Thank you. Good morning.

Welcome to Western Alliance’s third quarter earnings call. Dale and I are going to review the slide deck that's been posted on the website.

Then we'll open it up for questions. We had another record quarter with net income of $67.1 million or $0.64 per share inclusive of $0.02 per share and charges for acquisition and conversion cost.

This compares to $61.6 million or $0.60 for the prior quarter, which also included a $0.02 charge for integration. Excluding acquisition costs, EPS is up 20% from $0.55 in the year ago quarter to $0.66.

Loans grew $156 million during the quarter to little over $13 billion driven by C&I growth while deposits climbed $242 million to $14.4 billion, entirely in non-interest bearing accounts. Year-over-year, our loans are up $2.25 billion, $1 billion organic and $1.25 billion from the GE acquisition and deposits are up $2.83 billion all organically.

The net interest margin contracted eight basis points from the second quarter to 4.55, largely due to recognizing a full quarter interest cost for the June subordinated debt issuance. Our efficiency ratio was flat at 43% as incentive compensation costs drove total expense to rise proportionately with revenue.

Nonperforming assets to total assets were flat from the second quarter at just over 0.5%, but are down 30% from 76 basis points a year ago. Annualized net losses were just 0.04% of total loans as they have hovered around 0% all year.

The tangible common equity ratio rose 9.1% at June 30 to 9.3% this quarter, while our tangible book value per share rose 4% to $14.84. Turning to our consolidated results, net interest income for Q3 increased $8.8 million or 5.4% from the second quarter to $172.5 million and is up $35 million or 26% from a year ago.

Operating noninterest expense rose $2.1 million during the quarter to $10.7 million due to higher warrant income and gain on sale of loans. Operating expenses climbed $4.6 million during the quarter to $82.4 million driven by compensation costs.

Operating pre-provision net revenue exceeded $100 million for the first time in the company's history up 37% from $73.7 million a year ago. The credit losses provision of $2 million exceeded the $1.2 million in incurred loan losses in the improving trend in credit metrics continued.

Acquisition and restructuring costs were $2.7 million reflecting the completion of our conversion in September from GE for hotel finance lending as well as conversion costs for our core banking platform, resulting from the Bridge Bank merger. Income taxes increased $2.9 million to $29.2 million, primarily due to the $8.3 million increase in pretax income.

The diluted share count climbed by $1.1 million as our at the money equity offering was completed in the second quarter but not fully reflected in the average share count until the third quarter, resulting in reported EPS of $0.64 including the $0.02 of onetime mergers. Our securities portfolio grew $500 million to $2.8 billion during the quarter as we deployed a portion of our excess liquidity.

However the yield fell five basis points to [290] [ph] as reinvestible yields remained low and premium amortization of mortgage-backed securities climbed while prepayments fees accelerated. Loan yield essentially held steady at 5.44% as did our cost of interest-bearing deposits at 36 basis points.

Average borrowing cost increased to 4.05% from 2.06% -- 2.86% as we picked up a full quarter of our subordinated debt issuance costs that was completed in June. While net interest income rose to a record $172 million, the margin fell eight basis points during the quarter to 4.55%.

Five basis points of the margin decline were due to the full effect of the debt issuance and three basis points from accelerated mortgage bond prepayments and investment yields. Accretion from purchase loans was $8.8 million during the quarter, without which the margin would have been 4.33%.

Scheduled acquisition loan accretion for the fourth quarter is $4.9 million and declining to $4.2 million by third quarter of next year. For most periods, realized accretion is likely to be higher than scheduled, due to prepayment and re-financings in advance of contractual maturity, which accelerate recognition of remaining discounts.

All of the $4.6 million gain in operating expense is from the $4.8 million jump in comp costs. On a linked quarter basis, base salaries rose $1.1 million, half of which was from one additional payroll day during the quarter and the rest from salary increases for existing staff and five FTE employees hired during the quarter.

Incentive comp was up $3.7 million from the prior quarter as accrual from company-wide performance bonuses rose $2 million since we are exceeding our targets in almost all performance metrics for 2016 that were laid out in our proxy in April. Additionally, individual business development incentives rose $1.8 million as growth in retention of clients has been strong, particularly for core deposits.

In total, this 6% increase in expense in the second quarter met the 6% increase in revenue leaving the efficiency ratio unchanged at 43%. The consistency of our performance shows up in our pre-tax pre-provision return on assets of 2.38% in ROA hovering around 1.50%, both measures are in the top decile performance compared to our peers.

Dale, do you want to continue with the balance sheet?

The $500 million increase in the investment book was partially offset by a $300 million decrease in cash, taking total cash and investments up $175 million at quarter end. Deposit growth was modestly in excess of loan growth, which took the loan-to-deposit ratio down to 90%.

Total assets climbed 22% in the past year to $17 billion, while tangible book value per share rose nearly $3 dollars or 25% in the past year to $14.84, which is one of the fastest capital growth rates in the industry. The $156 million in loan growth was driven by mortgage warehouse and corporate finance in the commercial and industrial category, while construction loans increased in Arizona and Nevada.

We remain well within the 100% and 300% of capital regulatory guidelines for construction and investor commercial real estate loans at 68% and 252% respectively. Non-interest bearing deposit growth of $350 million during the quarter exceeded the $242 million in total deposit growth, which improved the company's interest rate risk profile and reduced its reliance on [CDs] [ph].

Growth leaders during the quarter were the HOA division, technology and innovation in the Arizona and Nevada geographic markets. Reviewing where our borrowers and depositors are located, over 70% are in our three state primary market, reflecting that most of our national business lines clients are also in Arizona, California, or Nevada.

Texas is our next largest state on the loan side with $421 million, a $190 million of which is hotel finance. On the funding side, Florida leads with $417 million as we bank 50 homeowners association management companies with funds from over 1,000 communities in the state.

In total, we have loans and deposits in 48 states. Asset quality remained strong with NPAs to total assets and total adversely graded assets to total assets lower than last quarter and down roughly a quarter from a year ago.

These amounts are net of the $30 million in discounts on these loans that were established when these loans were acquired. Half of the gross loan charge-offs of $2.7 million during the quarter was offset by $1.5 million in recoveries resulting in net losses of $1.2 million or four basis points of total loans annualized.

The $2 million loan-loss provision for the quarter covered these losses as well as provided for loan growth. The allowance for loan losses as a percentage of total loans was 94 basis points at quarter end as the reserve ticked higher to $123 million.

Ignoring our recoveries and only considering gross loan losses for the past year, which total $15 million, our reserve is large enough to handle eight years of losses at the current run rate. Eight years is more than double the duration or the average maturity of our loan book.

While this past year has been a fairly benign credit environment, this substantial level of reserves relative to losses may be important to win a new currently expected credit loss accounting standard is to be implemented. In addition to the $123 million reserve, our loan portfolio was booked at $56 million credit discount to the unpaid principal balance of our borrowers.

As a number of these loans may well pay as agreed, this discount may also be used to cover credit charges. Together it result in a reserve of 1.37% of total loans.

The tangible common equity ratio and the total capital ratio, each ticked higher by two tenths during the quarter and capital grew at about double the rate of total assets. The decline in the leverage ratio results from it being the only ratio that is computed using average assets instead of any assets.

As our average balance sheet grew 6% during the quarter, compared to a 2% growth rate in total assets from June 30 to September 30, this ratio declined.0 While average assets for the quarter are now very close to any assets, I expect the ratio will move in tandem with the other prospectively. Okay, going on to our outlook, moving forward, seasonal sluggishness was apparent in our loan and deposit growth metrics for the third quarter.

However we expect these balances to increase consistent with our prior guideline of low double digit annualized growth for the coming year. We also expect the recent trends of increased geographic and product diversification of our loan portfolio as well as higher core deposit funding will continue.

Western Alliance remains asset sensitive and its investment portfolio yield was script by lower and reinvestment returns and higher prepayments during the quarter, but pricing pressure for loans in CRE in particular, has modestly abated. Deposit funding cost rose in the second and third quarters as we focus on accelerating growth to match our increased loan amounts, particularly from the GE funding.

We now see some important opportunity for terming funding costs now liquidity needs have been met. As such we anticipate our core margin to be fairly flat near term absent a rate hike from the FOMC, which would come -- which we would welcome.

Less than half of the increase in compensation cost during the quarter should carry forward into 2017 as corporate bonus targets and other incentive plans reset for next fiscal year. We have three main plans that are aligned with our performance, our annual bonus plan, which is paid out in cash and all employees in the company participate.

Our new business incentive plan, which is paid out in cash and all employees participate in performance shares to management. In total these plans amount to about 25% of total compensation cost for the company.

Together we'll slow our expense growth rate to notably lower than that of revenue and taking our efficiency rate lower moving forward. For the fourth quarter of this year I expect our expenses will be flat to down slightly.

One-time contract termination, other consolidation costs will result in a murder charge for the fourth quarter that should be similar in magnitude to the past two quarters. These expenses should seek by year-end.

The income tax rate climbed to the highest level over five years during the quarter as fully taxable income rose due to increased revenue from the hotel finance loan portfolio. We have now instituted tax strategies to lower the rate to a gamble of 30% to at least 2017.

We don't see any significant changes to credit metrics on the horizon, but our tale of credit recoveries will start to wane in 2017. At this point I would like to open it up to your questions.

Hi. Good morning.

I guess my first question is in relation to those securities purchases during the quarter, [parking] [ph] of excess liquidity and securities, is that at all a sign of an increasingly challenging lending environment and maybe more broadly speaking, what are your general -- what are you generally seeing as far as the lending environment in terms of increased regulatory scrutiny over CRE lending potentially pressuring some banks that have historically been CRE lenders to now compete in the C&I space.

Yeah, I think on the CRE side, that's actually been a little bit of a plus for us as some of the bank that's been in our space probably use all their bucket for CRE lending. So we're seeing our ability on the CRE side to get a little better, but in general, pricing competition and structure competition is getting tough and I want to run this company to be smart not just to try to drive, do a certain goal of loan growth during the quarter.

So we're going to be aggressive at soliciting new business, but we're going to take what the market gives us from a quality standpoint and a rate standpoint and be selective because I think over time, there's a lot of other opportunities to grow our loan book through portfolio and bank acquisitions and I definitely don't want to just see ourselves following the herd on the lending side. And so we're not really inclined to manage quarter to quarter in terms of loan growth if that loan growth isn’t there that will provide us the proper risk adjusted returns.

Timur, another thing to note regarding the securities portfolio is -- so we have -- we kind of overshot what we were trying to do on the deposit side. We paid up a little bit for that and you can see that in our funding cost.

And so as a result, rather than have these excess funds basically sit at the Federal Reserve [earning] [ph] 50 basis points, we've gone out into securities a little bit. Now if the market situation allows us for our loan growth to be strong, we can run that down fairly easily as the duration of the portfolio is just over three years.

So it gives us a little more interim income in the meantime as we work on our funding cost, which we think we can drive a little bit lower as well as loan opportunity.

Okay. That's good color.

I appreciate that. Thank you.

What was the yield on the securities purchased in the third quarter if you have that?

Yeah, just over 2%.

Okay. And then switching over to the core systems conversion, is that still on pace for the fourth quarter and looking out into 2017 should we still be expecting a normalized mid single digit increase in expenses once all the efficiencies of the conversion are flushed out?

Yes, so we actually did our conversion last weekend and so we're going through that now. It went well.

It didn't go perfectly, but we think we're really on track and finishing up a few items that are still standing with that. Now in terms of the expense savings, I don't think you're really going to see that until the first quarter as we do have a tail from what -- from the conversion we just undertook.

In addition, we converted from the GE system to our new platform at the end of September. So there will be some savings.

I am looking for as you indicated, some mid single digit expense rate, which should be a fraction of what our revenue growth should be. We expect that we can continue to drive operating leverage better and have the efficiency ratio come in lower.

Perfect. Thank you for taking my questions.

Hey. Good morning, guys.

Hey Robert I was going to see, could you comment on, I know Dale mentioned only five new FTEs in the quarter, but I know there can be a lot of movement in any major new hires or lending teams that you guys were able to bring on the third quarter and kind of just curious what your outlook might be there.

Yeah, we've got a few different business lines, our life science line, our fund management line. We're getting ready to open up a new office in a growing area in Phoenix called Gilbert.

So we brought in, looks like, about eight new officers, that's a gross number obviously. There's some terms.

So that number of five was a net increase, but we brought in about eight new officers and they're pretty well spread out Austin, San Jose, Menlo Park, getting ready for our new office in Arizona. So yeah we're continuing to get some good people.

It slows down a little bit like at the end of the year because people are tied into bonuses elsewhere and then in the first quarter I think that will pick up a little more.

Great. That's helpful and I appreciate all the color on the growth dynamics related to loan growth during the quarter, but can you talk a little bit about maybe just the credit quality that you're seeing out there?

Any pockets that you guys are avoiding or think you're getting a little bit overextended at this point?

Well I think we continue to just –evolve, five six years ago, we were a lot more aggressive at looking at credits given where the market is and now as the markets recovered and especially on the real estate side, as lot of prices have gotten frothy, our underwriting criteria has changed. So where we may have done an 80% loan to cost, today it may be 55% or 60%.

And so I would say we're a little more cautious all the way around compared to the market, but that makes us more consistent compared to where we have been and as you heard me talk before, we'll tend to be more aggressive in a down market and a little more conservative than peers in a bull market, and I think there is going to be plenty of opportunities next year. You can see by listening to some of these earning calls around the country that there is little land mines out there and potholes that people are stepping into and I think that will bode well for opportunities.

So I am less concerned about a quarter-to-quarter number than I am as a year-over-year number in our ability to be smart.

Okay. And just one final follow-up, how does that, with what you're seeing going out there, you mentioned some potholes etcetera.

How does that play into your M&A strategy as you think about…

It helps because it creates more opportunities.

And would you guys -- you've always talked about being west of the Rockies maybe with the addition of Texas. Would you expand that at this point or is that still where you would want to be?

I think we're starting to look at some other markets. We're studying them getting to know them a little better.

As Dale mentioned we've got credits in 48 states. So I think there's opportunities in other markets for us, but we're aware that the bulk of the value in our franchise is the fact that in half a dozen key markets in the Western U.S., we now looking at this June 30 deposit numbers have the number one market share of any of the non-Sifi bank in every one of those markets and as a matter of fact, in Phoenix we've climbed to number four in the whole market.

So that's where a lot of our value is, but having said that, I think there's other opportunities and some fill ins and also a few new markets we're doing some other business, some national business line business that the we are open to looking at going forward. So we are studying a few different markets but I think there's going to be plenty of opportunity next year.

Industry continues to evolve and there's a fair amount of uncertainty out there in terms where certain institutions are going and so I think there will be opportunities. So I'd rather be a little more patient in some areas rather than just trying to push loan growth an extra $300 million or $400 million a quarter to hit certain numbers.

I am not going to do that.

Thanks guys. Appreciate it.

Hi guys. Good morning.

Good morning.

Wanted to first just point of clarification on the guidance for expenses in the fourth quarter flat to slightly down, is that I assume that excludes the nonrecurring margin-related charges.

It does, but they're going to be about the same as they were. So it probably holds any way either way.

Okay. And then any commentary on the SBA warrant line and then fee income in general.

Can you continue to drive some leverage and not in any plans on some of those businesses?

Yeah. I think some of our opportunity there -- we're seeing some opportunity in growth in our business cards of getting cards out and fee income from cards.

Our SBA income has been a little sluggish, but our warrant income picked up a little bit and also on the international side from a fee standpoint, we're seeing some growth there. And then our service income and revenue on our commercial accounts with our new computer systems and some of enhancement in some of those products, we've got some opportunity there.

So the fee income growth is a key component of our business plan for 2017.

We look back to climb faster than our net interest income growth.

Okay. Great.

Thanks for the color.

Okay. Good morning, guys.

Question for you on the NIM guide, the short term investment bucket was actually up on an average basis quarter-to-quarter. Historically that's been around 2% of average earning assets.

The NIM guide presume that that stays elevated or is it -- are you going to run that down some to keep the -- to keep the NIM stable?

It might stay a little bit elevated. We have -- I don't know.

I do think that we're likely to see a federal reserve increase in rates in December. I don't make a lot of calls on that, but it seems there's momentum because that might happen.

And so we are running a little higher in cash really with the debate that we tie up with 2% investment alternatives or do we wait a little bit for a better day and take a little bit in the tin in terms of on the NIM. And so that's been -- that's been the dilemma that we had along with a lot of other institutions, but I can see us running a little bit heavier on liquidity than we would otherwise need to be, based upon what might happen with FOMCs as well as maybe there are some opportunities in M&A that are going to come out based on the comments Robert made earlier.

Okay. Makes sense and then switching to Northern California, warrant income was a nice uptick this quarter, but the loan balances if I am remembering correctly, were actually down, was that just capital call lines paying down, just a little color on what's going on in Northern California?

I think you're seeing a little bit of a bumpiness in terms of some of the technology markets and to a degree that's vibrated to our portfolio a little bit and a little bit of it I think it is seasonal. I think that the prospects for Northern California are going to be to have loan balances go up a little bit, but we're pretty cautious there especially on the real state side.

So it's not a market we think makes sense to be out trying to pick up every deal on the street right now.

Got you. Okay.

Rob, just one more, the M&A prospects, can you just give a little color there? Are those active conversations?

Are they more on the bank side of a portfolio lift out similar to the GE Baltimore?

We look at both. We feel we got the GE deal digested and we're in pretty good shape.

We're focused on this quarter with our system integration and getting all that done and then I think starting next year we want to be looking at what we can get done on the M&A front and I would say over the last 90 days there is a pickup in opportunities in discussion, significant pickup.

Okay. Great.

Thank you.

Hey guys. Just Dale, I was wondering if you could put a finer point maybe on the taxes.

I saw that it's going to drop down below 30, but unless you put on a ton of tax credit deals, it's probably not going back to 25%. So wondering if you could just get a little bit of help there.

You bet. I think we're going to be in the high 20s.

I don't know that's 28%, 29% but there were a variety of things we're pursuing. We're doing a little bit more on the municipal side, probably a little bit more on the tax, on the low income housing and tax credit side as well.

Some other initiatives that are underway that we think are going to be successful and maybe more importantly is I don't think you're going to be able to see it. It's not like we're going to be buying municipal investments that have a lower yields.

You're going to see the net interest income come down while tax rates come down as well. I don't think you're going to be able to see a change in revenue related to an improvement in the tax liability.

Okay. Got it.

And then the other one I had just following up on the Bay Area there, so it sounds like really just some bumpiness in demand drivers, but nothing that you guys are seeing in terms of credit or the acquired book that's catching you by surprise or anything like that?

No.

Okay. Great.

And then the last one I had was just a bigger picture question and I understand what's going on with Wells is primarily in the community bank but they are a large competitor in basically all your markets at number one or number two basically everywhere. You see any opportunity shake out from clients being a little bit frustrated there or lenders may be being frustrated?

I don't have any comment on that.

Okay. Fair enough.

I don't think it's appropriate for me to comment on that one.

Got you.

Okay. Well again just another consistent quarter for us.

We're growing our tangible book per share, generating good returns and asset quality looks pretty solid and looking forward to what opportunities present themselves for us over the next 12 months and continue stamping out some good returns. So appreciate you calling in and thanks for your interest in the company.