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Text: Also joining us here today is Tim Bruckner, our Chief Credit Officer.
This quarter's results continue to demonstrate the unique benefits of Western Alliance's national commercial business strategy to position WAL as one of the country's premier growth commercial banks that consistently generates leading balance sheet and earnings growth with superior asset quality across economic cycles.
As a company, we are proud of our thoughtful, safe, sustainable growth and are excited to have passed the $50 billion asset milestone.
Validating our strategy during the quarter, we raised $300 million in inaugural preferred offering, achieving the lowest ever preferred dividend rate for a US bank under $100 billion in assets at 4.25%.
In the third quarter, exceptional balance sheet expansion continued with our highest ever quarterly loan growth of $4.8 billion or 63% on a linked quarter annualized basis and deposits rose by $3.4 billion or 32% annualized as we continue to effectively deploy liquidity.
Loan demand continued to broaden across our business lines, with C&I loans increasing by $2.2 billion, inclusive of $240 million of PPP runoff, along with $2.3 billion of growth in our residential portfolio.
Notably, capital call lines drove $1.9 billion of growth within C&I as deal activity continues to be strong and utilization rates rose.
Additionally, resort lending and hotel franchise finance contributed approximately $114 million to loan growth as well as $148 million increase in CRE investors.
For the third quarter, WAL generated record total net revenues of $548.5 million, a 57% annualized rise, in PPNR to $317.1 million and adjusted earnings per share of $2.30.
Adjusted earnings per share quarter-to-quarter rose by $0.01 as the company recorded a provision for credit losses, totaling $12.3 million, an increase of $26.8 million from the $14.5 million provision release in the second quarter.
We remain one of the most profitable banks in the industry with return on average assets and return on average tangible common equity of 1.83% and 26.6%, respectively, which will continue to support capital accumulation and strong capital levels in the quarters to come.
I would like to reiterate that AmeriHome is now integrated into the strategic fabric of Western Alliance and is thoughtfully managed to maximize value for the entire bank through loan, deposit and net interest income growth.
A $5.2 billion increase in average earning assets drove net interest income growth of $39.9 million or 10.8% for the quarter or 43% annualized to $410.4 million of excess liquidity deployment into loans and loans held-for-sale contributed significantly to earnings.
Fee income increased $2.1 million to $138.1 million and now represents over 25% of total net revenue.
Asset quality continues to remain stable as total nonperforming assets declined to $10 million to 17 basis points of total assets and net charge-offs were $3 million or 4 basis points.
Finally, what excites me most is the diverse set of growth opportunities in front of us.
We will continue to do what we do best and support our clients in attractive markets nationally where they do business.
I believe we have exited the pandemic as an employer of choice for leading specialized commercial lenders, which positions us well or extremely well to attract and retain uniquely qualified talent to thoughtfully sustain growth with superior risk-adjusted returns.
For example, during the quarter, we hired two seasoned teams.
We added 11 people based in Texas to our single-family home construction CRE national business line and brought on the leading national restaurant franchise finance team with the hire of six loan and credit professionals.
Both teams join us from larger commercial banks where they improved their business plans and built robust multibillion-dollar books of business.
The Texas CRE team has $10 million in outstandings and an additional $110 million approved to be funded and a $400 million pipeline.
Likewise, the restaurant franchise finance team has $90 million in outstandings and $54 million approved to be funded and a pipeline of $300 million.
Dale will now take you through the details of our quarterly financial performance.
For the quarter, Western Alliance generated record net revenue of $548.5 million, up 8.3% quarter-over-quarter or 33% annualized.
Net interest income grew $39.9 million during the quarter to $410.4 million, an increase of 44% year-over-year, primarily a result of our significant balance sheet growth and deployment of liquidity into higher-yielding assets.
PPNR rose 57% on an annualized linked quarter basis to $317.1 million excluding acquisition and restructuring expenses.
Noninterest income increased $2.1 million to $138 million from the prior quarter as mortgage banking-related income rose $12 million for the quarter and totaled $123.2 million.
Servicing revenue increased $23 million in the quarter as refinance activity slowed, despite a smaller servicing portfolio of $47.2 billion in unpaid principal balance.
Gain on sale margin was 51 basis points for the quarter as we extended the time from funding to sale, which positively impacted net interest income.
With these evolving mortgage sector fundamentals, AmeriHome continues to meet our pro forma acquisition expectations, contributing $0.58 during the quarter, which is inclusive of $0.20 in net interest income from AmeriHome using our balance sheet, an opportunity most stand-alone correspondent lenders don't have.
Finally, adjusted net income for the quarter was $238.8 million or $2.30 in adjusted EPS, which is inclusive of a credit loss provision of $12.3 million, but excludes pre-tax merger and restructuring charges of $2.4 million.
Turning to net interest drivers.
During the quarter, deployment of our excess liquidity into higher-yielding assets drove both loan growth and net interest income growth.
Loans held-for-sale increased $2.1 billion and are yielding 3.35%.
On a linked-quarter basis, yields on loans held-for-investment declined 20 basis points to 4.28%, which is fully explained by the continued strong growth of low to no loss asset categories, namely residential loans and capital call lines.
Interest-bearing deposits remained relatively stable from the prior quarter at 21 basis points as were total cost of funds at 28 basis points.
Consistent with our previous comments, we believe that in the current rate environment, funding costs have stabilized.
Net interest income grew $39.9 million during the quarter to $410 million or 44% year-over-year as balance sheet growth and optimization of earning asset mix generated robust spread income.
Average earning assets increased $5.2 billion or 12% during the quarter to $48.4 billion.
Additionally, we successfully deployed liquidity into loans and have held the investment portfolio relatively flat in favor of loans held for sale, which we view as a higher-yielding cash-like alternative.
Despite our successful liquidity deployment in Q3, we still have meaningful dry powder of $1 billion in cash and the opportunity to further fund loans through continued deposit growth.
As a result of loan growth in lower yielding categories, NIM declined 8 basis points to 3.43%.
We expect continued strong net interest income growth as we're well positioned to take advantage of a rising rate environment as 71% of our commercial loan portfolio is variable rate, and we have 47% noninterest-bearing deposit funding.
Our efficiency ratio improved to 41.5% from 44.5% during the quarter, while we continue to make investments to support risk management and sustained growth.
The inherent operating efficiency of deploying excess liquidity has helped push our efficiency ratio to the lower 40s.
Pre-provision net revenue increased $39.7 million or 14% from the prior quarter and 75% from the same period last year.
This resulted in a PPNR ROA of 2.45% for the quarter, an increase of 14 basis points compared to 2.31% from the last quarter.
This continued strong performance and leading capital generation provides us significant flexibility to fund ongoing balance sheet growth, support infrastructure and capital -- other capital management actions as well as meet credit demand.
Balance sheet momentum continued during the quarter as loans increased $4.8 billion or 15.9% to $34.8 billion.
Strong deposit growth of $3.4 billion brought balances to $45.3 billion at quarter end, and all total assets have grown 58% year-over-year to $52.8 billion.
Total deposits increased $313 million over the prior quarter to $2.1 billion, primarily due to overnight borrowings of $400 million, partially offset by redemption of $75 million in subordinated debt.
As Ken described, we experienced record quarterly loan growth this quarter with growth evenly split between residential and C&I loans.
In all, loans grew $4.8 billion during the quarter and were up $5 billion ex PPP runoff and 34% year-over-year.
Residential real estate and C&I loans grew $2.3 billion and $2.2 billion, respectively.
We continue to see broad-based core deposit growth across our business channels.
Deposits grew $3.4 billion or 8% in the third quarter, with the strongest growth in savings and money market accounts of $1.6 billion.
Noninterest-bearing DDA accounts contributed $950 million and represents 47% of total deposits.
Strong performance from commercial clients, robust fundraising activity and tech and innovation and seasonal inflows in HOA banking relationships were all significant drivers of deposit growth during the quarter.
We are confident in the stickiness of deposits that we've generated in recent quarters, particularly as our newer initiatives are finally taking root.
Our asset quality remains strong and stable.
Special Mention loans continue to decline to $364 million or 105 basis points of funded loans.
Total classified assets rose $26 million in the third quarter to $265 million or 50 basis points in total assets, but are down more than 40% from a year ago on a ratio basis.
Total nonperforming assets declined $10 million to 17 basis points in total assets.
Quarterly credit losses continue to be nominal.
In the third quarter, net charge-offs were $3 million or 4 basis points of average loans annualized compared to $100,000 in the second quarter.
Our loan allowance for credit losses increased $15 million from the prior quarter to $275 million due to robust loan growth.
In all, total loan ACL to funded loans is 80 basis points or 82 basis points when excluding PPP loans.
As mentioned in prior quarters, the strategic focus of the bank is to source a significant portion of loan growth from low to mid last [Phonetic] segments to achieve a diversified risk -- risk-diversified portfolio.
With the third quarter loan growth, our low to no loss segments now comprise over half of total loans.
Given our industry-leading return on equity and assets, we generate sufficient capital to fund about 25% to 35% annual loan growth depending on the mix and this is after dividend service.
Our tangible common equity to total asset ratio of 6.9% and common equity Tier 1 of 8.7%, were weighed down this quarter by robust asset growth in excess of these levels.
As you have seen throughout the year, we took several capital actions to enhance our capital staff and support ongoing growth.
During Q3, we issued $300 million of preferred equity, which was slightly offset in total capital as we redeemed $75 million of subordinated debt.
We are also redeeming $175 million of 6.25% subordinated debt this quarter, which we anticipate to be completed in November.
We will recognize a $6 million pre-tax nonrecurring charge associated with this redemption as we accelerate amortization of origination costs on net debt.
Inclusive of our quarterly cash dividend payment, which we increased to $0.35, our tangible book value per share rose $1.81 in the quarter to $34.67 or 19% growth from the past year.
Our tangible book value per share growth is industry-leading and has grown 2.5 times that of the peers over the past five years or at a compound annual rate of over 19%.
I'll now hand the call back to Ken to conclude.
The third quarter really was an exceptional quarter from an earnings and loan growth perspective as our distinctive national business strategy model continues to hit on all cylinders.
Impressively, end-of-period loan balances were $3.3 billion greater than the average balance, which provides a strong jump-off point for the fourth quarter, net interest income in addition to the $1 billion in excess liquidity that we are gradually deploying in the coming quarters.
We're very excited about the diverse set of growth opportunities in front of us as we enter the fourth quarter.
Looking forward, for full year 2022, you can expect loan held for investments to continue robust growth with a quarterly minimum of $1.5 billion to $2 billion, an increase from the prior guidance of $1 billion to $1.5 billion or a low to mid-20s percent growth rate for the year with flexible origination mix designed to maximize net interest income.
Today, approximately half of our growth was generated from low to no loss residential mortgages.
Deposits are expected to grow in line with loans as we work to deploy excess liquidity and normalize the loan-to-deposit ratio, which today stands at 77%.
We expect to maintain our efficiency ratio in the lower 40s as we continue to invest in risk management and technology and work to bring new business lines, products and services to market.
Total revenue and PPNR growth will track balance sheet growth as we benefit from operational leverage.
Regarding capital, we are targeting a CET1 ratio of 9%, which our robust quarter-end loan growth impacted.
We have several mechanisms to address our capital levels.
Most importantly, we generate significant capital through earnings growth and have historically demonstrated our success in accessing the capital markets.
In conclusion, we continue to see strong pipelines and have the operating flexibility to both execute on near-term opportunities while investing for the long-term growth.

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q3 revenue rose 8.3 percent to $548.5 million.
net interest income was $410.4 million in q3 2021.

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