is our use of AI in -- to prevent fraud in our Juris DST settlement payment business. The third area is cyber threat monitoring. We're going to protect ourselves from AI with AI. I know that sounds strange, but that's kind of where we're at in the world these days. Last one is market and customer insights. And this is an example of how we use AI in AmeriHome for pricing and lead identification, which can improve our recapture rates. So we see a lot of other opportunities to drive several opportunities with market and customer insights.

We have a clear road map with some near-term priorities. And as Ken said, we've got priority 1A, 1B and 1C. 1A is our targeted deposit growth businesses where we continue to invest in technology, particularly digital assets, corporate trust, business escrow services, which supports lower cost deposit growth and PPNR expansion. 1B is expanding our AI use cases to drive efficiency across the bank. And 1C is hardening our cyber defenses against the evolving AI threat. Our medium-term priorities see us moving from foundational capabilities to accelerated innovation and AI-enabled products supporting meaningful improvements in operating leverage.

Now before I turn it over to Vishal, I'll remind you of the 3 key takeaways from my section. One, we've built a strong modern technology foundation to serve and protect our clients. Two, we build technology that creates distinctive advantage, drives efficiency and lowers the marginal cost of growth. Three, our technology and AI investments drive innovation, productivity and growth for the bank as we continue to build on our S-curve philosophy. These are the keys that will enable us to continue to be the bank where diversification meets innovation. Thank you.

Please welcome Vishal Idnani.

Good morning, everyone. I'm Vishal Idnani, Chief Financial Officer. I want to thank each of you for attending our inaugural Investor Day. We really appreciate your interest in our company. I joined Western Alliance in October of last year and shortly thereafter stepped into the CFO role in January. Before joining Western Alliance, I was at JPMorgan for close to 2 decades, where I covered the banking sector extensively.

So what drew me to coming to work at Western Alliance? I would say, first off, I really believe in the differentiated and diverse business model that we have here; two, I think consistent execution from the management team; and three, I think the bank has a very strong track record of delivering peer-leading growth and returns.

For my presentation this morning, I want to talk about what we've done to fortify the balance sheet, how those accomplishments are leading to durable earnings and why I believe there is a compelling financial outlook from here.

So I'd like to begin with 6 key messages that I'd like you to take away from the presentation this morning. First, we have fortified the balance sheet. There has been a transformational change in capital, liquidity and deposits. Two, earnings momentum is accelerating in the business, and we think this is going to continue going forward because of strong operating leverage. Three, I really hope today we've given you a peek under the hood at these diversified growth engines that we have and why they actually lead to peer-leading PPNR and tangible book value growth.

Four, our earnings are resilient across a wide variety of both rate and credit cycles. We have intentionally structured AmeriHome to act as a natural countercyclical buffer to our naturally asset-sensitive balance sheet. Five, we think there is a disconnect between our valuation and the core fundamentals that we see in the business, and I'll spend some time on that. And finally, we would like to give you a view on where we're planning to take the company, what does the medium-term outlook look like and why we see a clear line of sight to a sustainable and achievable 16% to 17% return on average tangible common equity.

All right. Let me get started here. As I mentioned, I wanted to talk about capital liquidity and deposits. Starting with capital, what you will see is our CET1 over the past 3 years has increased by 1.7% to 11%, and we are now currently operating at our target capital level going forward. Our total capital ratio has increased by even more, up 2.3%, now at 14.4%.

Moving to the center of the page, what you will see from a liquidity perspective is we were running at a 97% HFI loan-to-deposit ratio. Today, that is down to 71.5%. I think at this point, we have overshot our target on the loan-to-deposit ratio. And what you will hear me talking about later is how we're going to increase that back to the 77% to 80% range.

If you look at the bottom middle here, cash and securities, today, represent close to 30% of our balance sheet. That has more than doubled from 3 years ago. And what's important is we've increased the capital and liquidity, but we've also improved the quality of the deposit base.

So if you look here on the top right, our insured and collateralized deposits today represent over 70% of the deposit base, that's up 25 points. How are we able to achieve this deposit quality? We have grown specialized deposit verticals by close to $20 billion across the 6 differentiated verticals that Dale walked you through earlier this morning. What's even more impressive about that is 5 of those 6 verticals are new over the past couple of years.

I'd now like to spend a minute on how our capital levels compare to peers. For reference throughout this section, when I refer to peers, we took the 22 publicly traded banks with assets between $50 billion to $300 billion in assets. Our CET1 is in line with the peer median at 11%, and our total capital ratio sits in the top quartile amongst this peer group. Also, when you compare our capital ratios to the regulatory minimums of 7 and 10.5 percentage points, we're sitting on north of $2 billion in excess capital. That is supported by our strong liquidity position.

Today, the bank is sitting on over $40 billion in access to liquidity between both on-balance sheet and off-balance sheet sources. That is largely backed by our available-for-sale securities portfolio. This portfolio is largely AFS. It's not HTM. It's comprised mostly of treasury and agency-backed securities. It's got a short duration at 2.5 years and an average yield of 4.5%. Importantly, we do not have a large mark on our AOCI portfolio compared to some of the other regional banks. And we demonstrated this again in the first quarter where we were actually able to take in $50 million in securities gains, and we reinvested those proceeds at actually a higher reinvestment rate.

So with that, I'd like to close out takeaway number one, which is I believe the balance sheet has been fortified. There's been a transformational change. And what this will allow us to do going forward is now we're going to optimize the balance sheet and the income statement given the change we have.

So let's pivot to earnings momentum. This page shows you a variety of metrics on our income statement. And what I want you to take away is there has been broad-based earnings momentum across this income statement. First off, our net interest income is up 11% CAGR over the past 2 years. What I'm particularly excited about is the fee income. Our fee income has more than doubled from a couple of years ago, and the CAGR on that is 55%. When you put the net interest income and the fee income together, our total revenue is up 16% CAGR over the past 2 years. That is even further compounded by our PPNR, which has been up 20%. In fact, last year, we hit record PPNR of $1.43 billion. And stepping to the bottom line, both our net income and EPS grew at a 16% CAGR.

Now how are we able to achieve these metrics? It is largely based on our ability to take operating leverage out of the business. So last year, for example, in 2025, we grew revenue dollars by 4x what the expense base grew. What that means from an efficiency ratio perspective is that our stated efficiency ratio was down by 430 bps, while our adjusted efficiency ratio, which excludes deposit costs that sit in our noninterest expense, was down 3 percentage points, down from 53% to 50%.

How does our efficiency ratio compare versus the peer group? Our adjusted efficiency ratio at 50% sits in the top quartile versus peers. And if you were to look at just take the dollars of expenses over average assets, as you can see here on this bottom chart, we have the second lowest cost structure across the $50 billion to $300 billion banks, and that is largely because we have a branch-light and scalable business model.

So with that, I'd like to close out our earnings momentum. And now I want to talk to you about the diversified businesses you've heard our different leaders talk about today.

The reason we're in all these different businesses is because it allows us to be a top quartile grower on both loans and deposits. Whereas a lot of the other regional banks are dependent on M&A to drive growth, we do not need to do that.

Let me start with the deposit side. In 2025, we grew the deposit base 16%. That is 5x what the regional bank peers were able to do. And putting that in dollars, that was $10.8 billion in deposit growth, while we took down brokered deposits by $1.4 billion. So we're not just focused on deposit growth, we're focused on the quality of that growth. And when you pull back the lens over a longer time period over the past 10 years, we've grown deposits at a 20% CAGR.

When you move to the loan side of the balance sheet, we are a top quartile loan grower, both last year and over the past 10 years. What is really important about this is that the growth is diversified. It is diversified by geography, it is diversified by product, and it is diversified by sector and industry. We love our national business model because this is the beauty of it. We are able to go across the country and see what are the best risk-adjusted returns, in which sectors and geographies, and we're able to dynamically allocate capital to where we think we can get the best return.

Now this growth is not just growth for growth's sake. It translates into 2 key metrics, which we believe are fundamental to shareholder value creation. First off, PPNR growth. Over the past 10 years, we've grown PPNR by 18%. That is a full 10 percentage points above the peer median. And when you move to tangible book value, unsurprisingly, tangible book value per share has moved in lockstep with that, up 17%, close to 3x what the peer median has done from a tangible book value growth perspective.

I'd now like to move toward the resiliency of our earnings. So what you will see on this page is regardless of a variety of different rate environments, we think the business is set to perform well. On this page, you have at the top half, some of the standard scenarios that we're used to showing the Street, such as the ramp up 100 bps or down 100 bps. But we've also modeled a couple of other scenarios such as the bull flattener, bull steepener and a more adverse stagflation scenario.

The first thing I would tell you about our rate sensitivity is when you look at the net interest income, we remain asset sensitive, as you will see in that page. But we tend to -- as we're managing the business, we tend to focus on earnings at risk. What's the difference? Two key things. Earnings at risk also captures the fee income in AmeriHome's business, and it also captures the ECR deposit dynamics that sit in our noninterest expense base. So we think that's the more appropriate way to think about what earnings would do.

When you look at this analysis, regardless of the rate scenario we've modeled here, our earnings at risk is either stable or improving. I'll give you one example here, and it goes to what Josh was talking about earlier today. AmeriHome acts as a very nice countercyclical buffer to our naturally asset-sensitive balance sheet. So for example, in this first row, if rates go down 100 bps, our NII would go down as the loan portfolio is tied closer to the shorter end of the curve, we'd lose some NII. But if you look at our earnings at risk, it's going to be up 1.7 percentage points because we're going to outperform on the origination side with AmeriHome's business.

I also want to spend some time talking about what would happen under a capital stress scenario. So on this page, we went and took the 2026 CCAR severely adverse assumptions, and we actually added some idiosyncratic items to make it even worse from a housing perspective. I've listed all the assumptions on the left, but I'll give you a couple of the high-level ones.

Unemployment goes to north of 10%. You see significant declines in home prices and CRE. When you put these assumptions together, what does it mean for losses? It is about 5 percentage points of losses, 5.3, and that represents about $3 billion in pretax losses. Now because of our strong PPNR generation that can help offset some of these losses, what you see on our capital ratios is CET1 and total capital go down by about 2 percentage points in this scenario. The stress test, as you know, is over a 9-quarter period. And so these ratios represent the minimum over that period, which would be 9% and 12.5% for CET1 and total capital, respectively. We believe our income statement and balance sheet are resilient across a wide variety of environments.

Now, I want to kind of bring a lot of these things together and put up on the screen kind of the scorecard for 2025. So this is Western Alliance versus the peers I mentioned. And what you will see is we are either in the top quartile or top half on a lot of these metrics.

Starting with the balance sheet, you will see we grew deposits #1, and we grew loans #3. We grew both PPNR and fee income second in the group. Our expense base on adjusted basis was the second lowest. We grew EPS #6. And last year, we grew tangible book value ex AOCI as the #1 grower last year. And finally, we did that while having the sixth highest return on average tangible common equity at 15%.

Now why do I walk through this? We believe there's a disconnect between the fundamental performance that we have when you contrast it to where the valuation sits, where we sit in the bottom quartile on both a price to earnings and price to tangible book value basis.

Now I know what you're all thinking. He's a former investment banker, is there any way we're getting out of this section without a regression? Well, I do not want to disappoint. So here's the regressions. On the left side, I think we have the very well-established relationship between returns in the banking space and valuation. The higher returns, the higher the valuation. As many of you have seen, we sit at a material discount to sort of what the regression line would imply. I think one of the key things we're focused on as we optimize the balance sheet going forward is, is there an opportunity over the near and medium term to bridge this gap.

We are also looking at one other item, which you will see on the right side of this page, which is the correlation between what we've been able to do with EPS returns over the long run, the last 15 years versus stock price performance.

Okay. Now I would like to address 2 things head on that we tend to hear in the context of the valuation. The first one is the absolute level of reserves and the second one is the cost of funding and the ECR-related deposits.

So let me start with the absolute level of reserves. Today, our total ACL to funded loans is 87 basis points. We believe, as you heard from Lynne, that number is reflective of the risk that sits in the portfolio. So for example, if you make one simple adjustment, we have $8 billion of residential loans that are covered by 3 credit-linked notes. If we were to take a loss up to the first 5 percentage points on those mortgages, it would be absorbed by cash that sits on the balance sheet given the structure. If you simply make that adjustment, our ACL would move up to 1%.

We also have numerous loan categories on the balance sheet, such as mortgage warehouse loans, capital call lines, where both Western Alliance has never taken a loss, and I'm not aware of any of our peers who've taken a loss in this business away from fraud. So when you start factoring in the mix of these loans, we think our reserve looks closer to the 140 level.

But let me throw out a couple of other statistics for you. First, if you were to take our RWA to assets, right, just straight regulatory definition, we're sitting at 64%, that is the third lowest RWA to assets among all banks between $50 billion to $300 billion in assets. And it is because 30% of our balance sheet sits in cash and securities and 25% of our loan book sits in low LTV, high FICO residential mortgages. So we do think it is important to not only look at the absolute level, but to look at what sits in the underlying portfolio.

I think Lynne did a nice job earlier kind of showed you a different view with the composite risk score as well. So with that, I want to move to the second one, which is the funding cost.

Now I acknowledge and appreciate we've got some work to do here. And I think what you're hearing from us is that journey has begun. In the first quarter, we put up $5.6 billion of deposit growth, and we now are very close already to hitting our target for the year at $8 billion. So what you're going to see from us going forward is an optimization of the deposit base. As David Bernard talked about, these are very important relationships to the bank. They've been with us for a long time. So we're going to do this in the appropriate fashion.

I know there are a lot of questions around the direction of the ECR deposits. I try to do the best I put on the right side of this page to give you some direction on where we're taking this. I want to be very clear, this will not happen overnight. It's going to be deliberate. It's going to take multiple years to get there, and we're going to do it in a very methodological fashion. And I think we will get there.

But here, what we're putting up on here is specialty escrow is going to continue the mix. These are the changes in mix. We'll go up 4 to 7 percentage points. Commercial banking and HOA are going to go up as a mix perspective. And what's going to come down is mortgage banking, the mix will come down somewhere between 2 to 4 percentage points. Consumer digital and corporate broker would go down by 3 to 4 points.

To help you think about what this means from a profitability perspective, we think the NIM will move up from here, and we're targeting something in the 3.60% to 3.70% range. So that is the color we would give you on where we're taking the deposit base.

Now the last section I want to walk you through is what is the outlook for the business. I want to start with the near term. So on this page, we have the 2026 guidance that we gave you with earnings. I want to emphasize here, this guidance is exactly the same as a couple of weeks ago. We have not changed guidance since earnings. I do want to reiterate a couple of numbers, which I will reaffirm for the year.

We are still on track to do $6 billion of HFI loan growth this year, and we're on track to hit our $8 billion deposit growth target. On the net charge-offs, even with what you saw in the 10-Q yesterday, we reaffirm our guidance range for the year in the 25 to 35 bps range. We've been saying for a while now, we do think charge-offs and the nonaccruals will be elevated in the first 2 quarters. As you heard from Lynne, there are multiple things we're working on. She talked about 6 specific loans, which is why we're confident that towards the back end of the year, we'll see some relief on the nonaccrual side.

The other thing I want to flag as you're thinking about earnings for '26, I would look at the trajectory from last year. Our earnings do tend to ramp up over the course of the year. So I would just look at that as you're thinking about the model going forward.

Now moving towards the medium term, we are now establishing our medium-term targets. First is the return on average tangible common equity. As I mentioned, our goal here is we wanted an achievable and sustainable return on average tangible common equity, and we think we can get there in that 16% to 17% range. That would be supported by a return on average assets in the 1.20% to 1.30% range and by an adjusted efficiency ratio of about 48 percentage points.

Now I wanted to spend a minute on how we're thinking about capital allocation going forward. We are going to continue to be a disciplined and dynamic allocator of capital. First off, we look to reinvest in the business. Given we've got this national reach across the country, we will put up the capital where we think we can get the best returns. If we see an interesting opportunity to start a new S-curve or another business that can grow to be a significant part over the coming years, we will do that. On the dividend side, we're going to continue to grow dividends in line with historical precedents.

Finally, on share repurchases, I think you will see here that we're going to talk about a target going forward that's dividends and buybacks in the 20% to 25% range. I do think that will be a part of the story going forward because now we have reached our target capital of 11%. And when we don't have the right opportunity on the loan side or on the business side and given what I talked about on the valuation, we would be active on the share repurchase side. So we're going to dynamically move on the capital deployment.

Finally, if you bring all these pieces together now, and we've talked about a lot of them over the course of the presentation, this is the waterfall walk for ROE of how we get from 15.3% to that 16% to 17% range. We really think there is a clear line of sight to getting there, and there are 4 key levers.

The first one is on the lower cost of deposits. And as you will see, it is one of the largest drivers to getting us there. With the deposit remixing we talked about, pushing down the deposit costs, we think we can get the NIM into that 3.60% to 3.70% range.

Two, fee income is going to continue to be a priority for us. We talked about Josh's business with AmeriHome, the Juris income, treasury management with Tim Bruckner on the commercial banking side. We're going to target getting fee income to revenue in that 18% to 20% range.

Three, Sonny talked about some of the things we're doing on the technology side to help the different businesses. We're enabling technology across the platform. We think we'll be in that 48% adjusted efficiency ratio.

And finally, we think there's a lot of optimization we can do on the balance sheet. The loan-to-deposit ratio is too low today. We're targeting that to be in the 77% to 80% range. Total capital deployment in that 20% to 25%. And when we talk about the medium term, we are factoring in about $200 million to $300 million in cumulative share buybacks in this fourth lever.

Now importantly, I walked you through what is in the 16% to 17%. Let me walk you through what we did not include. We do think there are tailwinds at our back, and there are multiple macro and regulatory items that could push us to the higher end or above this ROE range. First off, as you're all aware, the Basel III proposal is underway. The comment period is going on.

On a preliminary basis, what we have estimated is we would get about 80 bps of RWA relief if the proposal were to go through the way it is today. We could reinvest that capital in the business. We could buy it back, but that 80 bps is not factored into the guidance I just provided you.

Another thing that we're going back and forth on is the treatment of MSRs. As you know, we have a $1.5 billion MSR on the balance sheet. It is currently risk-weighted at 250%. There is dialogue going on about could that drop to 150% or 100%. Illustratively, if the MSR were to drop from 250% to 1%, that is an additional 40 basis points of CET1 capital that would be created.

Moving to the second bucket, the tailoring rules. Now I know we keep talking about at some point, they're going to raise the $100 billion. We haven't seen it yet. All indications point to at some point later this year, it would happen. What we would tell you about the $100 billion is, as Emily talked about, we're prepared to cross the $100 billion, right? Given the growth profile of the bank, we've always planned to cross this and be ready for it. If they do push the $100 billion up, I think it will give us a little bit more flexibility and maybe will come with some modest expense savings.

Finally, we think there is a big opportunity if we see sort of a refi boom. The current administration is very focused on home affordability. And we're currently sitting with mortgage rates around the 6.50% range. But Josh talked about it earlier. 27% of the mortgages are sitting now above 6%. And I will tell you, in the mortgage business in February, when rates dipped below 6% for 2 to 3 days, we really saw the business start to take off. So if we see the long end of the curve coming down, we think there's material upside in the mortgage business.

Now to wrap up, I want to just talk about what are the key messages we walked you through over the course of today. First, Western Alliance is a scaled national commercial bank built around specialized verticals. And that model is delivering consistent above-tier growth and top-tier returns. That growth is supported by a structural funding advantage where technology-enabled deposit platforms are driving durable, lower cost and highly scalable funding.

We've built a differentiated mortgage platform where AmeriHome and related businesses create a countercyclical earnings flywheel supporting client growth, fee generation and resilience across different rate environments. All of this is paired with disciplined credit and risk management and supported by deep sector expertise and a model that has proven resilient across cycles. Across the platform, technology is enabling speed, scalability and operating leverage, allowing us to continue improving profitability as we grow.

So when you step back, this is a high-quality franchise with a fortified balance sheet, strong earnings momentum and a clear line of sight to a sustainable 16% to 17% return on average tangible common equity. And importantly, we do not believe that level of performance is fully reflected in the valuation today.

Finally, this is being executed by an experienced battle-tested leadership team with a strong track record of delivering through cycles. So overall, I believe we are very well positioned for growth going forward. And ultimately, that's what we believe defines Western Alliance, where diversification meets innovation.

I want to thank you all for your attention and for joining us today. We're going to take a short break, and then the management team and I will be back up on stage to take all of your questions. Thank you very much.

[Breaks]

We will now begin a Q&A session with our executive team.

So I guess Miles and his team have a few mics. First, I just want to say a big thank you to the management team. We rehearsed this boy, several times on Sunday, several times on Monday. And the best we did was like 90 minutes over. So the fact that we got this inside of just being 3 minutes over, big accomplishment here.

But anyway, we're open to all the questions you want, fire away, and we'll answer.

Andrew Terrell with Stephens here. Vishal, thank you for all the commentary around the profitability targets. I was just curious, you laid out the upside scenarios and what could go your way and maybe lead you to the top end or outperform. What do you see as headwinds potentially to the 16% to 17% ROATCE targets?

Yes. absolutely. It's a good question, Andrew. Thank you for it. I think obviously, as we've talked about, right, there's a bunch of different variability in the business. I think we do have AmeriHome at a 15% growth rate for this year. If this war continues, rates stay where they are, like there could be some potential risk there on the mortgage side. I think we feel very confident at the 15% right now.

But I think that business is rate sensitive. I also hope, Andrew, that we've shown you that our earnings at risk even with different rate environments is still extremely resilient. I think the other thing you've seen, obviously, is we're very focused on the credit side, and we're committed to delivering sort of multiple clean quarters.

Jared Shaw at Barclays. As we look at the expectation for growth in C&I lending over the medium term, how should we think about the provision reserve growing over time? And should we think about that as a provision as part of average loans? Or what's the target as that loan portfolio continues to transition?

Yes. I'm happy to start there. The team can add. As I mentioned, from an allowance perspective, we're at the 87 bps total ACL to funded loans. What we have said and we're continuing to say is we can -- you can expect to see the trajectory of that and the direction to continue to move upwards. We do tend to reserve more on the C&I side than some of the low-risk categories. So as Tim and the business continue to push and make progress on the C&I side, you will see that ACL continue to drift up.

In the near term, what we've been saying is that 87 is going to move to the low 90s before the end of the year. right? So that's kind of our near-term target, and that's largely driven by the mix shift on the loan side.

Matthew Clark, Piper Sandler. Just wanted to maybe clarify your definition of medium term. And it does -- because it sounds like the deposit remixing is going to take some time. I just want to get a sense for can you get -- obviously, you're starting to work your way there, but can you fully achieve that range without...

Thank you for the question, Matthew. I would define the medium term, call it, 2.5 to 3 years. That's the plan. And I think what's very important on these targets is we're not just trying to hit them once. The point of these targets is they're meant to be achievable when we have clear line of sight and we sustainably want to put up ROE in that range. And I would think about the medium term as 2.5 to 3 years from now.

Matthew, you did bring up something you said deposit costs and that's going to take some time. And so first, let me say, I think we're going to have to learn how to finesse our way through this because we're dealing with some of our larger clients. That's number one.

Number two, deposit cost is just an input into our overall operating expenses. And when you think about deposit costs, especially in warehouse lending that David Bernard talked about, we have 6 different relationships with a lot of our warehouse lending clients. There's the warehouse lending line, MSR line, no finance line. We also have their corporate accounts and treasury management services. We can buy loans and put them on our portfolio or they could sell loans to Josh, and he can then package them off and sell them out.

So deposit cost is just an expense line item. What we manage is the overall relationship and the value of the relationship. And so while everyone sometimes says, gee, look at deposit costs are going up, you don't say or you should say, look at PPNR, look what PPNR is doing. So if we have to sometimes overpay a little bit, which we're not happy about, and we're trying to work that number down. But if deposit costs rise a little bit, look at the total PPNR line item and see how that's moving. And that's what we're really focused on. But yes, deposit optimization is going to be one of our top priorities for the next couple of years.

Ben Gerlinger, Citi. It seems -- it's pretty clear that credit is the elephant in the room in terms of your earnings multiple. And with the most recent 10-Q, you've had a life science. Now through digging, it seems like you have 2 other life science relationships, one is better positioned.

But it gets to the broader question, when you look through your list, I know you gave some guidance of resolution near term, some legally might take a little bit longer. How do you get investors comfortable that this list might not see net new additions or any new additions at all as you work through the next, call it, 2 years of progression on a cleanup perspective?

So we wanted to be more transparent today that you saw us give you a little bit more in particular about that office vintage from 2020 to 2022. I would tell you that we do have the life science buildings within that particular portfolio. And we are 85% through, as I mentioned, either performing already modified and/or rated non-pass. The property mentioned in the 10-Q was one of those. We have 2 others that are out there. One of them is 100% leased. Another one has a primary tenant by a very, very strong well-heeled tenant with borrower support. We're actually in the process of modifying that loan to allow additional time for runway leasing. So we don't see any risk in those assets other than what we have already identified in the 10-Q.

I'd like to add something on the subsequent event that we disclosed the other day.

First that property has an all-in cost of about $200 million, right? Our loan is $99 million. So the first $100 million that's going to be wiped out is going to be sponsor equity. That's number one.

Number two, we focus on tangible book value and growing tangible book and we have had a practice and I think some success in taking in these credits or these properties, putting them in REO, leasing them up and then selling them out. So for those that want to go back and check, I think it was the second quarter of 2025, where REO topped out around 213, 214 and then it dropped down to about 130, right? We've been doing just that. We're taking these properties. We lease them up ourselves. Sponsors are usually slow, but we're faster in taking action.

Plus think of ourselves as venture funds, if you will. If we're taking in a property at 50% off of current cost to build, and our price to lease up could be less than what the market is, and we can lease that up and then we can grow it. And so that's another way that we attack these properties. And so you should think about that as we begin to unfold what our strategy will be around this particular property. It will not -- it should not be foreign to you if we decide to take it in and then lease it up ourselves.

Just a follow up to Ben's question. So you left the 2026 charge-off outlook unchanged. Does that mean you don't expect any material loss from that life science loan? Or is it still too early to determine the financial impact? And do you have a specific reserve on that?

Yes. So we have an appraisal that's in process. We do not have value back on that particular building yet. But I would say, based on what we've experienced in the rest of the portfolio, we kind of watched how that work out. That's why we continue to say that even with that, we think that the 25 to 35 basis point is still the right guidance for the year.

I want to just give a little more color to that question.

So in Q2, I think our outlook is you should expect around the same dollar amount as we had in Q1 in terms of charge-offs, right? Embedded in that number when we gave you that guidance was a designation for unknown losses that come in. And so if there is an appraisal shortfall on this property, it will go against this designated -- undesignated amount inside of the charge-off forecast.

Okay. And then more broadly on credit. So you've had the handful of one-offs, including the 10-Q disclosure yesterday. Anything you're doing different on credit risk management, assessing certain loan portfolios, maybe new deeper dives, just taking a fresher look at where your credit and risk management more broadly stands?

Yes, I'll start off and then I'll let some of my colleagues jump in.

So relative to the 2 frauds, we had both our second line of defense take a very deep dive on those 2 items, and we also had an outside firm come in. And their conclusions were as follows: One, the underlying credit origination process was good, okay? Where we fell short was even though we followed customary and standard practices of the industry, those practices could be improved. And we found the weaknesses, and we have improved them and we've changed our guidelines along those lines.

Emily, you want to add something on that?

I mean the only thing I'd add is the second line does do about a 40% to 45% penetration rate on all of the loans within the book. So they do a very, very deep dive. They do it every quarter. It's not once every 2 or 3 years. It's every quarter they're looking at that level of detail. And so they're doing horizontal reviews across the board to see where they can make improvements. But...

And that's all part of the LFI preparation. So we actually go deeper in our credit review than our examiners do when they come in. So it's just to be prepared.

I'd add one thing to that, though. You asked, are you doing anything different? We're a learning organization. Everything that we do advises how we move forward. You pay the price too long in banking of being wrong on something.

So of course, in office, we're not active in office. In the other areas, we've made adjustments to how we assess counterparty, counterparty risk and agency provisions for activities within that, that deeply shape how we move forward. So we're not at all tone-deaf to anything that we're hearing here. And I just reiterate, we're talking about 2 areas, very focused areas of the bank.

I'll give you a couple of interesting facts that are interesting. One, in the fraud that relates to note finance. Note finance over the last 10 years has made $450 million of direct PPNR, $450 million over 10 years. We took $126 million charge-off, which the story has still yet to be told on that, and we believe that we have a method to get back a recovery on that.

So $450 million over 10 years, $126 million charge-off, which we think will recover something on. That's all the same type of [indiscernible] type of baseball statistics that you love. So put that one there.

The second one is I'm going to cut the onion a little bit finer, and I'll let my General Counsel make a faith at me if I'm wrong about this. So I'll look at her as I begin to say this. She's already making a face. So she probably knows where I want to go and she's probably shaking her head, please don't do that.

But the second item is a breach of contract, and it's a little bit different. And we acted very responsible, very quickly to have that loan significantly paid down by 2/3. And that story hasn't been told, and we will aggressively pursue even though we can't talk about the item because it's in litigation, but we will aggressively pursue capture there, recaptured.

I do okay? Okay. I thought I was going to be brought up to HR after this, to be honest with you.

Gary Tenner, D.A. Davidson. Sorry, I had a bigger picture question for you with your new role on the deposit side and some comments around digital assets earlier. Just curious for your thoughts around the Clarity Act and agentic commerce and how you think that could impact the opportunities on the digital asset side over time and Western Alliance in particular?

This has been a fast-moving space. And I do think kind of getting the architecture around it solid, kind of reinforced so that people know what the rules are is going to be helpful in terms of having this sector kind of accelerate. So I'm looking forward to Clarity Act resolution in terms of what this looks like, I think, is helpful. We're really focused on being in a position to be at the nexus of where action happens.

I think if we are in a place where it's like, hey, you want to get something 24/7 in terms of liquidity, you can come to us. We can give you fiat on this type of thing, and we can give you options based upon whatever you might have on the crypto side that, as I said, we don't hold.

So for us, it's like we're kind of, I don't know, neutral in terms of kind of how this plays out. I mean, because what we're interested in is being the servicer for these types of activities in terms of what transpires. So I do think having more structure around this is generally a good thing.

David Smith, Truist Securities. On the capital front, the 80 basis points potentially freed up from the Basel III reforms is nice, but how are you thinking about the potential usability of a nominally higher CET1 ratio versus what might be expected from you on, say, a TCE basis from regulators or clients or the market being held just to the same TCE standard that you are today regardless of a nominally higher CET1?

I think we obviously manage the 2 metrics. The one, we actually think on the CET1 at 11%, we're being a little bit conservative because I think when you look at the commentary that's out there, it feels like peer banks are maybe pushing now more to the 10.5% range. I think obviously, we will take happily sort of any regulatory relief we can get on the RWA side and figure out what's the best way to deploy it.

I think after thinking about the businesses and what are the core S-curves where you can deploy them, I think you could see us redeploy that into higher share repurchases going forward. But we do appreciate your point on we also need to manage the TCE to TA. And I think that also depends on the AOCI position and other things that would happen on the balance sheet. I do think the TCE to TA, there is that disconnect right now a little bit because we do have 64% RWA to assets. We are sitting on a lot of cash and securities when you think about the TCE to TA ratio.

Second derivative of the deposit optimization may be moving deposits off the balance sheet, which will help that ratio as well. So we don't talk about that as much, but I think that's the second benefit.

And then on the lending front, clearly, it's a very diverse lending book in terms of the variety of segments with a lot of niche businesses. It does seem like at least some of them can lend themselves towards larger loan sizes. Can you share anything about the granularity from a client perspective, how many loans or relationships are $100 million plus, $200 million plus, et cetera?

No.

Okay. I think that's more from a competitive front that we won't do that. But Lynne, why don't you talk about how we look at it from a credit record?

Yes. So I would say that our executive team and senior loan committee meet at least annually, if not twice a year, to discuss what we call our direct obligor size, which is what you're referencing there. And I mentioned it a little bit in my presentation. Single asset, single source of repayment, we're going to have a lower obligor size there. If there is a collateral pool with multiple sources of repayment, we might edge up a little bit higher indirect obligor size. But we are very focused on that.

And I will tell you, just recently, a couple of months ago, we were shifting some a little bit down and some a little bit up based on what we saw in the sector and the performance in the portfolio. So it is something that we constantly revisit to make sure that it is within the credit risk appetite of the bank.

I will add something that's interesting, and I talk to other CEOs of similar-sized banks. And I think we're a little bit different. First, for our large loans, which is anything over $25 million has to go to the Senior Loan Committee. Lynne heads the Senior Loan Committee. First thing, no one person's yes vote is more important than anyone else's. Number two, there are 7 people on the senior loan committee sitting up here at Dale, Lynne, Bruck, myself, Tim Boothe is out there, Mike Riley, I don't know if Steve Dean is somewhere floating around here. But anyway, there are 7 of us, right?

We all 7 have to say yes. There's no 6-1 or 5-2 vote. If one person says no, we take it very seriously, and we either try to address the issues that person has or that person may convince us otherwise, okay? Now I will say there is one no vote that's a little bit greater than all the other votes. And I've only exercised that once and something I didn't like in a particular narrow vertical. But absent that, we all 7 have to say yes.

And the other thing I'll say that I think it's different, all the other banks, I don't know of another CEO and their top senior management team that, a, goes out and visit these clients before loans are granted. And I don't know of another CEO, at least the ones I've talked to, that sits on the loan committee and also reads 400 to 500 pages of loan docs over a long weekend, every weekend like all of us do to debate it. And I think that's what gives us a lot of our strength. And so we understand these loans, and we put a lot of pressure, I think, on the people that present to know their facts when they present to us so we can give final approval. And I think that's a little bit different, and I don't think that really gets a lot of play, but it goes to the credit discipline of the company.

Can we get a mic over here to Janet, please? And then...

This is Juan Recalde from Wells Fargo. This question is from Mike Mayo. For each of you, what's the biggest risk to your plans? You seem confident about sometimes plans don't pan out.

There was the question, what's the risk, what...?

The biggest risk that you see to your plans?

I'm sorry, the greatest risk...

The biggest risk.

The biggest risk.

Each of our plans or to our collective plan.

Do you want to start?

Yes, I'm happy to start. I think from my perspective, with the financial targets and just trying to think about where we're going to be over the medium term, it's the thing I can't control, which is sort of what happens on the macro side. Is there some other disruption somewhere in the world? Does something happen to oil prices? Are we going to have another drastic move in rates?

I'd say what I hope you took away from the presentation was we're trying to prepare the balance sheet and income statement for a wide variety of macro events, credit cycle, stress rate environment. But to me, that's what keeps me up at night. Like you wake up one morning, something has happened somewhere and there's a drastic change in the macro environment.

Stepping way back from the presentation today, there's some common elements and threads that went through everything that we saw and talked about. One, our foundation is built on diversity, on discrete revenue streams attached deeply to customer needs. That extends through on the lending side as it does on the deposit side. In each case, that value proposition, the need that we make creates a defensible moat.

The other thing that you'll see is as we move forward, everything we talked about is also building on that diversity. We don't put too many eggs in one basket simply put. And I think it's that diversity that allows us to really play best in any situation as opposed to depending on 1 or 2 things to happen in the macro economy to make it work for us. So we have to be the best in any situation.

And yes, we're positioning through diversity, through diversity in the portfolio through a very active now syndication capability to reduce our per dealer exposure and add granularity. But we're positioned stronger than we ever have been for anything that hits us.

I would say that for the deposit businesses, what really we're interested in is I want to continue to be able to stack these in terms of these new verticals. And we have some other ideas that we have not pursued yet. Maybe it's in part because we can only do so much and we do want to stagger kind of the implementation.

But I think the biggest challenge we have or the biggest risk we might have is, can we find the right team? I'm going to not describe it, but there is one deposit business that at least Ken and I had wanted to do for 5, 7 years that I think really has a lot of potential. We have not been able to find the team that can execute that.

And really, what's important in terms of how we've been able to be successful in those already is we got people that knew what they were doing already, and that's been really a key in terms of not making mistakes on getting these things implemented and out of the gate.

Chris McGratty from KBW. Ken and Dale, you guys were leaders in optimizing the balance sheet in '23 and '24. The question I get a lot is, are you getting paid for the growth that you're putting on the balance sheet today?

So I guess going back to your conversation that you have at the Board level, what would it take for you to pivot the capital priorities to be perhaps more buyback near term, hit your targets, valuation improves and then kind of flex it a little bit over the medium term?

So I think that's a very fair question and it's something that does come up at the Board, and it's something that we discuss among ourselves.

So the first thing I'll say is this mini strategic plan that Vishal discussed, our loan growth is a little bit less than what it historically has been. So that's the first place you'll see some change. Second, while there have been many companies that have pivoted to have much lower loan growth and a stronger buyback, the stock performance total shareholder return, I should say, has not been better than ours, right?

And so I think that proves our point, whether it be through tangible book value or total shareholder return that find taking the money and putting it into opportunities to grow the balance sheet prudently, responsibly in a thoughtful and sound way long term that produces the best results for shareholders. And when we sit and we talk about these things, and we talk about them a lot, we talk about building this enduring lasting bank that will be here well after all of us move on with our careers. And to do that, you've got to be very thoughtful in the verticals that we play in, both on the deposit side to get the liquidity to grow and then on the loan side. But it is an interesting question. We do talk about it.

And to be honest with you, in Q1, you saw the pivot, you saw -- we just looked at the stock and the stock should not be in the high 60s. And we said, wait a minute, we'll slow down HFI growth. We took in held-for-sale growth, which we were able to get more interest income. And for those that remember our Q1 earnings from Q4 to Q1, our net interest income was flat, which for 2 days less, that's pretty remarkable. We have a higher net interest margin, and we bought back $50 million of share.

So we do think about capital management. We do actively manage through it. But your question, Chris, I think, is a little bit more longer in terms of duration and how we think. And we think we've proven that concentrating on sound and safe and thoughtful long-term organic growth seems to work out best for our shareholders.

Janet Lee from TD Cowen. I can't see that you're very frustrated with your multiple in your stock considering the growth that you've had for many years. Just given that you have 10, 20 different verticals in your national business lines as well as just overall for the bank, would you consider slowing your growth a little bit more and should pivot more towards the regional bank that may be perceived as carrying a lower risk profile from the Street?

And I'll start off and Bruck will -- is probably dying to jump in.

Part of what we do is in a lot of other people's regional banks. I just -- we're not doing all that, that's so much different, okay? We talk about these lines of business a little bit more. But this is what commercial banking is, right? And I don't think we're any more -- I think we're less complicated than some of the larger $200 billion, $300 billion banks that have a wealth management business that have a consumer finance business.

We just particularly concentrate as a stand-alone commercial bank, right, looking at different opportunities to move and adjust capital and liquidity as we see the appropriate returns. And for us, boy, that is just so second nature for us. And I think your question relates a little bit to Chris' question about slowing down. It's not about complication for us. It's about where the best returns are.

Tim, do you want to jump in?

I want to really kind of build on that comment. We are capitalists. We're efficient allocators of capital in everything that we do. That's the duty to our shareholders. That's the duty to our employees. The show on the second to the last slide showed some things coming down and some other things going up. Among those was commercial banking will increase in share.

We have the ability now to increase in share in commercial banking because it's proportionately more profitable than it was for us. And this is the core of regional banking, includes our community, our specialty commercial, our end market real estate. It's more profitable because we went back and did the hard work to rebuild those engines.

So around treasury management, around payment capabilities to strengthen our syndication capabilities to add granularity to that book. As that continues to become more attractive, we can maintain a pace in income with less reliance on some of these other areas. So a more efficient utilization of capital comes out of that.

I will say what I find humorous, if I could say, use that word, is as a group, I would say all the analysts in the audience, how you project out our EPS year-over-year. So for example, in '25, we took in about $23 million of gains because we were able to time the market, put on some swaps and macro hedges that work very much in our favor.

And during a particular quarter, when we announced our earnings, many of you will say, well, we're not counting that because that's not repeatable. By the way, we repeated it in every single quarter since we started doing it. But let me just accept that. It's not repeatable. And then we get to the year-end and we look at what you guys are projecting for consensus and you start with all those gains in it and then you grow the earnings up to a certain level.

So there's some days I think that you don't want us to slow down as much as you ask that question all the time. Now we don't generate our EPS and our forecast based on your consensus, but we are very conscious of it, and we still would like to equal or beat. But to be honest with you, your consensus is way up here, and we have to work hard to get there. It's not an easy -- to tell you truth, lower your consensus and if you really believe that, and I'd rather come in and everyone beat and raise. But when we just get to where we are and we're exhausted, and we pat ourselves on the back. I'm sorry, we have parties tells, man, I can't believe we got to this number.

And even this past quarter, we got to $2.22 adjusted when before the war started $2.18. And we even [indiscernible] $2.18, we're saying, man, that's going to be up. That's going to be up. That's a great quarter if we get to $2.18. And we get to $2.22 and like we're exhausted and we didn't get much credit for getting to $2.22.

So I'll just say that a little bit as -- I'm using you as a proxy for all the other analysts. Sometimes it comes out of both sides of your mouth, and I'm not certain what you want. And by the way, if we were to say here today that we're cutting back our growth, boom, the stock drops dramatically. So we try to manage through all this is what I'm saying.

That's very fair.

Thank you for letting me have a moment, okay, to thank. I appreciate it. Normally, they send me to a person I have to lie down on the couch to pay about $300, but this is much, much better. And you all get lunch for listening.

That's totally fair. If I could squeeze in just one more quick question. What was the rationale -- what is the rationale behind purchasing the $13 million senior lien loan, nonperforming loan on the Cantor position? And what does that do to potential collateral position?

You want to take that?

Yes. So obviously, we've been working diligently on the resolution for that loan. And the original premise was that there was value that would have absolutely supported, right, all of our first liens. We've now discovered that due to fraud, there are some liens that are ahead of us.

We've completed our review of those properties. We have updated appraisals. We've also updated the liens. And now we're much more laser-focused on which are the ones that we want to take, obviously, through foreclosure and sale in order for our loan to be repaid. And in those instances, for those assets that have value and have what we're calling meaningful leftover value after a first lien, we wanted to have that first lien so that we could control the disposition of the asset and maximize the value that we're getting through that sale.

So what you're seeing us doing is protecting our liens that we have there for the assets where we know there is value that will assist in the full -- the repayment of that outstanding loan balance. We did take a charge because we're not going to go after every single one of them initially, although we will try to recover on every single property that's there. And then we are going to circle back and pursue the guarantors because we believe with the Bad Boy fraud carve-out guarantee that we have, they are 100% liable for that loss, and we intend to go after that for recoveries. But we did not factor that into the analysis with the charge that we took in the first quarter.

If I could be so bold, it's actually good news because what it means is that the liens in front of us turned out to be a little smaller than they thought we were going to be. And when we had the appraisals done, the property was worth a little bit more. And so it's like, yes, you know what, we want to protect our interest. We got to bump out number one where we should have been all along.

Yes.

And, is it fair to say that we may repeat this process again if we find there's extra incremental value to certain properties that could help pay off the majority of the loans, not all of these properties are equal, that we would do this again, right?

That's correct.

And so I think when you look at our NPLs, if you could think about it as what is an NPL that was a loan that we generated versus something we purchased to protect ourselves. That's the way we think about it as well.

But we're only doing it because, again, to Dale's point, the appraisals validated that there were value in the properties to repay the liens that were there.

Again Timur Braziler, UBS. I think my biggest takeaway from today is just meeting the depth on the team. And I'm just wondering maybe if you want to use this opportunity to talk to potential succession planning and then maybe as a corollary to that to this morning's announcement about Steve Curley leaving the bank and how that might impact succession planning.

Yes. So Steve got a great offer to become a CEO of a small bank on the East Coast. We wish him the best of luck. Part of our succession planning is exactly that with the Board. And actually, it's through the Governance Committee and the Governance Committee reports to the Board every quarter, and then we talk about this a lot in the executive session.

It's disappointing that Steve left. I'm glad he's leaving for a better job. It goes to show the type of quality of senior management team that we have sitting in front of you and also in the audience. But we prepare for those types of things, and that's been a constant contact.

I'm not going anywhere, as I said, that may have influenced Steve a little bit to not wait around, okay. He was looking around if I had a bad cough, maybe there was a different possibility. Come in, measure my curtains in the office. But Steve had some -- in all services, Steve had a desire to leave the company. He's very well qualified. He'll be missed.

But where is David? David started with Steve creating the Warehouse Lending Group. And David runs all of the Warehouse Lending Group, okay? Sonny also reported to Steve, but stand-alone running our tech and innovation and IT. I think we've got a very strong senior bench. And if I didn't show up tomorrow, the Board knows exactly what to do and how to move forward.

And in fact, to be honest with you, there was a couple of months that I had to step away. And what happened? The bank grew 23% year-over-year because of this entire leadership team and the people that are out there. I like the succession planning that we do, and it's very helpful and the Board holds me to that, and I have to be very well prepared at every Board meeting. Thank you for asking the question.

Ryan Kenny with Morgan Stanley. Thank you for a very thorough day. One of the questions that everyone in this room is always grappling with is where we are in the environment and in the economic cycle. And we've seen C&I loan growth and demand really accelerate across the industry over the last few quarters. Ken, you mentioned that you're a very active CEO on the ground meeting with key clients. What's really the mood on the ground? How sustainable is the demand and C&I growth that we've seen accelerate?

Yes. So I'll give my answer and all the other folks that have been out meeting with clients.

From a commercial side, the clients still have their animal spirits. They're still building and developing and thinking for the future. They haven't slowed down their business materially. We, of course, worry about as bankers, all the macroeconomic and geopolitical events that are happening. We haven't seen that yet at all.

And yes, and I was just -- I'll be honest with you, I was on the road with Brent 3, 4 weeks ago, just as soon as a lot of the news of the private credit was breaking. And so we get out there real quickly and the credit portfolios of all our clients are performing well. And then our portfolio is performing better than our clients' portfolios are. So we haven't seen that weakness, and we've seen -- still seen a lot of appetite to grow their business.

Tim, [indiscernible] and by the way, this is what plays into. I bet we haven't rehearsed this, but Tim will now take you through all the different lines of business where we find opportunities. Back to Janet, your question -- back to your question.

Thanks, Ken.

There he is.

Yes. I went through it in the presentation. I'll touch on it a little more deep here. Look at the BBB spreads, high-yield spreads and mortgage spreads. We're in a tightened environment, one of the tightest we've seen. Meanwhile, and that has been sustained over the last 12 months.

This bank is making more money in commercial banking and community banking than it has at any other point. And that's because we've really focused our team on the value proposition on the full relationship. This is not -- sure, you win sometimes with loans. But this is not a lead with loan business strategy. This is a strategy where we engage in segments where we have a compelling value proposition. We're deeply tied to the industry with recognized professionals.

If we don't have that, you know what, when spreads are this tight, you don't even win with long. And we're still winning, we're still growing, and we expect that, that can continue. In fact, it's actually accelerating when you get into what we're doing in the newer segments in food and agriculture, in health care, in aerospace and defense, some of which are actually buoyed a bit by what's going on in the economy right now. So we're optimistic. You'll see us continue to add dimension, breadth and depth to our business as opposed to watch our business as it exists fare in a changing economy.

There are no more questions. I think we'll wrap it up, Ken.

Yes. Listen, thank you. This is the first time we did this. I hope you found it interesting. I hope you understand how we think, how we run the business, what's inside the business, why we're comfortable with our projected credit performance, why we're comfortable with looking out and hitting our return on average assets and return on average tangible common equity guides.

And we just thank you very much for attending, and there's lunch, and then we're spread out through the room, and we're happy to continue to answer any questions that you have. But thank you all very much for coming today.

Good day, everyone. Welcome to Western Alliance Bank Corporation's First Quarter 2026 Earnings Call. You may also view the presentation today via webcast through the company's website at www.westernalliancebancorporation.com. I would now like to turn the call over to Miles Pondelik, Director of Investor Relations and Corporate Development. Please go ahead.

Thank you. Welcome to Western Alliance Bank's first quarter 2026 conference call our speakers today are Ken Vecchione, President and Chief Executive Officer; and Vishal Idnani, Chief Financial Officer. Before I hand the call over to Ken, please note that today's presentation contains forward-looking statements, which are subject to risks, uncertainties and assumptions. Except as required by law, the company does not undertake any obligation to update any forward-looking statements. .

For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, please refer to the company's SEC filings, including the Form 8-K filed yesterday, which are available on the company's website. Now for opening remarks, I'd like to turn the call over to Ken Vecchione.

Good afternoon, everyone. I'll make some brief comments about our first quarter 2026 performance before handing the call over to Vishal to discuss our financial results and drivers in more detail. After reviewing our revised 2026 outlook, Dale and Tim will join us for Q&A as usual. .

Western Alliance's financial results in the first quarter reflect strong core business performance alongside decisive actions taken on 2 previously disclosed fraud related credits. Adjusting for these actions, we generated earnings per share of $2.22, which is consistent with where we are tracking on a reported basis prior to the charge-off announced on March 6.

Importantly, these matters are now largely behind us. By removing these lingering distractions, we can refocus attention on the trajectory of our underlying operating performance. I will briefly review these related charge-offs and mitigating actions before discussing our core results.

As previously announced, we fully charged off the remaining $126.4 million balance of the loan to a fund the [ Leucadia ] Asset Management. We initiated legal action at that time of the announcement and are actively pursuing recovery through those proceedings. Given the nature of this process, the outcome may take time to resolve, and we will not provide further commentary while the matter is ongoing.

As discussed last month, we executed security sales, which generated $50.5 million of pretax gains. These gains, together with identified expense savings and other revenue initiatives substantially offset the impact of this charge. We are also providing an update on the Cantor Group [ Vibe ] loan. We believe the $29.6 million specific reserve established in Q3 and has been validated by current as-is appraisal values across all the collateral properties as well as our updated lean positions.

We believe recoveries on this loan will be realized in the future for multiple sources, including springing guarantees from ultra high net worth guarantors and a mortgage fraud policy. Due to the complexity and potential duration of the resolution process, we charged off $26 million of this loan during the quarter.

Turning to Q1 results. Deposit growth was exceptional at $5.6 billion on a quarterly basis, putting us ahead of pace to reaching our $8 billion deposit growth target for 2026. This outperformance positions us to accelerate the positive optimization programs, which should further reduce funding costs and support net interest margin even absent interest rate cuts this year.

In the first quarter, interest-bearing deposit costs declined 21 basis points, contributing to a 3 basis point quarterly increase in net interest margin to 3.54%. Total loans grew $903 million this quarter, split nearly evenly between the HFI and HFS portfolios. We grew HFI loans 3.2% on a linked quarter annualized basis and 8% compared to the prior year.

We deliberately grew the HFS portfolio with lower risk-adjusted weighting, so we could repurchase shares and remain at our target CET1 ratio of 11%. This strategy afforded us the opportunity to delay loan growth into Q2 and reevaluate the credit macroeconomic and geopolitical environments. We have not backed away from our $6 billion target.

Overall, core asset quality remained steady as net charge-offs for the quarter, excluding fraud-related credits, were marginally higher than the upper end of guidance. We believe the portfolio is past peak stress, particularly within office CRE as we've seen classified loans increasingly migrate towards resolution instead of further deterioration.

Classified assets to total assets declined 9 basis points from the prior quarter to 1.08%. We are positioning nonperforming loans to decline in the back half of the year with several credits to be resolved by Q3. We continue to manage our capital dynamically in an evolving macro environment. During the quarter, we repurchased 700,000 shares at a weighted average price in the low 70s, reflecting our conviction in the intrinsic value of the franchise.

Strong capital generation drove an adjusted return on average assets and return on average tangible common equity of 1.07% and 14.2%, respectively. This supported a stable CET1 ratio of 11% and ACL ratio of 87 basis points while compounding tangible book value per share, 13% year-over-year. Overall, we delivered strong balance sheet growth, net interest margin expansion and sustained core earnings momentum underpinned by healthy risk-adjusted PPNR, while also opportunistically defending the stock through accelerated share repurchases.

Western Alliance continues to benefit from a highly diversified franchise, differentiated marketing positioning and deep integrated relationships with our clients that will enable us to perform across a wide range of economic scenarios.

At this time, Vishal will now walk you through our results in more detail.

Thanks, Ken. In the bottom right corner of Slide 3, we highlight 2 earnings adjustments this quarter. The execution of a series of security sales generated aggregate pretax gains of $50.5 million. These gains partially offset the impact of the land provision and together reduced net income by $62.1 million or $0.57 per share on a net basis. As a result, my comments on our adjusted performance exclude these items as we do not view them as reflective of the ongoing run rate outlook of the business.

Turning to the income statement on Slide 4. Net interest income of $766 million was in line with the fourth quarter and increased approximately 18% year-over-year. Lower funding costs driven by declines in interest-bearing deposit costs helped offset pressure from lower loan yields, while higher average earning assets also supported NII stability.

Noninterest income increased 18% quarter-over-quarter to approximately $253 million. Excluding securities gains realized in both Q1 and Q4, noninterest income would have declined modestly by $5 million, largely due to lower mortgage activity. Service charges and fees increased $15 million sequentially, primarily reflecting strong performance in our tourist banking business with the corresponding but smaller offsets flowing through other noninterest expense.

Mortgage banking revenue was stable year-over-year, but declined $18 million from the prior quarter. Importantly, fundamentals across the mortgage business continued to improve with gain on sale margin expanding 18 basis points year-over-year to 37 basis points and loan production volume increasing 18%.

Q1 mortgage earnings were impacted by the sharp backup in interest rates highlighted by the 10-year treasury yield rising 33 basis points in March. Elevated rate volatility during the month also created modest headwinds for hedging performance and servicing income. Early April results indicate mortgage banking is reverting to levels seen in January and February before rates backed up. Noninterest expense increased about $22 million from the prior quarter to $574 million.

Excluding the FDIC special assessment rebate recognized last quarter, noninterest expense only increased about $15 million. The increase reflects higher compensation expenses related to annual merit increases and other typical Q1 costs. Deposit costs declined from a full quarter impact of 2 Fed fund rate cuts in Q4.

As mentioned earlier, the increase in other noninterest expense was partly driven by higher tourist banking fee revenue and related expenses. Adjusted pre-provision net revenue was $394 million, up 42% from the same quarter a year ago. Provision expense was $87 million, excluding the Lam charge-off cited earlier.

Adjusted net income available to common stockholders was $241 million, representing a meaningful increase from a year ago and generated adjusted EPS of $2.22 and up 24% compared to reported EPS in the prior year period. Now turning to the balance sheet on Slide 5. Cash and securities rose meaningfully toward quarter end, driven by strong deposit growth.

As we execute our deposit optimization strategy, we expect the relative size of cash and securities to total assets to return to more normalized levels seen in Q4, while our loan-to-deposit ratio returns to the mid-70s. And Total loans increased $903 million from the prior quarter. Diversified and meaningful contributions from mortgage warehouse, Juris, HOA and Regional Banking drove $5.6 billion of quarterly deposit growth.

We view this outsized growth as providing flexibility to further optimize deposit funding costs throughout the year as deposit growth approaches our 2026 target of $8 billion. Our balance sheet expanded in total by $6.1 billion from year-end to just shy of $99 billion in assets. The slight decline in total equity resulted from more active share repurchases and a rate-driven change in our AOCI position, mitigating the impact from continued organic earnings growth.

We opportunistically repurchased $50 million of shares during the quarter, bringing programs to date repurchases to 1.6 million shares for $120.4 million at an average price of $76.5. Looking closer at loan growth trends on Slide 6, HFI loan growth continues to be powered by C&I loan categories.

Nearly 2/3 of quarterly HFI growth came from C&I with the remainder concentrated in residential loans. From a business line perspective, regional banking was the primary driver of quarterly growth led by homebuilder finance with solid contributions from innovation banking in-market commercial banking and hotel franchise finance.

Now flipping to Slide 7. Robust deposit growth of $5.6 billion was a standout of our balance sheet growth in Q1. Strong growth in mortgage warehouse deposits and solid growth in specialty deposit channels like Juris and HOA put us well ahead of plan for the year. Average deposits grew $1.8 billion or $3.8 billion less than period-end deposit growth.

Turning to our net interest drivers on Slide 8. Interest-bearing deposit costs declined 21 basis points from sustained cost reduction despite growth in average balances. Overall, liability funding costs moved 12 basis points lower from Q4 and mostly from lower deposit costs as well as reduced borrowing costs stemming from less reliance on short-term FHLB borrowings.

On the asset side, the securities yield rose 5 basis points from the prior quarter to $4.59 due to a shorter day count. Despite the elevated level of security sales during the quarter, we were able to reinvest at slightly higher rates due to the recent backup in rates. The HFI loan yield compressed 16 basis points following a full quarter impact of rate cuts made in late October and December.

Looking at Slide 9. Net interest income was stable versus Q4 at $766 million, supported by $1.1 billion of average earning asset growth and lower funding costs. Earning asset growth was driven by C&I loan growth as well as higher held-for-sale balances. Net interest margin expanded 3 basis points sequentially to 3.54%, reflecting meaningful reductions in funding costs.

The interest cost of earning assets declined 12 basis points, while the earning asset yield compressed only 8 basis points with rounding accounting for the net 3 basis point improvement in margin. strong back-loaded deposit momentum increased liquidity toward quarter end as evidenced by the significantly higher period end cash balance despite a slight decline in average balances during the quarter.

Turning to Slide 10. The efficiency ratio of 56% and adjusted efficiency ratio of 48%, both improved by approximately 8 percentage points year-over-year. We continue to realize strong operating leverage as year-over-year revenue growth outpaced noninterest expense growth by approximately 3x.

As discussed earlier, noninterest expense increased $22 million in Q1 or approximately $15 million when adjusting for the FDIC special assessment rebate recorded in Q4. The increase was primarily driven by seasonally elevated compensation costs as well as incremental expenses incurred to support higher Juris banking fee revenue.

Deposit costs declined $8 million due to lower rates although higher balances driven by momentum in HOA and Juris partially offset the benefit from the rate reductions. On Slide 11, you will see we remain asset sensitive on a net interest income basis. when factoring in the potential impact on earnings from mortgage banking revenue growth and also reduced deposit fees our modeling now indicates we are slightly liability-sensitive on an earnings at risk basis in a down 100 basis point ramp scenario.

In this scenario, earnings are now expected to rise 1.7% and mostly from improved forecast in mortgage banking. On Slide 12, we highlight several metrics demonstrating core asset quality remains stable, excluding fraud-related charge-offs. Classified assets as a percentage of total assets continued to improve, declining 36 basis points year-over-year to $108 Criticized assets were largely stable sequentially, increasing modestly by $60 million to approximately $1.47 billion.

While special mention loans increased $78 million quarter-over-quarter, the change was not thematic and the balance remains $57 million below first quarter 2025 levels. Non-performing loans in OREO declined 7 basis points quarter-over-quarter as a percentage of total assets.

Now let's move to Slide 13 to review our allowance and coverage ratios. Provision expense was $87 million, excluding the Lam charge-off and replenished other net charge-offs as well as supporting incremental loan growth primarily in C&I. Our allowance for loan losses remained constant at $461 million or 78 basis points of funded HFI loans.

The total loan ACL to funded loans ratio also remained constant at 87 basis points. Over the medium term, we expect the allowance for loan losses to trend into the low 80 basis point range, reflecting a higher proportion of C&I loan growth within the portfolio.

Our total ACL still fully covers nonperforming loans shifting higher to 105% coverage at the end of Q1 compared to 102% a quarter ago. Looking at capital on Slide 14. Our tangible common equity to tangible assets ratio declined approximately 50 basis points from year-end to 6.8% due to approximately $6 billion in asset growth increased share repurchases of $50 million and a rate driven change in our AOCI position.

We believe our active buybacks in Q1 were prudent uses of capital given the modest difference between where our stock was trading in early March and our tangible book value per share. Nevertheless, our CET1 ratio remained at our targeted level of 11%.

Turning to Slide 15. I tangible book value per share increased 13% year-over-year and has grown at an 18% CAGR since the end of 2015. The gap between historical tangible book value accumulation and PRs stands at 4 times. Western Alliance has been a consistent leader in creating shareholder value over the medium and long term.

On Slide 16, we have provided 10 metrics that highlight how we stack up against our peers on earnings growth, profitability and other critical factors that drive financial results and create durable franchise value. We view these metrics as important in compounding tangible book value and ultimately generating a long-term superior total shareholder return.

For the last 10 years, our EPS growth and tangible book value per share accumulation have ranked in the top quartile relative to peers. We're also the leader in 10-year loan, deposit and revenue growth as well as adjusted efficiency. We continue to make strides towards top quartile returns on average assets and average tangible common equity. I'll now hand the call back to Ken.

Thanks, Vishal. Our updated 2026 outlook is as follows: we reiterate our expectation for billion for $6 billion of HFI loan growth as our business pipelines remain robust. We will continue to actively evaluate risk-adjusted returns across the pipeline. Should spreads become less compelling, our appetite for some of these loans may change.

Our $8 billion deposit growth target remains unchanged. As you heard during our prepared remarks, excellent year-to-date deposit growth provides ample liquidity and flexibility to remix deposit concentrations in order to lower interest-bearing deposit costs to improve the NIM and better position the bank to achieve EPS targets while still achieving 2026 deposit balance objectives.

As a result, it is reasonable to assume deposit balances should be flat Q2 with performance returning to more normalized levels beginning in the third quarter. Our CET1 target remains 11%, consistent where we ended Q1. We continue to evaluate capital levels relative to peers and believe our current position remains appropriate. Accordingly, we do not expect capital ratios to meaningfully change from these levels over the near term.

Net interest income growth continues to be projected in the range of 11% to 14%. While the range is unchanged, we now expect results to trend towards the upper end of the range. This reflects 3 key factors: First, our largely variable rate loan portfolio benefits from an outlook, which now assumes no rate cuts this year compared to 1 cut previously assumed in Q2 and 1 in Q3.

Second, our full year loan growth outlook is unchanged. Third, optimizing deposit composition will provide opportunities to mitigate interest expense as interest income accelerates with loan growth. Taken together, we expect the net interest margin to experience modest expansion relative to full year 2025 level.

Noninterest income, excluding the impact of security sales, is projected to grow between 13% and 17%. This reflects strong underlying momentum across the franchise, driven by higher expected growth in our Juris banking business and a return to the solid trajectory in mortgage banking activity experienced prior to the March rate volatility.

Previewing April's results, mortgage performance has begun to return to January and February levels. Improved growth in commercial banking fees is also expected to contribute to higher fee income growth. Total noninterest expense is now expected to increase between 7% and 11%. Our deposit cost range of $650 million to $700 million reflects higher average balances from stronger performance in select deposit businesses as well as the removal of projected rate cuts from our 2026 forecast.

Operating expenses are now expected to be between $1.6 billion and $1.65 billion, driven by higher variable compensation, incremental costs associated with increased tourist banking fee revenue and continued investments in new businesses and technology.

Importantly, these projections incorporate the $50 million of projected expense savings identified in early March, which will not impact LFI readiness or our key strategic growth initiatives. Our revenue and expense outlook continues to reflect solid operating leverage supported by continued improvement in our adjusted efficiency ratio.

With respect to asset quality, we reaffirm our core net charge-off guidance of 25 to 35 basis points, excluding the 2 fraud-related charge-offs recognized in Q1, and based on current migration trends and the expected cadence of NPL resolution efforts, we anticipate full year results will be at or slightly above the midpoint of this range. with charge-offs declining in the back half of the year.

Our full year 2026 effective tax rate outlook remains approximately 19%. And finally, we are excited to host our inaugural Investor Day in less than 3 weeks. We look forward to seeing many of you there in person on May 12. And with that, Vishal, Dale, Tim and I will now address your questions.

[Operator Instructions] Your first question comes from the line of Matthew Clark with Piper Sandler.

To just touch on the [indiscernible] 5. You wrote off $26 million, I believe, of the just under $30 million that you had reserved. And I think that suggests you have just around $70 million left tied to that exposure. Can you just give us a little color on whether or not you're relying on personal guarantees to cover the remaining amount here because I believe they're suing 1 another and not sure how easy it is to get at as liquidity .

Yes, I think I got your question. So on our last earnings call, we said that we're in the process of getting and receiving appraisal values. And what we -- all the properties have been appraised and all the appraisal values held to what we originally had forecasted or originally had at the old appraisal. That was good news, point one.

Second bit of good news was that the leans in front of us were less than what we thought. So what we've done is we've mapped out several different strategies to resolve this issue with trying to collect on the equity that sits behind these buildings.

At this time, we feel taking the charge-off of $26.5 million is reflective of the strategies we're going to put forward to collect the remaining equity value that sits behind all the properties.

We have not incorporated any of the ultra-high net or individual -- high net worth individuals guarantees in coming up with the $26.5 million, nor have we captured mortgage bond, which is up to $20 million after a $5 million deductible.

So that's why we said we took the $26.5 million now. We've got a number of resolution strategies -- this will take some time. We're not going to talk about this every quarter. But as we go through the resolution strategies and finally get to the outcome, we'll then turn our attention to the high net worth individuals and go after them and then also whatever we don't collect from them, we will then put against the mortgage bonds.

So we think the $26.5 million is appropriate now. We don't see any other charge-offs or reserves coming from this point and we believe recoveries will come later on in the process. I hope that answers your question.

That's helpful. And then just on the service charges, up again driven by Juris. How should we think about a normalized run rate there? I know it's difficult to -- I'm sure, to guesstimate. But what do you view as a more normal run rate? And I assume we would see a reset in related expenses from that business?

Yes. It's Vishal here. Thanks for the question. What we say is it is hard to do this. These fees tend to be a little bit lumpy. As we mentioned, we've got a leading practice with the mat towards settlement here. We did talk about the Facebook, Cambridge Analytica settlement that we had. And I think we got more of the revenue from that in the first quarter than we initially anticipated.

So that's why you've got the elevated number in Q4 and Q1 we do anticipate that number going down in Q2 and Q3. And then in Q4, you could see a higher spike as well. But it's hard to give you more clarity around that because it will just depend on how that comes through.

But what we will say is that the business continues to do well, and we've won the next large settlement. So it's just a matter of timing around that.

Your next question comes from the line of Jared Shaw with Barclays Capital.

When we look at the deposit costs on the guide there, how should we think about the ECR beta in this environment with now no cuts. Where should we think that, that ultimately settles out?

It's Vishal here. So I'd say just overall, when we think about the ECR deposit beta, I think it's in line with what we were thinking before, which is, call it, 65% to 70% when you think about the 3 businesses that have ECRs Obviously, they're very specific to each one.

In the mortgage warehouse business, we tend to think of the beta up to 100%, maybe in the 90% to 100% range. The other 2 businesses we have is a Juris, HOA. I think the deposit beta on that tends to be around 35%. So when you blend those together, you get that 65% to 70%.

The next piece of your question, obviously, is our deposit costs went up because we did take the rate cuts out of the forecast. And so where do we anticipate that going we are continuing to push down on the cost. Given the big increase in deposits in the first quarter, we're going to make a concerted effort here to optimize the deposit cost across the company throughout the rest of the year.

What I'd also tell you is on the mix of the ECRs we're planning to hold the mortgage warehouse deposits more flat and focus more growth in HOA and Juris. So that should also help push the ECR cost down over the course of the year.

Okay. All right. And then as my follow-up, looking at asset quality and maybe the criticized classified, how are you looking at your exposure to software companies in the tech and innovation sector. Is that driving any credit migration here? .

No. It's not driving any credit migration at this time. the conversation that's out in the marketplace is really around private credit. We have a very limited exposure inside of our private credit book to technology and specifically software companies under 5% of our total book.

And more importantly, we have such a granular approach in that book of business. whereby all the credit that we've granted to clients is roughly $4,000 or $1 million on average in commitments and $2 million on an against the $4 million of commitments. So we're not seeing any problems in that book at this time, and it's not reflected in our criticized or classified asset viewpoint.

Next question comes from the line of Casey Haire with Autonomous.

Yes. So I got a million questions on NIM. I guess I'll start with the -- Vishal, I heard you say you plan to get normalized cash and get back to a mid-70% loan-to-deposit ratio just in terms of timing, how quickly do you expect to get there? And a little more color on the deposit optimization plan, if you can.

Yes. I'd say on the loan-to-deposit ratio, that's the target. When you think about our loan and deposit, right, $6 billion, $8 billion, that's 75% when you think about the target. So I'd say by the end of the year, that's the plan. it will all come down to the deposit optimization and kind of we might actually see deposits in the second quarter, not the typical run rate you'd see from us given this optimization I would say, planned for it at the end of the year.

Hopefully, we'll get there on the sooner side because we are trying to bring loan growth up to the earlier part of the year. on the deposit optimization, we're going to continue to work through that. I think as you can see from the first quarter, up $5.6 billion in deposits, close to our $8 billion target already. I think it just gives us a lot of flexibility to go to the highest cost deposits in the bank and trying to see where we can push those rates down. .

Okay. Great. And then on the capital front, -- any -- have you guys looked at the Basel III proposal and what that means for you guys in terms of capital ratio lift?

Yes. Actually, it's very positive for us. All in we expect it based on the rules that we're reading to increase CET1 by 81 basis points.

Your next question comes from the line of David Smith with Truist Securities.

If the operating expense guide is $20 million lower than January following the $50 million mitigating actions. Does that mean that you're expecting an extra $30 million of variable comp for production? Or is there anything else underpinning that as well?

So you're right. We mentioned $50 million, but we're only down 20%. And the answer there is twofold. One, our Juris Banking fee income was higher than we anticipated. And therefore, what you're seeing are the expenses, which find its way into operating expenses. And the second thing that we've said in our prepared remarks is that we expect the mortgage business to do better than we initially planned. .

And the variable compensation relates to the fact that we will be hiring up people to support increase in mortgage income. So those 3 things taken together bring the operating expenses down by $20 million.

Okay. And then you mentioned the plan to hold mortgage warehouse deposits flat over the course of the year. If the market is rebounding from a the press level in March. Does that mean that you're expecting to lose share somewhat in mortgage warehouse? Or can you expand on that?

Yes. So let us be very candid here. we are trying to finesse the deposit growth and deposit pricing in this bank. We are starting with warehouse lending where we have some of the higher cost deposits. .

We are going to work with our clients to see if we can move some of those higher-priced deposits out of the bank. We expect that our overall deposit growth for Q2 will be flat because we'll be accelerating some of these deposits outside of the bank.

We then expect Q3 to have a seasonally high production, and we expect less runoff in Q4 since we moved a lot of the deposits out of the bank in Q2. But this is a Finesse operation and we'll give you more update on this, a little more color at the Investor Day as we work with our clients to do this as well.

But this is a little bit of a tougher one to forecast, but the direction is very clear, which is we are trying to lower deposit costs, lower interest expense, helps support NIM going forward. and actually bring up our loan-to-deposit ratio, so we don't have to carry this excess liquidity at either a flat or a negative drag to the bank.

Your next question comes from the line of Timur Braziler with UBS.

And you had made a comment about reevaluating credit, the macroeconomic backdrop and the geopolitical environment. when talking about pushing out some of the loan growth into the second quarter. Can you maybe unpack that comment a little bit? And maybe what does that mean for loan composition going forward, if that changes at all?

Yes. I just think we were just a little bit of touch conservative here, and we didn't push to accelerate closings in this quarter. And we had the time to negotiate. There wasn't a urgent press from the clients to close before the end of Q1 and we just took a little bit of a wait-and-see approach.

And what we're seeing and what we're feeling and what we're reading and this is your guess as good as ours, but we feel there'll be some type of aspire that will continue on. We're certainly seeing the robust pipelines that are in front of us. And we are still encouraged that we'll achieve the $6 billion on a go-forward basis.

Tim Bruckner runs regional. He's sitting here. Tim, do you have anything you want to add to that?

Yes. I think when you really look at Q1 in particular and signals of you and our look forward. We may -- we really saw the preponderance of the asset growth in those core commercial full relationship segments that we have consistently talked about on this call, where we pull back a little bit or showed some hesitancy was in some of the asset-specific finance-oriented segments, predominantly the commercial real estate-related segments. So we're really committed to that full relationship, full growth in our pipelines in those segments are robust and, of course, with appropriate sensitivity to the market conditions.

Okay. And then one on credit for me. Just maybe you reconcile your comment on being past peak credit with just the pickup in special mention and 30- to 89-day delinquencies and I'm wondering the allowance ratio here at 78 basis points. Is there anything incremental that would need to be done there as we get closer to or breach that $100 billion level?

Yes. I'm going to team up here with Bruce on this answer. But first part on the special mention increasing $75 million is really no big up right? And I wouldn't get nervous about it. When we looked at fourth quarter results for our peer group, for example, which consists of 22 banks are total criticized assets, okay, which includes special mention, was 15.7% of criticized assets to Tier 1 capital plus ACL.

And that is well below the peer median of 25.5%. It actually puts us at the third best of the 22 peer group. So at our size, having something move in and move out, doesn't necessarily mean our asset quality is deteriorating or getting materially better. What we do here, we have -- you've heard this in early process of early identification, escalation and then resolution. Tim, I don't know if you want to add anything on the other pads or the correct.

Really say on special mention, that's a transitional rating. That is a rating that signals early warning and a problem loan, and we use it very -- in a very directed way as transitional. Something has the characteristics that with the passage of time would result in a problem. We mark that as a problem loan. So our credit process is conservative in that respect. And we pushed the resolution, early elevation, early resolution is our mantra there.

Yes. And on ACL reserves, I think what we said last quarter and still holds true this quarter. as we migrate and change the loan composition here moving more into C&I, you'll see the loan loss reserve move up from where it is today at 78 basis points. Into the low 80s. So you'll see that all throughout the year, and I would expect the provision will follow that. So you ought to plan accordingly. And that's very consistent with what we said last time.

Your next question comes from the line of Chris McGratty with KBW.

Ken, or so on the pace of buybacks, you mentioned obviously being there to step in when the stock was weak in the quarter. how do we think about balancing the benefit from Basel over time, the low valuation of your stock and the strong capital position. Is there a scenario where you could perhaps low or further optimize the balance sheet and just lean more on the buyback given the valuation?

So strategically, what's very important for us is to work to continue to lower deposit costs. We have several businesses, Corporate Trust, business escrow services, our digital asset group and Juris Banking. That really depend on credit ratings from the radio agencies, and then we are investment grade.

And it is very important to sustain that or improve those investment ratings. And so we think keeping our CET1 ratio at 11% is the appropriate thing to do and slightly over time, continue to migrate that number upward. And so long-term value, it's more important for us to maintain the ratings.

Secondly, unlike many of our peers, we still see a very strong pipeline in front of us. And longer term, we think having the capital to support that long-term growth will help investors and will support investors trust in us as we continue to grow the bank.

So Chris, we're not expecting to go deep back into the market to do stock buybacks. They're not in our models right now. And if there is a reason for the stock if it gets disrupted in the market, then we'll come back and look to support it as we did in Q1.

Okay. Understood. And then just on the -- just digging on the mortgage a little bit. Could you just -- you mentioned kind of trends in April kind of revert back to early Q1. Can you just help us on like a Q2 estimate for mortgage revenues, I may have missed it, but I know there's been moving parts between servicing and production.

Just give me a second here, Chris.

Chris, I can jump in on this, right? So I'll make a couple of comments on the mortgage banking, and we can talk about that, right? So the first thing I'd say is we were in line with the same quarter a year ago. Obviously, the business is seasonal. We were down $18 million from the fourth quarter of last year. As Ken mentioned, we are very constructive on the trajectory of mortgage banking in 2026, especially given the current administration's focus on home affordability, January and February were good months.

Obviously, in March, there was a slowdown with the spike in interest rates. Fortunately, we actually are seeing that activity come back in April. So now for the full year, we're actually expecting revenue from mortgage banking to grow about 15% over last year's level. And what I'd say is very encouraging when you look at the underlying trends in the mortgage business, is the gain on sale margin was up 7 basis points quarter-over-quarter and up 18 basis points from the same quarter a year ago.

And that margin improvement is actually being driven by increased retail recapture volume at AmeriHome, and we hope to see that continue. So while volumes were down in Q1 compared to Q4, volumes were up materially, up 18% from Q1 last year, and the trajectory looks good for the rest of the year.

Your next question comes from the line of Gary Tenner with D.A. Davidson.

I just wanted to check that make sure I understood the way you're parsing that lender finance data on Slide 20, that private credit slide. Does that $2.3 billion, does that basically represent the right dose side, the I Slide 24 or make up the best majority of it. Is that the right way to think about it?

I'm sorry, I didn't hear that.

I got it. Okay. I think if I got your question right, you're trying to figure out on Page 24, where we break out the NDF bucket, sort of where that lender finance is -- so it's going to be in that business credit intermediaries. The large proportion of that 5% of the loan book, call it about 3-something billion is going to be our lender finance book. And so our lender finance book on Page 20 is $2.3 billion within that category when you look at the NBFI loans.

Okay. That makes sense. And that's what I was thinking. So I'm just curious, I know you point out that the average funded amount for Avago is quite light. I'm just curious on the level the average would be around $40 million, I think. So I'm just wondering kind of what the range is and what the top end of the closure is on the fund level.

The top end for any one credit inside of our private credit portfolio is about $60 million of commitment, of which we have about $30-odd million funded, and that's the top end, the largest credit that we have. So as we said, very granular inside of our private credit book.

That's very helpful.

Yes. And I'll just add on that. I did a tour maybe 3, 4 weeks ago as soon as all the private credit noise hit the market with our largest private credit clients, and you would all know them by name, brand names. And what they were telling us was exactly what we were seeing inside of our book, which was credit was remaining credit was performing well. There was redemption requests, mostly coming from the retail side of their LTE base and institutional LPs were remaining confident about performance. And so we're clearly seeing that as well inside of our book.

Yes. And Ken, if I can add just a couple of things on the book. I think on this Page 20, you'll see how granular it is. I think the other thing we flag here in this bottom right bullet is we actually also serve as the trustee on about 60% of this, which I think actually helps us a lot in terms of oversight and monitoring the cash flows in and out on a bunch of these deals.

Your next question comes from the line of Janet Lee with TD Cowen.

Hello, so just to piggyback on the earlier question. So is it -- can I interpret that as within the lender finance, there is no loan that is over $100 million in terms of the size? And if we broaden that outside of lender finance just overall, are you able to share like the number of exposures that are over $100 million in size as an example?

No, we're not going to share that, but loans to funds are much larger inside of the fund, the composition of the clients inside of that fund or the borrowers that they're lending to, or the numbers that I just reported. But yes, we have larger size. We have 40 major funds or thereabouts that we're doing business with and the size is larger.

Okay. Got it. And if I look at the lender finance portfolio, the $2.3 billion, when you were talking about the reserve ratio over time in the medium term coming down to low 80s. Is there any change in reserve methodologies that you would bet differently on the lender finance portfolio going forward? Or how should we think about...

You let me just change that statement for you. We're moving the loan loss reserve from 78 to the low 80s. We're not taking it down, okay? So you're not going to be seeing releases here. We're looking to build our provision over time. In fact, I was looking at this last night from about 3 quarters ago, maybe 4 quarters ago, our peer group has decreased on average their provision by 11 basis points and we have over that same time, increased our -- I'm sorry, increased their reserve by 11 basis points. And over that same time, we have increased our reserve by 10 basis points. But we don't plan to release anything.

Janet, you may be looking at the total ACL to funded HFI loans, which sits at 87 basis points right now, you're going to see that trend into the low 90s. So as Ken mentioned, right? The loan loss reserve to funded HFI loans is at 78 bps. That was flat quarter-over-quarter. We're going to push that into the low 80s. You'll see that with the natural movement in the loan balances and the total ACL to funded loans is going to go from 87% to the low 90s.

Right. That's what I was referring to. Is the lender finance portfolio going to grow further from here along with the size of the rest of your loan book? Or is there any -- would you like to slow the growth in this segment for any reason?

I think it will grow as the rest of the portfolio grows. I don't think we're going to put any incremental acceleration to the private credit book at this time.

Your next question comes from the line of Christopher Spahr with Wells Fargo.

I just want to kind of follow up on Timur's question earlier. Just what would it take for the loan reserves, the all-in measure, if you will, to go to 1%.

Well, just take the number, multiply it by ending loans. That's your number. But that you want to know the numeric number -- if you're asking what I'm wondering if it would take a deterioration in the economy, and we're not seeing that. The economy is strong, all right?

And we have a process here whereby the first line presents and developed the loan loss reserves, second line comes in and reviews and comments on it. We have a third line that comes in to make sure that the first and the second line are doing it correctly.

And then we've got the Federal Reserve and then our outside auditors come in and review the whole process. So I can't walk in here and say, gee, let's move it up 20 basis points. I've got to have a foundation for that and everything is based on economic forecast, and we base them off of Moody's and then we look at our overall portfolio. I'll remind you, half of our portfolio really has never had a loss.

And Chris, I'll just add one thing, which is when you look at the total ACL to fund on the 87 basis points and we've got $8 billion of resi mortgages where we've sold credit just move that out of the loan base, the ACL to funded loans is 1%.

Okay. And then just for clarification, would the -- was there a run rate number you can give for the service fees at all? Or is that just -- you just kind of gave some direction on where it's going to go over the next few quarters?

Yes. We're not going to provide a run rate here. I think we've given guidance for what the fee income is going to do over the course of the year, and you can back out the securities gains and see that growth think we've given guidance around what we think mortgage banking will do within there.

So I think you can back into the number. But we would tell you is we do see that number trending down in the second and third quarter on service charges and fees and then back up in the fourth quarter. but it will get you to the full run rate guide that we're giving here in the deck.

Your next question comes from the line of Bernard Von Gizycki with Deutsche Bank.

Just on the resolution process that you previously mentioned during the quarter, the $126 million charge-off against the land loan. You identified the $50 million of securities gains, the $50 million of cost savings. The remaining $26 million that may be already covered in the updated fee guide, but just any updated color on this?

No. I'm sorry. You're right. We took $50 million revenue, $50 million in expenses. We have not articulated how we're going after the last $20 million to $26 million. We'll see if we can work our way to resolving that during the course of the year. but we have enough in front of us to do.

And quite frankly, you and many of your colleagues were suggesting that we shouldn't fully resolved the $126 million charge-off and to ensure that we have enough money available for product development, enhanced services and also to ensure that our loan growth and deposit growth continues on the trajectory that it's at.

So we've been taking that guidance or that advice to hot. And we only took -- we only offered $100 million against the $126 million as a sale.

Okay. Great. And then I guess from here, the Investor Day is coming up, just any preview on what you intend to convey any maybe big picture messaging you can share with us today?

Well, we're not like MGM, where we give a preview coming, but I think one of the things that we're going to talk about is the question we get all the time is why can you grow when other banks cannot.

And we're going to spend time showing you how we grow and how we think about growth over several horizons and how the growth that we have is not by accident. And it's not that we run forward to anything that is fashionable today, but has been well thought out for an extended period of time.

And I think that will be interesting to kind of have you look underneath the hood and see how we position ourselves for growth inside of the bank.

Your next question comes from the line of Anthony Elian with JPMorgan.

Ken, your earlier comment on accelerating some deposits out of the company. I don't think I've heard that before, right, for a company that has grown as fast as you do. Is that entirely driven by taking a sharper focus on ECR costs now will the plan to move deposits out of the company to be fully completed here in 2Q? And any other areas of focus as part of this deposit optimization plan?

Yes. So stepping back and taking a big picture our bank grows every year about the size of a small regional bank, right? Most of the banks don't do that. That's point one. Point two, we had a phenomenal deposit growth quarter. It exceeded our wildest imagination.

We thought we maybe get to $3 billion coming in at $5.6 million was far greater than we thought. Third, where those deposits came, they came in from some of our higher-priced customers, which led us to take a step back and then ask how do we optimize here?

And what we're trying to do, and as I said earlier, this is a fine game -- so we have already started the process to remix, maybe reprice and encourage some deposits to lead the bank. We're trying to be aggressive on it, and we're trying to get it done quickly by the end of the second quarter, and that's why we've given the advice or guidance that our deposits may be flat quarter-to-quarter.

Right? But a lot of this is also going to depend on the people, our clients and what they want to do. So that's the game plan, and we'll be able to report on it in a little more detail on Investor Day. But the goal is to work to bring deposit costs down by doing that is either interest expense or it's on the deposit cost side.

And then is the outlook for higher ECR costs entirely coming from now assuming no cuts versus the 2 cuts previously? Or is this big shift change, the deposit optimization plan? Is that embedded in the deposit growth outlook of what you expect.

Yes, Tony. Sure, I think happy to take that one. I'd say the large preponderance of it is removing the 2 rate cuts, right? I think more than half of that delta you see the deposit costs are going up $115 million at the midpoint.

More than half of that is backing those 2 rate cuts out -- the other thing has to do with what -- just volume, right? Volume was much higher in the first quarter. So if you actually were to maintain those balances, you're going to just have higher deposit costs as well. And then the offset to this is going to be what Ken talked about, which we're going to work through here over the next quarter how do you adjust for that?

How do you optimize it? So basically, we're giving you the higher deposit guide here, it includes sort of the base case run rate we have right now, but it is a mix of rate and volume that's driving it primarily rate.

That concludes our question-and-answer session. I will now turn the call back over to Ken Vecchione for closing remarks.

Yes. The only thing I'll say is we look forward to seeing you all on May 12 in New York. I think the start time is 8:30 for our first Investor Day, and we look forward to spending more time with you. So thanks again for your time and attention today.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

Good day, everyone. Welcome to Western Alliance Bancorporation's Update Call. You may also view the presentation today via webcast through the company's website at www.westernalliancebancorporation.com. I would now like to turn the call over to Miles Pondelik, Director of Investor Relations and Corporate Development. Please go ahead.

Thank you for joining us today. Our speaker today is Ken Vecchione, President and Chief Executive Officer. Before I hand the call over to Ken, please note that today's discussion may include forward-looking statements, which are subject to risks, uncertainties and assumptions.

Except as required by law, the company does not undertake any obligation to update any forward-looking statements. For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, please refer to the company's SEC filings, including the Form 8-K filed this morning, which are available on the company's website.

I'd like to now turn the call over to Ken Vecchione.

Good morning. I regret that it has become necessary to convene this call. Integrity, honesty, consistency, dependability and adherence to contractual obligations are not aspirational values at Western Alliance Bank. They are foundational requirements, and Jefferies has breached these requirements.

As you're aware, Western Alliance Bank extended a loan to a Point Bonita Capital fund managed by Leucadia Asset Management, which is a subsidiary of Jefferies. A forbearance agreement associated with the loan was entered into in October of 2025. Up until last week, this loan had performed as expected. In fact, it was paying down at an accelerated pace.

Since August of 2025, it has been reduced from $337 million to $126 million (sic) [ $126.4 million ], which is currently outstanding. Last week, however, Jefferies informed us that it directed Leucadia Asset Management to cease making payments on this remaining balance. As a result of this nonpayment, Western Alliance will be required to charge off the full remaining balance in the quarter and reestablish a corresponding provision. Thanks to our strong capital position and growth prospects, the bank can absorb this loss with minimal disruption. In a moment, I will outline how we intend to offset most of this impact through actions already taken, including realized and expected securities gains and expense reductions throughout the year.

This action by Jefferies was unforeseen and represents a highly unusual breach of contract by counterparties with the capacity to perform. I will state plainly, in my entire banking career, I have never witnessed a breach of contract that so deliberately places a reputation and operating integrity of a counterparty at risk, forcing future banks, clients and counterparties to seriously reevaluate the dependability of that organization's commitments.

This morning, Western Alliance filed a formal complaint in New York Supreme Court to hold Jefferies, Leucadia Asset Management and Point Bonita accountable for their obligations to the bank. We believe we will prevail our multiple claims and recover all damages caused by this breach. As detailed in the complaint, our confidence is supported by the representations made by Jefferies, Leucadia Asset Management and Point Bonita Capital, both publicly and privately. Let me provide some additional color.

At origination, the loan we made was secured by receivables that Leucadia Asset Management's LAM Trade Finance Group, or LAM TFG, purchased from First Brands and for which LAM TFG provided representations and warranties and had servicing obligations. In September of 2025, the bank learned LAM TFG allowed the UCC filings on the receivables to lapse. Western Alliance quickly protected its right to full repayment by entering into a forbearance agreement pursuant to which LAM TFG acknowledged breaches of representations and warranties, admitted to failing to file required UCC statements and agreed to an accelerated payment schedule regardless of the collection of First Brands receivables. I think that's important, regardless of the collection of First Brands receivables.

That structure appropriately prioritized debt repayment ahead of equity, consistent with the applicable waterfall provisions. The forbearance agreement required 5 payments. First payment of $84.5 million was made on October 3, 2025. Second payment of $84.25 million made on October 17, 2025, 4 days before the Q3 earnings call. Third payment of $42.125 million made on January 15, 2026, ahead of the Q4 earnings release. The fourth payment of $42.125 million scheduled for February 2027 and the final payment of $84.25 million scheduled for March 31, obviously are not going to be made.

Western Alliance entered into this agreement based on our working history and explicit assurances from Jefferies and Leucadia Asset Management that all Point Bonita debt would be repaid in full. We possess correspondence edited by Leucadia Asset Management and reviewed by Jefferies legal counsel, stating that Point Bonita had the ability to pay off all of its debt to the bank. They further acknowledged that LAM Trade Finance Group was performing as agreed and that Point Bonita generates sufficient cash flow to amortize the loan.

Based on the facts, we made claims, including fraud -- based on the facts, we have made claims, including fraud, breach of fiduciary duty and fraudulent conveyance. We also assert the court must pierce the corporate veil to hold Jefferies, LAM and Point Bonita directly responsible.

I encourage stakeholders to review the filed complaint to understand Western Alliance's position. Litigation was not our preferred path. I personally met with Richard Handler, Jefferies CEO this past Sunday to emphasize that collaboration was preferable, yet litigation is the path that Jefferies left us with and the path we must pursue to serve our stakeholders' interest.

I will conclude by saying the obligation to pay is absolute, and we will be aggressive in pursuing that payment and all related fees, expenses and damages on behalf of our shareholders. The forbearance agreement supersedes reliance on collection of First Brands receivables as the only source of repayment. Issues related to Jefferies' First Brand exposure are not Western Alliance's responsibility. We will seek to claw back payments made to limited partners and fees earned by Jefferies.

Now turning to the financial impact, which is well managed. The $126.4 million charge-off and provision will substantially -- will be substantially offset through 3 actions: first, approximately $50 million of gains from security sales, $45 million of which have already been realized with the remaining $5 million expected by the end of March.

Second, approximately $50 million from expense initiatives throughout the year that do not impair growth or operational capacity. The remaining $26 million is under active review with multiple migration pathways that will be discussed on our first quarter earnings call. Following these actions, we expect to maintain an approximate 11% CET1 ratio. As a management team, we always plan for excess earnings capacity to absorb unexpected events.

In summary, we are deeply disappointed by Jefferies' conduct. While the $126.4 million charge-off is manageable, it is unwelcome. After this call, management will return to remaining fully focused on growing Western Alliance in a safe, sound and disciplined manner.

Joining me today are Vishal, Dale, Tim Bruckner and our General Counsel, Jess Jarvi. We will now take a few questions, noting that our responses will be appropriately limited given the litigation filed today and only focus on this event. This call is not intended to provide a mid-quarter financial update. So operator, let's proceed with the questions.

Just one clarifying comment. With respect to the complaint that was filed, it includes fraud and breach of contract, and we're exploring other claims and may amend the complaint in the future.

Thank you, Jess.

We will now take our first question, which comes from Chris McGratty at KBW.

Ken, I want to focus on the mitigation efforts. You outlined basically the P&L impact is largely contained. Can you just unpack the expense impact? I guess, had expense rationalization been considered prior to this? I guess, can you elaborate on what exactly is being pulled here? And then two, on the bond sales, obviously, that would have an impact on future NII. Just what are you harvesting in the bond book?

Yes. I think those are fair questions, Chris. So as I said, we really look at remediating the $126.4 million charge-off in terms of the earning impact in 3 buckets. The first were the security gains and $45 million of the $50 million has been realized and we'll take care of the other $5 million between now and the end of the quarter.

The second, we expect to reduce the corporation's expense run rate through operational efficiencies, moderating LFI readiness, slowing the rollout of future expansion projects and optimizing technology and vendor programs. None of these programs are designed to impact projected full year balance sheet targets, okay.

And then lastly, the third item, which is the remaining $26 million, this should be accomplished either through growth, pricing initiatives, future stock repurchases and other fee and expense programs. And so we'll have more to report on the remaining $26 million by Q3. But to kind of look at that $26 million for a moment, the $26 million shortfall equates to just 1 week's worth of 2025's PPNR. So we're working on that now.

I just be honest with you, the programs are in front of me, given all the things we're working on, I just haven't had time with the rest of the team to tie it out and absolutely confirm that $26 million. But I have a high degree of confidence that we're going to get to that $26 million.

So Chris, really, it's what we do best, which is we optimize tangible book value at this company. We had a few programs that were nice to do if we had the opportunity to do them, and we put them into our numbers this year. We can move them towards the back end of the year or into 2027 without impacting our balance sheet growth guide that we gave you just a couple of weeks ago.

The next question comes from Janet Lee with TD Cowen.

To the extent you could share, are you able to provide some context around based on your conversations, what has changed or triggered Point Bonita or Jefferies to not pay after a series of payments they've obviously been making. Just wanted to get the better context around the situation.

Yes, I can't -- but I can't tell you what's behind Jefferies motive. I can just tell you that we were a week out from receiving our next payment. We received a call from their General Counsel to our management team saying they just weren't going to make payment. And I'm not going to speculate as to what's going on at Jefferies as to why they couldn't make payments.

But as I said, they were making payments. Those payments were bringing down the loan in an accelerated fashion. We relied on their private and public conversations we've had with them. And we were very surprised that they decided to pull back. To me, it's quite shocking.

The next question comes from Jared Shaw with Barclays Capital.

I guess just going back to the $50 million of savings and calling out some of the impact to future growth. Is that -- is there an impact there to some of the initiatives that Dale is working on, on the digital deposit front?

No, no. Dale, do you want to add anything to that or?

No, sure. Yes, I perceive our opportunities as strong as they've ever been. We are moving headlong into several initiatives that we haven't really given color on at this point in time that I think are going to move the needle for the company. We look forward to it.

And let me just go back to the first question that came from Chris. I don't think I fully answered it, just gone to me now. The last part of Chris' question is, how will you make up the shortfall in interest income from the sale of these securities?

And I should have said that we sold a number of these securities and generated gains when spreads were tighter. I actually think the backup in spreads are going to help us mitigate some of the shortfall in interest income. But we'll either make up that shortfall in interest income the same way as we're looking to close the gap on the $26 million, which is either through fee income initiatives or programs and incremental expense reduction programs as well.

And quite possibly, we'll push to see if we can bring up our average earning assets as deposits flow into the bank. And if that could happen, then we'll be able to put that money to work. So that was the last part to Chris' question that I -- sorry, I missed.

The next question comes from David Smith with Truist Securities.

Could you give us, I guess, some more detail about how -- if you expect to prevail in court, why you still needed to take the charge just for accounting purposes? I know you had an issue last fall where you didn't charge off the full loan because of expected -- you expected to prevail as you went through the legal process. So any color you can provide there?

I'll give you my best legal answer. My General Counsel will stop me if I'm going down the wrong path. In this particular case, we had a counterparty that absolutely said they weren't going to pay, all right? And we have collateral behind their commitment to pay, which is the First Brands receivables that do not have value. And we thought it's appropriate to take this charge now.

Anything that we will recover will come down -- will come down the road from today. It will be some time as this claim runs through the court system. Versus the other transaction, we have tangible property that had appraisals and we could do those properties, we could -- we have appraisals. And by the way, we are having them reappraised as we talk right now, and that's what gave us the confidence level to put a reserve on that rather than take a charge-off.

The next question comes from Ebrahim Poonawala with Bank of America.

Two questions. I guess we're just taking one at a time. But one, just remind us what's the total exposure of Western Alliance to similar type of loans to funds and where loans might have been backed by accounts receivable? Because I understand the situation here. I'm just wondering what's the total exposure if you don't see good faith reciprocation in events where there's a credit issue, number one.

And second, why the expense mitigation action? I mean we've seen a lot of one-off credit issues over the years. I'm just wondering why is that leading to a knee-jerk reaction on how you invest longer term for the business?

Okay. Yes. Great. The first answer is we have about $450 million, of which $126 million was from LAM Fund I in terms of ABL. So we really won't have much after this $330-ish million will be all that will be in our asset-based lending book after this write-down.

The second is we're able to do several things here. I don't think any of the expense programs that we're putting into place is going to impair our future growth ambition and take away from the trajectory of where this company is going through in 2026 and in 2027. So we were looking to do these programs, some of these programs anyway in terms of getting continuously to bring down our efficiency ratio.

This just accelerated it. And again, Western Alliance has had a history of being a very strong tangible book value growing organic bank, and we want to keep that same reputation in the market, and we felt that shareholders would be better served by taking out expenses that were not needed.

The next question comes from Casey Haire with Autonomous.

So 2-parter. One, apologies if I missed this, but the charge-off guide for '26 ex this credit, any updated thoughts there? And then two, how do we think about reserve going forward? I know this is an isolated incident, but it did -- it represents 25% of the reserve. You guys have been talking about building it a little bit stronger going forward. I'm just wondering, any learnings from this that would impact reserve going forward?

Okay. Yes, Case, the way I look at it, I'm going to break your question down into a couple of components. First, the credit outlook for the year can be divided into 3 key categories. First, consistent with our last earnings call, the bank continues to expect net charge-offs to land in the high end of the 25 to 35 basis point guidance for the first half of the year. And this trajectory should position us to reduce nonperforming loans and bring that balance below funded ACL by the end of the second quarter. That is consistent with what we said previously.

Second, of course, this charge-off is $126 million, and we've talked about it. Third is, regarding the Cantor Fund V fraud. And we've now received nearly 2/3 of the property appraisals and expect the remainder by the end of the quarter. As of today, I can tell you the reserve established when we first reported that fraud still appears appropriate. We will revisit both the reserve and any related charge-offs based on the remaining appraisals and foreclosure strategy during the third quarter call. I also will remind people that we have a $25 million fraud insurance policy against that reserve.

We took a reserve for $30 million, if you recall. So we have a $25 million fraud insurance policy with a $5 million deductible against any future charge-offs. Vishal, do you want to say anything about the loan loss reserve?

Yes, sure. Happy to. So I think on this one, right, the $126.4 million charge-off, we're going to reprovision for that. So that will keep the allowance and replace that. Going forward, I'd just repeat the comments we made on the earnings call, which is we can expect the reserve to continue to trend up. And I think the guidance we gave is in the near term, we're going to try to move that to the low 80s, and that's still where we're thinking.

Our final question today comes from Anthony Elian with JPMorgan.

Ken, on the $50 million expense savings, is this something you could recognize in 2Q? Or is this a second half event? And then following up on EB's question, how do you guys -- how will you guys ensure that the $50 million expense savings actually don't impede your balance sheet growth for this year, right? If I just think about companies that introduce expense savings or operational efficiency programs, they're not usually the ones that are leading the industry on growth like you guys?

Yes. So the $50 million expense savings, they'll build through the course of the year. We probably have about $5-ish million coming in Q1 and then they build up from the end of Q1 going forward. Part of what we're saving here is, I'll tell you, is the LFI readiness program. And there's been a lot of indication that, that readiness -- that threshold is going to be a much higher number. And so we're pushing out some of those program development, which I'll say is just further enhancements to what we already have into '27.

So that won't impede our growth at all. And then what we do here is when we think about growth, we think about growth in 3 horizons. It starts in Horizon 3, which is interesting things, interesting businesses that we like, that we review. We try to develop a viewpoint on. And then if we like one of those businesses, we then move it into Horizon 2, which is take 12 to 18 or plus months to build and develop and test it, and then we move it into Horizon 1, which is beta testing for 12 months and roll out before we go live.

That process is still intact, okay? And I don't think these expense reductions are going to impact the way we continue to roll out our growth. One of the things that you'll hear when we get to Investor Day, and maybe this is just a little bit of a prelude, what makes Western Alliance so special in the way we are able to grow, is that we create a number of -- we have a number of specialty-related businesses that have these S growth -- S-curve growth aspects to them.

And our S curves are -- these businesses are built on one S-curve on top of the other. And the good news is the businesses that we've rolled out, none of them are beginning to flatten out. Even businesses that we began 14 years ago, like our Homeowners Association still has a very strong S curve attached to it in terms of growth. And so we have a lot of growth in the existing businesses that we've rolled out and the businesses that we may have slightly delayed and moved into '27 will not impact our future growth because of the growth that we have coming from all the prior businesses that we have rolled out to the marketplace. So thank you for your question.

Those are all the questions we have time for today. And so I'll turn the call back over to Ken Vecchione for closing remarks.

Yes. I'll just end by saying highly disappointed in the actions of Jefferies. We thought it was very important to be as transparent as we always are and as clear and concise as to what we're going to do about this loss. I hope that today's 8-K demonstrates that. I hope this call demonstrates that.

And for our shareholders listening, they should know that after this call, it's back to business as usual. This loss has been contained. We'll see what happens through the court system, but we're back to growth as we normally know it here, and we're going to be focused on that. So I look forward to talking to you in Q1 with a further update.

Thank you all for attending the call today.

Thank you, everyone, for joining us today. Goodbye. This concludes our call, and you may now disconnect your lines.

Good day, everyone. Welcome to Western Alliance Bancorporation's Fourth Quarter and Full Year 2025 Earnings Call. You may also view the presentation today via webcast through the company's website at www.westernalliancebancorporation.com.

I would now like to turn the call over to Miles Pondelik, Director of Investor Relations and Corporate Development. Please go ahead.

Thank you, and welcome to Western Alliance Bancs thanks Fourth quarter 2025 conference call. Our speakers today are Ken Vecchione, President and Chief Executive Officer; and Vishal Idnani, Chief Financial Officer. Before I hand the call over to Ken, please note that today's presentation contains forward-looking statements which are subject to risks, uncertainties and assumptions, except as required by law, the companies undertake any obligation to update any forward-looking statements a is discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, please refer to the company's SEC filings included in the Form 8-K filed yesterday, which are available on the company's website.

Now for opening remarks, I'd like to turn the call over to Ken Vecchione.

Thank you, Miles. Good afternoon, everyone. I'll make some brief comments about our fourth quarter and full year 2025 performance before handing the call over to our new Chief Financial Officer, Vishal Idnani to discuss our financial results and drivers in more detail. I'll then close our prepared remarks by reviewing our 2026 outlook.

Dale Gibbons, now backed by popular demand, and our new Chief Banking Officer for deposit initiatives and innovation and Tim Bruckner will join us for Q&A. Our Western Alliance closed 2025 with strong momentum delivering record quarterly financial results and broad-based performance across the franchise. We saw robust loan growth, reduced seasonal deposit outflows, positive net interest income trends stable NIM, rising fee income and continued expansion in PPNR, all while maintaining steady asset quality and demonstrating meaningful operating leverage.

In the fourth quarter, net interest income, net revenue and PPNR all reached record levels. EPS for the quarter was $2.59, up 33% from prior year. Return on average assets were 1.23%, Return on average tangible common equity was 16.9%, and tangible book value per share rose 17% year-over-year to $61.29. For the full year, we generated diversified HFI loan growth of $5 billion or 9% across regional banking and our specialized C&I verticals.

Deposits increased $10.8 billion or 16% supported by strong regional banking inflows and approximately 40% growth in our specialty escrow businesses, which Dale is now leading. Net interest income rose 8.4% on a linked quarter annualized basis driven by loan growth and higher average earning assets and accompanied by a stable margin.

We continue to build momentum in commercial banking fees. Cross-selling treasury management commercial products and digital escrow disbursement services drove a 77% increase in service charges and fees in 2025. Q4 mortgage banking revenues did not experience a large seasonal decline and hence, we're only down $5 million compared to prior quarter. Our Juris banking team delivered a standout quarter completing the first round of more than $17 million digital payments in connection with the Facebook, Cambridge Analytica consumer data privacy settlement, the largest in U.S. history.

Demonstrating the power of our comprehensive disbursement platform. Mortgage banking fundamentals continue to firm and quarterly results exceeded expectations despite typical seasonal softness. We are constructive on this business heading into 2026 due to the current administration's focus on delivering affordable homeownership, potential capital relief on MSRs and continued mortgage rate reductions which point to a stronger results for this business.

Operating leverage was a major theme in 2025 with net revenue growth outpacing noninterest expense growth by 4x. Our multiple multiyear investments to prepare for large financial institution status are serving us well.

And even if the category 4 threshold remains unchanged, we expect to cross $100 billion in assets by year-end 2026 without a notable step-up in expenses. Asset quality remained steady in Q4 with total criticized assets declined by $8 million and staying well below midyear levels. We are working to proactively resolve nonaccrual balances with meaningful improvement expected by the end of the second quarter.

We expect net charge-offs to remain elevated in the first half of the year as we work through nonaccrual loans with reserves adjusting modestly as our mix shifts towards higher return C&I growth. However, these actions reinforce the strength of our credit discipline and should enhance our powerful risk-adjusted earnings engine supported by an expanding revenue base and operating leverage.

We are well positioned for 2026 and excited about our organic growth opportunities. With that, Vishal will now walk you through our results in more detail.

Thanks, Ken. Turning to Slide 4. In 2025, Western Alliance produced record net interest income of $2.9 billion, net revenue of $3.5 billion and pre-provision net revenue of $1.4 billion. Net income available to common shareholders was $956 million and EPS was $8.73. Net revenue and pre-provision net revenue increased 12% and 26%, respectively, from the prior year, demonstrating the continued successful execution of the bank's organic growth strategy. .

Noninterest income rose 25%, primarily driven by stronger commercial banking and disbursement fees as mortgage banking remained essentially flat and in line with our prior expectations. Noninterest expense growth slowed to 4%. Lower deposit costs and reduced insurance expense were key drivers of this moderate expense growth and reinforced our operating leverage.

These factors were key to strong annual EPS growth of 23%. Now shifting to Slide 5, record net interest income of $766 million grew $16 million or 8% on a linked quarter annualized basis as a result of strong organic loan growth, leading to a higher average earning asset balances, while NIM remained relatively steady from the prior quarter.

Noninterest income rose 14% from Q3 to approximately $215 million from stronger commercial banking and disbursement fees. We experienced continued firming in mortgage banking revenue during what is typically a softer quarter. Loan servicing revenue was slightly down from accelerated MSR amortization as prepayment speeds increased with recent lower mortgage rates, which has benefited gain on sale income.

Noninterest expense increased about $8 million from the prior quarter to $552 million. Overall, we delivered solid operating leverage this quarter with net revenue growing nearly 5%, which outpaced the 1% growth in noninterest expense. Pre-provision net revenue of $429 million marked another record quarter.

Provision expense of $73 million declined $7 million from Q3 to account for stronger loan growth the continued remixing of the portfolio into C&I categories as well as the replenishment of net charge-offs. Turning to balance sheet on Slide 6. HFI loans grew a robust $2 billion in the quarter, bringing full year loan growth to $5 billion, which matched our 2025 full year guidance.

Deposit growth across regional banking, specialty escrow services and HOA remains strong and helped offset typical seasonal pressure in mortgage warehouse. Notably, mortgage warehouse deposits performed better than expected, reflecting our efforts to improve stability by increasing the share of more durable principal and interest escrow balances.

As a result, total deposits were essentially flat for the quarter. For the full year, deposits exceeded expectations by a wide margin increasing $10.8 billion or nearly $2.5 billion above our revised guidance from last quarter. In late November, we successfully issued $400 million of subordinated debt to bolster our total capital ratio.

Overall, total assets expanded by $1.8 billion from Q3 to approximately $93 billion. Total equity ended the year at $8 billion, supported by organic earnings and an improved AOCI position, partially offset by higher dividends and the initiation of share repurchases. Tangible book value per share continued its upward trajectory, rising 17.3% year-over-year.

Turning to Slide 7. Loan growth accelerated in Q4, increasing $2 billion from the prior quarter or $5 billion for the year. Regional Banking posted about $1 billion of loan growth with leading contributions from innovation banking in-market commercial banking and hotel franchise finance. These businesses made consistent sizable contributions to overall loan growth throughout the year.

Additionally, if you look at the chart in the upper right corner, you'll see most of our quarterly and annual growth came from C&I. Mortgage warehouse and MSR financing were leading loan growth contributors from the national business lines. Now looking at Slide 8, impressive deposit growth in 2025 was driven by a notable acceleration in regional banking deposits across both in-market commercial banking and Innovation Banking, along with continued momentum in specialty escrow services and HOA.

To put numbers on it, in Q4, regional banking deposits grew $1.4 billion of which $500 million came from Innovation Banking, while specialty escrow services deposits rose over $850 million and HOA deposits increased over $400 million. As noted earlier, the small decline in period-end deposits from Q3 reflected strength in these businesses largely offsetting expected mortgage warehouse outflows.

This is a notable improvement from the $1.7 billion net quarterly deposit decline experienced in Q4 2024. Turning to Slide 9 here. Turning to our net interest drivers. Interest-bearing deposit costs fell 23 basis points from reduced costs across product categories. Solid average balance growth in lower cost interest-bearing DDA and savings and money market deposits reflect this deposit cost optimization.

Overall liability funding costs also declined, compressing 18 basis points from the prior quarter from lower borrowing costs. Looking at average earning assets, the securities yield declined 18 basis points from Q3 to 4.54% from lower rates on a relatively stable average balance. The HFI loan yield compressed 17 basis points following the resumption of FOMC rate cuts in September, which continued in Q4 with 2 additional 25 basis point reduction.

Looking at Slide 10. Net interest income rose $16 million from Q3 to $766 million, driven by strong loan growth that pushed average earning assets $2.5 billion higher. The modest 2 basis point compression in net interest margin to $3.51 stemmed primarily from a 20 basis point decline in the yield on average earning assets from higher cash balances along with the impact of lower loan and security yields.

The outperformance of deposit growth led to the spike in average cash balances, which we expect to revert to more normalized levels going forward. Turning to Slide 11. Non-interest expense only increased 1% quarter-over-quarter. Deposit costs of $171 million resulted from higher average balances in deposit businesses such as HOA. The Q4 efficiency ratio of 55.7% and the adjusted efficiency ratio of 46.5% both fell about 5 points year-over-year. Looking just at non-deposit cost OpEx, the quarterly increase reflects higher corporate bonus accrual related to our financial performance, partially offset by lower FDIC assessments.

As has been reported by other banks, we also recognized a reduction in the FDIC special assessment, which lowered the insurance expense by about $7.5 million. Concurrent with this benefit, AmeriHome recognized mortgage servicing deconversion costs of a like amount. Now looking at Slide 12, we remain asset sensitive on a net interest income basis, but essentially interest rate neutral on an earnings at risk basis in a ramp scenario.

This offset is supported by a projected deposit cost decline and an increase in mortgage banking revenue based upon our rate cut forecast of 25 basis point cuts in April and July. Turning to Slide 13. Asset quality remains stable. Criticized assets decreased nominally from Q3 and totaled $1.4 billion.

Reductions in classified accruing assets and nonaccrual loans were partially offset by modest increases in special mention loans and OREO. Turning to Slide 14. The Quarterly net charge-offs were $44.6 million or 31 basis points of average loans. Provision expense of $73 million was primarily a function of strong C&I driven loan growth and net charge-off replenishment.

Our allowance for funded loans moved about $20 million higher from the prior quarter to $461 million. The total loan ACL to funded loans ratio edged up 2 basis points to 87. Our total ACL fully covers nonperforming loans at 102% and rose 10 points from the prior quarter. Now looking at Slide 15. Our tangible common equity to tangible assets ratio increased approximately 20 basis points from September 30 to 7.3% from strong earnings growth, while our CET1 ratio edged down to 11% at our target level.

Our solid capital levels are indicative of our ability to generate sufficient capital organically, support robust balance sheet growth while returning value to shareholders through share repurchases. We also issued $400 million of subordinated debt at the bank level in late November that augmented our total capital to 14.5%. We repurchased about 0.7 million shares during the quarter for $57.5 million at a weighted average share price of $79.55.

Turning to Slide 16. Tangible book value per share increased $2.7 from September 30 to $61.29. From strong growth in organic retained earnings and complemented by a 16% improvement in our AOCI position. Since initiating our share buyback program in September, we have repurchased over 0.8 million shares to date and have utilized just over $68 million of the current $300 million authorization.

Our quarterly cash dividend was hiked $0.04 during the quarter. Consistent upward growth in tangible book value per share remains a hallmark of Western Alliance and has exceeded peers by 4.5x over the past decade. Turning to Slide 17, Western Alliance has been a consistent leader in creating shareholder value over the medium and long term.

We have provided on this Page 11 metrics, we believe, are key factors in driving leading financial results strong profitability and sustainable franchise value that ultimately compounds tangible book value and produces long-term superior total shareholder return. For the last 10 years, our EPS growth and tangible book value per share accumulation have ranked in the top quartile relative to peers.

We are also the leader in tenure tangible book value, loan, deposit and revenue growth compared to peers. Lastly, ROA TCE growth the last 2 quarters has made solid progress toward achieving top quartile performance. I'll now hand the call back to Ken.

Thanks, Vishal. Given the strong macroeconomic tailwinds we continue to see, including an increasingly pro-growth regulatory stance, constructive sentiment across our commercial client base and improving visibility on rate normalization, we remain confident in another year of strong earnings momentum for Western Alliance.

Our 2026 outlook is as follows: we entered 2026 with strong loan pipelines across business lines, supported by a healthier macro backdrop and what we view as increasingly accommodative regulatory and political environments. These factors are boring the risk appetite of our commercial customers.

As a result, we expect loan growth of $6 billion and deposit growth of $8 billion. We continue to feel confident operating with CET1 around 11% with our strong organic earnings trajectory, we expect to continue opportunistic share repurchases, subject to market pricing while maintaining capital broadly in line with current levels.

Our strong loan growth outlook, combined with continued opportunities to lower funding costs, supports our expectation for net interest income growth of 11% to 14%. We assumed 225 basis point rate cuts in this outlook. We also expect modest expansion in net interest margin throughout the year driven by ongoing remixing into higher-return C&I categories and sustained momentum in core deposit growth.

We expect non-interest income to grow between 2% to 4% off an elevated starting point. The building momentum exhibited in service charges and fees and the constructive environment for mortgage points to continued growth in noninterest income. The combination of these emerging tailwinds favor a more robust revenue environment for mortgage and MSR-related income even as we continue to operate with a conservative forecast.

Noninterest expense will rise by primarily as a function of scale and targeted investments that support top line growth and operational efficiency. For 2026, Total operating expenses are expected to increase between 2% and 7% for the year. Deposit costs are projected to decline again between $535 million to $585 million from continued rate relief. Operating expenses, excluding deposit costs are expected to be between $1.62 billion and $1.67 billion, reflecting continued investments in several new business lines and future technology.

Looking at asset quality, we expect net charge-offs between 25 and 35 basis points as we proactively reduced nonaccrual balances over the next couple of quarters. As I discussed in my opening remarks, with the ongoing loan growth shift into C&I, the reserve level should adjust as the mix evolves. Our risk-adjusted PPNR trajectory remains strong, and we are confident in continued robust EPS growth.

Finally, we project our full year 2026 effective tax rate to be approximately 19%. At this time, Vishal, Dale, Tim and I look forward to your questions.

[Operator Instructions]

Our first question today comes from the line of Andrew Terrell with Stephens. Andrew, please go ahead

I was hoping to maybe start on just the balance sheet growth guidance. Obviously, loans up $6 billion in 2016, deposits up $8 billion, unchanged versus kind of your 2025 expectations. You gave a lot of positive commentary about the momentum.

I'm just wondering why maybe not a higher loan and deposit growth guidance? Or do you feel like you're being conservative this year?

Yes. Well, number one, our loan growth and deposit growth as projected is -- leads the peer group. And I'll just point that out. That's one. Number two, what you see here is all organic growth, which is very important. Number three, we are deemphasizing certain areas of our loan portfolio, i.e., mostly we're doing less in residential loan growth.

So as that runs off, it puts more pressure on the other areas to accommodate the runoff in volume. And I guess, number 4 is that $6 billion and $8 billion seems about right. And as we continue to move forward throughout the year, if the projections are proving to be conservative, we will adjust accordingly.

But going into this year, $6 billion to $8 billion will produce something along the order of a consensus EPS that's out there today in the $0.38 range, which is about 19% EPS growth, which is, again, leading the peer group for any bank for organic growth. I actually think maybe leading the peer group even for banks that have had M&A activity during the course of the year.

Great. And then, Ken, just on the charge-off commentary as well, it sounds like the charge-offs could be a little bit front half loaded. I guess just should we think about first half charge-offs is potentially above your full year guided range before normalizing back to that 20 basis point type level that you've been guiding to previously as we move into the back half? Or just how should we think about the timing of charge-offs or magnitude throughout the year?

Yes. I would say, I would think about the range as the midpoint coming into the year for modeling purposes at $30 million. You could see it a little bit higher than that in the first half of the year as we look to get rid of a number of nonaccrual loans that have been on our books -- that is our effort to bring that number down well below our loan loss reserve. .

And we think that will be good -- look, personally, good for the business. It's good business overall, and it will be healthy for our PE expansion and improving our market capitalization. So we are doing that. I think you saw some of that in Q4. Charge-offs were a little bit higher than maybe you thought. But classified and criticized loans remained flat.

And in terms of our visibility into the first half of the year, we have a number of properties designated to be either upgraded or sold or notes sold or properties sold. And the hard part will be to determine whether or not a lot of that happens in Q1 or Q2, There's, as you know, a lot of paperwork that goes along with that and negotiations but we do have a confident level that by the end of the Q2, the nonaccrual loans will be down .

Our next question comes from Chris McGratty with KBW.

Vishal, maybe you could talk about the strength in noninterest income, big service charge number in the quarter. Again, I want to make sure I understand the sustainability of it. I guess what's in that line?

And obviously, I heard you on mortgage, but any near-term expectations for mortgage in a seasonally tough quarter. Yes, sure. Happy to take that one. I think the big one there is the service charges. Two primary drivers in that, Chris. The first one is treasury management. We've made a lot of investments in that, and we continue to see a pickup in that on the cross-sell there. .

And the second one is going to be what Ken and I mentioned in the prepared remarks. There's a big improvement in fee income related to the digital disbursements business. Right? So we did handle one of the largest settlements that Facebook, Cambridge Analytica. And we're actually when you get the settlement, we're distributing it to the end claimants and there's fees associated with that.

So it's going to depend on what that business looks like going forward, but we've already have other settlements that have come in. So we do feel positive on where that line is going in terms of sustaining that trajectory. On the mortgage side, I think Ken hit this well.

Let me -- I'll take that. So first, Chris. We are constructive on the mortgage business, as I said, as we begin 2026. And we see several tailwinds that could provide additional alpha earnings to our 2026 projections. As a starting point, we are assuming a 10% year-over-year increase in total mortgage fee-related revenues. .

However, if several of the administrations make housing affordable programs take hold, combined with favorable regulatory changes and a lower interest rate environment we think AmeriHome could outperform these projections. As a data point, and it's an early data point, so I caution everyone on this.

But as a data point, entering the year here, we expect Q1 total mortgage revenues to be nearly equal Q4 results, but I'll tell you that January's volumes and margins as of close of business last night, we're presently trending above our planning assumptions. So a little conservative on the mortgage income.

It's based on some tailwinds, which we think are going to come. We'll wait. Those happen to be whether or not there's access to 401(k) funds or the GSEs buying $200 billion more of mortgage bonds. We also see certain areas of the United States seeing supply exceed demand. So we think some housing pricing may come down and certainly in the Southeast and we expect a couple of rate cuts certainly with potentially a more sympathetic Fed chair in May.

So with all that going on, I think that's the economic and administration tailwinds that we have. There's also a couple of regulatory tailwinds, and we're going to wait to see what happens here but it's our understanding coming out of Q1 that the FRB may give us additional guidance on MSRs. And the 2 things that we're looking at is, one, will the FRB reexamine the MSR 25% cap to CET1 capital?

And if they do that, that will allow us to either hold on to -- that will allow us to hold on to more MSR receivables, and those have a double-digit yield to them. And so we like that. On the other hand, there's another consideration, which is the change the risk weighting of the asset -- of the MSR asset, which you know is 2.5x 1.

If that comes down, that will either free us up to hold on to more MSRs or it could allow us to buy back more stock or support more growth to the first question today that we received or we just want to go to capital and we build a higher capital base. So we have some things going on here that potentially could be very strong as it relates to the mortgage business.

So a little wait and see, but we have some optimism and trying to restrain it, but I'm hoping that it does come to fruition.

That was great. And just as a follow-up for the NII, 11% to 14% with the 2 cuts. I guess what puts you at the high end versus the low end?

The higher end is the average earning assets, if that comes in and grows at a faster pace. We had a great Q4. Our average earning assets in Q4 were up $2.5 billion. So that was fabulous. And usually, it all depends on the loan and deposit growth and when it comes in. That's the hardest thing for us to forecast on an average basis.

We can usually get it right on an ending quarter basis, but on an average basis, it's always the one thing that's a little bit softer for us to predict.

But we're confident that, that range is good. And I would think it's 12% or greater as a floor if I was modeling.

We're also hopeful that on the deposit side, that the categories that are lower cost to us that would pull down our average cost and expand the margin. are some of the ones that we're going to be focusing on into digital assets with our trust company and business escrow services, in particular.

Our next question comes from David Smith with Truist Securities. David, please go ahead.

Can you give us an update on your ECR deposit expectations? How do you expect the mix of ECR within total deposits to shift with $8 billion of growth in the outlook for this year? And then can you also give an update about how the mix inside of ECR is shifting? Like is there less mortgage warehouse and more settlement services. And does this affect the ECR rate paid and your beta to changes in short rates over the next year?

Yes. So I'll start, and Tim can add. So first thing I'd say is when you think about the ECR deposits to our total deposits today, if you think about it on an average basis, around 37% today, if you think about end of period, it's around 33%, right? It's about 1/3.

When you think about what that mix shift is going forward on the $8 billion of deposit growth, I think you can largely expect it to hold constant from a mix perspective. We're obviously hoping to push more of that towards the non-ECR. But I think as the forecast stands today and things will move around, I think you can assume the mix is going to move pretty consistent with where we are today.

When you think about the beta on the ECRs we would say think about a 65% to 70% beta on those ECR deposits, but I appreciate there's very specific businesses that drive that, right? On the mortgage warehouse side, that's more like 100% beta when you think about the HOA, I think like 35% to 40% beta and then you've got Juris.

So there's a mix of different things in there. So hopefully, that gives you a little bit of sense of what the mix is and what the deposit betas are for the .

Yes, I'll just add 1 other thing, too, and I'll tie it back to the first question, which was gee, we thought your deposit growth would even be greater than $8 billion. We're coming into the year projecting warehouse lending as a division to have flat deposit growth.

And what we're trying to do is remix that deposit growth comes from the cheaper deposits. Now one of the things that's interesting here and this will tie into the mortgage fee income question that Chris asked as well. In Q4, we did $1.5 billion better, meaning our deposits in warehouse lending were $1.5 billion higher than we expected because of the mortgage activity and the refinancing activity that was occurring.

So one of the things that's hot -- so what's the good news about that? Well, if there's a lot of refinancing activity, deposit levels should be up for warehouse lending going forward. So that's something to consider. But also with that type of refinancing activity, it should give more volume opportunities to AmeriHome.

What it means to your question is, even though we're coming into the year flat for warehouse lending in terms of deposit growth, you could see it spike up accordingly with the volume growth and the movement in that industry.

And then just as a follow-up, how are spreads trending on new loan origination? And have you seen any changes from competition there?

We're sort of ending the year or the spot rate now at the end of the year is about the same as you see in the book. there isn't a day that we don't wake up and have competition have to worry about yield coming from different players.

As the economy gets better and more banks get aggressive to start driving in their organic growth, and of course, puts a little bit of pressure on us. For us, we keep a tighter lid on the operating expenses, while we continue to invest in future businesses for future revenue growth.

So if we have to give up a little bit in yield to get loan growth, so be it, as long as it's safe and sound, and incredible credits.

We will go ahead and do that. Tim, do you want to add anything about what's happening on the regional side in the price? .

What we're really seeing is our specialty business lines are insulating us a bit. there's a definite flight to quality in the market. And our specialties have well-established relationships, control environments and structures where folks are doing business with us for something other than rate. I think that's really important. And we're seeing the strongest growth in those deep channels.

The next question comes from Jared Shaw with Barclays.

Maybe sticking on the deposit side. Any update Dale, early update on some of the initiatives you're working on? Because it feels like maybe there's a little more of a margin tailwind from the funding side as we look at that NII guide?

Sure. Well, maybe I'll just run through them. I really do think these are -- really have awesome opportunities in front of them. I love the bank. I've been here a long time, but I think some of the more interesting things are likely to happen in some of these sectors. .

The first one is our HOA group, and we talked about how well that's done. The bank is about 30 years old. This has been around about half that time. I started at 0 and is now the largest HOA provider in the country. Notably, for the past 8 years, every quarter, they've exceeded their a new record balance for them.

And that consistency, we think is important, and we think we're out in front and frankly, we want to be pulling away from where we're going to be going forward, and they're going to have strong performance in 2026. The next one is our Juris banking operation. We talked about that with the combination with digital disbursements has already received some color during this call. We're the largest class action master claims settlement equity in the country.

We've now expanded that into providing banking services for basically law firms nationwide. We expect to triple their loan volume in 2026. Our digital asset group, we're serving our clients 24/7, which is, of course, digital asset markets are open 24/7. I'm a big believer in kind of the tokenization of everything, and we want to be out in front and facilitating that process.

Our trust company, we started that 3 years ago in under 3 years, we are now broken into the top 10 of the largest CLO trustees worldwide and they have doubled basically in 2025, and they're going to -- we think they're going to be doubling again in 2026 and our business escrow services function, that's where we provide services to ease the M&A process for private companies selling to either public or private ones or collection of funds, disbursement and also holding on to earn outs and [indiscernible] warranty.

So in total, we think these are going to grow about 3x as fast as the bank overall, north in growth. And most of these have notably lower costs than what we're incurring in our other deposit channels as mortgage warehouse was the largest one for some of the ECRs and that, that one, as Ken mentioned, we'll be holding relatively flat, we expect.

Okay. Great. I appreciate all that detail. I guess shifting back to the credit question with the expectations for higher charge-offs at the beginning as you work through some of those NPLs. How should we think about provisioning and the allowance with that backdrop.

Yes, sure. Happy to jump in there. in terms of where the allowances for funded loans on the HFI balance today, it's 78 basis points. That's about flat quarter-over-quarter, up about up 8 basis points from 7 a year ago.

As we think about where that's going next year, I think you can see that allowance drift up a little bit maybe into the low 80s and that's largely just a function of, as we said, we see the loan growth mainly coming on the C&I side. So there will be a little bit of a remixing as we do that. And then in terms of the charge-off, the other piece to get to the provisions, how you can back into it, it's exactly what Ken said.

You've got the 25 to 30 bps guidance for the full year, we think right now, it's going to be around that midpoint. So hopefully, that gives you the data points you need.

Thank you. Our next question comes from Casey Haire with Autonomous.

So I want to follow up on the NIM outlook, Ken, I think you said you expect it up throughout and it sounds like it's a positive mix shift on the loan side, moving to more less rosy and more higher-yielding C&I and the deposit side, as Dale just mentioned, the growth in lower-cost deposits.

Just wondering, any color you can provide like what C&I categories are you growing faster and sort of the yields around them? And then this growth in lower-cost deposit channels, is this going to -- is it just kind of up the deposit beta in a meaningful way? Just trying to get a better sense on the magnitude of NIM expansion.

Yes. Okay. Starting on the liability side on the deposits. I think you saw -- if you look at the numbers for Q4, you could see how much we were down in CDs. And so we meaningfully took our CD funding down, and that helped our deposit costs decline.

We continue -- we will continue to do that through 2026, and that will give some support to NIM. Let me just say about NIM. It's not going to jump up dramatically, but it's going to slowly cascade up throughout the year, okay?

Remember, we have 2 rate cuts embedded in there as well, right? For planning purposes, I would always assume NIM is flat, but it does have a slight gentle stream upward to the right. We also are accentuating the business's growth that Dell is running. And these businesses price more attractively than our traditional deposits.

One of the things Dale didn't fully touch on, and I may just throw it over to him in a second, is in our digital asset group, the fact that we now do 24/7 interbank trading. And for that, we get a premium, i.e., a larger discount in what we pay for funding.

I'll give that to Dale in just one second. The combined on the other side of the balance sheet, I'll take something that Tim Bruckner said, which is the business lines of lot banking, hotel financing. Resort financing. Even private credit, all those yields are holding on where they are. I won't say we have pricing power, but we have the ability to bring in volume based on the pricing that we're holding. And so you'll see more volume come out of those groups in 2026.

Dale, did you want to say anything about IBT at all? .

Yes. Let me just describe what we're doing on this IBT 24/7 that I alluded to and Ken amplified on I mean my knowledge is it's like the Spyder Gold Trust. Spyder Gold Trust is the largest gold repository in the ETF in the world. And what you do is you just buy and sell your ETF. You don't have to actually own the gold anymore.

Well, we're not holding gold, but we're holding U.S. dollars. And these clients can come to us and 24/7, unlike the ETF isolated when the markets are open, 24/7, they can convert money 2 or from U.S. dollars to any kind of where they are. And that service level is important, and there's things like this in our other businesses as well that lead to lower funding costs.

It's because we're providing services that are not widely available. And as a result, we're going to actually have a lower beta, not a higher beta on these types of things. I might note that our deposit growth in 2025 was actually a little bit better than maybe as advertised.

You haven't seen this yet, but our broker deposits fell by more than $1 billion on top of that. So the $10.8 billion is already net there's more like 12. So I think we really outperformed this like I know our guidance for 2026, and I feel like we're going to be able to meet that guidance for sure.

Okay. Great. And then just one more on expenses. So if I look at the core expense growth ex the ECR deposit costs, it implies about 9% to 13% growth. I understand you guys got a lot going on. But is there a wager if the deposit cost relief does not materialize, meaning you can maybe flex that lower? Sorry, the question if can deposit costs go lower to drive down lower year-over-year operating expense growth?

Yes. The expense growth ex the deposit costs, right? So that implies 9% to 13% growth. Deposit cost relief doesn't kind of materialize the way you guys -- can you flex that core expense lower.

Yes. So embedded in our expectations is that there is no change to LFI guidance. So we've got the full boat of expenses embedded in there that we need to spend in order to meet the $100 billion threshold. Now if the LFI guidance has moved up from 100 to some larger numbers, I say 150, some say it will be $250 million. .

Then the dollars that we spend there will be reduced, will not be eliminated, but will clearly be reduced because there are certain things that we want to get to, and we think are better for the company. So we have room there. We also have room in looking at business expansion and revenue initiatives.

But I'll tell you the secret to our success and the secret to our growth is that we always work on new businesses or new products and services, new business lines so that we can develop an S-curve. So that 2 years from now, some of the things we're working on begins to take form and you drive higher revenue. the stuff that Dale mentioned with the IBT network. We started working on that 2 years ago, all right?

And so now it's coming to fruition, and we think it's going to drive future success. Juris Banking, we worked on 4 to 5 years ago, BES 3 to 4 years ago. So all these businesses have taken time. Go back and even because Dale's say, HOA, we worked on 12 years ago. all right? And we did it in such a way that we're now the #1 market share leader in HOA and we continue to pump out significant deposit growth there as well. So my answer to you is, can we flex on things, of course.

But we're going to balance that with what's good for the short term and what's really good for the long term. And so far, we've done a fairly good job of managing short-term and long-term expectations and driving in long-term growth, whether it be on the balance sheet or in fee income as well.

The next question comes from Janet Lee with TD Cowen. Please go ahead, Janet.

Hello. So it appears that some of the confidence -- it appears that some of the confidence in your 2026 ECR deposit cost guide is coming from a remix of ECR deposits and to lower costs and away from mortgage warehouse for the time being. Are you able to share the composition of ECR deposits among mortgage warehouse, HOA versus Juris.

I believe those are the 3 biggest today versus, let's say, the end of the year or what your internal targets might be?

No. That makes me feel very uncomfortable just because of the competitive environment we're in. I mean it's -- in terms of ranking them, warehouse lending is the biggest, followed by HOA, followed by Juris, and that's what I would tell you. But absent that, I'm not going to provide what our deposit levels are for any 1 of those businesses, I'm sorry.

Okay. That's fair. And your ACL ratio going up from 78 basis points to low 80s by the end of this year, you said it's really driven by the C&I loan growth and NCO replenishment, and I guess, the nonaccrual cleanup. Is -- there -- is there any update you could share on either Cantor or first brands on that note?

Okay. Yes. Let me handle first brands first, and it's really our loan is not the first brand, but it is to point Benita, which is a subsidiary of Jefferies. That loan continues to pay down at an accelerated pace. Last quarter, I think we said it was about $168 million outstanding.

Today, it sits at $124 million outstanding. So it went from a advance rate against receivables to investment-grade retailers to about 14% to 15%. And so we have good visibility into that. That continues to pay down. That is a pass loan.

And we do -- we're not carrying much concern about that. It's behaving as expected. And as I said, the payments are coming in a little bit faster than what we modeled. And so we're very pleased there. As it relates to Cantor, as you can imagine, I am going to be somewhat limited as to what I can say because of the ongoing legal action that we have, but we have gotten a -- put in a receiver into the business, and that was that with the support of the 2 ultra-high net worth individuals.

That receiver has ordered all the appraisals for all the properties. We are expecting those appraisals to come in early March. Once we see what those appraisals are, we'll have a better understanding of the value of the collateral relative to the outstanding loan. The outstanding loan is $98 million. and then we can proceed from there.

So at this point, that's all that I can really tell you that what we're up to, but we hope to have a better insight, better clarity when we present our first quarter numbers.

The next question comes from Ebrahim Poonawala with Bank of America.

I guess maybe just one more on credit in provided good clarity in terms of the charge-off provisioning outlook. Ken is the takeaway also that you don't expect classified, especially mentioned, went up a little bit this quarter? Like are you feeling good about the pipeline in terms of credit metrics should keep improving from here?

Or what could kind of cause any incremental deterioration that could surprise to the downside if you can talk about that.

Yes. So asset quality remains stable and there have been several notable areas of improvement. First, the number of new or rising credits has declined. So that's a positive. We also are seeing an increased willingness from the borrowers to collaborate and work to measurely reduce nonaccrual loans by midyear.

We always had this mantra, Tim Bruckner is sitting across to me. He started it when he was Chief Credit Officer of early identification and early elevation our new Chief Credit Officer, Lynn Harton, has taken that and modified it just slightly early identification, early elevation and now accelerated resolution. And so we are working to do that in order to move the classified and criticized numbers down.

I will say they are clearly down from second quarter and interesting to note is that when we look at our credit quality, and we look at, for example, classified loans to Tier 1 capital plus ACL. For Q4, that stands at 11.7%. And but that compares very favorably to our peer group, $50 billion to $250 billion, and we're using Q3 peer median. So you have to give me a little bit of leeway here since we haven't calculated everything for the -- for Q4.

But that stands at 14.7%. or 300 basis points better. All right? So we do -- our asset quality is improving. We came up off the floor of nearly 0 losses. And so it looks a little bit worse than it is but we're running with our guidance about equal to or slightly below where the peer group is.

Tim Bruckner, I don't know if I said too much. I don't know if you want to add anything to that?

Well, I think that's a great Synopsys. The focus as we continue to communicate was on office loans identified I think first discussed with this group in Q1 '23, we've had ongoing discussion. There is a finite inventory of those loans as we've continued to reference and it's shrinking. And the classified office loans are down 1/3 from midyear 2025. And we have deliberate strategies at the asset level around each asset. The elevation brings our executive management team to bear on every situation. And those loans are marked to as is values less liquidation costs. So we feel that takes the beta out as we work through resolution.

That was good color. And I guess just a separate question. I think, Ken, you talked about all the things over the years you've done to build the pipeline for future growth. As we think about deposits, is inorganic make any sense at all for Western Alliance when we think about maybe transforming the distribution network, having a greater branch footprint? Are all of things something that you think about? Or just given the momentum you have on organic growth, all of that would be a huge distraction.

Well, I think the last part of your statement is true. It would be a huge distraction. And when we -- first of all, we do think about it, we should think about it. And it is a discussion point among this, the senior members of the team. One of the things we consider when we look at alternative inorganic opportunities is return on management's time. And if we went and did anything, would it take away from all the organic growth that we have.

We think we're unique with this organic growth. We think it's important. We think it comes with less execution and operational risk. And I'll tell you, too, it's certainly a lot more fun trying to grow a business and go into different products and services or regions than it is to sit on a call and announced, guess what? We just converted our general ledger, and we're very excited about it.

So the entrepreneurial spirit here at the bank is more towards organic growth. Having said that, if something fell into our lap that was able to make us bigger and better, okay? That's the key. I look at a lot of deals that are done for people wanting to get bigger, all right? What we are -- our criteria is bigger and better.

So if there is a bigger and better that helped get us into a series of deposit lines that could reduce deposit costs, we'd be very excited to look at something like that. but bigger for big's sake, I think would take away from the organic momentum that we have.

Ken mentioned earlier that we have based upon the estimates out there for 2026, one of the strongest EPS growth targets out there. And so the challenge, one of the challenges to look at somebody else is to say, gosh, we're growing at 19%. What is everyone else going to be doing and how that might be diluted because our growth is so strong, and that's not necessarily reflected in RPE.

The next question comes from Matthew Clark with Piper Sandler.

I just want to circle back to the service charge line. Can you maybe quantify how much the Facebook disbursement fees were this quarter? And it sounds like you've got some settlements coming to help mitigate that headwind going forward. But how should we think about kind of a sustainable run rate there before we see some seasonality again in the fourth quarter?

Yes. Unfortunately, we're not going to be able to give you any numbers around the settlement and what we generated in terms of fee income. Okay. That's number one. And number two, the thing about settlements they're hard to predict for us quarter-by-quarter. The Cambridge settlement, we actually thought was going to happen earlier in the year. And so when we get awarded these mandates, we feel great about them.

But it's hard for us to predict when they're going to come in, we take a best guess of cost. And so we're not going to be able to give you any very specific data on that. It exposes us to too much competitive risk here, sorry.

Okay. And then just on the interest-bearing deposit costs, you had about a 55% beta this quarter. Could you give us the spot rate on deposits at the end of the year and then your outlook for that data going forward?

Yes, sure. Happy to. So the spot rate on interest-bearing deposits is $2.81 and that's down from the average rate for the quarter of $2.96, right? So you're already seeing it come down very nicely. And in terms of where it goes is going from here, I'd put it in that mid-50s range is probably the right place when you think about that bucket.

The next question comes from Gary Tenner with D.A. Davidson.

I just had one quick follow-up to clarify the earlier question on the non-deposit cost expense growth for the year. So it sounds like from what you're saying, if I interpreted it correctly, any flexibility there is around the CAT 4 threshold more than any tethering of that expense growth to the revenue side, right? Because the majority of that is investment for longer-term opportunities. Is that the right way to think about it?

Yes. Yes, it is.

Okay. And then the Second question, just I guess also a follow-up on the commercial business or the commercial banking fee line, maybe just even any first quarter sense. I mean this kind of a blend of 3Q, 4Q kind of the more reasonable expectation than anything closer to the fourth quarter?

For servicing fees. Is that the question?

Yes. Yes. .

I think that's fair. I mean, it is going to fade from Q4 numbers. We can't really guide you exactly where it's going to go. It is lumpy. But the pipeline for future transactions that we'd be out there in front in terms of helping facilitate disbursements looks good. So but this was the largest case, basically in U.S. history with 17 million claimants. And so that is going to be diminished in Q1, Q2 .

The next question comes from David Chiaverini with Jefferies.

So I had a follow-up on the IBT network and tokenized deposits. There's been a lot of talk about the strong growth in stable coins and the potential to disrupt banking deposits. Is it fair to say the IBT network is competing with stable coins. And can you talk about the client uptake and growth outlook here?

I don't think it competes. I think it complements. I mean at the end of the day, people still want to do -- have fee on currency or be able to figure out how they can get back to fee in quick order. And so what Stablecoins do is like my acknowledge been McDonald's. So I don't think you're ever going to drive through a McDonald's and see a price of a Big Mac in Satoshis. But you're going to see it in U.S. dollars and you're going to be able to pay for it with USDC, with your phone with a flash.

And then in the background, we're there and saying, okay, so here's something a pin that came in on USTC delivery of that? And then what's going to be going out is U.S. dollars. Within our walled garden, working with stable coring providers, we facilitate that. We complement what they do more than compete.

Perfect. And then I wanted to ask about average earning asset growth. all on securities portfolio and held-for-sale loans. Any commentary there? Is it right to think about average earning asset growth similarly to deposit growth?

Well, yes, deposit growth will drive average or asset growth. You're absolutely right there.

We're liability based in terms of the value of the franchise. We always have been. I think if you get it the other way around, you tend to push on credit underwriting. So we have a strong deposit growth at low cost. Gives us opportunities to make good loans, move into high-quality securities, whatever that might be.

Our next question comes from Bernard Von Gizycki with Deutsche Bank.

On the $535 million to $585 million in ECR-related deposit costs you expect for full year '26. You've been rate dependent in the past, and now you're moving to shifting to lower ECR-related balances. Could you provide some sensitivity on the ECR cost if we get 2 rate cuts versus the Fed is on pause from here?

I think we'll still be able to -- to work on it. I think we're able to drive it down as well. But obviously, we'll not go down as much if we don't see those rate cuts. I think that will help us move it down further. I think you can see that being a little bit more sticky if we don't see a drop in rates from here.

Okay. On loan growth, the $6 billion for full year in -- so you noted the strong pipelines across business lines, and you noted the C&I will continue to lead the way. Just curious, any color you can share on how big CRE could be a contributor given some of the expected maturity is expected for year '26?

Sure. So in 2025, you can see that we curtailed our growth and pressed out in some cases, CRE loans as a percentage of total loans, they decrease. In 2026, we're not projecting significant dependence on CRE in our total growth number.

So we call it a modest increase the preponderance of the increase is coming from our commercial strategy based and segment-based business strategies, where we're aligning our fee-based and treasury products with the credit discipline that we have. And really with that, garnering a broader, driving a broader spectrum of revenue, so you won't see a significant increase coming from CRE for those reasons.

Thank you. Our final question today comes from Anthony Elian with JPMorgan.

Your CET1 is 11% as of 4Q, which is that your target for this year? I know on the outlook slide, you say buybacks remain opportunistic. But should we expect buybacks to take a step back relative to the $57 million you did in 4Q, given you're already at your target for CET1?

Yes. So 11% is where we feel comfortable. Would we like that to rise? Yes. In regards of the stock buyback, we don't have anything really layered into our models. We're there at case, there's a disruption in the market. We think the capital that we need is -- needs to be there to support the $6 billion in loan growth. And if there's any weakness in the $6 billion in loan growth, then we can switch and support with the EPS goals by buying back the stock. But it wouldn't be something I'd model in. And if we reported that we bought back some stock, it's because we had an opportunity to buy at a discount price vis-a-vis the market.

Okay. And then on the ECR, so I get your guide $535 million to $585 million this year. But is there a scenario where you can actually see that expense rise from last year relative to the $630 million if I just think you're not getting as much relief this year from lower rates with only a couple of cuts.

You called out the study investments you have in growth on Slide 18. And the ECR mix from Vishal's comments on the $8 billion of deposit growth is expected to stay constant so I just think about those items as limiting some of the relief you're expected to get on ECR costs.

Yes. The first thing I'd say is part of that just at the beginning ewe did have a rate cut at the end of last year. So some -- not all of that is actually baked into where the current rates are. So I think you can continue to see some trend down there. And then we're going to continue pushing on the mix, right, appreciating what it is. It's hard to kind of say exactly for the year where this is going to land out, so trying to give you some broad level parameters here.

But we're going to continue to push and the business is very focused on trying to drive down those costs.

The irony here is that it could be higher than our guide. If we have a very strong mortgage market, which is going to result in refis and those balances that now have a refi coming in or a sale of a house those come through, and those can add hundreds of millions of dollars to those balances in short order that would actually be a good problem to have.

Now we've got more deposits from this sector that we're actually kind of controlling a little bit, have more of an opportunity to tamp down their pricing but you still could have a higher dollar number. So there's a way that we missed that actually results in better value creation.

Thank you. Those are all the questions we have time for today. And so I'll turn the call back to Ken Vecchione for closing remarks.

Well, we're very pleased with the quarter, very proud of what we produced here, and we thank you for taking the time to join us today to talk about our results, and we look forward to talking to you again in a couple of months for the Q1 results. Thank you, and happy and healthy New Year to everyone.

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.

Good day, everyone. Welcome to Western Alliance Bancorporation's Third Quarter 2025 Earnings Call.

[Operator Instructions]

You may also view the presentation today via webcast through the company's website at www.westernalliancebancorporation.com.

I would now like to turn the call over to Miles Pondelik, Director of Investor Relations and Corporate Development. Please go ahead.

Thank you. Welcome to Western Alliance Bank's Third Quarter 2025 Conference Call. Our speakers today are Ken Vecchione, President and Chief Executive Officer; and Dale Gibbons, Chief Financial Officer. Before I hand the call over to Ken, please note that today's presentation contains forward-looking statements, which are subject to risks, uncertainties and assumptions. Except as required by law, the company does not undertake any obligation to update any forward-looking statements. For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, please refer to the company's SEC filings, including the Form 8-K filed yesterday, which are available on the company's website.

Now for opening remarks, I'd like to turn the call over to Ken Vecchione.

Thanks, Miles. Good afternoon, everyone. I'll make some brief comments about our third quarter performance before handing the call over to Dale to discuss our financial results and drivers in more detail. I'll then close our prepared remarks by reviewing our updated outlook for the remainder of 2025. As usual, our Chief Banking Officer for Regional Banking, Tim Bruckner, will then join us for Q&A. And also sitting in today is Vishal Idnani, who recently joined the team as he and Dale began their CFO transition.

Western Alliance continued our solid business momentum in the third quarter that generated record net revenue and pre-provision net revenue of $938 million and $394 million, respectively. Healthy and broad-based balance sheet growth, especially with $6.1 billion in deposits, along with stable net interest margins, supported a 30% linked quarter annualized expansion in net interest income. Firming mortgage banking revenue from lower rates bolstered a $40 million increase in noninterest income. This contributed to a high operating leverage as our efficiency ratio improved almost 3% in the quarter to 57.4%. The adjusted efficiency ratio, excluding ECR deposit cost dropped below 50%.

In total, Western Alliance generated EPS of $2.28 and improved profitability with return on average assets of 1.13% and return on average tangible common equity of 15.6%. CET1 grew to 11.3% as we moved our loan loss reserve to 78 basis points from 71 basis points in the previous quarter. Asset quality performed in line with guidance as total criticized assets declined 17% with reductions in 3 of the 4 major subcategories and net charge-offs of 22 basis points.

In light of the recent news regarding 2 credit relationships, let me address those head on because I and the entire West Alliance management team take these and any potential credit migrations extremely seriously. You have heard me say previously, early identification and elevation are the hallmarks of our credit migration strategy to protect collateral and minimize potential losses, and that's what's paying dividends now.

For the $98.5 million note finance loan to Cantor Group V, which was the subject of our October 16th 8-K, we believe our circumstances are different than other organizations and that our loan to the specific investment vehicle is secured by loans with a perfected interest in the CRE properties. We have confirmed our lean position through lean searches and title company verification. However, we have determined that in some cases, we are junior to other lenders in violation of the credit agreement. Hence, our allegation of fraud. Although the most recent appraisals indicate sufficient collateral coverage, our reserve methodology for a $98 million nonaccrual loan resulted in a reserve of $30 million.

This reserve and our portfolio's qualitative overlays raised total loan ACL to funded loans ratio to 85 basis points. We believe the collateral coverage, limited and unlimited springing guarantees, as well as up to a $25 million -- sorry, excuse me, as well as up to $25 million of insurance coverage for mortgage fraud losses will cover losses from this credit, if any.

Excluding this fraud, nonaccrual loans would have remained flat. Once learning of the fraud, we initiated a title review of our $2 billion note finance portfolio. To date, we have reverified titles and liens for all notes greater than $10 million and have found no irregularities and are in the process of confirming titles for more granular notes. No additional derogatory filings or lean discrepancies have been discovered to date. While incredibly frustrating, we believe this is a one-off issue in our note finance business and have adjusted our onboarding and ongoing portfolio monitoring practices.

Regarding our ABL facility to Leucadia Asset Management subsidiary Point Bonita Fund 1 as of October 20th, the current balance stands at $168 million, with a loan to value of below 20%. This facility is backed by $189 million in accounts receivable from investment-grade retailers, led by Walmart, AutoZone, O'Reilly Auto Parts, NAPA and other investment-grade borrowers. None of these companies have disavowed their obligation. The loan remains current, and we continue to receive principal and interest payments as modeled.

Jefferies has publicly stated they feel confident in Point Bonita's near-term ability to pay off all debt due to the diverse set of assets apart from the First Brands related receivables. Jefferies remains confident and so do we. Overall, this is part of a small ABL portfolio of approximately $500 million, and we do not see any other similar risks for this well-secured, structured facility. As further support, we have an investment -- we have investment-grade obligors that cover our loan balance greater than 4x.

As a reference point, it's important to remember, we have operated in private credit business for over 15 years. We view our underwriting expertise, ability to evaluate structured credit and sophisticated approach to minimizing uncovered risks through strong collateral with low advance rates as core competencies of the bank that prevent and mitigate losses.

Over the past 5 and 10 years, our net annual charge-offs averaged just 10 and 8 basis points, respectively, placing us among the top 5 U.S. banks with assets greater than $50 billion. Our deep sector expertise in these areas will continue to separate Western Alliance from our peers and enable us to deliver superior commercial banking services to our clients.

And now Dale will take you through the results in more detail.

Thank you, Ken. I'd first like to start just to clarify one comment that Ken made. The facility from Leucadia Asset Management, the collateral behind our loan amount is $890 million. That's how you get to this 19% advance rate on the total.

Looking closer at the income statement, net interest income of $750 million grew $53 million or 8% quarter-over-quarter as a result of solid organic loan growth and higher average earning asset balances. Noninterest income rose nearly 27% from Q2 to $188 million, led by firming mortgage banking results as AmeriHome grew revenue $17 million quarter-over-quarter.

Overall, lower mortgage spreads and rate volatility are beginning to improve home affordability and demand for adjustable rate mortgages in particular. Loan production volume increased 13% year-over-year, and the gain on sale margin improved 7 basis points to 27%. Noninterest expenses increased $30 million from the prior quarter to $544 million mostly from the normal seasonally elevated balances and average ECR-related deposits in advance of tax and insurance payments made in the fourth quarter. Overall, we delivered solid operating leverage this quarter with net revenue growing nearly 11%, which outpaced sub-6% growth in noninterest expense.

Similarly, net interest income, inclusive of deposit costs rose 5% or $25 million over the prior quarter, driving adjusted efficiency ratio below 50%. Record pre-provision net revenue of $394 million grew 19% over the prior quarter. Overall total provision expense of $80 million, primarily rose from Q2 levels as a result of $30 million reserve and augmented portfolio qualitative overlays to reflect portfolio composition mix change towards C&I and providing greater absorption for tail risks.

Turning to our net interest drivers. Interest-bearing deposit costs were stable. However, overall liability funding cost compressed 8 basis points from the prior quarter and benefited from lower rates on borrowings and growth in ECR paying DDA accounts. The held-for-investment loan yield was relatively stable, ticking up 1 basis point, despite the resumption of FOMC rate cuts towards the end of the quarter. The securities yield declined 9 basis points from Q2 to 4.72% as average holdings of lower-yielding securities increased $2.1 billion quarter-over-quarter.

As discussed earlier, net interest income rose $53 million from Q2 to $750 million driven by healthy loan growth as higher average earning assets increased $4.8 billion. Net interest margin was stable from Q2 at 3.53% as the impact of a slightly higher loan yield and lower debt costs offset lower securities yields and stable interest-bearing deposit costs.

Noninterest expenses increased $30 million or 6% quarter-over-quarter. Deposit cost of $175 million landed squarely in the middle of our Q3 guidance. Excluding deposit costs, however, noninterest expense was only $2 million higher compared to Q2. Our adjusted efficiency ratio of 48% declined 400 basis points from the prior quarter as we continue to achieve positive operating leverage from revenue growth outpacing non-deposit cost operating expenses.

We remain asset sensitive on a net interest income basis, but essentially interest rate neutral on an earnings at risk basis in a ramp scenario. This offset is supported by a projected ECR-related deposit cost decline and an increase in mortgage banking revenue based upon our rate cut forecast. Our updated forecast is for two 25-basis-point cuts next week and another 1 in December.

The balance sheet increased $4.2 billion from Q2 to $91 billion in total assets, which resulted from sustained healthy held-for-investment loan and deposit growth of $707 million and $6.1 billion, respectively. This strong deposit growth allowed us to reduce borrowings by $2.2 billion. On this slide, we also see the allowance for loan loss growth relative to the increase in loans.

Over the past year, the allowance rose from 67 to 78 basis points. This explains how our strong year-over-year EPS growth of 27% is dwarfed by our industry-leading PPNR growth of 38% over the same period. This reflects a robust revenue growth alongside with rising efficiency.

Finally, total equity increased to $7.7 billion and tangible book value per share climbed 13% year-over-year. Held-for-investment loans grew $707 million quarterly, though average loan balances were up $1.3 billion from Q2, which supported our strong net interest income growth. Commercial and Industrial continues to lead loan growth momentum while construction loans fell $460 million as these loans converted to term financing.

Regional Banking produced $150 million of loan growth with leading contributions from in-market commercial banking and homebuilder finance. National Business Lines provided the remainder of the growth with mortgage warehouse and mortgage servicing rights financing being the primary contributors. Deposits grew $6.1 billion in Q3 with mortgage warehouse clients only contributing $2.8 billion. Solid growth was achieved in noninterest-bearing and savings and money market products and mitigated the impact of $635 million in designed higher cost CD runoff. Deposit growth was well diversified across all areas of the bank.

Of note, during the quarter, Regional Banking deposits grew $1.1 billion with over $600 million in in-market Commercial Banking and $500 million from Innovation Banking. Specialty Escrow deposits grew $1.8 billion in Q3, with contributions of over $750 million from Juris Banking and approximately $400 million each from our Corporate Trust and Business Escrow Services businesses. This growth positions us to meet our funding objectives for 2025 while incorporating the normal seasonal mortgage warehouse outflows in Q4.

As Ken explained, asset quality continues to perform in line with guidance from last quarter. Criticized assets dropped $284 million from $196 million decline in criticized loans and an $88 million reduction in OREO properties. The decline in criticized loans resulted from special mention loans following $152 million and classified accruing loans decreasing $139 million.

As for our resolution efforts with other real estate owned properties, stabilizing leasing and occupancy rates as well as improved net operating income on these properties reinforce our confidence in the current carrying values. Quarterly net charge-offs were $31 million or 22 basis points of average loans. Provision expense of $80 million was primarily driven by replenishment of charge-offs in the Cantor V reserve.

Our allowance for funded loans moved from $46 million higher from the prior quarter to $440 million. The total loan ACL-to-funded loans ratio rose 7 basis points to 0.85%. Relevant to our current discussions, we're working with non-depository financial institutions, or NDFI clients, it is important to consider that some of the safest asset classes in commercial banking are categorized as NDFI such as mortgage warehouse and capital call and subscription lines of credit, which have had virtually no losses across the entire industry.

Our overall NDFI loan exposure is disproportionately weighted to mortgage warehouse lines, but we have never experienced a loss. Our NDFI loan exposure, excluding mortgage credit intermediaries would represent 8% of loan balances, which is in line with peer averages and below a number of larger banks as seen on Slide 24 in the appendix.

On Slide 14, you will see that Western Alliance's concentration in loan loss category skews our ACL lower relative to peers, reflecting the portfolio's lower embedded loss content. The top chart is our updated adjusted total loan ACL loss, which illustrates how credit enhancements, such as credit-linked notes and structurally low risk segments like Fund Banking; our low LTV, high FICO residential portfolio; and mortgage warehouse elevate our normalized reserve coverage from 85 basis points to 1.4%.

The bottom table demonstrates how applying an industry median loan mix to our portfolio reducing our outsized proportion of loans in lower-risk categories like mortgage warehouse and residential loans while also increasing our proportion of loans and higher loan risk categories like consumer, which shift our allowance above 1%.

Our CET1 capital ranks around median for the peer group. If you add our less adverse AOCI marks and the loss reserve, our adjusted CET1 ratio capital would be 11.3%. The 30 basis point quarterly increase reflects organic growth, generating higher stated CET1 and supported by improved AOCI marks. And the augmented reserve ranks in line with the median for our asset peer group on a 1-quarter lag basis. We remain confident in our capacity to absorb any losses in concert with steady loan growth. We view the adjusted capital as the total amount available to absorb losses and support balance sheet expansion.

Our CET1 ratio shifted higher to 11.3% from organic earnings accumulation. Our tangible common equity to total assets ratio edged down 10 basis points to 7.1%. Our stable capital levels demonstrated our ability to generate sufficient capital organically to support balance sheet growth. And given the stock price volatility, the company is evaluating to issue subordinated debt and using a portion of the proceeds to augment its share repurchase program, which we believe will be accretive to EPS.

Tangible book value per share increased $2.69 from June 30 to $58.56 as a function of organic retained earnings. Of note, since initiating our $300 million share buyback program in September, we completed $25 million in purchases through October 17, consistent with upward growth, and tangible book value per share remains a hallmark of Western Alliance and has exceeded peers by 5x over the past decade.

Western Alliance has been a consistent leader in creating shareholder value. On Slide 18, we have provided 9 metrics, we believe, are key factors in driving leading financial results, strong profitability and sustainable franchise value that ultimately compounds tangible book value and produces long-term superior total shareholder returns.

For the last 10 years, our TSR, EPS and tangible book value per share accumulation has ranked in the top quartile relative to peers. Based on business metrics, we are the leader in 10-year loan, deposit and revenue growth while maintaining top-tier performance for the net interest margin.

Lastly, return on tangible common equity should approach top quartile performance as we generated higher equity returns this quarter and should continue the upward trends in 2026.

I'll now hand the call back to Ken.

Thanks, Dale. Our 2025 outlook is as follows. We reiterate our loan growth outlook of $5 billion and raised year-end deposit growth expectations to $8.5 billion. Pipelines remain in good shape, though we remain flexible to changes in the macro environment.

Regarding capital, our CET1 is comfortably above 11%, and we expect that to hold during the last quarter of the year. Net interest income remains on track for 8% to 10% growth and should lead to a mid-3.5% net interest margin for the full year, which has been our expectation. Noninterest income was up sharply in Q3 and positions us to exceed our lofty targets and finish the year up 12% to 16%.

Noninterest expense is expected to be up 2.5% to 4% for the year. ECR-related deposit costs are projected to land between $140 million and $150 million in Q4, which implies slightly above $600 million for the full year. Operating expenses, absent ECR cost, now expected to be $1.465 billion to $1.505 billion for the full year. Asset quality should remain -- should continue to perform as expected with full year net charge-offs in the 20 basis point area. Finally, our fourth quarter effective tax rate is forecasted to be about 20%.

At this time, Dale and I and Tim will take your calls -- questions, I'm sorry.

[Operator Instructions]

Our first question today comes from the line of Janet Lee with TD Cowen.

So it seems like the credit picture that you guys are laying out is that you guys are fairly comfortable with the limited loss potential on either First Brands or Cantor exposures. As you are assessing your exposure to NDFI, I understand that, that is a very broader category. But as you're reassessing your underwriting and your exposure, are you comfortable with your current level of reserves? Or is there any sort of pressure that you're seeing that there might need to be further increased just based on the current circumstance?

So first, let me say, you're right. We feel comfortable with our asset quality. We think it remains stable from here. We mentioned that in the Q2 earnings call that we thought criticized assets have crested and would come down. And in fact, they have. As we look at our facts and circumstances regarding Cantor V and the Point Bonita loan, we do not see any losses in the future. That will, of course, potentially change if we discover new information regarding the Cantor V discovery that we are in the process of doing in our lawsuit.

But at this point, we think we have the right amount of collateral to support that loan. We've got high ultra net individuals behind that with guarantees and springing guarantees. And I think a new -- bit of news here for everyone is that we have a $25 million mortgage insurance policy. As it relates to the provision or loan loss reserves going forward, we constantly do our CECL review at the end of every quarter. And we look at a number of factors, the macroeconomic environment where interest rates are going, portfolio composition. And based upon that as part of our normal process, we determine what our reserves are.

So if you're asking, do we see another big large increase in reserves? No, but that will also be dictated by the factors that I just mentioned.

That's fair. And obviously, the PPNR growth was very strong in the quarter. If I look at the guidance update on interest expense, it really looks like it's driven by the higher ECR deposits because of the larger balances on noninterest-bearing deposits that you saw.

In terms of the beta expectations for ECR, I assume there is no material change and you should be able to cut deposit beta as previously expected. I think it was around 65% for these type of ECR-related deposits. Am I correct in thinking that? And how are -- what's your view on mortgage revenue? Obviously, that's been a very strong quarter for the third quarter?

Yes. So I think you're largely correct and thanks for your observation on this. We think the loaded beta is going to be closer to about 70%. Where the growth has been coming, has been in ECR credit-related deposits that are 100% beta. So we start with fund's effective rate, and then it's minus 6 basis points or plus a few basis points based upon that. And so when we get the action next week, those will drop 100%. Some of the lower-price pieces, including for our Homeowners Association group, those are the ones that are a little slower because they have a lower rate to begin with. And so we only get maybe 40% of that. You weigh it all together, and we think we're going to be about 70.

I'll take the mortgage part of that. We were very pleased with the mortgage-related income, which saw a significant rise to $95 million, which is a notable increase of $17 million or 21% from the previous quarter. Really, the key factors contributing to that is the decline in the 30-year mortgage rate, which is being supported by a lower 10-year note rate, which is below 4%. As of this morning, the 30-year fixed rate is 6.15%. What we have seen is when we get into the low 6s, we really begin to see activity pick up, and that's, in fact, what's happening.

So looking ahead for, say, Q4, we anticipate tailwinds from low rates, which we've experienced in September and seeing here in October, but I want to make sure everyone -- I caution everyone, while there's always a seasonal drop in volumes in Q4, which can range between 6% to 10%, we expect to be on the lower range of that decline. But all things considered, our mortgage revenue should continue to maintain their momentum and absent to slow seasonal reduction in Q4, we are becoming optimistic about what 2026 looks like.

Our next question comes from Chris McGratty with KBW.

Great. Ken or Dale, the buybacks post quarter end and the comments about being supportive with the capital arbitrage, could you just unpack that a little bit?

Sure. So we authorized the $300 million stock buyback. We're not changing that number. We executed $25 million against it in advance of this call, but to perhaps accelerate some of that usage of that $300 million, providing more liquidity at the parent would be helpful and doing a subordinated debt deal at the bank will take our capital ratios, and you can see them, we're about 14% kind of flat. Our capital has really supported -- our capital growth has really supported our balance sheet growth, but it would enable us to have a little more latitude with that. As you know, though, we also have another goal of 11% CET1. So I could see us come down from where we are at 11.3% to that 11% number or new there.

Yes. Chris, I'll add just a few other points there. So for the quarter, we purchased 301,000 shares at $83.08. Notably, 128,000 of those shares were acquired at $77.83. And what that should tell you is before the announcement of first brands and the Cantor, we were feeling very confident to be buying the stock back in the mid- to high 80s, and we even got more confidence to buy it back when the stock dropped. And so -- the rest is what Dale said, which is we'll put out a subordinated deal sometime in the future, and we'll look to continue to support the stock, which is what we said when we announced the authorization, if there was a disruption in the stock, we'd be to support it.

Okay. So you tip away to $300 million sooner versus you're not raising the $300 million, got it. And then a follow-up just on the guidance. We have 1 quarter left, but the ranges are fairly wide. Could you just speak to biases within the range for the various items? Would you steer us in any direction for NII fees expenses?

Well, maybe I'll add a couple of things. I mean, so coming out of the second quarter performance, there were some discussions about our -- about kind of our fee income levels and we had a stronger -- and the other category in noninterest income, you can see it was up significantly. I think that's at least going to continue into the fourth quarter. We're in the process now of distributing one of the largest class action settlements of all time and that will come in through.

On the expense side, based upon kind of where we're headed, we believe that our incentive accruals we may need to be bolstered in the fourth quarter to get to where we think our -- where we're going to be on a -- relative to our bonus targets, which were outlined in the proxy earlier this year. So that will be a factor there.

On the insurance piece, you can see that we had a significant decrease in FDIC costs. We've been talking about how we're going to continue to roll back what we've done in terms of network deposits like IntraFi. We've also been scaling back brokered. This is largely the fruits of that, but we also had a benefit in the third quarter from a rebate from prior overpaid insurance costs a little bit. That said, I think the fourth quarter, we're going to -- we're going to earn through that add back that we had and the benefit we had. And I think insurance costs are going to be fairly stable.

Yes, I want to take a step back here. Based on consensus estimates that you guys all produce, we're going to grow earnings somewhere between 17% to 19% for 2025. I just want to make sure people remember as we entered this year, the earnings trajectory had a very steep back-end curve, and we're on track to achieving that curve. So it's also noteworthy that I think there are very few banks at or above our size growing EPS at this pace.

Our next question comes from Andrew Terrell with Stephens.

I had a question just around the seasonal kind of deposit flows. I appreciate the $8.5 billion-plus of deposit growth guidance for the year. Can you just talk about expectations of the seasonal component in the fourth quarter, how much that takes out of, specifically the ECR balances? And then just the strength you're seeing in other verticals that would, I assume, offset some of that?

Yes. Really, the ECR pickup that we saw or the half of the deposits that we gained in the third quarter was really related to the mortgage cycle. We've talked about this, and those payments are going to be made sometime around the end of November, December. And so that's what's really going to come off. So it ramped up and then it comes down, but it's here for most of the quarter in terms of an average balance basis, which of course is how we compute earnings credit rates. And then kind of more stabilized after that going into 2026.

Got it. And if I could ask on the mortgage banking piece. I know fourth quarter of last year benefited pretty heavily from, I think, some direct securities and loan sales directly to banks. I know that's something you guys invested in. Did you guys experience any of that in the third quarter of this year that led to some of the margin increase? And is that something we should expect again in the fourth quarter of this year?

So for the third quarter, there was less volatility. So WAL did not take a bite out of the revenue growth that we are showing here for the quarter. That's number one. Number two, we did take a position that rates were going to come down, and we held on to a lot of our securities, bonds, if you will, and did not sell them until later in the quarter. And we call it the rise up in price on that, and that helped us a little bit.

I'm not -- we are not modeling that in our Q4 expectations again. And as I said, I just think Q4 mortgage revenues come down a little bit from Q3 just because of the seasonal nature. And also, November and February are the 2 worst mortgage months of the year. And starting around Thanksgiving through the end of the year, activity begins to slow somewhat.

We had some dispositions as we generally do on mortgage servicing rights, but it wasn't for any type of a gain here.

Our next question comes from Jared Shaw with Barclays.

Thanks for the color on credit. I guess, looking at more broadly, the trends in classified loans, what was driving that reduction? Was that credits leaving the bank? Or was that improving underlying fundamentals and -- or was any of that from Cantor and First Brands potentially moving out of classified and into nonperforming?

No. So there's a lot of stuff there. So let me kind of break it down. Our OREO decreased $88 million. That is one property that was sold at a marginal profit to what we brought it in at and another property that was transitioned out of OREO. So that's the $88 million.

Special mention decline because several credits got resolved with borrowers putting up incremental margin to make us comfortable and then we were able to elevate the quality of that loan or the rating of that loan. And same thing I would say in terms of crewing substandard loans where we just got -- we just resolved a few credits, and those got upgraded in terms of its rating.

In terms of nonaccrual substandard, the Cantor loan is in that category, okay? So that's the one that went up, right? So special mention went down by 1.52%, accruing substandard loans fell by 1.38%, OREO decreased by $88 million, and the increase in nonaccrual loans, while was the -- was $95 million, which all of that was for the Cantor Group V. Had that not happened, we would have been flat there. So that -- hopefully, that unpacks it a little bit for you.

Yes, that's great. And then I guess this is a follow-up, Dale, you mentioned growth in corporate trust deposits, how -- is that market share gain? I mean, what's going on there? Should we expect to see sort of continued momentum and growth on Corporate Trust?

Yes, it is market share gain. I mean I'm really proud of kind of how we've executed in this category. We started 2.5 years ago, really. And really with the focus we have on CLOs to start, we're now going to be expanding into municipal. But we have become the seventh largest CLO trust depository in the world in just 2 years. And so I think we're going to be continuing to move up that -- those ranks in that group.

I can't say it's going to be exactly what's going to do for the fourth quarter because some of these are $50 million deals, let's say, and there's some -- some of them are refinanced and things like this. And so again, they get taken out. But we have strong expectations for how this is going to go in 2026.

Yes, I'll add one of the things too here, which we've got a very powerful 1-2 punch here, which is our Corporate Finance where some of the private credit lending is done, works alongside of Corporate Trust when we go in and see clients and so we get the Corporate Trust business as well as a credit mandate, and those 2 things work really well. And what we are seeing, and this is really -- we're very excited about this on the Corporate Trust side is once we get in there, our service level is so superior to some of the larger banks, which have not invested in this area that we get repeat business and the repeat business is coming at a fairly nice pace. So we have great expectations for next year in the deposit growth from Corporate Trust.

Our next question comes from Timothy Coffey with Janney.

Looking at the loan-to-deposit ratio, that's clearly come down the past couple of years. Is that a level now that you think is the right size for it? I've got kind of the mid- to low 70% range?

So -- actually, we think it's a little too low, all right? And we'd like to see that be higher. And so we're working on that. So we have plenty of liquidity to put to work and what we're looking for are good, safe, sound loans that we can do very thoughtful credit underwriting on. And if we find those loans, then we have the liquidity in front of us. Right now that liquidity is probably not making any money, not losing any money for us maybe on the margin, maybe it makes a couple of bps, but we like to put it to good use. And so we can see strong activity, which we're seeing decent activity in the -- in our markets. We'll put that liquidity to work.

Okay. And another question was on the OREO that you're operating and collecting rental income on right now. How should we be thinking about that line item going forward? Is that kind of a recurring revenue line item for right now?

Yes. So it has 2 places. It has a place in other revenue where that's where we get the revenue -- the collection of the rents. And then it has an operating expense, which is in the other expense category. The net of those 2 are just marginally profitable, maybe $1 million to $2 million over the year. And so we took in these properties because we thought we could execute faster upon leasing up these buildings than the sponsors were and the sponsors were happy to give it to us. And we were able to -- we think -- we believe we were able to maintain the value of those properties and actually improve them over time.

So our goal is, as we are able to increase the occupancy of these buildings and then sell them, those -- the revenues from that will be adjusted accordingly. But right now, the net benefit to the PPNR is really marginal at $1 million to $2 million for the year.

Our next question comes from Ebrahim Poonawala with Bank of America.

I just have to follow up, Ken. I think credits, obviously, a huge overhang on the stock, and I heard your comments around asset quality, but just speak to us in terms of, one, I think, within the NBFI, the business services piece, on a macro level, have you seen -- and this is not just for Western Alliance, but have you seen underwriting standards weaken where we should be expecting more issues coming out of this area and banks being exposed to nonbank financials around this. One, just your comfort level in this space, given you're still quite active would be helpful?

And then beyond this, as we think about asset quality, we had some commercial real estate issues you handled last quarter, now this. As you look forward, I think just your level of comfort when we talk about things have tested, are they getting better versus risk of like one-offs popping up?

Okay. You came in a little choppy. And so if I missed something in terms of one of your questions, just do a follow-up or if Dale heard it clearer than I did, then he'll jump in there. Right now, I think the overall backdrop to the economy is pretty good. You've got GDP growing at 3.8% to 3.9%. You've got the 10-year rate coming down to under 4%. Employment for as much as people are talking about and nervous about it, are still in a rather low 4% area. You have greater investments being made into the country from foreign countries. So that should help continue with economic growth. And you've got a probusiness president. So that's the backdrop to a lot of things that we're seeing.

As it relates to us, and some of your question was, I think, how do we feel about the nondepository financial institution loans. Let me say that a good chunk of those are all mortgage-related and MSR related. And as Dale said in some of his prepared comments, we've never -- the industry has not experienced any losses. And for those people that aren't really knowledgeable, what happens on these mortgage warehouse lines, the average loan that we put on there stays for 16 to 18 days, and it rolls off very, very quickly.

And so these are government -- generally qualified loans. These are government loans, government-backed credits. They're very high FICO scores. We like these credits, meaning the specialized mortgage credits to the warehouse lending, they're very strong, and so are the MSR credits that we have on our books. And we have not seen any weakness in that at all, okay?

As it relates to the other part of our nondepository financial institutions, which has gotten some exposure through the Point Bonita controversy that was disclosed about 2 weeks ago, we like private credit. And I think for us, it's important that people understand why we like private credit and how it works here in the bank.

First, we lend to lenders. Just remember that, we're lending to people that are lending to private equity. Our interests are automatically aligned. And any time we recommend a covenant, if that means it's good for us, it's got to be good for the private equity credit lender. And so we're very much aligned.

Number two, we are working only with the brand name private credit funds. And we went back and looked at what their average loss rates were, only 25 basis points. right? Now we still underwrite the losses in the funds because that's the right thing to do, okay? But our attachment point, which is defined as where would we first take a loss, is at 35%. So the fund has to lose 35% before we take $1 of loss, right? Contrast that to the 25 basis points that their average loss rates are from these private credit shops, all right?

Most of our structures are rated either AA or AAA, right? And that's what gets a lower risk weighting on these structures. Now on top of that, we have an active portfolio management process that connects with an active portfolio management process at the private equity -- private credit shops.

And lastly, we have the ability -- we've got kickout and eligibility rights on these credits as well, right? And as we said, we don't think there's a loss here with the Point Bonita credit. It's paying as we expected, and it's unfortunate that our name got put out there. We didn't put it out there, but it's unfortunate that it did. We never -- we were not worried because of the diversity of retailers and their investment grade and the fact that we have a loan-to-value relationship of 20% there when we have $890 million of credit -- accounts receivable backing up our loan amount, which, as I said, is over 4x.

So unless I missed anything -- Dale, did I miss, did I hear anything?

You got it.

Okay. Dale said I got it. Hopefully, I got it.

Got it. All right. So that was a full response. On the buybacks, I think, Dale, you mentioned you were at 11.3% versus the 11% that you're targeting. Is there an implication there given where the stock is right now that you could accelerate some of the buybacks where the first 30 basis points of CET1 you could do in short order if the stock remains where it is today?

I think that's a safe inference, Ebrahim. I mean we haven't done our debt deal yet. But yes, do I think we're going to come down from 11.3% closer to our target? Yes.

Our next question comes from Casey Haire with Autonomous.

Ken, great answer, a long answer on the NDFI, but I do have a follow-up. Specifically on the collateral and how it's validated. It's -- all of these -- I mean, it sounds like you scrubbed the note finance book, the big ticket items there, which is $2 billion, but that leaves about $11 billion of NDFI exposure. It just seems like it's -- as long as you're not afraid to go to jail, it seems easy to double pledge collateral. So what are you doing to validate your collateral and safeguard against future frauds?

Well, as Ken indicated in his remarks, we are confirming through direct sources with the title insurer, with the title itself that our lien has been placed in the first position. And then we periodically check those to make sure that nothing happened that pushed us down to second. I mean the issue we had with the Cantor deal is we were supposed to be in the first position. And in some cases, we see that we are now in second.

And -- but the reason why we say that we're okay with collateral is because if I net out the first in front of us relative to the as those appraisals that we have that we're getting updated, we still have enough money to cover the entire amount of this loan of $98 million, which excludes the springing guarantees from 2 individuals that are ultra-high net worth as well as the insurance policy that we have for fraud losses ourselves for '25.

And Casey, I want to just correct you. I think I heard a number that our note finance portfolio was only $2 billion, okay?

Right. No. I think you're excluding that, but I'm talking about the remaining NDFI exposure of $11 billion?

Well, the rest of the NDFI exposure is -- I mean, the overwhelming preponderance is really these basically lines for residential mortgage. And those loans are only -- they only last 2 weeks, maybe 17 days. So the loan is table funded to close a house or do a refi, do put the money in, we hold it and then it's pushed off to a GSE 2 weeks later. So those clear out all the time.

Got you. Okay. All right. Just switching to the guide on loans and deposits. It sounds like loan growth is -- loan growth is going to have to have a pretty strong quarter. You guys are certainly capable of that, but it's been some time that you've put up a $2 billion quarter. So just some color on the pipelines. And then on the deposit side of things, I think you guys had said that you are pricing it differently so that mortgage runoff would be less than the $1.7 billion that you experienced last year, but the guide implies about $3 billion of runoff. So just looking for some clarification there?

We'll split it up. I'll take the loans. I'll let Dale take deposits. So we grew $700 million this quarter. That was a little below what our internal projections were. We had 2, maybe 3 loans that were pushed out for closing from the end of the Q3, and they're coming into Q4. So that's what gives us sort of the confidence that we'll have a much better Q4 than we did Q3.

Yes. If you go into the deposit guide, like you mentioned, your analysis is correct, Casey. So what's transpired is, gosh, we had this kind of a rocket third quarter in terms of deposit growth. My instinctive reaction is, god, does that give us pricing leverage, whereby we can maybe put something down and still have a strong performance. So I think in some respects, our guide anticipates that maybe the runoff would be a little bit higher if we did that, but I would hope we'd be able to save on pricing in that scenario.

I would say that there is one other caveat though. So if the AmeriHome operation and Mortgage Banking generally picks up, what goes into those deposits is normally, it's just your principal and interest. You make a payment for X thousand dollars, we're going to go in there and we're going to see those funds. We're going to have them for 3 weeks, and then we're going to remit them to a GSE typically. But if somebody does a purchase, then maybe it's $500,000 that goes in there. And so those deposits could rise if we get into more of a purchase and/or refi business kind of moving in as rates continue to decline.

Our next question comes from Matthew Clark with Piper Sandler.

Just on that lawsuit in the Juris Banking division, can you just quantify the settlement that you anticipate to realize here in the fourth quarter?

Yes. So the lawsuit was -- I guess it was Facebook, Cambridge Analytica deal, you probably heard about it. It has more plaintiffs or more participants in the class than anything ever in the -- over $10 million. And that process is taking place now. And so -- and as we're the distributor of that, it's going to take a few months to do it, but we get fees associated with distributing 15 million payments and going through the process of verification of the individual, are they certified for the class, things like this.

Got it. And then I don't think I saw it in the slide deck, but if you had the spot rate on deposits at the end of September and the beta we should assume as we go through a rate cutting cycle here potentially?

Yes. So the ending rate was 3.17% for interest-bearing deposits. The beta that we've got, it's -- we're a little bit faster on the ECR, so it's going to be a little slower than that in terms of what we're doing. But hence, you see on the net interest income guide in total, we're showing that we're slightly asset sensitive, maybe a little bit of compression as rates come down, but we more than make up for that with what we save on ECR costs and what we save in additional income from the AmeriHome operation.

Our next question comes from Ben Gallagher with Citi.

I know we talked through OREO a little bit. With respect to the properties -- the office properties last quarter, it seems like you've already sold one and you're leasing up others. I know, Ken, you acknowledge that like fees and rent rolls going to fee income and then expenses are basically de minimis to one another towards your net impact to the income statement. But as you roll those out, it seems like on occupancy levels, you probably acknowledge some gains over the next 12 months. I was just kind of curious any time line you might project on getting rid of the other 4 that you still have on the OREO?

Yes. I really don't have a time line for you. We'd like to get them off our balance sheet as quickly as possible. The best way to do that is to lease these properties up. We see good leasing activity on the properties, as Dale said in his prepared remarks. In addition, we're getting some tailwind with interest rate cuts coming, which should really improve cap rates.

So the best I can say is fingers crossed that I'd like to see a couple of those leave us sometime during the course of next year. But we're looking to maximize value here, and we're looking to improve our tangible book value now that we brought them on. And so we don't want to sell them too cheaply because we're kind of optimistic that we could improve the occupancy at these buildings.

Every one of these, we have a reasonably current appraisal on, and there's 2 values in that appraisal every time. One is the as-stabilized value, which is, "Hey, if this thing is operating normally and isn't under some kind of duress or distress." And then the as is, like here's what it is today. Yes, some of the things don't work. You just -- you got to take those into consideration as the buyer. So we're in a situation now that the disparity between the as is value and the as-stabilized values on these are some of the highest we've ever seen. And so what you're getting at is, gosh, would it be nice as we stabilize these that maybe we can migrate those numbers up? I'd love to do that. We're obviously never going to forecast anything like that.

Got it. Okay. That makes sense.

Are you looking to buy a building?

Not for what you're selling it for. I don't have that money. But in terms of -- might be a naive question, but was that an NDFI loan? And if so, what kind of subcategory was it?

Yes. It was an NDFI loan, and it was in the mortgage -- in our market banking situation. So it was because as a financial institution that it's going to be in there. And again, as Ken indicated, what we're doing in our advances here is our numbers would have been very strong had we had the first position as the borrower presented that they did and as their contracts demand. That's where we get into this fraud situation. Otherwise, this would have never even come up.

Our next question comes from David Smith with Truist Securities.

Could you give some more details on the mortgage assumptions in your overall earnings sensitivity guide for down rates? Just with a 75% ECR beta on top of what you disclosed about your NII sensitivity, it seems like there's very little, if any, mortgage upside in there. I was wondering if you could help us unpack that some.

Well, so one of the key factors in terms of how we do on our -- it's basically the valuation on the MSR relative to what we have as our hedge against it, is the volatility or the spreads that have increased over the past few years. We're seeing today those spreads compress. If that continues, as spreads compress to historical levels, we're likely to see higher revenue in that scenario because the volatility is something that doesn't really work in our favor. And we saw the inverse of this at the beginning of the -- basically the tariff situation back in April.

In terms of the Mortgage Bankers Association, is actually projecting a little bit better in terms of purchase activity or total 1-to-4-family in the fourth quarter than in the third. We're not really counting on that. We think it's going to maybe slip slightly just because that's been the seasonal trend. But maybe there will be some higher level of activity because of the rate cuts as long as people are comfortable that the shutdown and things like this aren't going to move unemployment higher.

Yes. The numbers from the MBA for next year, they expect mortgage activity to rise 10% to $2.2 trillion, where almost $1.5 trillion will be purchase volume and then about $700 million will be refinancings. So again, Q4 revenues for mortgage should be just a little weaker than Q3, although I've got some -- I got my fingers crossed here that we could maybe get some tailwinds here. But we are becoming more optimistic about where that revenue stream is going to be for 2026.

Okay. And then just to circle back to the earnings at risk scenario. Could you help us just roughly size how much of the offset to the NII asset sensitivity is coming from ECR benefiting in down rates versus mortgage benefiting in down rates for you?

Yes. I think the preponderance is going to be kind of in the mortgage side, but they're both contributors. And if there's more variability in terms of it improving better in the earnings at risk, it's going to be the mortgage related as well. I think we're going to have a higher beta on the beta based upon kind of what could happen there versus the ECRs, which we talked about those betas already.

Our next question comes from Bernard Von Gizycki with Deutsche Bank.

So you have a bit over 1/3 of your total deposit base that has ECRs related to them. And when we think about the composition of the deposit base and the ECR-related costs, which represent about 30% of the total expenses, can you just talk to expectations of how these change? I know, Dale, you're moving over to a new role next year, focusing on deposit initiatives. But are you looking to drive down the percentage of the ECR-related balances or have them grow but more focused on reducing ECR costs related to them or a combination of both? Any color you can share on these dynamics?

Yes. So the ECR is really driven by 2 sectors. The largest, of course, is the kind of what we're doing in the mortgage warehouse deposits. We've talked about that, and the other one is our homeowners association. So going forward, I believe that the Homeowners Association deposits are not going to shrink, but they're not going to grow as quickly as the overall footings of deposits for the company. So proportionately, that will decline.

Meanwhile, our HOA group, we're the largest in the nation in terms of what we provide services there. That growth is continuing to be strong. And I think that is going to at least keep pace with the overall size of the company as it grows. So in total, I think you're going to see that it becomes kind of less significant. And in terms of the expenses associated with it, as you go to lower rate levels, these numbers just come down, and there's really not as much of an offset anywhere else. So it's just -- the dollars are going to fall back a bit to lower levels if, say, we get 4 rate cuts over the next 12 months.

Okay. And then just on equity income, the uptick there in 3Q. Was that primarily due to the reversal in losses from 1Q? Just curious if that's come back. And just given the cap markets activity picking up, how should we look at this line item from here?

We don't have that reversal yet. Thanks for remembering that, but that's still pending. This was -- these were other types of things. Look, that number does bounce around a bit. You can obviously see that. So this $8 million handle, certainly higher than usual, a little bit of a haircut there going forward. We don't have anything that indicates that anything is either getting dramatically better or dramatically worse.

Our next question comes from Anthony Elian with JPMorgan.

You increased the range for ECR cost again this quarter, but this time, you maintained the NII range of up 8% to 10%. Was the increase in the ECR deposit cost range tied to just higher balances or because of a lower ability to reprice down those deposits?

It's really balance driven. I mean, frankly, we got a little more in the third quarter than we thought we would. So it's balance driven. And there's been -- it's -- I guess it's a good problem to have in that some of these dollars have grown more quickly, but it does show up in expenses and it contributes to the situation where you've got to look at adjusted -- adjusted efficiency ratio, adjusted NIM.

Okay. And then my follow-up on your earlier comments on reviewing the note finance portfolio. Have you given any thoughts to potentially casting a wider net and reviewing the loan portfolio, credit procedures more broadly beyond note finance and NDFIs, just given investor concerns on the company's credit quality?

Yes. I want to quell any misconceptions that might be implied through even some of the questions. No one is more concerned about credit governance, asset quality than our executive management. We've got an entire construct build around the control environment for credit, the second line or credit risk review that's intimately involved. And so at the earliest stages of something that didn't work as we expected, those teams are involved inside of our company. We're listening and reviewing on a much broader scale. So this work has been ongoing. It goes on all the time. It's part of our quarterly full portfolio review process.

But in addition to that, we hold ourselves accountable, and we hold our business accountable through our second and third line who are actively engaged in that. And so we're not asking ourselves, could this happen again? We're receiving validation of those things through our internal control network.

Our next question comes from Jon Arfstrom with RBC Capital Markets.

Ken, maybe for you. Do you have any balance sheet size limitations? It looks like you're going through $100 billion very quickly in the next couple of quarters. Anything for us to consider and how you're thinking about that?

No, not really. I think you're right. Of course, we're not going to have a lot of growth in the balance sheet for Q4 just because as we've talked about, the seasonal outflow of the warehouse lending deposits or the mortgage deposits. But 2 things we're doing. One, we're growing the business based upon opportunities that we have, and we're not holding ourselves back because we're going to cross over $100 billion.

Number two, we continue to build out the infrastructure to cross over $100 billion and be LFI ready. Number three, we're waiting and we're hopeful that the tailing rules will come out probably sometime in the middle of next year that we will move it to $250 million, all right? But in all the expense numbers, remember, non-ECR operating expenses quarter-to-quarter only went up $2 million. For the first 3 quarters of this year, non-ECR operating expenses were in a band of $5 million. And that includes all the development and investment we're making to be LFI-ready.

So to your balance sheet question, we'll cross over $100 billion when it's the right time based on the opportunities that are in front of us, okay? And we'll be ready, and we continue to invest. And if the tailwind rules come out, then we may slow some of our investment down to match what some of the tailwind rules are.

Okay. All right. Fair enough. And then, Dale, for you, in your prepared comments, you talked about an upward bias in ROTCE and top quartile and ability to show improvement. I'm assuming you're thinking a starting point that includes a more normalized provision. So maybe normalized ROTCE right now is high teens rather than the mid-teens you printed and you can do better from there. Is that fair?

Sure. Yes. That's completely fair, Jon. Maybe just talk timing a little bit here as well. So yes, normalized provision, that would have obviously augmented the number in the third quarter. As we get to the first quarter, in particular, it's a little bit strained. We lose a couple of days that's meaningful for us. And also, you step up again, everyone knows on certain types of taxes and things like this kind of starting the new year. So I'm looking for something that kind of kick in kind of in the back half of 2016 to hopefully get to the levels you're talking about.

Yes. One of the things that can really supercharge the return on average tangible common equity will be the mortgage business next year and the growth in the mortgage business. If it grows more than moderately, that's going to really provide excess earnings and that will improve the return on equity, Jon.

Our next question is a follow-up from Ebrahim Poonawala with Bank of America.

Dale, just a follow-up. I think it's important. Just want to make sure in your Slide 24, the 16% loans -- NDFI loans, mortgage intermediaries is about $9.1 billion, the warehouse is about $6 billion and change. And I'm trying to figure what the balance is between the $6 billion and $9 billion. And are those nonresidential warehouse loans are commercial real estate driven? And would you be holding reserves against those loans as opposed to the resi mortgage where you show on the slide where you don't need reserves because of the 0 loss nature? Just clarify that for us.

I think we maybe need to pick this up maybe at the next call, Ebrahim, in terms of what this looks like. I mean, so we've talked about the warehouse piece and where we are on the NDFI elements, whereby we're assuming a first-out position and another lender is in front of us with the higher level of risk against loans that typically have low loss to begin with. So let's pick this up later today.

Our next question comes from Timur Braziler with Wells Fargo.