Western Alliance Bancorporation Common Stock (DE)

Hello, everyone, and thank you for standing by. The Western Alliance Bank Corporation's third quarter 2025 earnings call will be beginning shortly. We thank you for your patience. Good day, everyone. Welcome to Western Alliance Bank Corporation's third quarter 2025 earnings call. During the Q&A session, out of courtesy for your colleagues, we request that you please limit yourself to one question and one follow-up only. You may also view the presentation today via webcast through the company's website at www.westernalliancebankcorporation.com. I would now like to turn the call over to Myles 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 to companies not undertake any obligation to update in a forward-looking statement. For 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 8K 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 Adani, who recently joined the team as he and Dale begin their CFO transition. Western Alliance continued our solid business momentum in the third quarter that generated record net revenue and pre-provisioned 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 non-interest 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 costs, 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 three of the four major subcategories and net charge-offs of 22 basis points. In light of the recent news regarding two credit relationships, let me address those head-on because I and the entire Western Alliance management team take these and any potential credit migrations extremely seriously. You have heard me say previously, early identification and elevations 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 5, which was the subject of our October 16th 8K, we believe our circumstances are different than other organizations and that our loan to this specific investment vehicle is secured by loans with a perfected interest in the CRE properties. We have confirmed our lien position through lien 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 non-accrual 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, well, 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, non-accrual 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 lien 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 Lucadia Asset Management subsidiary, Point Bonita Fund One, 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 Benita's near-term ability to pay off all debt due to the diverse set of assets apart from the first brand's 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 investment-grade obligors that cover our loan balance greater than four times. 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 five and 10 years, our net annual charge loss averaged just 10 and 8 basis points, respectively, placing us among the top five US 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.