Good day, everyone. Welcome to the Earnings Call for Western Alliance Bancorporation for the Second Quarter 2017. Our speakers today are Robert Sarver, Chairman and CEO; and Dale Gibbons, Chief Financial Officer. You may also view the presentation today via the webcast through the company’s website at www.westernalliancebancorporation.com. The call will be recorded and made available for replay after 2 PM Eastern Time, July 21, 2017, through Monday, August 21, 2017 at 9:00 AM Eastern Time, by dialing 1-877-344-7529 and entering passcode 10109628. The discussion during this call may contain forward-looking statements that relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements contained herein reflect our current views about future events and financial performance and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from historical results and those expressed in any forward-looking statement. Some factors that could cause actual results to differ materially from historical or expected results include those listed in the filings with the Securities and Exchange Commission. Except as required by law, the Company does not undertake any obligation to update any forward-looking statements. Now for the opening remarks, I would like to turn the call over to Robert Sarver. Please go ahead, sir.

Thank you. Good morning, everybody. Welcome to Western Alliance’s Second Quarter Earnings Call. Dale and I are going to walk you through the slide deck that’s been posted on the website, and then we’ll open the lines for your questions. Before we get started with the presentation, I’d like to take the opportunity to welcome Ken Vecchione to Western Alliance. Ken rejoined the bank as our President. Many of you recall Ken served as our Chief Operating Officer and President from 2010 to 2013 and he continued to be a member of our Board of Directors. We’re pleased to have his leadership in the organization. Ken’s vision helped us establish our national business lines as well as put together the architecture around our enhanced risk management within the company. I spoke on the last call about needing to focus more of my attention on continuing to grow our earnings, bringing in business and bringing Ken to the team along with Jim Haught, who joined us in April as Chief Operating Officer will allow myself and Dale spend more time identifying ways to continue to improve our financial performance as well as manage our risk portfolio. This was our 28th consecutive quarter of record operating earnings as our strong balance sheet growth continue while we maintained our interest margin and asset quality, held expenses flat and again grew our tangible book value. Net income for the second quarter was $80 million or $0.76 per share. That’s up 23% from $0.62 of operating EPS in the second quarter of last year, which was before $0.02 in acquisition charges. Our strong core deposit growth reduced our loan-to-deposit ratio, increased our cash position, which resulted in a 3 basis point reduction in the net interest margin as a percentage. Last quarter we discussed that…

Net interest drivers, loan yields rose 13 basis points during the quarter. It’s just over half of our portfolio’s variable rate and benefited from the increase in prime as the target fed funds rate was raised by the FOMC. The investment portfolio yield declined 3.05% during the quarter as the balance grew by $414 million. The average yield on securities purchases during the quarter was 2.8% as the yield curve flattened. Reflecting the rising rate environment, the cost of interest-bearing deposits rose 5 basis points during the quarter, although our total cost of liability funding increased by only one basis point, 0.35%, as it benefited from our strong non-interest-bearing deposit growth. Given the strong deposit growth, we held no FHLB or fed funds borrowed positions at quarter end. The increase in average loans of $540 million and securities of $365 million during the quarter drove net interest income to a $193 million. The average balance of non-interest-bearing deposits rose over $1 billion during the quarter; however, 40% of this increase was held in cash yielding just over 1%. Adding this $400 million at a 1% spread reduced the margin otherwise by 9 basis points. However, this was largely offset by higher loan yields from the rate increases in March and June resulting in the actual margin only decreasing by 2 basis points from Q1. Purchase loan accounting accretion rose from $6.4 million in the first quarter to $7.1 million in the second quarter and had a $17 basis point effect in total on the margin. The graph on the right shows that we expect currently stable accretion from purchase accounting marks in the next few quarters. Actual accretion, however, has been higher than what is shown here due to loan pre-payment activity, which accelerates discount recognition. Although unlike the increase…

Thanks, Dale. In terms of looking at our outlook for the rest of the year, for the most part, it's kind of samo-samo. In terms of our financial position, our second quarter performance reconfirmed our outlook for low double-digit organic balance sheet growth for the rest of the year. Loan pipelines remained strong. Geographic divisions are healthy and growing, as well as our national business lines. We expect to see growth in all categories of our loan and deposit book for the remainder of the year. Given our projected loan deposit growth and asset-sensitive balance sheet, we’re well positioned for continued revenue increases. We expect yields on our loan portfolio to climb in the third quarter as the prime rate increase in mid-June is yet to be fully reflected in revenues. However, this improvement will be partially offset since acquired loan accretion is likely to fall from elevated level in the second quarter as the acquired portfolio continues to pay down. Our cost of interest bearing deposits rose 5 basis points during the quarter, which should represent a deposit betas of 20% relative to the 25 basis point increase in the target fed funds rate. If rate increases continue, we expect deposit beta to eventually time towards our 45% target. From the second quarter, we expect our expense growth rate to average approximately two-thirds of the revenue growth rate, which should lead to further improvement in our efficiency ratio over time. As you know, we have a disciplined credit culture. Our asset quality metrics remained very strong. We don’t currently except any significant credit events that would change our stable performance in this area. However, the regulatory agencies have combined to recently provide new guidance on the rating of pre-profit technology companies. This change will not affect the accrual status…

Thank you. [Operator Instructions] And our first question will come from Brad Milsaps of Sandler O'Neill.

Hey, guys. This is actually Peter Ruiz on for Brad today. Just wanted to first touch on maybe looking at -- loan growth obviously has been nice and deposit growth has been even better, and I appreciate your updated guidance on continuing to see low double-digit asset growth. But is it safe to assume that maybe deposit growth continues to outpace loan growth here in the near term? Are there any special things going on there that you're seeing in terms of loan growth? Obviously, there is nothing wrong with a low double digit pace there, just wondering if there are any sort of special situations.

No, I think the deposit growth probably will outpace the loan growth and -- what you see with us is we're a little more aggressive in terms of organic growth and a economy that’s maybe not quite as profit and a little more conservative maybe as the economy gets a little more profit in some days we do business with. So we’re just, first and foremost, we’re concerned with asset quality improved lending and that means we grow a little bit less than we did. For the first five years coming out of the recovery, that’s probably a smart thing.

And maybe just could you maybe -- looking at your credit, obviously had the drop there in special mentions, but classified kind of ticked up. Can you talk about maybe any changes or any progress related to those construction projects you mentioned last quarter and sort of any moments in those buckets?

Yes, I’ve talked about a couple of those last quarter, so one of them was a special mention credit that had some cost over-ranch but mainly some long delays in development. It was in Los Angeles residential, and that all kind of got solved and money got put in and lots of finished and all that. So that came off the list. We do have a hotel under construction that suffered some rain delays and pretty significant cost over-ranch which our borrower fund, which is good, and that hotel is substandard. It is supposed to open in the next three to four weeks. Fortunately, our loan-to-value ratio is going to be under 50% in the hotels in a fantastic market. So once it opens, it gets a little history under its bell and will be upgraded. So I think that will probably come off the list either in the third or fourth quarter. That’s our second largest sub. And then our largest sub which we talked about is a company that was sold to one of the larger market cap companies in the country, and that loans comes due in the fourth quarter and it will – we feel pretty confident it’ll just be paid off when it comes due. So between those two, that represents a little over $40 million on the substandard level, and I think those will be up, both be up by year end and that’ll pop that number back down. Unless something new comes up, we don’t see right now, but good.

The next question will come from Timur Braziler of Wells Fargo. Timur, your line is open. Are you muted by chance?

Good morning. Sorry about that. First question is regarding some of the commentary towards the end of the call on the Bridge loans and the new regulatory guidance there. I guess, what’s the balance of the loans that are currently below 6 months are remaining liquidity? And if they do move to substandard, is that going to potentially drive any kind of reserve impact and elevated provisioning? Or is that not the case?

No, I don’t think that’s the case. In terms of our portfolio of Bridge, the niche bridge is in companies that have a product, they are selling a product, and about two-thirds of our business is secured with receivables and cash, some with formal receivable lines, some with informal receivable lines. What we see is going to happen is we’ll have more credits moving in and out of special mention. I don’t think it will effect, I don’t see it affecting the substandard category is a non-accrual category. I think its really just going to be more of a special mention credit category because Bridge has been – and our customers have been pretty accurate and pretty effective at these new rounds and obviously that’s why the portfolio over the last 14 years have performed so well. So I don’t think it’s going to affect the eventual substandard bucket or non-accrual bucket or loss bucket, but you’re going to see more movement in the special mention bucket. And in terms of the portfolio, the Bridge portfolio in total, on the tax side, it’s about $700 million, and of that, the companies that are in a pre-profit stage of that $700 million is probably somewhere around the 400 million to 500 million. And today the number of those credits that are under a six-month RML would be – I am going to say maybe somewhere around a 100 million bucks. But some of those do have signed term sheets, so its not an all black and white. I think that number of maybe up to $50 million in terms of potential increase since special mention is probably a reasonable estimate at this point. But it doesn’t mean that those credits are going to continue to flow down the line in the substandard or the non-accrual, and therefore affecting the level of reserve. So I don’t really see it affecting our loan loss reserve levels at all.

Okay, great. That’s very appreciated. Thank you. Next maybe on the margin. There was a cash position at the end of the quarter and with the expectation for deposit growth to remain as strong as it has been outpacing loan growth. Is it June hike going to be enough to maybe see some margin expansion in the coming quarter, or is that cash position going to continue to be headwind?

No, that cash position has been run down now to kind of it’s pre-level $400 million. We expect the margin to rise this quarter.

Okay, great. And then one last one from me on expenses. Has the regulatory conversation kind of come to ahead and the regulators have signed off on what was necessary to be done in the first quarter? Or is this something that you guys have put in the work but are still waiting kind of regulatory sign-off or the regulatory green light on anything coming down the pike in the remainder of the year?

Yeah, I mean the regulators don’t dictate who we hire and what our overhead levels are. I mean, they are really a function of the bank and the growth of bank and plus how we manage our risk profile. So they have no sign-up on anything as it relates to our overheads. So I'm not quite sure we're going with that. But as it relates to some of the infrastructure we expanded, we’ve pretty much done that. What we've added coming on obviously is Ken, couple other key positions, but I don’t – at the end of the day I really don’t see us operating materially different than we have for the last eight years and we just grow our revenue faster than our expense and somehow we seem to manage to do that every quarter. So I don’t see that changing.

And next we have a question from Brett Rabatin of Piper Jaffray.

Just a clarification on the margin and the excess liquidity. So it sounds like the cap position has drawn down and so the margin what would be 9 or 10 basis points higher absent in 2Q. You got the June rate high. Does the cash position go down due to investment in securities, loan growth? Can you give us any more help on just how you’re managing the balance sheet after an early strong deposit growth quarter?

You saw we had a very large increase in average DDA. That was more than the quarterly increase in DDA. So we have uploaded balance for part of the quarter, and that was invested, were held at the federal reserve account yield just over 1%. That has gone away. And as a result, just taking that away will blew some margin by itself. And then in addition to that, you have the points you brought up, Brett, in term of we’ve got a five-sixth of the increase from FOMC in June is still in front of us in 3Q.

Okay. And then just a clarification on you talked about expenses somewhat in the two-thirds. You used to always talk about $1 revenue or $2 revenue for every dollar of expense, and now it sounds like that a little bit different. Is that due to anything in particular? And can you talk maybe more about some medium-term expense growth outlook as you think about things we're investing on.

I think it's mainly due to the fact that our risk appetite on the credit side, our loan book is not going to be going at 20% originally. We don’t think it’s a right time in the market to do that, and we don’t see the right risk-adjust returns to do that.

And then if I can sneak in one last one on CRE, are you guys a little more cautious on CRE? Just thinking about the growth you had in the quarter, or you not seeing as good opportunities? What's the thought on CREs from here.

No, I think on the CRE side, we’re always trying to be proactive, not reactive. And a big part of our book is on the residential side, refinanced lots and production housing to some of the top builders with on-balance sheet projects, and that market looks pretty good, I mean it’s a steady increase. The levels of homebuilding is still well below historical levels. It’s not even close to where it was before, the last recession. And we think that’s a really good space to play it in terms of the commercial side of things, where we have not been a big retail lender. I've never really been a big fan of taking long-term retail credit risk. We play mainly in office, medical and commercial office space and industrial. On the apartment side, we really have reframed from doing much apartment lending over the last five years. We’re just getting into it a little bit. As the market has kind of shut that space down, we’re finding some select opportunities in some of the markets that haven’t been overbuilt; and we’re in a position now to get 40% to 50% cash equity in projects and good pricing. So we try to manage our real estate book in a very savvy manner, and I think it had about a 30 year history of doing that.

Okay, great. I appreciate all the color.

The next question comes from Chris McGrathy of KBW.

Hey, good afternoon, thanks for taking the question. I’m wondering if you could speak to credit spreads in the C&I portfolio. Obviously the growth in your C&I books has been very strong year-to-date and I think the deposit growth is pretty correlated. Wondering if you’re seeing more, you’re willing to compete more aggressively on price to get the deposit in the door seemingly that factor that most banks would like to have the deposit growth. Thanks.

Are you talking about to compete more in price on the loan side or deposit side? I didn’t quite get you.

No, I’m sorry, the loan side.

No. We’re are pretty disciplined on the pricing, and we’re focused on relationships we can really add value that’s one of the reasons you’ve seen more growth in some of our national business lines, because there’s less competition, less banks that have the people, the sophistication and expertise in those specific areas. So we want customers here because: number one, we think we can add value to the relationship; and they’re willing to pay for that value.

That’s great. Dale, if I could on the margin, I think in the prior comments you’ve mentioned each quarter hike is about 6 basis points to the margin. Is the margin, and are your loan yields responding? Now that we’re a few hikes in, are they responding the way that you thought they were? Is that kind of still a fair guideline going forward?

Yeah, it is a fair guideline. There has been one development [though] has taken away a little bit from what otherwise would have been a stronger increase and one that has been at the opposite. So our deposit beta has been well below 45%, which means that we should be even above the 6 basis points for 25, because we’re not going to raise our cost as much. However, at the same time what is we’ve seen the yield curve has come back down. In the commercial and real estate market, really prices off of the 3 to 10 year yield curve, which has dropped significantly from at the end of last year and particularly the first quarter. So that has taken away a little bit of what would have been even a stronger performance, but that has basically been offset by the slower deposit betas.

Great. And if I could sneak one in on M&A, obviously you are accumulating capital really nice way, I’m wondering if there is any change in what you’re seeing or maybe any closer to finding an acquisition? Thanks.

No, not really. I’d say about the same as last quarter. I mean we’re in the market looking at a number of opportunities, but nothing in the eminent future. One of the challenges, people always say, “Well, you traded a high multiple book and it’s in that,” well, we also grow our earnings assets in about every bank in the country. And so we just got to be cautious on how we give those shares out. That adds a little bit of a challenge.

Thank you very much.

The next question will come from Jon Arfstrom with RBC Capital.

Good morning. Question on deposit growth. You have another good quarter, but Arizona was particularly strong, is there anything notable there driving that growth?

No, I mean, we continue to execute in terms of bringing in relationships in the commercial side that we take their operating accounts as well and we're having, I’d say, increased success in that category. I wouldn’t get too hung up on the Arizona piece. I think we're kind to seeing that everywhere. I do realize that’s where we posted some of those items, but…

I think, if you look at more spanks, a lot of growth tends to come from headquarters. So we have lot of senior executives here and just naturally a lot of the larger relationships are coming from this area.

Just a few good quarters in a row and I just it was a sizeable increase. On the loan growth, you called out the warehouse coming back a bit, anything else to call out on the loan growth that was unusual, or would you view this is a pretty typical quarter.

Pretty difficult, nothing unusual.

And, Dale, do you thing the warehouse size can hang around at this level for the next quarter or so?

Yes, I think you can? I mean, the reason why warehouse came down in Q1, and it wasn’t just us, it was even more pronouns at some other institutions is because the rates rose until the refi business really contracted. With rates coming back down, you're seeing refi activity pick up again. So unless we see a significant rate rise on the term structure, I think you're likely to see warehouse perform -- continue to perform well.

Okay, good. Robert, just one for you. You mentioned this earlier, but with Jim and Ken in place, are you already changing your day-to-day activities? And if so, what's different?

Yes, I’m – well, I would say this. With Jim in place, Jim's taking a fair amount of the load off of with me and Dale on some of the administrative sides in terms of operation, technology. Ken is in the process of kind of going on the road and visiting all our offices and all our people. And over the next 90 days or so, he will be taking some of my direct reports. I got like '17 right now, I want to take that down about 6 or 7 and really free up more times of my desk that to get out and try to generate revenue, which is probably what I’m better at anyway.

The next question comes from Casey Haire of Jefferies.

I wanted a follow up on the efficiency, obviously very good improvement this quarter with the liquidity drag. Just what in sort of -- and it sounds like there is more on the comp. What is sort of the optimal efficiency ratio for what’s a pretty diversified business, how low can we go from here?

I don’t know. I mean, to be honest, I don’t really pay much attention to it as a percentage. I mean, it stands out being pretty low because you compare to peers, but our business model is totally different than peers. So to me it's about operating leverage and growing earnings per share, and I won't really target a number or range.

Okay, great. And on the deal front, we’ve seen some activity this week, some commercial finance companies selling without the -- rather deposit funding and strong growth, they are partnering up with banks. I'm just curious are you seeing those opportunities? And if so, why -- what's…

Yes, we are, and I think those are good opportunities. In general, those are good opportunities, and we are, and we look at all of them but maybe underwrite them different than other people, or what have you, and some are more appealing than others. But I do think that that is an area that intrigues us and consider nicely if it’s the right situation.

Okay, great. And just last one from me. On the non-interest bearing deposit growth, apologies if I missed this. But in terms of characterizing it, is it mostly – is it broad across the footprint? Or is it mostly coming from bridge. Just some color on where these non-interest bearing deposit flows are coming from?

I mean, Bridge has had a lot of success here, but I wouldn’t certainly not -- most of the growth is not from them. I’d say it’s fairly broad in terms of kind of where we’re seeing improvement.

Okay, great. Thank you.

The next question is from Gary Tenner of DA Davidson.

Thanks, good morning. I had a question about the national business lines. Your quarter-to-quarter, year-over-year, they’ve been called 75% to 80% of your loan growth and are now 45% or so total loans. Can you talk about kind of the comfort level in terms of how large that gets relative to the core commercial bank?

To me, it is our core commercial bank. I mean, we’re not just the Arizona, California Nevada regional bank. I mean we are a national bank, and these national business lines we have to meet are core to our business and we’re going to continue to expand them as we can do it in a prudent manner with good risk-adjusted returns. So I know sometimes you guys like to separate all that out. But I don’t -- for me it’s not really much of a difference. I mean, if I get a operating company that have in Boston in Boston or operating company backed in Phoenix, it doesn’t really make a difference to me.

So there is no reason to think that over time, the existing products, or if you add some other line there, that wouldn’t become bigger than regional banks.

It may or may not, I don’t know. It will depend where we see those opportunities to be.

Okay. And within that just on the hotel finance, the hotel franchise finance, those balances were down about 5% so far this year. When you bought the portfolio last year, you talked about it being an ongoing business. Are you -- is there something you’re saying in that segment that is having you pull back on new business or is it?

Yeah, we said, when we bought it, we keep the portfolio pretty stable on a macro level. I think, in terms of commercial real estate, that’s one of the product types that you’ve seen significant appreciation in over the last six or seven years. And so our level of underwriting today is commensurate with where we see that risk. And I see that portfolio somewhere between 8 to 10% of our outstanding loan book, but its not a book that we’re looking to push aggressively under some of the credit terms that maybe some of the others players are willing to expect.

Okay, thanks for the color.

This concludes our question-and-answer session. I would like to turn the conference back over to Robert Sarver for any closing remarks.

Yeah. No, Thanks for joining us, and just another good quarter. I think, as we continue to be consistent in how we approach our business and operated high level, so we look forward to talking to you next quarter. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.