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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☒						Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~June~~September 30, 2022


☐						Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from__________ to __________

Commission file number: 001-32550

WESTERN ALLIANCE BANCORPORATION

(Exact name of registrant as specified in its charter)


Delaware						88-0365922
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

One E. Washington Street, Suite 1400

Phoenix

Arizona

85004

(Address of principal executive offices)

(Zip Code)

(602) 389-3500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange
on which registered

Common Stock, $0.0001 Par Value

WAL

New York Stock Exchange

Depositary Shares, Each Representing a 1/400th Interest in a Share of

4.250% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A

WAL PrA

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~July 25,~~October 27, 2022, Western Alliance Bancorporation had ~~108,280,237~~108,912,097 shares of common stock outstanding.

Table of Contents

INDEX

Table of Contents

PART I

GLOSSARY OF ENTITIES AND TERMS

The acronyms and abbreviations identified below are used in various sections of this Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," in Item 2 and the Consolidated Financial Statements and the Notes to Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q.


ENTITIES / DIVISIONS:
ABA	Alliance Bank of Arizona	FIB	First Independent Bank
AmeriHome	AmeriHome Mortgage Company, LLC	LVSP	Las Vegas Sunset Properties
Aris	Aris Mortgage Holding Company, LLC	TPB	Torrey Pines Bank
BON	Bank of Nevada	WA PWI	Western Alliance Public Welfare Investments, LLC
Bridge	Bridge Bank	WAB or Bank	Western Alliance Bank
Company	Western Alliance Bancorporation and subsidiaries	WABT	Western Alliance Business Trust
CSI	CS Insurance Company	WAL or Parent	Western Alliance Bancorporation
DST	Digital Settlement Technologies LLC
TERMS:
AFS	Available-for-Sale	~~HELOC~~GNMA	~~Home Equity Line of Credit~~Government National Mortgage Association
ALCO	Asset and Liability Management Committee	~~HFI~~GSE	~~Held for Investment~~Government-Sponsored Enterprise
AOCI	Accumulated Other Comprehensive Income	~~HFS~~HELOC	~~Held for Sale~~
~~APIC~~	~~Additional paid in capital~~	~~HTM~~	~~Held-to-Maturity~~Home Equity Line of Credit
ASC	Accounting Standards Codification	~~HUD~~HFI	~~U.S. Department of Housing and Urban Development~~Held for Investment
ASU	Accounting Standards Update	~~ICS~~HFS	~~Insured Cash Sweep Service~~Held for Sale
Basel III	Banking Supervision's December 2010 final capital framework	~~IRC~~HTM	~~Internal Revenue Code~~Held-to-Maturity
BOD	Board of Directors	~~IRLC~~HUD	~~Interest Rate Lock Commitment~~U.S. Department of Housing and Urban Development
Capital Rules	The FRB, the OCC, and the FDIC 2013 Approved Final Rules	~~ISDA~~ICS	~~International Swaps and Derivatives Association~~
~~CARES Act~~	~~Coronavirus Aid, Relief and Economic Security Act~~	~~LGD~~	~~Loss Given Default~~Insured Cash Sweep Service
CBOE	Chicago Board Options Exchange	~~LIBOR~~IRLC	~~London Interbank Offered~~Interest Rate Lock Commitment
CDARS	Certificate Deposit Account Registry Service	~~LIHTC~~ISDA	~~Low-Income Housing Tax Credit~~International Swaps and Derivatives Association
CECL	Current Expected Credit Losses	~~MBS~~LGD	~~Mortgage-Backed Securities~~Loss Given Default
CEO	Chief Executive Officer	~~MSA~~LIBOR	~~Metropolitan Statistical Area~~London Interbank Offered Rate
CET1	Common Equity Tier 1	~~MSR~~LIHTC	~~Mortgage Servicing Right~~Low-Income Housing Tax Credit
CFO	Chief Financial Officer	~~NOL~~MBS	~~Net Operating Loss~~Mortgage-Backed Securities
~~CFPB~~CLO	~~Consumer Financial Protection Bureau~~Collateralized Loan Obligation	MSA	Metropolitan Statistical Area
COVID-19	Coronavirus Disease 2019	MSR	Mortgage Servicing Right
CRA	Community Reinvestment Act	NPV	Net Present Value
~~CLO~~CRE	~~Collateralized Loan Obligation~~Commercial Real Estate	NYSE	New York Stock Exchange
~~COVID-19~~DTA	~~Coronavirus Disease 2019~~Deferred Tax Asset	OCI	Other Comprehensive Income
~~CRA~~EAD	~~Community Reinvestment Act~~Exposure at Default	OREO	Other Real Estate Owned
~~CRE~~EBO	~~Commercial Real Estate~~	~~OTTI~~	~~Other-than-Temporary Impairment~~
~~DTA~~	~~Deferred Tax Asset~~Early buyout	PCD	Purchased Credit Deteriorated
~~EAD~~EPS	~~Exposure at Default~~Earnings per share	PD	Probability of Default
~~EBO~~	~~Early buyout~~	~~PPNR~~	~~Pre-Provision Net Revenue~~
~~EPS~~	~~Earnings per share~~	~~PPP~~	~~Paycheck Protection Program~~
EVE	Economic Value of Equity	~~ROU~~PPNR	~~Right of use~~Pre-Provision Net Revenue
Exchange Act	Securities Exchange Act of 1934, as amended	~~SBA~~ROU	~~Small Business Administration~~Right of use
FASB	Financial Accounting Standards Board	~~SBIC~~SEC	~~Small Business Investment Company~~Securities and Exchange Commission
FDIC	Federal Deposit Insurance Corporation	~~SEC~~SERP	~~Securities and Exchange Commission~~Supplemental Executive Retirement Plan
FHA	Federal Housing Administration	~~SERP~~SOFR	~~Supplemental Executive Retirement Plan~~Secured Overnight Financing Rate
FHLB	Federal Home Loan Bank	~~SOFR~~TDR	~~Secured Overnight Financing Rate~~Troubled Debt Restructuring
FHLMC	Federal Home Loan Mortgage Corporation	SRTEB	~~Supervision and Regulation Letters~~Tax Equivalent Basis
FICO	The Financing Corporation	~~TDR~~TSR	~~Troubled Debt Restructuring~~Total Shareholder Return
FNMA	Federal National Mortgage Association	~~TEB~~UPB	~~Tax Equivalent Basis~~Unpaid Principal Balance
FOMC	Federal Open Market Committee	~~TSR~~	~~Total Shareholder Return~~
~~FRB~~	~~Federal Reserve Bank~~	~~UPB~~	~~Unpaid Principal Balance~~
~~FTC~~	~~Federal Trade Commission~~	USDA	United States Department of Agriculture
FRB	Federal Reserve Bank	VA	Veterans Affairs
FVO	Fair Value Option	VAVIE	~~Veterans Affairs~~Variable Interest Entity
GAAP	U.S. Generally Accepted Accounting Principles	~~VIE~~	~~Variable Interest Entity~~
~~GNMA~~	~~Government National Mortgage Association~~	XBRL	eXtensible Business Reporting Language
~~GSE~~	~~Government-Sponsored Enterprise~~

Table of Contents

Item 1.Financial Statements

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
		(Unaudited)					(Unaudited)

		(in millions, except shares and per share amounts)					(in millions, except shares and per share amounts)
Assets:	Assets:					Assets:
Cash and due from banks	Cash and due from banks	$	233	$	166	Cash and due from banks	$	260	$	166

Interest-bearing deposits in other financial institutions	Interest-bearing deposits in other financial institutions	1,653		350		Interest-bearing deposits in other financial institutions	1,350		350

Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	1,886		516		Cash, cash equivalents and restricted cash	1,610		516

Investment securities - AFS, at fair value; amortized cost of $7,960 at June 30, 2022 and $6,167 at December 31, 2021		7,268		6,189
Investment securities - HTM, at amortized cost and net of allowance for credit losses of $3 and $5 (fair value of $1,122 and $1,146) at June 30, 2022 and December 31, 2021, respectively		1,215		1,102
Investment securities - AFS, at fair value; amortized cost of $7,944 at September 30, 2022 and $6,167 at December 31, 2021						Investment securities - AFS, at fair value; amortized cost of $7,944 at September 30, 2022 and $6,167 at December 31, 2021	6,960		6,189
Investment securities - HTM, at amortized cost and net of allowance for credit losses of $4 and $5 (fair value of $1,084 and $1,146) at September 30, 2022 and December 31, 2021, respectively						Investment securities - HTM, at amortized cost and net of allowance for credit losses of $4 and $5 (fair value of $1,084 and $1,146) at September 30, 2022 and December 31, 2021, respectively	1,266		1,102

Investment securities - equity	Investment securities - equity	170		159		Investment securities - equity	165		159
Investments in restricted stock, at cost	Investments in restricted stock, at cost	149		92		Investments in restricted stock, at cost	212		92
Loans HFS	Loans HFS	2,803		5,635		Loans HFS	2,204		5,635
Loans HFI, net of deferred loan fees and costs	Loans HFI, net of deferred loan fees and costs	48,572		39,075		Loans HFI, net of deferred loan fees and costs	52,201		39,075
Less: allowance for credit losses	Less: allowance for credit losses	(273)		(252)		Less: allowance for credit losses	(304)		(252)
Net loans held for investment	Net loans held for investment	48,299		38,823		Net loans held for investment	51,897		38,823
Mortgage servicing rights	Mortgage servicing rights	826		698		Mortgage servicing rights	1,044		698
Premises and equipment, net	Premises and equipment, net	210		182		Premises and equipment, net	237		182
Operating lease right of use asset	Operating lease right of use asset	136		133		Operating lease right of use asset	131		133
Bank owned life insurance	Bank owned life insurance	180		180		Bank owned life insurance	181		180
Goodwill and intangible assets, net	Goodwill and intangible assets, net	695		635		Goodwill and intangible assets, net	682		635
Deferred tax assets, net	Deferred tax assets, net	223		21		Deferred tax assets, net	302		21
Investments in LIHTC and renewable energy	Investments in LIHTC and renewable energy	722		631		Investments in LIHTC and renewable energy	727		631

Other assets	Other assets	1,273		987		Other assets	1,547		987
Total assets	Total assets	$	66,055	$	55,983	Total assets	$	69,165	$	55,983
Liabilities:	Liabilities:					Liabilities:
Deposits:	Deposits:					Deposits:
Non-interest-bearing demand	Non-interest-bearing demand	$	23,721	$	21,353	Non-interest-bearing demand	$	24,926	$	21,353
Interest-bearing	Interest-bearing	29,991		26,259		Interest-bearing	30,663		26,259
Total deposits	Total deposits	53,712		47,612		Total deposits	55,589		47,612

Other borrowings	Other borrowings	5,210		1,502		Other borrowings	6,319		1,502
Qualifying debt	Qualifying debt	891		896		Qualifying debt	889		896
Operating lease liability	Operating lease liability	151		143		Operating lease liability	149		143
Other liabilities	Other liabilities	1,132		867		Other liabilities	1,198		867
Total liabilities	Total liabilities	61,096		51,020		Total liabilities	64,144		51,020
Commitments and contingencies (Note 14)	Commitments and contingencies (Note 14)	0		0		Commitments and contingencies (Note 14)
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock (par value $0.0001 and liquidation value per share of $25; 20,000,000 authorized; 12,000,000 issued and outstanding at June 30, 2022 and December 31, 2021)		295		295
Common stock (par value $0.0001; 200,000,000 authorized; 110,820,001 shares issued at June 30, 2022 and 108,981,341 at December 31, 2021) and additional paid in capital		2,095		1,966
Treasury stock, at cost (2,538,190 shares at June 30, 2022 and 2,350,021 shares at December 31, 2021)		(104)		(87)
Preferred stock (par value $0.0001 and liquidation value per share of $25; 20,000,000 authorized; 12,000,000 issued and outstanding at September 30, 2022 and December 31, 2021)						Preferred stock (par value $0.0001 and liquidation value per share of $25; 20,000,000 authorized; 12,000,000 issued and outstanding at September 30, 2022 and December 31, 2021)	295		295
Common stock (par value $0.0001; 200,000,000 authorized; 111,466,865 shares issued at September 30, 2022 and 108,981,341 at December 31, 2021) and additional paid in capital						Common stock (par value $0.0001; 200,000,000 authorized; 111,466,865 shares issued at September 30, 2022 and 108,981,341 at December 31, 2021) and additional paid in capital	2,154		1,966
Treasury stock, at cost (2,549,229 shares at September 30, 2022 and 2,350,021 shares at December 31, 2021)						Treasury stock, at cost (2,549,229 shares at September 30, 2022 and 2,350,021 shares at December 31, 2021)	(105)		(87)
Accumulated other comprehensive (loss) income	Accumulated other comprehensive (loss) income	(518)		16		Accumulated other comprehensive (loss) income	(736)		16
Retained earnings	Retained earnings	3,191		2,773		Retained earnings	3,413		2,773
Total stockholders’ equity	Total stockholders’ equity	4,959		4,963		Total stockholders’ equity	5,021		4,963
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	66,055	$	55,983	Total liabilities and stockholders’ equity	$	69,165	$	55,983

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Contents

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in millions, except per share amounts)									(in millions, except per share amounts)
Interest income:	Interest income:									Interest income:
Loans, including fees	Loans, including fees	$	516.6	$	353.8	$	951.3	$	652.2	Loans, including fees	$	657.0	$	398.0	$	1,608.3	$	1,050.2
Investment securities	Investment securities	57.6		41.8		104.3		74.6		Investment securities	74.0		42.0		178.3		116.6
Dividends and other	Dividends and other	5.4		2.9		8.5		5.8		Dividends and other	8.4		2.8		16.9		8.6

Total interest income	Total interest income	579.6		398.5		1,064.1		732.6		Total interest income	739.4		442.8		1,803.5		1,175.4
Interest expense:	Interest expense:									Interest expense:
Deposits	Deposits	27.1		11.6		41.2		22.4		Deposits	77.6		12.3		118.8		34.7
Qualifying debt	Qualifying debt	8.6		7.2		17.0		13.1		Qualifying debt	8.9		10.8		25.9		23.9
Other borrowings	Other borrowings	18.9		9.2		31.4		9.3		Other borrowings	50.8		9.3		82.2		18.6
Total interest expense	Total interest expense	54.6		28.0		89.6		44.8		Total interest expense	137.3		32.4		226.9		77.2
Net interest income	Net interest income	525.0		370.5		974.5		687.8		Net interest income	602.1		410.4		1,576.6		1,098.2
Provision for (recovery of) credit losses	Provision for (recovery of) credit losses	27.5		(14.5)		36.5		(46.9)		Provision for (recovery of) credit losses	28.5		12.3		65.0		(34.6)
Net interest income after provision for (recovery of) credit losses	Net interest income after provision for (recovery of) credit losses	497.5		385.0		938.0		734.7		Net interest income after provision for (recovery of) credit losses	573.6		398.1		1,511.6		1,132.8
Non-interest income:	Non-interest income:									Non-interest income:
Net loan servicing revenue (expense)	Net loan servicing revenue (expense)	45.4		(20.8)		86.5		(20.8)		Net loan servicing revenue (expense)	23.0		2.2		109.5		(18.6)
Net gain on loan origination and sale activities	Net gain on loan origination and sale activities	27.2		132.0		64.1		132.0		Net gain on loan origination and sale activities	14.5		121.0		78.6		253.0
Gain on recovery from credit guarantees		9.0		—		11.3		—
Service charges and fees	Service charges and fees	7.6		7.4		14.6		14.1		Service charges and fees	6.5		7.1		21.1		21.2
Commercial banking related income	Commercial banking related income	5.8		4.5		10.9		7.9		Commercial banking related income	5.1		4.6		16.0		12.5
Income from equity investments	Income from equity investments	5.2		6.8		9.3		14.4		Income from equity investments	4.3		2.5		13.6		16.9
(Loss) gain on sales of investment securities		(0.2)		—		6.7		0.1
Fair value (loss) gain on assets measured at fair value, net		(10.0)		3.2		(16.6)		1.7
Gain on recovery from credit guarantees										Gain on recovery from credit guarantees	0.4		—		11.7		—
Gain on sales of investment securities										Gain on sales of investment securities	—		—		6.7		0.1
Fair value loss on assets measured at fair value, net										Fair value loss on assets measured at fair value, net	(2.8)		(2.2)		(19.4)		(0.5)
Other income	Other income	5.0		2.9		14.5		6.3		Other income	10.8		2.9		25.3		9.2
Total non-interest income	Total non-interest income	95.0		136.0		201.3		155.7		Total non-interest income	61.8		138.1		263.1		293.8
Non-interest expense:	Non-interest expense:									Non-interest expense:
Salaries and employee benefits	Salaries and employee benefits	139.0		128.9		277.3		212.6		Salaries and employee benefits	136.5		133.5		413.8		346.1
Deposit costs										Deposit costs	56.2		7.3		83.6		20.7
Legal, professional, and directors' fees	Legal, professional, and directors' fees	25.1		14.0		49.1		24.1		Legal, professional, and directors' fees	24.8		13.7		73.9		37.8
Data processing	Data processing	19.7		15.0		37.3		24.9		Data processing	21.8		15.4		59.1		40.3
Deposit costs		18.1		7.1		27.4		13.4
Loan servicing expenses	Loan servicing expenses	14.7		22.3		25.5		22.3		Loan servicing expenses	15.2		15.6		40.7		37.9
Occupancy	Occupancy	13.0		10.4		25.8		19.0		Occupancy	13.9		12.4		39.7		31.4
Insurance	Insurance	6.9		5.5		14.1		9.7		Insurance	8.1		6.2		22.2		15.9
Loan acquisition and origination expenses	Loan acquisition and origination expenses	6.4		10.5		12.9		10.5		Loan acquisition and origination expenses	5.8		9.7		18.7		20.2
Business development and marketing	Business development and marketing	5.4		3.2		9.8		4.6		Business development and marketing	5.0		2.8		14.8		7.4
Net gain on sales and valuations of repossessed and other assets	Net gain on sales and valuations of repossessed and other assets	(0.3)		(1.5)		(0.2)		(1.8)		Net gain on sales and valuations of repossessed and other assets	(0.2)		(1.3)		(0.4)		(3.1)
Acquisition and restructure expenses	Acquisition and restructure expenses	—		15.7		0.4		16.1		Acquisition and restructure expenses	—		2.4		0.4		18.5

Other expense	Other expense	20.9		13.7		38.1		24.4		Other expense	18.7		16.1		56.8		40.5
Total non-interest expense	Total non-interest expense	268.9		244.8		517.5		379.8		Total non-interest expense	305.8		233.8		823.3		613.6
Income before provision for income taxes	Income before provision for income taxes	323.6		276.2		621.8		510.6		Income before provision for income taxes	329.6		302.4		951.4		813.0
Income tax expense	Income tax expense	63.4		52.4		121.5		94.3		Income tax expense	65.6		65.5		187.1		159.8
Net income	Net income	260.2		223.8		500.3		416.3		Net income	264.0		236.9		764.3		653.2
Dividends on preferred stock	Dividends on preferred stock	3.2		—		6.4		—		Dividends on preferred stock	3.2		—		9.6		—

Net income available to common stockholders	Net income available to common stockholders	$	257.0	$	223.8	$	493.9	$	416.3	Net income available to common stockholders	$	260.8	$	236.9	$	754.7	$	653.2

Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	2.40	$	2.18	$	4.63	$	4.09	Basic	$	2.43	$	2.29	$	7.06	$	6.39
Diluted	Diluted	2.39		2.17		4.61		4.07		Diluted	2.42		2.28		7.03		6.35
Weighted average number of common shares outstanding:	Weighted average number of common shares outstanding:									Weighted average number of common shares outstanding:
Basic	Basic	107.3		102.7		106.7		101.8		Basic	107.5		103.3		107.0		102.3
Diluted	Diluted	107.7		103.4		107.1		102.4		Diluted	107.9		103.9		107.4		102.9
Dividends declared per common share	Dividends declared per common share	$	0.35	$	0.25	$	0.70	$	0.50	Dividends declared per common share	$	0.36	$	0.35	$	1.06	$	0.85

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Contents

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in millions)
Net income $ 260.2 $ 223.8 $ 500.3 $ 416.3
Other comprehensive income (loss), net:
Unrealized (loss) gain on AFS securities, net of tax effect of $93.3, $(14.6), $174.1, and $8.9 respectively (284.5) 44.8 (532.4) (27.2)
Unrealized gain (loss) on junior subordinated debt, net of tax effect of $(0.7), $0.0, $(1.4), and $0.1 respectively 2.0 (0.2) 4.2 (0.5)
Realized gain on sale of AFS securities included in income, net of tax effect of $0.1, $0.0, $1.9, and $0.0 respectively (0.3) — (5.4) (0.1)
Net other comprehensive (loss) gain (282.8) 44.6 (533.6) (27.8)
Comprehensive (loss) income $ (22.6) $ 268.4 $ (33.3) $ 388.5


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in millions)
Net income	$	264.0	$	236.9	$	764.3	$	653.2
Other comprehensive income (loss), net:
Unrealized loss on AFS securities, net of tax effect of $74.2, $7.1, $248.2, and $16.0 respectively	(219.9)		(21.8)		(752.3)		(49.0)

Unrealized gain (loss) on junior subordinated debt, net of tax effect of $(0.5), $0.1, $(1.9), and $0.2 respectively	1.6		(0.1)		5.8		(0.6)
Realized gain on sale of AFS securities included in income, net of tax effect of $0.0, $0.0, $1.8, and $0.0 respectively	—		—		(5.4)		(0.1)
Net other comprehensive loss	(218.3)		(21.9)		(751.9)		(49.7)
Comprehensive income	$	45.7	$	215.0	$	12.4	$	603.5

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Contents

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


		Three Months Ended June 30,																							Three Months Ended September 30,
		Preferred Stock			Common Stock			Additional Paid in Capital				Treasury Stock		Accumulated Other Comprehensive Income (Loss)			Retained Earnings				Total Stockholders’ Equity				Preferred Stock						Common Stock			Additional Paid in Capital				Treasury Stock				Accumulated Other Comprehensive Income (Loss)				Retained Earnings				Total Stockholders’ Equity
		Shares	Amount		Shares	Amount										Shares								Amount			Shares			Amount
		(in millions)																							(in millions)
Balance, March 31, 2021		—	$	—	103.4	$	—			$	1,608.2			$	(84.0)				$	19.9			$	2,168.6		$	3,712.7
Balance, June 30, 2021																								Balance, June 30, 2021	—			$	—		104.2	$	—			$	1,687.6			$	(84.2)			$	64.5			$	2,366.6			$	4,034.5
Net income	Net income	—	—		—	—		—				—		—			223.8				223.8			Net income	—			—			—	—		—				—				—				236.9				236.9
Restricted stock, performance stock units, and other grants, net	Restricted stock, performance stock units, and other grants, net	—	—		0.1	—		9.6				—		—			—				9.6			Restricted stock, performance stock units, and other grants, net	—			—			—	—		8.2				—				—				—				8.2
Restricted stock surrendered (1)	Restricted stock surrendered (1)	—	—		—	—		—				(0.2)		—			—				(0.2)			Restricted stock surrendered (1)	—			—			—	—		—				(1.7)				—				—				(1.7)
Preferred stock issuance, net																								Preferred stock issuance, net	12.0			294.5			—	—		—				—				—				—				294.5

Common stock issuance, net		—	—		0.7	—		69.8				—		—			—				69.8

Dividends paid to common stockholders	Dividends paid to common stockholders	—	—		—	—		—				—		—			(25.8)				(25.8)			Dividends paid to common stockholders	—			—			—	—		—				—				—				(36.5)				(36.5)
Other comprehensive loss, net	Other comprehensive loss, net	—	—		—	—		—				—		44.6			—				44.6			Other comprehensive loss, net	—			—			—	—		—				—				(21.9)				—				(21.9)
Balance, June 30, 2021		—	$	—	104.2	$	—	$	1,687.6			$	(84.2)	$	64.5		$	2,366.6			$	4,034.5
Balance, September 30, 2021																								Balance, September 30, 2021	12.0			$	294.5		104.2	$	—	$	1,695.8			$	(85.9)			$	42.6			$	2,567.0			$	4,514.0

Balance, March 31, 2022		12.0	$	294.5	108.3	$	—	$	2,083.7			$	(104.1)	$	(235.1)		$	2,972.6			$	5,011.6
Balance, June 30, 2022																								Balance, June 30, 2022	12.0			$	294.5		108.3	$	—	$	2,094.8			$	(104.3)			$	(517.9)			$	3,191.7			$	4,958.8
Net income	Net income	—	—		—	—		—				—		—			260.2				260.2			Net income	—			—			—	—		—				—				—				264.0				264.0

Restricted stock, performance stock units, and other grants, net	Restricted stock, performance stock units, and other grants, net	—	—		—	—		11.1				—		—			—				11.1			Restricted stock, performance stock units, and other grants, net	—			—			—	—		9.4				—				—				—				9.4
Restricted stock surrendered (1)	Restricted stock surrendered (1)	—	—		—	—		—				(0.2)		—			—				(0.2)			Restricted stock surrendered (1)	—			—			—	—		—				(0.9)				—				—				(0.9)
Common stock issuance, net																								Common stock issuance, net	—			—			0.6	—		50.0				—				—				—				50.0
Dividends paid to preferred stockholders	Dividends paid to preferred stockholders	—	—		—	—		—				—		—			(3.2)				(3.2)			Dividends paid to preferred stockholders	—			—			—	—		—				—				—				(3.2)				(3.2)
Dividends paid to common stockholders	Dividends paid to common stockholders	—	—		—	—		—				—		—			(37.9)				(37.9)			Dividends paid to common stockholders	—			—			—	—		—				—				—				(39.0)				(39.0)
Other comprehensive loss, net	Other comprehensive loss, net	—	—		—	—		—				—		(282.8)			—				(282.8)			Other comprehensive loss, net	—			—			—	—		—				—				(218.3)				—				(218.3)
Balance, June 30, 2022		12.0	$	294.5	108.3	$	—	$	2,094.8			$	(104.3)	$	(517.9)		$	3,191.7			$	4,958.8
Balance, September 30, 2022																								Balance, September 30, 2022	12.0			$	294.5		108.9	$	—	$	2,154.2			$	(105.2)			$	(736.2)			$	3,413.5			$	5,020.8

Table of Contents


		Six Months Ended June 30,																							Nine Months Ended September 30,
		Preferred Stock			Common Stock			Additional Paid in Capital				Treasury Stock		Accumulated Other Comprehensive Income (Loss)			Retained Earnings				Total Stockholders’ Equity				Preferred Stock							Common Stock						Additional Paid in Capital					Treasury Stock					Accumulated Other Comprehensive Income (Loss)					Retained Earnings					Total Stockholders’ Equity
		Shares	Amount		Shares	Amount										Shares								Amount			Shares				Amount
		(in millions)																							(in millions)
Balance, December 31, 2020	Balance, December 31, 2020	—	$	—	100.8	$	—			$	1,390.9			$	(71.1)				$	92.3			$	2,001.4		$	3,413.5	Balance, December 31, 2020		—			$	—			100.8				$	—				$	1,390.9				$	(71.1)				$	92.3				$	2,001.4	$	3,413.5
Net income	Net income	—	—		—	—		—				—		—			416.3				416.3			Net income	—			—				—			—					—					—					—					653.2					653.2
Restricted stock, performance stock units, and other grants, net	Restricted stock, performance stock units, and other grants, net	—	—		0.6	—		17.7				—		—			—				17.7			Restricted stock, performance stock units, and other grants, net	—			—				0.6			—			25.9					—					—					—					25.9
Restricted stock surrendered (1)	Restricted stock surrendered (1)	—	—		(0.2)	—		—				(13.1)		—			—				(13.1)			Restricted stock surrendered (1)	—			—				(0.2)			—			—					(14.8)					—					—					(14.8)
Preferred stock issuance, net																								Preferred stock issuance, net	12.0			294.5				—			—			—					—					—					—					294.5
Common stock issuance, net	Common stock issuance, net	—	—		3.0	—		279.0				—		—			—				279.0			Common stock issuance, net	—			—				3.0			—			279.0					—					—					—					279.0

Dividends paid to common stockholders	Dividends paid to common stockholders	—	—		—	—		—				—		—			(51.1)				(51.1)			Dividends paid to common stockholders	—			—				—			—			—					—					—					(87.6)					(87.6)
Other comprehensive income, net	Other comprehensive income, net	—	—		—	—		—				—		(27.8)			—				(27.8)			Other comprehensive income, net	—			—				—			—			—					—					(49.7)					—					(49.7)
Balance, June 30, 2021		—	$	—	104.2	$	—	$	1,687.6			$	(84.2)	$	64.5		$	2,366.6			$	4,034.5
Balance, September 30, 2021																								Balance, September 30, 2021	12.0			$	294.5			104.2			$	—		$	1,695.8				$	(85.9)				$	42.6				$	2,567.0				$	4,514.0

Balance, December 31, 2021	Balance, December 31, 2021	12.0	$	294.5	106.6	$	—	$	1,966.2			$	(86.8)	$	15.7		$	2,773.0			$	4,962.6		Balance, December 31, 2021	12.0			$	294.5			106.6			$	—		$	1,966.2				$	(86.8)				$	15.7				$	2,773.0				$	4,962.6
Net income	Net income	—	—		—	—		—				—		—			500.3				500.3			Net income	—			—				—			—			—					—					—					764.3					764.3
Restricted stock, performance stock units, and other grants, net	Restricted stock, performance stock units, and other grants, net	—	—		0.6	—		20.9				—		—			—				20.9			Restricted stock, performance stock units, and other grants, net	—			—				0.6			—			30.3					—					—					—					30.3
Restricted stock surrendered (1)	Restricted stock surrendered (1)	—	—		(0.2)	—		—				(17.5)		—			—				(17.5)			Restricted stock surrendered (1)	—			—				(0.2)			—			—					(18.4)					—					—					(18.4)

Common stock issuance, net	Common stock issuance, net	—	—		1.3	—		107.7				—		—			—				107.7			Common stock issuance, net	—			—				1.9			—			157.7					—					—					—					157.7

Dividends paid to preferred stockholders	Dividends paid to preferred stockholders	—	—		—	—		—				—		—			(6.4)				(6.4)			Dividends paid to preferred stockholders	—			—				—			—			—					—					—					(9.6)					(9.6)
Dividends paid to common stockholders	Dividends paid to common stockholders	—	—		—	—		—				—		—			(75.2)				(75.2)			Dividends paid to common stockholders	—			—				—			—			—					—					—					(114.2)					(114.2)
Other comprehensive loss, net	Other comprehensive loss, net	—	—		—	—		—				—		(533.6)			—				(533.6)			Other comprehensive loss, net	—			—				—			—			—					—					(751.9)					—					(751.9)
Balance, June 30, 2022		12.0	$	294.5	108.3	$	—	$	2,094.8			$	(104.3)	$	(517.9)		$	3,191.7			$	4,958.8
Balance, September 30, 2022																								Balance, September 30, 2022	12.0			$	294.5			108.9			$	—		$	2,154.2				$	(105.2)				$	(736.2)				$	3,413.5				$	5,020.8

(1)Share amounts represent Treasury Shares, see "Note 1. Summary of Significant Accounting Policies" for further discussion.

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Contents

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
		(in millions)					(in millions)
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	500.3	$	416.3	Net income	$	764.3	$	653.2
Adjustments to reconcile net income to cash provided by (used in) operating activities:	Adjustments to reconcile net income to cash provided by (used in) operating activities:					Adjustments to reconcile net income to cash provided by (used in) operating activities:
Provision for (recovery of) credit losses	Provision for (recovery of) credit losses	36.5		(46.9)		Provision for (recovery of) credit losses	65.0		(34.6)
Depreciation and amortization	Depreciation and amortization	22.8		15.0		Depreciation and amortization	36.1		25.6
Stock-based compensation	Stock-based compensation	20.9		17.5		Stock-based compensation	30.3		25.6
Deferred income taxes	Deferred income taxes	(10.9)		10.3		Deferred income taxes	47.7		43.6
Amortization of net premiums for investment securities	Amortization of net premiums for investment securities	12.3		21.4		Amortization of net premiums for investment securities	17.1		30.8
Amortization of tax credit investments	Amortization of tax credit investments	28.8		23.7		Amortization of tax credit investments	45.6		36.6
Amortization of operating lease right of use asset	Amortization of operating lease right of use asset	10.8		6.7		Amortization of operating lease right of use asset	16.4		11.5
Amortization of net deferred loan fees and net purchase premiums	Amortization of net deferred loan fees and net purchase premiums	(30.5)		(38.7)		Amortization of net deferred loan fees and net purchase premiums	(50.6)		(53.2)
Purchases and originations of loans HFS	Purchases and originations of loans HFS	(25,371.0)		(21,841.1)		Purchases and originations of loans HFS	(37,064.4)		(41,336.4)

Proceeds from sales and payments on loans held for sale	Proceeds from sales and payments on loans held for sale	26,301.5		20,582.6		Proceeds from sales and payments on loans held for sale	38,294.5		37,810.5
Mortgage servicing rights capitalized upon sale of mortgage loans	Mortgage servicing rights capitalized upon sale of mortgage loans	(397.5)		(282.3)		Mortgage servicing rights capitalized upon sale of mortgage loans	(578.1)		(512.7)
Net (gains) losses on:	Net (gains) losses on:					Net (gains) losses on:
Change in fair value of loans HFS, mortgage servicing rights, and related derivatives	Change in fair value of loans HFS, mortgage servicing rights, and related derivatives	(109.8)		20.3		Change in fair value of loans HFS, mortgage servicing rights, and related derivatives	(139.3)		49.5
Other	Other	4.9		1.5		Other	10.1		2.4
Changes in other assets and liabilities, net	Changes in other assets and liabilities, net	(59.1)		(29.8)		Changes in other assets and liabilities, net	(43.8)		(21.4)
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	$	960.0	$	(1,123.5)	Net cash provided by (used in) operating activities	$	1,450.9	$	(3,269.0)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Investment securities - AFS	Investment securities - AFS					Investment securities - AFS
Purchases	Purchases	$	(2,235.4)	$	(2,927.2)	Purchases	$	(2,286.4)	$	(3,100.7)
Principal pay downs and maturities	Principal pay downs and maturities	410.5		963.3		Principal pay downs and maturities	511.8		1,293.2
Proceeds from sales	Proceeds from sales	119.6		—		Proceeds from sales	124.6		49.8
Investment securities - HTM	Investment securities - HTM					Investment securities - HTM
Purchases	Purchases	(129.5)		(406.4)		Purchases	(230.3)		(494.7)
Principal pay downs and maturities	Principal pay downs and maturities	18.9		4.4		Principal pay downs and maturities	68.1		14.2
Equity securities carried at fair value	Equity securities carried at fair value					Equity securities carried at fair value
Purchases	Purchases	(34.9)		(28.4)		Purchases	(35.2)		(36.1)
Redemptions	Redemptions	0.3		2.4		Redemptions	1.1		21.4
Proceeds from sales	Proceeds from sales	14.1		0.6		Proceeds from sales	14.1		2.8
Proceeds from sale of mortgage servicing rights and related holdbacks, net	Proceeds from sale of mortgage servicing rights and related holdbacks, net	363.8		777.6		Proceeds from sale of mortgage servicing rights and related holdbacks, net	382.2		1,112.1
Purchase of other investments	Purchase of other investments	(168.6)		(57.1)		Purchase of other investments	(300.3)		(99.4)

Net increase in loans HFI	Net increase in loans HFI	(7,954.5)		(3,523.8)		Net increase in loans HFI	(11,736.5)		(8,385.4)
Purchase of premises, equipment, and other assets, net	Purchase of premises, equipment, and other assets, net	(47.4)		(13.6)		Purchase of premises, equipment, and other assets, net	(84.2)		(31.8)

Cash consideration paid for acquisitions, net of cash acquired	Cash consideration paid for acquisitions, net of cash acquired	(50.0)		(1,013.4)		Cash consideration paid for acquisitions, net of cash acquired	(50.0)		(1,013.4)
Net cash used in investing activities	Net cash used in investing activities	$	(9,693.1)	$	(6,221.6)	Net cash used in investing activities	$	(13,621.0)	$	(10,668.0)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net increase in deposits	Net increase in deposits	$	6,100.1	$	9,990.5	Net increase in deposits	$	7,976.7	$	13,352.1
Net proceeds from issuance of long-term debt	Net proceeds from issuance of long-term debt	486.6		831.4		Net proceeds from issuance of long-term debt	485.5		831.4
Payments on long-term debt	Payments on long-term debt	(17.4)		—		Payments on long-term debt	(24.8)		(75.0)
Net increase (decrease) in short-term borrowings	Net increase (decrease) in short-term borrowings	3,524.6		(2,967.7)		Net increase (decrease) in short-term borrowings	4,810.3		(2,396.6)

Cash paid for tax withholding on vested restricted stock and other	Cash paid for tax withholding on vested restricted stock and other	(17.5)		(12.9)		Cash paid for tax withholding on vested restricted stock and other	(18.4)		(14.6)

Cash dividends paid on common stock and preferred stock	Cash dividends paid on common stock and preferred stock	(81.6)		(51.1)		Cash dividends paid on common stock and preferred stock	(123.8)		(87.6)
Proceeds from issuance of common stock in offerings, net	Proceeds from issuance of common stock in offerings, net	107.7		279.0		Proceeds from issuance of common stock in offerings, net	157.7		279.0

Proceeds from issuance of preferred stock, net						Proceeds from issuance of preferred stock, net	—		294.5
Net cash provided by financing activities	Net cash provided by financing activities	$	10,102.5	$	8,069.2	Net cash provided by financing activities	$	13,263.2	$	12,183.2
Net increase in cash, cash equivalents, and restricted cash		1,369.4		724.1
Net increase (decrease) in cash, cash equivalents, and restricted cash						Net increase (decrease) in cash, cash equivalents, and restricted cash	1,093.1		(1,753.8)
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	516.4		2,671.7		Cash, cash equivalents, and restricted cash at beginning of period	516.4		2,671.7
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	1,885.8	$	3,395.8	Cash, cash equivalents, and restricted cash at end of period	$	1,609.5	$	917.9

Table of Contents


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
		(in millions)					(in millions)
Supplemental disclosure:	Supplemental disclosure:					Supplemental disclosure:
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest	Interest	$	87.9	$	94.4	Interest	$	211.4	$	70.4
Income taxes, net	Income taxes, net	185.0		111.1		Income taxes, net	190.7		160.2
Non-cash operating, investing, and financing activity:	Non-cash operating, investing, and financing activity:					Non-cash operating, investing, and financing activity:
Transfer of EBO loans previously classified as HFS to HFI	Transfer of EBO loans previously classified as HFS to HFI	$	1,505.7	$	—	Transfer of EBO loans previously classified as HFS to HFI	$	1,505.7	$	—
Transfers of mortgage-backed securities in settlement of secured borrowings	Transfers of mortgage-backed securities in settlement of secured borrowings	281.5		312.8		Transfers of mortgage-backed securities in settlement of secured borrowings	452.9		495.2
Net increase in unfunded commitments and obligations	Net increase in unfunded commitments and obligations	207.2		118.7		Net increase in unfunded commitments and obligations	281.1		152.6
Net increase in unsettled loans HFI and investment securities purchased		22.7		618.4
Net (decrease) increase in unsettled loans HFI and investment securities purchased						Net (decrease) increase in unsettled loans HFI and investment securities purchased	(33.4)		104.3
Transfers of securitized loans HFS to AFS securities	Transfers of securitized loans HFS to AFS securities	89.6		—		Transfers of securitized loans HFS to AFS securities	131.0		—

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Contents

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of operation

WAL is a bank holding company headquartered in Phoenix, Arizona, incorporated under the laws of the state of Delaware. WAL provides a full spectrum of customized loan, deposit, and treasury management capabilities, including 24/7 funds transfer and other blockchain-based offerings through its wholly-owned banking subsidiary, WAB.

WAB operates the following full-service banking divisions: ABA, BON, FIB, Bridge, and TPB. The Company also serves business customers through a national platform of specialized financial services, including mortgage banking services through AmeriHome, and has added to its capabilities with the acquisition of DST on January 25, 2022, which provides digital payment services for the class action legal industry. In addition, the Company has 2two non-bank subsidiaries, which are LVSP, which held and managed certain OREO properties, and CSI, a captive insurance company formed and licensed under the laws of the State of Arizona and established as part of the Company's overall enterprise risk management strategy.

Basis of presentation

The accounting and reporting policies of the Company are in accordance with GAAP and conform to practices within the financial services industry. The accounts of the Company and its consolidated subsidiaries are included in the Consolidated Financial Statements.

Recent accounting pronouncements

Troubled Debt Restructurings and Vintage Disclosures

In March 2022, the FASB issued guidance within ASU 2022-02, Financial Instruments—Credit Losses (Topic 326). The amendments in this update eliminate the accounting guidance and related disclosures for TDRs by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty and requiring an entity to disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost.

The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and are applied prospectively, except with respect to the recognition and measurement of TDRs, where an entity has the option to apply a modified retrospective transition method. Early adoption of the amendments in this update is permitted. An entity may elect to early adopt the amendments regarding TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The adoption of this accounting guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.

Recently adopted accounting guidance

Reference Rate Reform

In March 2020, the FASB issued guidance within ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, in response to the scheduled discontinuation of LIBOR. Since the issuance of this guidance, cessation of U.S. dollar LIBOR has been extended to June 30, 2023. The amendments in this update provide optional guidance designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, borrowings) necessitated by reference rate reform.

The following optional expedients for applying the requirements of certain ASC Topics or Industry Subtopics in the Codification are permitted for contracts that are modified because of reference rate reform and that meet certain scope guidance: 1) modifications of contracts within the scope of ASC Topics 310, Receivables, and 470, Debt, should be accounted for by prospectively adjusting the effective interest rate; 2) modifications of contracts within the scope of ASC Topic 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required under this ASC Topic for modifications not accounted for as separate contracts; 3) modifications of contracts do not require an entity to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract under Subtopic ASC 815-15, Derivatives and Hedging- Embedded

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Derivatives; and 4) for other ASC Topics or Industry Subtopics in the Codification, the amendments in this update also include a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope in order to clarify that certain optional expedients and exceptions in ASC Topic 848 apply to derivatives that are affected by the discounting transition. Specifically, certain provisions in ASC Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discount, or contract price alignment that is modified as a result of reference rate reform.

Due to the prospective nature of the revised guidance, the adoption of this accounting guidance did not have a material impact on the Company's Consolidated Financial Statements.

Convertible Debt and Derivatives and Hedging

In August 2020, the FASB issued guidance within ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). The amendments in this update affect entities that issue convertible instruments and/or contracts indexed to and potentially settled in an entity’s own equity. This update simplifies the convertible accounting framework through elimination of the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The Company adopted the amendments within ASU 2020-06 using the modified retrospective method. The adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management's estimates and judgments are ongoing and are based on experience, current and expected future conditions, third-party evaluations and various other assumptions that management believes are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities, as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ from those estimates and assumptions used in the Consolidated Financial Statements and related notes. Material estimates that are susceptible to significant changes in the near term ~~particularly to the extent that economic conditions worsen or persist longer than expected in an adverse state,~~ relate to: 1) the determination of the allowance for credit losses; 2) certain assets and liabilities carried at fair value; and 3) accounting for income taxes.

Principles of consolidation

As of ~~June~~September 30, 2022, WAL has the following significant wholly-owned subsidiaries: WAB and 8eight unconsolidated subsidiaries used as business trusts in connection with the issuance of trust-preferred securities.

WAB has the following significant wholly-owned subsidiaries: 1) WABT, which holds certain investment securities, municipal and nonprofit loans, and leases; 2) WA PWI, which holds interests in certain limited partnerships invested primarily in low income housing tax credits and small business investment corporations; 3) Helios Prime, which holds interests in certain limited partnerships invested in renewable energy projects; 4) BW Real Estate, Inc., which operates as a real estate investment trust and holds certain of WAB's real estate loans and related securities; and 5) Western Finance Company, which purchases and originates equipment finance leases and provides mortgage banking services through its wholly-owned subsidiary, AmeriHome Mortgage.

The Company does not have any other significant entities that should be consolidated. All significant intercompany balances and transactions have been eliminated in consolidation.

Reclassifications

Certain amounts in the Consolidated Income Statements for the prior periods have been reclassified to conform to the current presentation. The reclassifications have no effect on net income or stockholders’ equity as previously reported.

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Interim financial information

The accompanying Unaudited Consolidated Financial Statements as of and for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 have been prepared in condensed format and, therefore, do not include all of the information and footnotes required by GAAP for complete financial statements. These statements have been prepared on a basis that is substantially consistent with the accounting principles applied to the Company's audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

The information furnished in these interim statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal, recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the Company's audited Consolidated Financial Statements.

Business combinations

Business combinations are accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under the acquisition method, the acquiring entity in a business combination recognizes all of the acquired assets and assumed liabilities at their estimated fair values as of the date of acquisition. Any excess of the purchase price over the fair value of net assets and other identifiable intangible assets acquired is recorded as goodwill. To the extent the fair value of net assets acquired, including identified intangible assets, exceeds the purchase price, a bargain purchase gain is recognized. Assets acquired and liabilities assumed from contingencies are also recognized at fair value if the fair value can be determined during the measurement period. Results of operations of an acquired business are included in the Consolidated Income Statement from the date of acquisition. Acquisition-related costs, including conversion and restructuring charges, are expensed as incurred.

Investment securities

Investment securities include debt and equity securities. Debt securities may be classified as HTM, AFS, or trading. The appropriate classification is initially decided at the time of purchase. Securities classified as HTM are those debt securities that the Company has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs, or general economic conditions. The sale of an HTM security within three months of its maturity date or after the majority of the principal outstanding has been collected is considered a maturity for purposes of classification and disclosure. Securities classified as AFS are debt securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as AFS would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, decline in credit quality, and regulatory capital considerations.

HTM securities are carried at amortized cost. AFS securities are carried at their estimated fair value, with unrealized holding gains and losses reported in OCI, net of tax. When AFS debt securities are sold, the unrealized gains or losses are reclassified from OCI to non-interest income. Trading securities are carried at their estimated fair value, with changes in fair value reported in earnings as ~~part of~~ non-interest income.

Equity securities are carried at their estimated fair value, with changes in fair value required to be reported in earnings as ~~part of~~ non-interest income.

Interest income is recognized based on the coupon rate and, for HTM and AFS securities, includes the amortization of purchase premiums and the accretion of purchase discounts. Premiums and discounts on investment securities are generally amortized or accreted over the contractual life of the security using the interest method. For the Company's mortgage-backed securities, amortization or accretion of premiums or discounts are adjusted for anticipated prepayments. Gains and losses on the sale of investment securities are recorded on the trade date and determined using the specific identification method.

A debt security is placed on nonaccrual status at the time its principal or interest payments become 90 days past due. Interest accrued but not received for a security placed on nonaccrual is reversed ~~against~~through interest income.

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Allowance for credit losses on investment securities

The credit loss model under ASC 326-20, applicable to HTM debt securities, requires recognition of lifetime expected credit losses through an allowance account at the time the security is purchased. The Company measures expected credit losses on its HTM debt securities on a collective basis by major security type. The Company's HTM securities portfolio consists of low income housing tax-exempt bonds and private label residential MBS. Low income housing tax-exempt bonds share similar risk characteristics with the Company's CRE, non-owner occupied or construction and land loan pools, given the similarity in underlying assets or collateral. Accordingly, expected credit losses on HTM securities are estimated using the same models and approaches as these loan pools, which utilize risk parameters (probability of default, loss given default, and exposure at default) in the measurement of expected credit losses. The historical data used to estimate probability of default and severity of loss in the event of default is derived or obtained from internal and external sources and adjusted for the expected effects of reasonable and supportable forecasts over the expected lives of the securities on those historical losses. Accrued interest receivable on HTM securities, which is included in other assets on the Consolidated Balance Sheet, is excluded from the estimate of expected credit losses.

The credit loss model under ASC 326-30, applicable to AFS debt securities, requires recognition of credit losses through an allowance account with credit losses recognized once securities become impaired. For AFS debt securities, a decline in fair value due to credit loss results in recognition of an allowance for credit losses. Impairment may result from credit deterioration of the issuer or collateral underlying the security. An assessment to determine whether a decline in fair value resulted from a credit loss is performed at the individual security level. Among other factors, the Company considers: 1) the extent to which the fair value is less than the amortized cost basis; 2) the financial condition and near term prospects of the issuer, including consideration of relevant financial metrics or ratios of the issuer; 3) any adverse conditions related to an industry or geographic area of an issuer; 4) any changes to the rating of the security by a rating agency; and 5) any past due principal or interest payments from the issuer. If an assessment of the above factors indicates that a credit loss exists, the Company records an allowance for credit losses for the excess of the amortized cost basis over the present value of cash flows expected to be collected, limited to the amount that the security's fair value is less than its amortized cost basis. Subsequent changes in the allowance for credit losses are recorded as a provision for (or recovery of) credit loss expense. Interest accruals and amortization and accretion of premiums and discounts are suspended when the credit loss is recognized in earnings. Any interest received after the security has been placed on nonaccrual status is recognized on a cash basis. Accrued interest receivable on AFS debt securities, which is included in Other assets on the Consolidated Balance Sheet, is excluded from the estimate of expected credit losses.

For each AFS security in an unrealized loss position, the Company also considers: 1) its intent to retain the security until anticipated recovery of the security's fair value; and 2) whether it is more-likely-than not that the Company would be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the debt security is written down to its fair value and the write-down is charged against the allowance for credit losses with any incremental impairment recorded in earnings.

~~Write-offs~~Charge-offs are made through reversal of the allowance for credit losses and a direct ~~write-off of~~charge to the amortized cost basis of the AFS security. The Company considers the following events to be indicators that a ~~write-off~~charge-off should be taken: 1) bankruptcy of the issuer; 2) significant adverse event(s) affecting the issuer in which it is improbable for the issuer to make its remaining payments on the security; and 3) significant loss of value of the underlying collateral behind a security. Recoveries on debt securities, if any, are recorded in the period received.

Restricted stock

WAB is a member of the Federal Reserve System and, as part of its membership, is required to maintain stock in the FRB in a specified ratio to its capital. In addition, WAB is a member of the FHLB system and, accordingly, maintains an investment in the capital stock of the FHLB based on the borrowing capacity used. These investments are considered equity securities with no actively traded market. Therefore, the shares are considered restricted investment securities. These investments are carried at cost, which is equal to the value at which they may be redeemed. Dividend income received from the stock is reported in interest income. The Company conducts a periodic review and evaluation of its restricted stock to determine if any impairment exists. No impairment has been recorded to date.

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Loans held for sale

The Company began ~~holding~~regularly carrying loans HFS in connection with the AmeriHome acquisition and continues to purchase and originate loans ~~as part of~~to be sold or securitized through its mortgage banking business. Loans HFS are reported at fair value or the lower of cost or fair value, depending on the acquisition source. The Company has elected to record loans purchased from correspondent sellers or originated directly to consumers at fair value to more timely reflect the Company's performance. Changes in fair value of loans HFS are reported in current period income as a component of Net gain on loan origination and sale activities in the Consolidated Income Statement. Alternatively, delinquent loans repurchased under the terms of the GNMA MBS program, referred to as EBO loans, and which are classified as HFS, are reported at the lower of cost or fair value. For EBO loans, the amount by which cost exceeds fair value is accounted for as a valuation allowance and any changes in the valuation allowance are included in Net gain on loan origination and sale activities in the Consolidated Income Statement.

The Company recognizes a transfer of loans as a sale when it surrenders control over the transferred loans. Control is considered to be surrendered when the transferred loans have been legally isolated from the Company, the transferee has the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred loans, and the Company does not maintain effective control over the transferred loans through either an agreement that entitles or obligates the Company to repurchase or redeem the loans before their maturity or the ability to unilaterally cause the holder to return loans. If the transfer of loans qualifies as a sale, the Company derecognizes such loans. If the transfer of loans does not qualify as a sale, the proceeds from the transfer are accounted for as secured borrowings.

Loan acquisition and origination fees on loans HFS consist of fees earned by the Company for purchasing and originating loans and are recognized at the time the loans are purchased or originated. These fees generally represent flat, per loan fee amounts and are included as ~~part of~~ Net gain on loan origination and sale activities in the Consolidated Income Statement.

Recognition of interest income on non-government guaranteed or insured loans HFS is suspended and accrued unpaid interest receivable is reversed ~~against~~through interest income when loans become 90 days delinquent or when recovery of income and principal becomes doubtful. Loans return to accrual status when the principal and interest become current and it is probable that the amounts are fully collectible. For government guaranteed or insured loans HFS that are 90 days delinquent, the Company continues to recognize interest income at a rate between the debenture and note rates, as adjusted for probability of default for FHA loans and at the note rate for VA and USDA loans.

If management determines that it no longer intends to sell loans classified as HFS, such loans will be transferred to ~~HFI classification.~~loans HFI. Loans transferred from HFS to HFI are transferred at amortized cost, and any valuation allowance previously recorded is reversed through the Consolidated Income Statement at the time of the transfer. The loans are then evaluated to determine the allowance for credit losses in accordance with the Company's policy as described in the Allowance for credit losses on HFI loans section within this note.

Loans held for investment

Loans HFI are loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the amount of unpaid principal, adjusted for unamortized net deferred fees and costs, premiums and discounts, and ~~write-offs.~~charge-offs. In addition, the amortized cost basis of loans subject to a fair value hedge are adjusted for changes in value attributable to the effective portion of the hedged benchmark interest rate risk.

The Company may also purchase loans or acquire loans through a business combination. At the purchase or acquisition date, loans are evaluated to determine whether there has been more than insignificant credit deterioration since origination. Loans that have experienced more than insignificant credit deterioration since origination are referred to as PCD loans. In its evaluation of whether a loan has experienced more than insignificant deterioration in credit quality since origination, the Company takes into consideration loan grades, ~~loan-to-values greater than policy limits,~~ past due and nonaccrual status, and TDR loans. The Company may also consider external credit rating agency ratings for borrowers and for non-commercial loans, FICO score or band, probability of default levels, and number of times past due. ~~The~~

At the purchase or acquisition date, the amortized cost basis of PCD loans is equal to the purchase price and an initial estimate of credit ~~losses on PCD loans is added to the purchase price on the acquisition date to establish the initial amortized cost basis of the loan; accordingly, the~~losses. The initial recognition of expected credit losses on PCD loans has no impact on net income. When the initial measurement of expected credit losses on PCD loans ~~are~~is calculated on a pooled loan basis, the expected credit losses are allocated to each loan within the pool. Any difference between the initial amortized cost basis and the unpaid principal balance of the loan represents a noncredit discount or premium, which is accreted (or amortized) into interest income over the life of the loan. Subsequent changes to the allowance for credit losses on PCD loans are recorded through the provision for credit losses. For purchased loans that are not deemed to have experienced more than insignificant credit deterioration since origination and are therefore not deemed PCD, any discounts or premiums included in the purchase price are accreted (or amortized) over the

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contractual life of the individual loan. For additional information, see "Note 5. Loans, Leases and Allowance for Credit Losses" of these Notes to Unaudited Consolidated Financial Statements.

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In applying the effective yield method to loans, the Company generally applies the contractual method whereby loan fees collected for the origination of loans less direct loan origination costs (net of deferred loan fees), as well as premiums and discounts and certain purchase accounting adjustments, are amortized over the contractual life of the loan through interest income. If a loan has scheduled payments, the amortization of the net deferred fee is calculated using the interest method over the contractual life of the loan. If a loan does not have scheduled payments, such as a line of credit, the net deferred loan fee is recognized as interest income on a straight-line basis over the contractual life of the loan commitment. Commitment fees based on a percentage of a customer’s unused line of credit and fees related to standby letters of credit are recognized over the commitment period. When loans are repaid, any remaining unamortized balances of premiums, discounts, or net deferred fees are recognized as interest income.

Nonaccrual loans

When a borrower discontinues making payments as contractually required by the note, the Company must determine whether it is appropriate to continue to accrue interest. The Company ceases accruing interest income when ~~the~~a loan ~~has become~~becomes delinquent by more than 90 days or when management determines that the full repayment of principal and collection of interest according to contractual terms is no longer likely. Past due status is based on the contractual terms of the loan. The Company may decide to continue to accrue interest on certain loans more than 90 days delinquent if the loans are well secured by collateral and in the process of collection. For government guaranteed or insured loans ~~HFS~~ that are 90 days delinquent, the Company continues to recognize interest income at a rate between the debenture rate and note rates, as adjusted for probability of default for FHA loans, and at the note rate for VA and USDA loans.

For all HFI ~~loan types,~~loans, when a loan is placed on nonaccrual status, all interest accrued but uncollected is reversed against interest income in the period in which the status is changed, and the Company makes a loan-level decision to apply either the cash basis or cost recovery method. The Company may recognize income on a cash basis when a payment is received ~~and only~~ for those nonaccrual loans for which the collection of the remaining principal balance is not in doubt. Under the cost recovery method, subsequent payments received from the customer are applied to principal and generally no further interest income is recognized until the loan principal has been paid in full or until circumstances have changed such that payments are again consistently received as contractually required. Loans are returned to accrual status when all of the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Troubled Debt Restructured Loans

A TDR loan is a loan on which the Company, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed to assess the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. The evaluation is performed in accordance with the Company's internal underwriting policy. The loan terms that may be modified or restructured due to a borrower’s financial situation include, but are not limited to, a reduction in the stated interest rate, an extension of the maturity or renewal of the loan at an interest rate below current market, a reduction in the face amount of the debt, a reduction in the accrued interest, or deferral of interest payments. A TDR loan may be returned to accrual status when the loan is brought current, has performed in accordance with the contractual restructured terms for a reasonable period of time (generally six months), and the ultimate collectability of the total contractual restructured principal and interest is no longer in doubt. Consistent with regulatory guidance, a TDR loan that is subsequently modified in another restructuring agreement but has shown sustained performance and classification as a TDR, will be removed from TDR status provided that the modified terms were market-based at the time of modification.

Reference Rate Reform

On March 5, 2021, the United Kingdom administrator of LIBOR announced that the 1-month, 3-month, 6-month and 12-month US dollar LIBOR settings would cease to exist after June 30, 2023. The US federal banking agencies issued a statement in November 2020 encouraging banks to transition away from US dollar LIBOR as soon as practicable and to stop entering into new contracts that use US dollar LIBOR by December 31, 2021. The Bank began offering three alternative rate indices (Ameribor, SOFR, and BSBY) on its loans in the second half of 2021, with Ameribor as its preferred rate index. The Bank ceased offering loans indexed to US dollar LIBOR on December 31, 2021. Loans indexed to US dollar LIBOR will be converted to Ameribor, SOFR, or BSBY. The Company applied the optional expedient in Topic 848 for such conversions by prospectively adjusting the effective interest rate. For the Company's borrowing arrangements currently indexed to LIBOR, the paying agent is responsible for choosing the alternate rate index.

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Credit quality indicators

Loans are regularly reviewed to assess credit quality indicators and to determine appropriate loan classification and grading in accordance with applicable bank regulations. The Company’s risk rating methodology assigns risk ratings ranging from 1 to 9, where a higher rating represents higher risk. The Company differentiates its loan segments based on shared risk characteristics for which expected credit losses are measured on a pool basis.

The nine risk rating categories can generally be described by the following groupings for loans:

"Pass" (grades 1 through 5): The Company has five pass risk ratings, which represent a level of credit quality that ranges from having no well-defined deficiency or weakness to some noted weakness; however, the risk of default on any loan classified as pass is expected to be remote. The five pass risk ratings are described below:

Minimal risk. Consist of loans that are fully secured either with cash held in a deposit account at the Bank or by readily marketable securities with an acceptable margin based on the type of security pledged.

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Low risk. Consist of loans with a high investment grade rating equivalent.

Modest risk. Consist of loans where the credit facility greatly exceeds all policy requirements or with policy exceptions that are appropriately mitigated. A secondary source of repayment is verified and considered sustainable. Collateral coverage on these loans is sufficient to fully cover the debt as a tertiary source of repayment. Debt of the borrower is low relative to borrower’s financial strength and ability to pay.

Average risk. Consist of loans where the credit facility meets or exceeds all policy requirements or with policy exceptions that are appropriately mitigated. A secondary source of repayment is available to service the debt. Collateral coverage is more than adequate to cover the debt. The borrower exhibits acceptable cash flow and moderate leverage.

Acceptable risk. Consist of loans with an acceptable primary source of repayment, but a less than preferable secondary source of repayment. Cash flow is adequate to service debt, but there is minimal excess cash flow. Leverage is moderate or high.

"Special mention" (grade 6): These are generally assets that possess potential weaknesses that warrant management's close attention. These loans may involve borrowers with adverse financial trends, higher debt-to-equity ratios, or weaker liquidity positions, but not to the degree of being considered a “problem loan” where risk of loss may be apparent. Loans in this category are usually performing as agreed, although there may be non-compliance with financial covenants.

"Substandard" (grade 7): These assets are characterized by well-defined credit weaknesses and carry the distinct possibility that the Company will sustain some loss if such weakness or deficiency is not corrected. All loans 90 days or more past due and all loans on nonaccrual status are considered at least "Substandard," unless extraordinary circumstances would suggest otherwise.

"Doubtful" (grade 8): These assets have all the weaknesses inherent in those classified as "Substandard" with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable, but because of certain known factors that may work to the advantage and strengthening of the asset (for example, capital injection, perfecting liens on additional collateral and refinancing plans), classification as an estimated loss is deferred until a more precise status may be determined. Due to the high probability of loss, loans classified as "Doubtful" are placed on nonaccrual status.

"Loss" (grade 9): These assets are considered uncollectible and having such little recoverable value that it is not practical to defer writing off the asset. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practicable or desirable to defer writing off the asset, even though partial recovery may be achieved in the future.

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Allowance for credit losses on HFI loans

Credit risk is inherent in the business of extending loans and leases to borrowers and is continuously monitored by management and reflected within the allowance for credit losses. The allowance for credit losses is an estimate of life-of-loan losses for the Company's ~~loans HFI.~~HFI loans. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of a loan to present the net amount expected to be collected on the loan. The estimate of expected credit losses excludes accrued interest receivable on these loans, except for accrued interest related to the Residential-EBO loan pool. Accrued interest receivable, net of an allowance for credit losses on the Residential-EBO loan pool, is included in Other assets on the Consolidated Balance Sheet. ~~Expected~~The allowance for credit losses on HFI loans includes an estimate of future charge-offs, offset by expected recoveries of amounts previously ~~written off~~charged-off and ~~expected to be written off are included in the valuation account and may~~shall not exceed the aggregate of ~~amounts previously written off~~prior and expected ~~to be written off.~~charge-offs. The Company formally re-evaluates and establishes the appropriate level of the allowance for credit losses on a quarterly basis.

Determining the appropriateness of the allowance is complex and requires judgment by management about the ~~effect~~effects of matters that are inherently uncertain. In future periods, evaluations of the overall loan portfolio or particular segments of the loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance for credit losses and credit loss expense in those future periods. The allowance level is influenced by loan ~~volumes,~~growth, mix, loan performance metrics, asset quality characteristics, delinquency status, historical credit loss experience, and the inputs and assumptions in economic forecasts, such as macroeconomic inputs, length of reasonable and supportable forecast periods, and reversion methods. The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses has two basic components: first, an asset-specific component involving individual loans that do not share similar risk characteristics with other loans and the measurement of expected credit losses for such individual loans ~~and;~~and second, a pooled component for estimated expected credit losses for loans that share similar risk characteristics.

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Loans that do not share risk characteristics with other loans

Loans that do not share risk characteristics with other loans are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. These loans consist of loans with unique features or loans that no longer share risk characteristics with other pooled loans. The process for determining whether a loan should be evaluated on an individual basis begins with determination of credit rating. With the exception of residential loans, all accruing loans graded substandard or worse with a total commitment of $1.0 million or more are assigned a reserve based on an individual evaluation. For these loans, the allowance is based primarily on the fair value of the underlying collateral, utilizing independent third-party appraisals, and assessment of borrower guarantees.

Loans that share similar risk characteristics with other loans

In estimating the component of the allowance for credit losses for loans that share similar risk characteristics, ~~with other loans, such~~ loans are segregated into loan ~~segments.~~segments with shared risk characteristics. The Company's primary portfolio segments align with the methodology applied in estimating the allowance for credit losses under CECL. Loans are designated into loan segments based on loans pooled by product types, business lines, and ~~similar~~other risk ~~characteristics or areas of risk concentration.~~characteristics.

In determining the allowance for credit losses, the Company derives an estimate of expected credit losses primarily using an expected loss methodology that incorporates risk parameters (probability of default, loss given default, and exposure at default), which are derived from various vendor models, internally-developed statistical models, or non-statistical estimation approaches. Probability of default is projected in these models or estimation approaches using a single economic scenario and were developed to incorporate relevant information about past events, current conditions, and reasonable and supportable forecasts. With the exception of the Company's residential loan segment, the Company's PD models ~~share a common definition of~~define default ~~which include~~as loans that are 90 days past due, on nonaccrual status, have a charge-off, or obligor bankruptcy. Input reversion is used for all loan segment models, except for the commercial and industrial and CRE, owner-occupied loan segments. Output reversion is used for the commercial and industrial and CRE, owner-occupied loan segments by incorporating, after the forecast period, a one-year linear reversion to the long-term reversion rate in year three through the remaining life of the loans within the respective segments. LGDs are typically derived from the Company's historical loss experience. However, for the residential, warehouse lending, and municipal and nonprofit loan segments, where the Company has either zero (or near zero) losses, or has a limited loss history through the last economic downturn, certain non-modeled methodologies are employed to estimate LGD. Factors utilized in calculating average LGD vary for each loan segment and are further described below. Exposure at default refers to the Company's exposure to loss at the time of borrower default. For revolving lines of credit, the Company incorporates an expectation of increased line utilization for a higher EAD on defaulted loans based on historical experience. For term loans, EAD is calculated using an amortization schedule based on contractual loan terms, adjusted for a prepayment rate assumption. Prepayment trends are sensitive to interest rates and the macroeconomic environment. Fixed rate loans are more influenced by interest rates, whereas variable rate loans are more influenced by the macroeconomic environment. After the quantitative expected loss estimates are calculated, management then adjusts these estimates to incorporate ~~considerations~~consideration of different

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probability weighted economic scenarios, current trends and conditions that are not captured in the quantitative loss estimates, through the use of qualitative and/or environmental factors.

The following provides credit quality indicators and risk elements most relevant in monitoring and measuring the allowance for credit losses on loans for each of the loan portfolio segments identified:

Warehouse lending

The warehouse lending portfolio segment consists of mortgage warehouse lines, MSR financing facilities, and note finance loans, which have a monitored borrowing base to mortgage companies and similar lenders and are primarily structured as commercial and industrial loans. The collateral for these loans is primarily comprised of residential whole loans and MSRs, with the borrowing base of these loans tightly monitored and controlled by the Company. The primary support for these loans takes the form of pledged collateral, with secondary support provided by the capacity of the financial institution. The collateral-driven nature of these loans distinguish them from traditional commercial and industrial loans. These loans are impacted by interest rate shocks, residential lending rates, prepayment assumptions, and general real estate stress. As a result of the unique loan characteristics, limited historical default and loss experience, and the collateral nature of this loan portfolio segment, the Company uses a non-modeled approach to estimate expected credit losses, leveraging grade information, grade migration history, and management judgment.

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Municipal and nonprofit

The municipal and nonprofit portfolio segment consists of loans to local governments, government-operated utilities, special assessment districts, hospitals, schools and other nonprofits. These loans are generally, but not exclusively, entered into for the purpose of financing real estate investment or for refinancing existing debt and are primarily structured as commercial and industrial loans. Loans are supported by taxes or utility fees, and in some cases tax liens on real estate, operating revenue of the institution, or other collateral support the loans. While unemployment rates and the market valuation of residential properties have an effect on the tax revenues supporting these loans, these loans tend to be less cyclical in comparison to similar commercial loans due to reliance on diversified tax bases. The Company uses a non-modeled approach to estimate expected credit losses for this portfolio segment, leveraging grade information and historical municipal default rates.

Tech & innovation

The tech & innovation portfolio segment is comprised of commercial loans that are originated within this business line and are not collateralized by real estate. The source of repayment of these loans is generally expected to be the income that is generated from the ~~business.~~business or contributions from ownership to sustain the business's growth model. Expected credit losses for this loan segment are estimated using ~~both a vendor model and an~~ internally-developed ~~model.~~models. These models incorporate market level and company-specific factors such as financial statement variables, adjusted for the current stage of the credit cycle and for the Company's loan performance data such as delinquency, utilization, maturity, and size of the loan commitment under specific macroeconomic scenarios to produce a probability of default. Macroeconomic variables include ~~the Dow Jones Index, credit spread between the BBB Bond Yield~~average investment to GDP and ~~10-Year Treasury Bond Yield, unemployment rate, and CBOE VIX Index quarterly high.~~treasury yields. LGD and the prepayment rate assumption for EAD for this loan segment are driven by unemployment levels.

Equity fund resources

The equity fund resources portfolio segment is comprised of commercial loans to private equity and venture capital funds. The primary source of repayment of these loans is typically uncalled capital commitments from institutional investors and high net worth individuals. The Company uses a non-modeled approach to estimate expected credit losses for this portfolio segment, leveraging loan grade information.

Other commercial and industrial

The other commercial and industrial segment is comprised primarily of commercial and industrial loans to middle market companies and large corporations that ~~are not originated within the Company's specialty business lines and~~ are not collateralized by real estate. The models used to estimate expected credit losses for ~~this loan segment~~middle market companies are the same as those used for the tech & innovation portfolio ~~segment.~~segment, whereas a vendor model is used to estimate expected credit losses for loans to large corporations.

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Commercial real estate, owner-occupied

The CRE, owner-occupied portfolio segment is comprised of commercial loans that are collateralized by real estate, where the borrower has a business that occupies the property. These loans are typically entered into for the purpose of providing real estate finance or improvement. The primary source of repayment of these loans is the income generated by the business and where rental or sale of the property may provide secondary support for the loan. These loans are sensitive to general economic conditions as well as the market valuation of CRE properties. The probability of default estimate for this loan segment is modeled using the same model as the commercial and industrial loan segment. LGD for this loan segment is driven by property appreciation and the prepayment rate assumption for EAD is driven by unemployment levels.

Hotel franchise finance

The hotel franchise finance segment is comprised of loans that are originated within this business line and are collateralized by real estate, where the owner is not the primary tenant. These loans are typically entered into for the purpose of financing or the improvement of commercial investment properties. The primary source of repayment of these loans are the rents paid by tenants and where the sale of the property may provide secondary support for the loan. These loans are sensitive to the market valuation of CRE properties, rental rates, and general economic conditions. The vendor model used to estimate expected credit losses for this loan segment projects probabilities of default and exposure at default based on multiple macroeconomic scenarios by modeling how macroeconomic conditions affect the commercial real estate market. Real estate market factors utilized in this model include vacancy rate, rental growth rate, net operating income growth rate, and commercial property price changes for each specific property type. The model then incorporates loan and property-level characteristics including debt coverage, leverage, collateral size, seasoning, and property type. LGD for this loan segment is derived from a non-modeled approach that is driven by property appreciation and the prepayment rate assumption for EAD is driven by the property appreciation for fixed rate loans and unemployment levels for variable rate loans.

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Other commercial real estate, non-owner occupied

The other commercial real estate, non-owner occupied segment is comprised of loans that are collateralized by real estate where the owner is not the primary tenant, but are not originated within the Company's specialty business lines. The model used to estimate expected credit losses for this loan segment is the same as the model used for the hotel franchise finance portfolio segment.

Residential

The residential loan portfolio segment is comprised of loans collateralized primarily by first liens on 1-4 residential family properties and home equity lines of credit that are collateralized by either first liens or junior liens on residential properties. The primary source of repayment of these loans is the value of the property and the capacity of the owner to make payments on the loan. Unemployment rates and the market valuation of residential properties will impact the ultimate repayment of these loans. The residential mortgage loan model is a vendor model that projects probability of default, loss given default severity, prepayment rate, and exposure at default to calculate expected losses. The model is intended to capture the borrower's payment behavior during the lifetime of the residential loan by incorporating loan level characteristics such as loan type, coupon, age, loan-to-value, and credit score and economic conditions such as Home Price Index, interest rate, and unemployment rate. A default event for residential loans is defined as 60 days or more past due, with property appreciation as the driver for LGD results. The prepayment rate assumption for exposure at default for residential loans is based on industry prepayment history.

Probability of default for HELOCs is derived from an internally-developed model that projects PD by incorporating loan level information such as delinquency status, loan term, and FICO score and macroeconomic conditions such as property appreciation. LGD for this loan segment is driven by property appreciation and lien position. Exposure at default for HELOCs is calculated based on utilization rate assumptions using a non-modeled approach and also incorporates management judgment.

Residential - EBO

The residential EBO loan portfolio segment is comprised of government guaranteed or insured loans collateralized primarily by first liens on 1-4 residential family properties purchased from the FHA, VA, or USDA, which were at least three months delinquent at the time of purchase. These loans differ from the residential loans included in the Company's Residential loan portfolio segment as the principal balance of these loans are government ~~guaranteed.~~guaranteed or insured. The Company has not recognized an allowance for credit losses on this portfolio segment as management's expectation of nonpayment of the amortized cost basis, based on historical losses, adjusted for current and forecasted conditions, is zero.

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Construction and land development

The construction and land portfolio segment is comprised of loans collateralized by land or real estate, which are entered into for the purpose of real estate development. The primary source of repayment of these loans is the eventual sale or refinance of the completed project and where claims on the property provide secondary support for the loan. These loans are impacted by the market valuation of CRE and residential properties and general economic conditions that have a higher sensitivity to real estate markets compared to other real estate loans. Default risk of a property is driven by loan-specific drivers, including loan-to-value, maturity, origination date, and the MSA in which the property is located, among other items. The variables used in the internally-developed model include loan level drivers such as origination loan-to-value, loan maturity, and macroeconomic drivers such as property appreciation, MSA level unemployment rate, and national GDP growth. LGD for this loan segment is driven by property appreciation. The prepayment rate assumption for EAD is driven by the property appreciation for fixed rate loans and unemployment levels for variable rate loans.

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Other

The other portfolio consists of loans not already captured in one of the aforementioned loan portfolio segments, which include, but may not be limited to, overdraft lines for treasury services, credit cards, consumer loans not collateralized by real estate, and small business loans collateralized by residential real estate. The consumer and small business loans are supported by the capacity of the borrower and the valuation of any collateral. General economic factors such as unemployment will have an effect on these loans. The Company uses a non-modeled approach to estimate expected credit losses, leveraging average historical default rates. LGD for this loan segment is driven by unemployment levels and lien position. The prepayment rate assumption for EAD is driven by the BBB corporate spread for fixed rate loans and unemployment levels for variable rate loans.

Off-balance sheet credit exposures, including unfunded loan commitments

The Company maintains a separate allowance for credit losses on off-balance-sheet credit exposures, including unfunded loan commitments, financial guarantees, and letters of credit, which is classified in Other liabilities on the Consolidated Balance Sheet. The allowance for credit losses on off-balance sheet credit exposures is adjusted through increases or decreases to the provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, an estimate of exposure at default that is derived from utilization rate assumptions using a non-modeled approach, and PD and LGD estimates that are derived from the same models and approaches for the Company's other loan portfolio segments described in the Allowance for credit losses on HFI loans section within this ~~note as these unfunded commitments share similar risk characteristics with these loan portfolio segments.~~note. The Company does not record a credit loss estimate for off-balance sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement.

Mortgage servicing rights

The Company generates MSRs from its mortgage banking business. When the Company sells mortgage loans in the secondary market and retains the right to service these loans, a servicing right asset is capitalized at the time of sale when the benefits of servicing are deemed to be greater than adequate compensation for performing the servicing activities. MSRs represent the then-current fair value of future net cash flows expected to be realized from performing servicing activities. The Company has elected to subsequently measure MSRs at fair value and report changes in fair value in current period income as a component of Net loan servicing revenue in the Consolidated Income Statement.

The Company may in the ordinary course of business sell MSRs and will recognize, as of the trade date, a gain or loss on the sale equal to the difference between the carrying value of the transferred MSRs and the ~~value of the assets~~estimated proceeds to be received as consideration. The Company subsequently derecognizes MSRs when substantially all of the risks and rewards of ownership are irrevocably passed to the transferee and any protection provisions retained by the Company are minor and can be reasonably estimated, which typically occurs on the settlement date. Protection provisions are considered to be minor if the obligation created by such provisions is estimated to be no more than 10 percent of the sales price and the Company retains the risk of prepayment for no more than 120 days. The Company records an estimated liability for retained protection provisions as of the trade date and continues to remeasure this liability until settlement, with any changes in the estimated liability recorded in earnings. In addition, fees to transfer loans associated with the sold MSRs to a new servicer are also recorded on the settlement date. Gains or losses on sales of MSRs, net of retained protection provisions, and transfer fees are included in Net loan servicing revenue in the Consolidated Income Statement.

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Leases (lessee)

At inception, contracts are evaluated to determine whether the contract constitutes a lease agreement. For contracts that are determined to be an operating lease, a corresponding ROU asset and operating lease liability are recorded in separate line items on the Consolidated Balance Sheet. A ROU asset represents the Company’s right to use an underlying asset during the lease term and a lease liability represents the Company’s commitment to make contractually obligated lease payments. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease and are based on the present value of lease payments over the lease term. The measurement of the operating lease ROU asset includes any lease payments made and is reduced by lease incentives that are paid or are payable to the Company. Variable lease payments that depend on an index or rate such as the Consumer Price Index are included in lease payments based on the rate in effect at the commencement date of the lease. Lease payments are recognized on a straight-line basis over the lease term as ~~part of~~ Occupancy expense in the Consolidated Income Statements.

As the rate implicit in the lease is not readily determinable, the Company's incremental collateralized borrowing rate is used to determine the present value of lease payments. This rate gives consideration to the applicable FHLB collateralized borrowing rates and is based on the information available at the commencement date. The Company has elected to apply the short-term

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lease measurement and recognition exemption to leases with an initial term of 12 months or less; therefore, these leases are not recorded on the Company’s Consolidated Balance Sheet, but rather, lease expense is recognized over the lease term on a straight-line basis. The Company’s lease agreements may include options to extend or terminate the lease. These options are included in the lease term when it is reasonably certain that the options will be exercised.

The Company also made an accounting policy election to not separate non-lease components from the associated lease component, and instead account for them together as part of the applicable lease component. The majority of the Company’s non-lease components such as common area maintenance, parking, and taxes are variable, and are expensed as incurred. Variable payment amounts are determined in arrears by the landlord depending on actual costs incurred.

Goodwill and other intangible assets

The Company records as goodwill the excess of the purchase price in a business combination over the fair value of the identifiable net assets acquired in accordance with applicable guidance. The Company performs its annual goodwill and intangibles impairment tests as of October 1 each year, or more often if events or circumstances indicate that the carrying value may not be recoverable. The Company ~~can~~may first elect to assess, through qualitative factors, whether it is more likely than not that goodwill is impaired. If the qualitative assessment indicates potential impairment, a quantitative impairment test is performed. If, based on the quantitative test, a reporting unit's carrying amount exceeds its fair value, a goodwill impairment charge for this difference is recorded to current period earnings as ~~part of~~ non-interest expense.

The Company’s intangible assets consist of correspondent relationships, operating licenses, tradenames, core deposit intangibles, customer relationships, and developed technology assets that are being amortized over periods of five to 40 years, with the exception of the Bridge Bank tradename which has an indefinite life. See "Note 2. Mergers, Acquisitions and Dispositions" of these Notes to Unaudited Consolidated Financial Statements for discussion of the intangible assets acquired ~~as part of~~in the AmeriHome and Digital Disbursements acquisitions.

The Company considers the remaining useful lives of its intangible assets each reporting period, as required by ASC 350, Intangibles—Goodwill and Other, to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of an intangible asset’s remaining useful life has changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. The Company has not revised its estimates of the useful lives of its intangible assets during the three and ~~six~~nine months ended ~~June~~September 30, 2022 or 2021.

Stock compensation plans

The Company has an incentive plan that gives the BOD the authority to grant stock awards, consisting of unrestricted stock, stock units, dividend equivalent rights, stock options (incentive and non-qualified), stock appreciation rights, restricted stock, and performance and annual incentive awards. Compensation expense on non-vested restricted stock awards is based on the fair value of the award on the measurement date which, for the Company, is the date of the grant and is recognized ratably over the service period of the award. Forfeitures are estimated at the time of the award grant and revised in subsequent periods if actual forfeitures differ from those estimates. The fair value of non-vested restricted stock awards is the market price of the Company’s stock on the date of grant.

The Company's performance stock units have a cumulative EPS target and a TSR performance measure component. The TSR component is a market-based performance condition that is separately valued as of the date of the grant. A Monte Carlo valuation model is used to determine the fair value of the TSR performance metric, which simulates potential TSR outcomes

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over the performance period and determines the payouts that would occur in each scenario. The resulting fair value of the TSR component is based on the average of these results. Compensation expense related to the TSR component is based on the fair value determination on the date of the grant and is not subsequently revised based on actual performance. Compensation expense related to the EPS component for these awards is based on the fair value (market price of the Company's stock on the date of the grant) of the award. Compensation expense related to both the TSR and EPS components is recognized ratably over the service period of the award.

See "Note 9. Stockholders' Equity" of these Notes to Unaudited Consolidated Financial Statements for further discussion of stock awards.

Dividends

WAL is a legal entity separate and distinct from its subsidiaries. As a holding company with limited significant assets other than the capital stock of its subsidiaries, WAL's ability to pay dividends depends primarily upon the receipt of dividends or other capital distributions from its subsidiaries. The Company's subsidiaries' ability to pay dividends to WAL is subject to, among other things, their individual earnings, financial condition, and need for funds, as well as federal and state governmental policies

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and regulations applicable to WAL and each of those subsidiaries, which limit the amount that may be paid as dividends without prior approval. In addition, the terms and conditions of other securities the Company issues may restrict its ability to pay dividends to holders of the Company's common stock. For example, if any required payments on outstanding trust preferred securities are not made, WAL would be prohibited from paying cash dividends on its common stock.

Preferred stock

On September 22, 2021, the Company issued an aggregate of 12,000,000 depositary shares, each representing a 1/400th ownership interest in a share of the Company’s 4.250% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Shares, Series A, par value $0.0001 per share, with a liquidation preference of $25 per Depositary Share (equivalent to $10,000 per share of Series A preferred stock). The Company's Series A preferred stock is perpetual preferred stock that is not subject to any mandatory redemption, resulting in classification as permanent equity. Dividends on preferred stock are recognized on the declaration date and are recorded as a reduction of retained earnings.

Treasury shares

The Company separately presents treasury shares, which represent shares surrendered to the Company equal in value to the statutory payroll tax withholding obligations arising from the vesting of employee restricted stock awards. Treasury shares are carried at cost.

Sales of common stock under ATM program

Derivative financial instruments

~~The Company uses~~Derivative instruments are contracts between two or more parties that have a notional amount and an underlying variable, require a small or no initial investment, and allow for the net settlement of positions. A derivative’s notional amount serves as the basis for the payment provision of the contract and takes the form of units, such as shares or dollars. A derivative’s underlying variable is a specified interest rate, ~~swaps~~security price, commodity price, foreign exchange rate, index, or other variable. The interaction between the notional amount and the underlying variable determines the number of units to ~~mitigate interest-rate risk associated with changes to~~be exchanged between the parties and influences the fair value of ~~certain fixed-rate financial instruments (fair value hedges).~~the derivative contract.

The Company recognizes derivatives as assets or liabilities on the Consolidated Balance Sheet at their fair value in accordance with ASC 815, Derivatives and Hedging. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset or liability attributable to a particular risk, such as interest rate risk, are considered fair value hedges.

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The Company documents its hedge relationships, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction after the derivative contract is executed. At inception, the Company performs a quantitative assessment to determine whether the derivatives used in hedging transactions are highly effective (as defined in the guidance) in offsetting changes in the fair value of the hedged item. Retroactive effectiveness is assessed, as well as the continued expectation that the hedge will remain effective prospectively. After the initial quantitative assessment is performed, on a quarterly basis, the Company performs a qualitative hedge effectiveness assessment. This assessment takes into consideration any adverse developments related to the counterparty's risk of default and any negative events or circumstances that affect the factors that originally enabled the Company to assess that it could reasonably support, qualitatively, an expectation that the hedging relationship was and will continue to be highly effective. The Company discontinues hedge accounting prospectively when it is determined that a hedge is no longer highly effective. When hedge accounting is discontinued on a fair value hedge that no longer qualifies as an effective hedge, the derivative instrument continues to be reported at fair value on the Consolidated Balance Sheet, but the carrying amount of the hedged item is no longer adjusted for future changes in fair value. The adjustment to the carrying amount of the hedged item that existed at the date hedge accounting is discontinued is amortized over the remaining life of the hedged item into earnings.

The Company uses interest rate swaps to mitigate interest-rate risk associated with changes to the fair value of certain fixed-rate financial instruments (fair value hedges). Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, are recorded in the same line item as the offsetting loss or gain on the related interest rate swaps during the period of change. For loans, the gain or loss on the hedged item is included in interest income and for subordinated debt, the gain or loss on the hedged items is included in interest expense.

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Derivative instruments that are not designated as hedges, so called free-standing derivatives, are reported on the Consolidated Balance Sheet at fair value and the changes in fair value are recognized in earnings as non-interest income during the period of change. With the acquisition of AmeriHome, the Company's economic hedging volume has substantially increased. The Company enters into commitments to purchase mortgage loans that will be held for sale. These loan commitments, described as IRLCs, qualify as derivative instruments, except those that are originated rather than purchased, and intended for HFI classification. As of ~~June~~September 30, 2022, all IRLCs qualify as derivative instruments. Changes in fair value associated with changes in interest rates are economically hedged by utilizing forward sale commitments and interest rate futures. These hedging instruments are typically entered into contemporaneously with IRLCs. Loans that have been or will be purchased or originated may be used to satisfy the Company's forward sale commitments. In addition, derivative financial instruments are also used to economically hedge the Company's MSR portfolio. Changes in the fair value of derivative financial instruments that hedge IRLCs and loans HFS are included in Net gain on loan origination and sale activities in the Consolidated Income Statement. Changes in the fair value of derivative financial instruments that hedge MSRs are included in Net loan servicing revenue in the Consolidated Income Statement.

The Company may in the normal course of business purchase a financial instrument or originate a loan that contains an embedded derivative instrument. Upon purchasing the instrument or originating the loan, the Company assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the financial instrument (i.e., the host contract) and whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When it is determined that the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract and carried at fair value. However, in cases where the host contract is measured at fair value, with changes in fair value reported in current earnings, or the Company is unable to reliably identify and measure an embedded derivative for separation from its host contract, the entire contract is carried on the Consolidated Balance Sheet at fair value and is not designated as a hedging instrument.

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Off-balance sheet instruments

In the ordinary course of business, the Company enters into off-balance sheet financial instrument arrangements consisting of commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the Consolidated Balance Sheets when funded. These off-balance sheet financial instruments impact, to varying degrees, elements of credit risk in excess of amounts recognized on the Consolidated Balance Sheet. Losses could be experienced when the Company is contractually obligated to make a payment under these instruments and must seek repayment from the borrower, which may not be as financially sound in the current period as they were when the commitment was originally made. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract and, in certain instances, may be unconditionally cancelable. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company enters into credit arrangements that generally provide for the termination of advances in the event of a covenant violation or other event of default. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party. The commitments are collateralized by the same types of assets used as loan collateral.

The Company also has off-balance sheet arrangements related to its derivative instruments. Derivative instruments are recognized in the Consolidated Balance Sheets at fair value and their notional values are carried off-balance sheet. See "Note 11. Derivatives and Hedging Activities" of these Notes to Unaudited Consolidated Financial Statements for further discussion.

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Fair values of financial instruments

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities. ASC 820, Fair Value Measurement, establishes a framework for measuring fair value and a three-level valuation hierarchy for disclosure of fair value measurement, and also sets forth disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The Company uses various valuation approaches, including market, income, and/or cost approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would consider in pricing the asset or liability and are developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs, as follows:

•Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

•Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, prepayment speeds, volatilities, etc.) or model-based valuation techniques where all significant assumptions are observable, either directly or indirectly, in the market.

•Level 3 - Valuation is generated from model-based techniques where one or more significant inputs are not observable, either directly or indirectly, in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques may include use of matrix pricing, discounted cash flow models, and similar techniques.

The availability of observable inputs varies based on the nature of the specific financial instrument. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. For disclosure purposes, the lowest level input that is significant to the fair value measurement determines the level in the fair value hierarchy within which the fair value measurement falls in its entirety.

Fair value is a market-based measure considered from the perspective of a market participant who may purchase the asset or assume the liability, rather than an entity-specific measure. When market assumptions are available, ASC 820 requires that the Company consider the assumptions that market participants would use to estimate the fair value of the financial instrument at the measurement date.

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ASC 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value.

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent limitations in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at ~~June~~September 30, 2022 and December 31, 2021. The estimated fair value amounts for ~~June~~September 30, 2022 and December 31, 2021 have been measured as of period-end, and have not been re-evaluated or updated for purposes of these Unaudited Consolidated Financial Statements subsequent to those dates. As such, the estimated fair values of these financial instruments subsequent to the reporting date may be different than the amounts reported at period-end.

The information in "Note 15. Fair Value Accounting" of these Notes to Unaudited Consolidated Financial Statements should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Company’s assets and liabilities.

Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimate, comparisons between the Company’s disclosures and those of other companies or banks may not be meaningful.

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

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Cash, cash equivalents, and restricted cash

The carrying amounts reported on the Consolidated Balance Sheet for cash and due from banks approximate their fair value.

Investment securities

The fair values of U.S. treasury and certain other debt securities as well as publicly-traded CRA investments and exchange-listed preferred stock are based on quoted market prices and are categorized as Level 1 in the fair value hierarchy.

The fair values of debt securities are primarily determined based on matrix pricing. Matrix pricing is a mathematical technique that utilizes observable market inputs including, yield curves, credit ratings, and prepayment speeds. Fair values determined using matrix pricing are generally categorized as Level 2 in the fair value hierarchy. In addition to matrix pricing, the Company uses other pricing sources, including observed prices on publicly traded securities and dealer quotes, to estimate the fair value of debt securities, which are also categorized as Level 2 in the fair value hierarchy.

Restricted stock

Restricted stock consists of investments in the capital stock of the FRB and the FHLB. As no ready market exists for them, and they have no quoted market value, the fair values of these investments have been categorized as Level 2 in the fair value hierarchy.

Loans HFS

Government-insured or guaranteed and agency-conforming loans HFS are salable into active markets. Accordingly, the fair value of these loans is based on quoted market or contracted selling prices or a market price equivalent, which are categorized as Level 2 in the fair value hierarchy.

The fair value of non-agency loans HFS as well as certain loans that become nonsalable into active markets due to the identification of a defect is determined based on valuation techniques that utilize Level 3 inputs.

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Loans HFI

The fair value of loans is estimated based on discounted cash flows using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality and adjustments that the Company believes a market participant would consider in determining fair value based on a third-party independent valuation. As a result, the fair value for loans is categorized as Level 3 in the fair value hierarchy.

Mortgage servicing rights

The fair value of MSRs is estimated using a discounted cash flow model that incorporates assumptions that a market participant would use in estimating the fair value of servicing rights, including, but not limited to, option adjusted spread, conditional prepayment rate, servicing fee rate, and cost to service. As a result, the fair value for MSRs is categorized as Level 3 in the fair value hierarchy.

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Accrued interest receivable and payable

The carrying amounts reported on the Consolidated Balance Sheet for accrued interest receivable and payable approximate their fair values.

Derivative financial instruments

All derivatives are recognized on the Consolidated Balance Sheets at fair value. The valuation methodologies used to estimate the fair value of derivative instruments varies by type. Treasury futures and options, Eurodollar futures, and swap futures are measured based on valuation techniques using Level 1 Inputs from exchange-provided daily settlement quotes. Interest rate swaps and forward purchase and sales contracts are measured based on valuation techniques using Level 2 inputs, such as quoted market price, contracted selling price, or market price equivalent. IRLCs are measured based on valuation techniques that consider loan type, underlying loan amount, maturity date, note rate, loan program, and expected settlement date, with Level 3 inputs for the servicing release premium and pull-through rate. These measurements are adjusted at the loan level to consider the servicing release premium and loan pricing adjustment specific to each loan. The base value is then adjusted for the pull-through rate. The pull-through rate and servicing fee multiple are unobservable inputs based on historical experience.

Deposits

The fair value disclosed for demand and savings deposits is by definition equal to the amount payable on demand at the reporting date (that is, their carrying amount), as these deposits do not have a contractual term. The carrying amount for variable rate deposit accounts approximates their fair value. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on these deposits. The fair value measurement of deposit liabilities is categorized as Level 2 in the fair value hierarchy.

FHLB advances and customer repurchase agreements

The fair values of the Company’s borrowings are estimated using discounted cash flow analyses, based on the market rates for similar types of borrowing arrangements. The carrying value of FHLB advances and customer repurchase agreements approximate their fair values due to their short durations and have been categorized as Level 2 in the fair value hierarchy.

Credit linked notes

The fair value of credit linked notes is based on observable inputs, when available, and as such credit linked notes are categorized as Level 2 liabilities.

Subordinated debt

The fair value of subordinated debt is based on the market rate for the respective subordinated debt security. Subordinated debt has been categorized as Level 2 in the fair value hierarchy.

Junior subordinated debt

Junior subordinated debt is valued based on a discounted cash flow model which uses the Treasury Bond rates and the 'BB' and 'BBB' rated financial indexes as inputs. Junior subordinated debt has been categorized as Level 3 in the fair value hierarchy.

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Income taxes

The Company is subject to income taxes in the United States and files a consolidated federal income tax return with all of its subsidiaries, with the exception of BW Real Estate, Inc. Deferred income taxes are recorded to reflect the effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and their income tax bases using enacted tax rates that are expected to be in effect when the taxes are actually paid or recovered. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Net deferred tax assets are recorded to the extent that these assets will more-likely-than-not be realized. In making these determinations, all available positive and negative evidence is considered, including scheduled reversals of deferred tax liabilities, tax planning strategies, projected future taxable income, and recent operating results. If it is determined that deferred income tax assets to be realized in the future are in excess of their net recorded amount, an adjustment to the valuation allowance will be recorded, which will reduce the Company's provision for income taxes.

A tax benefit from an unrecognized tax benefit may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including related appeals or litigation, based on technical merits. Income tax benefits must meet a more-likely-than-not recognition threshold at the effective date to be recognized.

Interest and penalties related to unrecognized tax benefits are recognized as ~~part of the~~ provision for income taxes in the Consolidated Income Statement. Accrued interest and penalties are included in the related tax liability line with other liabilities on the Consolidated Balance Sheet. See "Note 13. Income Taxes" of these Notes to Unaudited Consolidated Financial Statements for further discussion on income taxes.

Non-interest income

Non-interest income includes revenue associated with mortgage banking and commercial banking activities, investment securities, equity investments, and bank owned life insurance. These non-interest income streams are primarily generated by different types of financial instruments, held by the Company for which there is specific accounting guidance and therefore, are not within the scope of ASC 606, Revenue from Contracts with Customers.

Non-interest income amounts within the scope of ASC 606 include service charges and fees, success fees related to equity investments, debit and credit card interchange fees, and legal settlement services fees. Service charges and fees consist of fees earned from performance of account analysis, general account services, and other deposit account services. These fees are recognized as the related services are provided. Success fees are one-time fees detailed as part of certain loan agreements and are earned immediately upon occurrence of a triggering event. Card income includes fees earned from customer use of debit and credit cards, interchange income from merchants, and international charges. Card income is generally within the scope of ASC 310, Receivables; however, certain processing transactions for merchants, such as interchange fees, are within the scope of ASC 606. The Company generally receives payment for its services during the period or at the time services are provided and, therefore, does not have material contract asset or liability balances at period end. Legal settlement service fees relate to payment services provided for the distribution of funds from legal settlements and are recognized upon transfer of funds to a claimant. See "Note 17. Revenue from Contracts with Customers" of these Notes to Unaudited Consolidated Financial Statements for further details related to the nature and timing of revenue recognition for non-interest income revenue streams within the scope of this standard.

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2. MERGERS, ACQUISITIONS AND DISPOSITIONS

Acquisition of Digital Disbursements

On January 25, 2022, the Company completed its acquisition of Digital Settlement Technologies LLC, doing business as Digital Disbursements, a digital payments platform for the class action legal industry. The acquisition of DST is expected to extend the Company's digital payment efforts by providing a digital payments platform for the class action market and broader legal industry.

This transaction was accounted for as a business combination under the acquisition method of accounting. Assets purchased and liabilities assumed were recorded at their respective acquisition date estimated fair values. During the measurement period (not to exceed one year from the acquisition date), the fair values of assets acquired and liabilities assumed are subject to adjustment if additional information becomes available to indicate a more accurate or appropriate value for an asset or liability. During the quarter ended September 30, 2022, the Company adjusted its initial provisional estimates for identified intangible assets based on new available information regarding conditions that existed as of the acquisition date, and recognized a decrease of $7.4 million to the fair value of identified intangible assets as a result of adjustments to certain valuation inputs. This measurement period adjustment resulted in a $0.5 million reduction in previously recorded amortization expense which is a component of Other expense in the Consolidated income statement. As the Company is still in the process of reviewing the fair value methodology and assumptions used in the valuation of identifiable intangible assets, the fair values of these intangible assets are considered provisional. The Company is also assessing the value of any associated DTAs, which are also provisional.

Total consideration of ~~$67.8~~$57.0 million, comprised of cash paid at closing of $50.6 million and contingent consideration with an estimated fair value of ~~$17.2~~$6.4 million, was exchanged for all of the issued and outstanding membership interests of DST. The terms of the acquisition include a contingent consideration arrangement that is based on performance for the three year period subsequent to the acquisition. There is no required minimum ~~payment amount~~ or maximum payment amount specified under the terms of the contingent consideration agreement. During the quarter ended September 30, 2022, the Company adjusted its initial provisional estimate of the fair value of the contingent consideration and recognized a decrease of $10.8 million due to new available information regarding conditions that existed as of the acquisition date and adjustments to certain valuation inputs. The fair value of the contingent consideration recognized on the acquisition date was estimated using a discounted cash flow approach, and is considered provisional, as the Company is still in the process of reviewing the fair value methodology and assumptions associated with the contingent consideration.

DST’s results of operations have been included in the Company's results beginning January 25, 2022 and are reported as part of the Consumer Related segment. Acquisition and restructure expenses related to the DST acquisition of $0.4 million for the ~~six~~nine months ended ~~June~~September 30, 2022, were included as a component of non-interest expense in the Consolidated Income Statement, all of which are acquisition related costs as defined by ASC 805. There were no acquisition and restructure expenses incurred during the three months ended ~~June~~September 30, 2022.

The fair value amounts of identifiable assets acquired and liabilities assumed ~~as part of~~in the DST acquisition are as follows:


	January 25, 2022
	(in millions)
Assets acquired:
Cash and cash equivalents	$	0.6
Identified intangible assets	~~27.5~~20.1
Other assets	0.1
Total assets	$	~~28.2~~20.8
Liabilities assumed:
Other liabilities	$	0.4
Total liabilities	0.4
Net assets acquired	$	~~27.8~~20.4
Consideration paid
Cash	$	50.6
Contingent consideration	~~17.2~~6.4
Total consideration	$	~~67.8~~57.0
Goodwill	$	~~40.0~~36.6

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In connection with the acquisition, the Company acquired identifiable intangible assets totaling ~~$27.5~~$20.1 million, as detailed in the table below:

Acquisition Date Fair Value Estimated Useful Life
(in millions) (in years)
Customer relationships $ 20.9 7
Developed technology 6.2 5
Trade name 0.4 10
Total $ 27.5

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	Acquisition Date Fair Value		Estimated Useful Life
	(in millions)		(in years)
Customer relationships	$	15.7	7
Developed technology	4.1		5
Trade name	0.3		10
Total	$	20.1

Goodwill in the amount of ~~$40.0~~$36.6 million was recognized and is expected to be fully deductible for tax purposes. Goodwill was allocated entirely to the Consumer Related segment and represents the strategic, operational, and financial benefits expected from the acquisition, including expansion of the Company's settlement services offerings, diversification of its revenue sources, and post-acquisition synergies from integrating Digital Disbursements, as well as the value of the acquired workforce.

Acquisition of AmeriHome

On April 7, 2021, the Company completed its acquisition of Aris, the parent company of AmeriHome, and certain other parties, pursuant to which Aris merged with and into an indirect subsidiary of WAB. As a result of the merger, AmeriHome is a wholly-owned indirect subsidiary of the Company and continues to operate as AmeriHome Mortgage, a Western Alliance Bank company. AmeriHome is a leading national business-to-business mortgage acquirer and servicer. The acquisition of AmeriHome complements the Company’s national commercial businesses with a mortgage franchise that allows the Company to expand mortgage-related offerings to existing clients and diversifies the Company’s revenue profile by expanding sources of non-interest income.

Total cash consideration of $1.2 billion was paid in exchange for all of the issued and outstanding membership interests of Aris. AmeriHome's results of operations have been included in the Company's results beginning April 7, 2021 and are reported as part of the Consumer Related segment. There were no acquisition and restructure expenses related to the AmeriHome acquisition recognized during the three and ~~six~~nine months ended ~~June~~September 30, 2022. For the three and ~~six~~nine months ended ~~June~~September 30, 2021, the Company recognized ~~$15.7~~$2.4 million and ~~$16.1~~$18.5 million, respectively, in acquisition and restructure expenses related to the AmeriHome acquisition. Approximately ~~$3.1 million and~~ $3.4 million ~~for the three and six months ended June 30, 2021, respectively, were~~was recorded as acquisition related costs, as defined by ASC ~~805.~~805, for the nine months ended September 30, 2021. There were no acquisition related costs incurred for the three months ended September 30, 2021.

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The fair value amounts of identifiable assets acquired and liabilities assumed ~~as part of~~in the AmeriHome acquisition are as follows:


	April 7, 2021
	(in millions)
Assets acquired:
Cash and cash equivalents	$	207.2
Loans held for sale	3,552.9
Mortgage servicing rights	1,347.0
Premises and equipment, net	11.3
Operating right of use asset	18.9
Identified intangible assets	141.0
Loans eligible for repurchase	2,744.7
Deferred tax asset	6.6
Other assets	236.0
Total assets	$	8,265.6
Liabilities assumed:
Other borrowings	$	3,633.9
Operating lease liability	18.9
Liability for loans eligible for repurchase	2,744.7
Other liabilities	149.5
Total liabilities	6,547.0
Net assets acquired	$	1,718.6
Consideration paid
Cash	$	1,231.6
Elimination of pre-existing debt	686.8
Total consideration	$	1,918.4
Goodwill	$	199.8

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In connection with the acquisition, the Company acquired identifiable intangible assets totaling $141.0 million, as detailed in the table below:


	Acquisition Date Fair Value		Estimated Useful Life
	(in millions)		(in years)
Correspondent customer relationships	$	76.0	20
Operating licenses	55.5		40
Trade name	9.5		20
Total	$	141.0

Goodwill in the amount of $199.8 million was recognized and allocated entirely to the Consumer Related segment. Goodwill represents the strategic, operational, and financial benefits expected from the acquisition, including expansion of the Company's mortgage offerings, diversification of its revenue sources, and post-acquisition synergies from integrating AmeriHome’s operating platform, as well as the value of the acquired workforce. Approximately $185.0 million of goodwill is expected to be deductible for tax purposes.

The following table presents pro forma information as if the AmeriHome acquisition was completed on January 1, 2020. The pro forma information includes adjustments for interest income and interest expense on existing loan agreements between WAL and AmeriHome prior to acquisition, the impact of MSR sales contemplated in connection with the acquisition, amortization of intangible assets arising from the acquisition, recognition of stock compensation expense for awards issued to certain AmeriHome executives, transaction costs, and related income tax effects. The pro forma information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on the assumed dates.

Three Months Ended June 30, 2021 Six Months Ended June 30, 2021
(in millions)
Interest income $ 400.5 $ 753.8
Non-interest income 132.4 222.0
Net income 243.8 424.0


	Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021

	(in millions)
Interest income	$	442.8	$	1,196.6
Non-interest income	122.8		344.8
Net income	236.9		660.9

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3. INVESTMENT SECURITIES

The carrying amounts and fair values of investment securities at ~~June~~September 30, 2022 and December 31, 2021 are summarized as follows:


		June 30, 2022									September 30, 2022
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
		(in millions)									(in millions)
Held-to-maturity	Held-to-maturity									Held-to-maturity
Private label residential MBS	Private label residential MBS	$	207	$	—	$	(33)	$	174	Private label residential MBS	$	201	$	—	$	(44)	$	157
Tax-exempt	Tax-exempt	1,011		4		(67)		948		Tax-exempt	1,069		—		(142)		927
Total HTM securities	Total HTM securities	$	1,218	$	4	$	(100)	$	1,122	Total HTM securities	$	1,270	$	—	$	(186)	$	1,084

Available-for-sale debt securities	Available-for-sale debt securities									Available-for-sale debt securities
CLO	CLO	$	2,787	$	—	$	(109)	$	2,678	CLO	$	2,786	$	—	$	(145)	$	2,641
Commercial MBS issued by GSEs	Commercial MBS issued by GSEs	66		—		(5)		61		Commercial MBS issued by GSEs	70		—		(8)		62
Corporate debt securities	Corporate debt securities	425		—		(26)		399		Corporate debt securities	429		—		(38)		391

Private label residential MBS	Private label residential MBS	1,491		—		(179)		1,312		Private label residential MBS	1,473		—		(245)		1,228
Residential MBS issued by GSEs	Residential MBS issued by GSEs	2,096		—		(275)		1,821		Residential MBS issued by GSEs	2,085		—		(391)		1,694
Tax-exempt	Tax-exempt	1,020		1		(97)		924		Tax-exempt	1,026		—		(152)		874

Other	Other	75		8		(10)		73		Other	75		7		(12)		70
Total AFS debt securities	Total AFS debt securities	$	7,960	$	9	$	(701)	$	7,268	Total AFS debt securities	$	7,944	$	7	$	(991)	$	6,960

Equity securities	Equity securities									Equity securities
CRA investments	CRA investments	$	54	$	—	$	(3)	$	51	CRA investments	$	53	$	—	$	(4)	$	49
Preferred stock	Preferred stock	124		—		(5)		119		Preferred stock	124		—		(8)		116
Total equity securities	Total equity securities	$	178	$	—	$	(8)	$	170	Total equity securities	$	177	$	—	$	(12)	$	165


	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
	(in millions)
Held-to-maturity
Private label residential MBS	$	217	$	—	$	(2)	$	215
Tax-exempt	890		43		(2)		931
Total HTM securities	$	1,107	$	43	$	(4)	$	1,146

Available-for-sale debt securities
CLO	$	926	$	1	$	(1)	$	926
Commercial MBS issued by GSEs	68		1		—		69
Corporate debt securities	383		9		(9)		383

Private label residential MBS	1,529		3		(24)		1,508
Residential MBS issued by GSEs	2,028		7		(42)		1,993
Tax-exempt	1,145		71		(1)		1,215

U.S. treasury securities	13		—		—		13
Other	75		11		(4)		82
Total AFS debt securities	$	6,167	$	103	$	(81)	$	6,189

Equity securities
CRA investments	$	45	$	—	$	—	$	45
Preferred stock	107		8		(1)		114
Total equity securities	$	152	$	8	$	(1)	$	159

Securities with carrying amounts of approximately $~~1.9~~1.7 billion and $2.2 billion at ~~June~~September 30, 2022 and December 31, 2021, respectively, were pledged for various purposes as required or permitted by law.

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The following tables summarize the Company's AFS debt securities in an unrealized loss position at ~~June~~September 30, 2022 and December 31, 2021, aggregated by major security type and length of time in a continuous unrealized loss position:


		June 30, 2022													September 30, 2022
		Less Than Twelve Months				More Than Twelve Months				Total					Less Than Twelve Months				More Than Twelve Months				Total
		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value			Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
		(in millions)													(in millions)

Available-for-sale debt securities	Available-for-sale debt securities													Available-for-sale debt securities
CLO	CLO	$	104	$	2,493	$	5	$	125	$	109	$	2,618	CLO	$	138	$	2,460	$	7	$	123	$	145	$	2,583
Commercial MBS issued by GSEs	Commercial MBS issued by GSEs	2		44		3		15		5		59		Commercial MBS issued by GSEs	4		48		4		14		8		62
Corporate debt securities	Corporate debt securities	18		294		8		92		26		386		Corporate debt securities	32		295		6		94		38		389
Private label residential MBS	Private label residential MBS	123		1,002		56		300		179		1,302		Private label residential MBS	135		796		110		424		245		1,220
Residential MBS issued by GSEs	Residential MBS issued by GSEs	136		1,153		139		662		275		1,815		Residential MBS issued by GSEs	164		946		227		746		391		1,692
Tax-exempt	Tax-exempt	97		843		—		—		97		843		Tax-exempt	125		758		27		73		152		831

Other	Other	3		19		7		25		10		44		Other	5		27		7		25		12		52
Total AFS securities	Total AFS securities	$	483	$	5,848	$	218	$	1,219	$	701	$	7,067	Total AFS securities	$	603	$	5,330	$	388	$	1,499	$	991	$	6,829


	December 31, 2021
	Less Than Twelve Months				More Than Twelve Months				Total
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
	(in millions)




Available-for-sale debt securities
CLO	$	1	$	171	$	—	$	—	$	1	$	171
Commercial MBS issued by GSEs	1		19		—		—		1		19
Corporate debt securities	9		107		—		—		9		107
Private label residential MBS	24		1,250		—		—		24		1,250
Residential MBS issued by GSEs	32		1,356		9		142		41		1,498
Tax-exempt	1		141		—		—		1		141


Other	—		2		4		28		4		30
Total AFS securities	$	68	$	3,046	$	13	$	170	$	81	$	3,216

The total number of AFS debt securities in an unrealized loss position at ~~June~~September 30, 2022 is ~~785,~~766, compared to 179 at December 31, 2021.

On a quarterly basis, the Company performs an impairment analysis on its AFS debt securities that are in an unrealized loss position at the end of the period to determine whether credit losses should be recognized on these securities. Qualitative considerations made by the Company in its impairment analysis are further discussed below.

Government Issued Securities

Commercial and residential MBS are issued by either government agencies or GSEs. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. Further, principal and interest payments on these securities continue to be made on a timely basis.

Non-Government Issued Securities

Qualitative factors used in the Company's credit loss assessment of its securities that are not issued and guaranteed by the U.S. government include consideration of any adverse conditions related to a specific security, industry, or geographic region of its securities, any credit ratings below investment grade, the payment structure of the security and the likelihood of the issuer to be able to make payments that increase in the future, and failure of the issuer to make any scheduled principal or interest payments.

For the Company's corporate debt and tax-exempt securities, the Company also considers various metrics of the issuer including days of cash on hand, the ratio of long-term debt to total assets, the net change in cash between reporting periods, and consideration of any breach in covenant requirements. The Company's corporate debt securities ~~continue to be highly rated,~~are investment grade, issuers continue to make timely principal and interest payments, and the unrealized losses on these security portfolios primarily relate to changes in interest rates and other market conditions that are not considered to be credit-related issues. The Company

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continues to receive timely principal and interest payments on its tax-exempt securities and the majority of these issuers have revenues pledged for payment of debt service prior to payment of other types of expenses.

For the Company's private label residential MBS, which consist of non-agency collateralized mortgage obligations that are secured by pools of residential mortgage loans, the Company also considers metrics such as securitization risk weight factor, current credit support, whether there were any mortgage principal losses resulting from defaults in payments on the underlying mortgage collateral, and the credit default rate over the last twelve months. These securities primarily carry investment grade credit ratings, principal and interest payments on these securities continue to be made on a timely basis, and credit support for these securities is considered adequate.

The Company's CLO portfolio consists of highly rated securitization tranches, containing pools of medium to large-sized corporate, high yield bank loans. These are variable rate securities that have an investment grade rating of Single-A or better. The Company has increased its investment in these securities over the past year and unrealized losses on these securities are primarily a function of the differential from the offer price and the valuation mid-market price as well as changes in interest rates.

Unrealized losses on the Company's other securities portfolio relate to taxable municipal and trust preferred securities. The Company is continuing to receive timely principal and interest payments on its taxable municipal securities, these securities continue to be highly rated and the number of days of cash on hand is strong. The Company's trust preferred securities are investment grade and the issuers continue to make timely principal and interest payments.

Based on the qualitative factors noted above and as the Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell the securities prior to their anticipated recovery, no credit losses have been recognized on these securities during the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. In addition, as of ~~June~~September 30, 2022 and December 31, 2021, no allowance for credit losses on the Company's AFS securities has been recognized.

The credit loss model under ASC 326-20, applicable to HTM debt securities, requires recognition of lifetime expected credit losses through an allowance account at the time the security is purchased.

The following table presents a rollforward by major security type of the allowance for credit losses on the Company's HTM debt securities:


		Three Months Ended June 30, 2022										Three Months Ended September 30, 2022
		Balance, March 31, 2022		Provision for Credit Losses		Write-offs		Recoveries		Balance, June 30, 2022				Balance, June 30, 2022		Provision for Credit Losses		Charge-offs		Recoveries		Balance, September 30, 2022
		(in millions)										(in millions)
Held-to-maturity debt securities	Held-to-maturity debt securities												Held-to-maturity debt securities
Tax-exempt	Tax-exempt	$	3	$	—	$	—	$	—	$	3		Tax-exempt	$	3.2	$	1.2	$	—	$	—	$	4.4


		Six Months Ended June 30, 2022										Nine Months Ended September 30, 2022
		Balance, December 31, 2021		Recovery of Credit Losses		Write-offs		Recoveries		Balance, June 30, 2022				Balance, December 31, 2021		Recovery of Credit Losses		Charge-offs		Recoveries		Balance, September 30, 2022
		(in millions)										(in millions)
Held-to-maturity debt securities	Held-to-maturity debt securities												Held-to-maturity debt securities
Tax-exempt	Tax-exempt	$	5	$	(2)	$	—	$	—	$	3		Tax-exempt	$	5.2	$	(0.8)	$	—	$	—	$	4.4


		Three Months Ended June 30, 2021:										Three Months Ended September 30, 2021:
		Balance, March 31, 2021		Recovery of Credit Losses		Write-offs		Recoveries		Balance June 30, 2021				Balance, June 30, 2021		Recovery of Credit Losses		Charge-offs		Recoveries		Balance September 30, 2021
		(in millions)										(in millions)
Held-to-maturity debt securities	Held-to-maturity debt securities												Held-to-maturity debt securities
Tax-exempt	Tax-exempt	$	9	$	(3)	$	—	$	—	$	6		Tax-exempt	$	6.0	$	(1.5)	$	—	$	—	$	4.5


		Six Months Ended June 30, 2021:										Nine Months Ended September 30, 2021:
		Balance, January 1, 2021		Recovery of Credit Losses		Write-offs		Recoveries		Balance June 30, 2021				Balance, December 31, 2020		Recovery of Credit Losses		Charge-offs		Recoveries		Balance September 30, 2021
		(in millions)										(in millions)
Held-to-maturity debt securities	Held-to-maturity debt securities												Held-to-maturity debt securities
Tax-exempt	Tax-exempt	$	7	$	(1)	$	—	$	—	$	6		Tax-exempt	$	6.8	$	(2.3)	$	—	$	—	$	4.5

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No allowance has been recognized on the Company's HTM private label residential MBS as losses are not expected due to the Company holding a senior position in these securities.

Accrued interest receivable on HTM securities totaled $4 million and $3 million at ~~June~~September 30, 2022 and December 31, 2021, respectively, and is excluded from the estimate of expected credit losses.

The following tables summarize the carrying amount of the Company’s investment ratings position as of ~~June~~September 30, 2022 and December 31, 2021, which are updated quarterly and used to monitor the credit quality of the Company's securities:


		June 30, 2022																	September 30, 2022
		AAA		Split-rated AAA/AA+		AA+ to AA-		A+ to A-		BBB+ to BBB-		BB+ and below		Unrated		Totals			AAA		Split-rated AAA/AA+		AA+ to AA-		A+ to A-		BBB+ to BBB-		BB+ and below		Unrated		Totals
		(in millions)																	(in millions)
Held-to-maturity	Held-to-maturity																	Held-to-maturity
Private label residential MBS	Private label residential MBS	$	—	$	—	$	—	$	—	$	—	$	—	$	207	$	207	Private label residential MBS	$	—	$	—	$	—	$	—	$	—	$	—	$	201	$	201
Tax-exempt	Tax-exempt	—		—		—		—		—		—		1,011		1,011		Tax-exempt	—		—		—		—		—		—		1,069		1,069
Total HTM securities (1)	Total HTM securities (1)	$	—	$	—	$	—	$	—	$	—	$	—	$	1,218	$	1,218	Total HTM securities (1)	$	—	$	—	$	—	$	—	$	—	$	—	$	1,270	$	1,270

Available-for-sale debt securities	Available-for-sale debt securities																	Available-for-sale debt securities
CLO	CLO	$	262	$	—	$	2,139	$	277	$	—	$	—	$	—	$	2,678	CLO	$	277	$	—	$	2,096	$	268	$	—	$	—	$	—	$	2,641
Commercial MBS issued by GSEs	Commercial MBS issued by GSEs	—		61		—		—		—		—		—		61		Commercial MBS issued by GSEs	—		62		—		—		—		—		—		62
Corporate debt securities	Corporate debt securities	—		—		—		74		325		—		—		399		Corporate debt securities	—		—		—		75		316		—		—		391
Private label residential MBS	Private label residential MBS	1,215		—		96		—		1		—		—		1,312		Private label residential MBS	1,136		—		91		—		1		—		—		1,228
Residential MBS issued by GSEs	Residential MBS issued by GSEs	—		1,821		—		—		—		—		—		1,821		Residential MBS issued by GSEs	—		1,694		—		—		—		—		—		1,694
Tax-exempt	Tax-exempt	17		16		418		445		—		—		28		924		Tax-exempt	15		15		392		417		—		—		35		874

Other	Other	—		—		10		9		27		8		19		73		Other	—		—		9		9		27		7		18		70
Total AFS securities (1)	Total AFS securities (1)	$	1,494	$	1,898	$	2,663	$	805	$	353	$	8	$	47	$	7,268	Total AFS securities (1)	$	1,428	$	1,771	$	2,588	$	769	$	344	$	7	$	53	$	6,960

Equity securities	Equity securities																	Equity securities
CRA investments	CRA investments	$	—	$	25	$	—	$	—	$	—	$	—	$	26	$	51	CRA investments	$	—	$	24	$	—	$	—	$	—	$	—	$	25	$	49
Preferred stock	Preferred stock	—		—		—		—		90		18		11		119		Preferred stock	—		—		—		—		89		17		10		116
Total equity securities (1)	Total equity securities (1)	$	—	$	25	$	—	$	—	$	90	$	18	$	37	$	170	Total equity securities (1)	$	—	$	24	$	—	$	—	$	89	$	17	$	35	$	165

(1)For rated securities, if ratings differ, the Company uses an average of the available ratings by major credit agencies.


	December 31, 2021
	AAA		Split-rated AAA/AA+		AA+ to AA-		A+ to A-		BBB+ to BBB-		BB+ and below		Unrated		Totals
	(in millions)
Held-to-maturity
Private label residential MBS	$	—	$	—	$	—	$	—	$	—	$	—	$	217	$	217
Tax-exempt	—		—		—		—		—		—		890		890
Total HTM securities (1)	$	—	$	—	$	—	$	—	$	—	$	—	$	1,107	$	1,107

Available-for-sale debt securities
CLO	$	45	$	—	$	636	$	245	$	—	$	—	$	—	$	926
Commercial MBS issued by GSEs	—		69		—		—		—		—		—		69
Corporate debt securities	—		—		—		45		319		19		—		383
Private label residential MBS	1,420		—		87		—		1		—		—		1,508
Residential MBS issued by GSEs	—		1,993		—		—		—		—		—		1,993
Tax-exempt	43		40		469		629		—		—		34		1,215

U.S. treasury securities	—		13		—		—		—		—		—		13
Other	—		—		12		10		30		10		20		82
Total AFS securities (1)	$	1,508	$	2,115	$	1,204	$	929	$	350	$	29	$	54	$	6,189

Equity securities
CRA investments	$	—	$	28	$	—	$	—	$	—	$	—	$	17	$	45
Preferred stock	—		—		—		—		79		20		15		114
Total equity securities (1)	$	—	$	28	$	—	$	—	$	79	$	20	$	32	$	159

(1)For rated securities, if ratings differ, the Company uses an average of the available ratings by major credit agencies.

Table of Contents

A security is considered to be past due once it is 30 days contractually past due under the terms of the agreement. As of ~~June~~September 30, 2022, the Company ~~does~~did not have a significant amount of investment securities that were past due or on nonaccrual status.

The amortized cost and fair value of the Company's debt securities as of ~~June~~September 30, 2022, by contractual maturities, are shown below. MBS are shown separately as individual MBS are comprised of pools of loans with varying maturities. Therefore, these securities are listed separately in the maturity summary.


		June 30, 2022					September 30, 2022
		Amortized Cost		Estimated Fair Value			Amortized Cost		Estimated Fair Value
		(in millions)					(in millions)
Held-to-maturity	Held-to-maturity					Held-to-maturity
Due in one year or less	Due in one year or less	$	42	$	42	Due in one year or less	$	3	$	3
After one year through five years	After one year through five years	18		18		After one year through five years	23		22
After five years through ten years	After five years through ten years	7		7		After five years through ten years	29		28
After ten years	After ten years	944		881		After ten years	1,013		874
Mortgage-backed securities	Mortgage-backed securities	207		174		Mortgage-backed securities	201		157
Total HTM securities	Total HTM securities	$	1,218	$	1,122	Total HTM securities	$	1,270	$	1,084

Available-for-sale	Available-for-sale					Available-for-sale
Due in one year or less	Due in one year or less	$	2	$	2	Due in one year or less	$	1	$	1
After one year through five years	After one year through five years	125		117		After one year through five years	172		159
After five years through ten years	After five years through ten years	1,161		1,116		After five years through ten years	1,147		1,083
After ten years	After ten years	3,019		2,839		After ten years	2,997		2,733
Mortgage-backed securities	Mortgage-backed securities	3,653		3,194		Mortgage-backed securities	3,627		2,984
Total AFS securities	Total AFS securities	$	7,960	$	7,268	Total AFS securities	$	7,944	$	6,960

During the three ~~and six~~ months ended ~~June~~September 30, 2022, the Company sold securities with a carrying value of ~~$22~~$5 million and ~~$107 million, respectively, and incurred a loss of $0.2 million and~~recognized a gain of ~~$6.9 million, respectively, on these sales.~~zero. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company sold ~~certain AFS~~ securities ~~as part~~with a carrying value of $132 million and recognized a gain of $6.7 million, which was largely related to the Company's interest rate management actions to secure gains on tax-exempt municipal securities that were purchased at a discount at the onset of the COVID-19 pandemic. During the three and ~~six~~nine months ended ~~June~~September 30, 2021, the Company did not have significant sales of investment securities.

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4. LOANS HELD FOR SALE

The Company purchases and originates residential mortgage loans to be sold or securitized through its AmeriHome mortgage banking business ~~channel that are held for sale or securitization.~~channel. The following is a summary of loans HFS by type:


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
		(in millions)					(in millions)
Government-insured or guaranteed:	Government-insured or guaranteed:					Government-insured or guaranteed:
EBO (1)	EBO (1)	$	195	$	1,693	EBO (1)	$	141	$	1,693
Non-EBO	Non-EBO	1,093		1,396		Non-EBO	872		1,396
Total government-insured or guaranteed	Total government-insured or guaranteed	1,288		3,089		Total government-insured or guaranteed	1,013		3,089
Agency-conforming	Agency-conforming	1,515		2,483		Agency-conforming	1,191		2,483
Non-agency	Non-agency	—		63		Non-agency	—		63
Total loans HFS	Total loans HFS	$	2,803	$	5,635	Total loans HFS	$	2,204	$	5,635

(1) EBO loans are delinquent FHA, VA, or USDA loans repurchased under the terms of the Ginnie Mae MBS program that can be repooled or resold when loans are brought current either through the borrower's reperformance or through completion of a loan modification.

During the ~~three~~nine months ended ~~June~~September 30, 2022, the Company transferred $1.5 billion of EBO loans previously classified as HFS to HFI ~~as management no longer intends to sell these loans. In addition, during the three months ended June 30, 2022, the Company~~and purchased $481 million in EBO loans that were designated as HFI.

~~As of June~~ There were no such transfers or purchases during the three months ended September 30, ~~2022 and December 31, 2021, there were~~ no ~~loans HFS that were pledged to secure warehouse borrowings.~~2022.

The following is a summary of the net gain on loan purchase, origination, and sale activities:


		Three Months Ended June 30, 2022		April 7, 2021 through June 30, 2021	Six Months Ended June 30, 2022					Three Months Ended September 30,				Nine Months Ended September 30,
												2022			2021		2022		2021 (2)
		(in millions)								(in millions)
Mortgage servicing rights capitalized upon sale of loans	Mortgage servicing rights capitalized upon sale of loans	$	193.4			$	282.3	$	397.5		Mortgage servicing rights capitalized upon sale of loans	$	180.6		$	230.4	$	578.1	$	512.7
Net proceeds from sale of loans (1)	Net proceeds from sale of loans (1)	(361.7)				(143.6)		(698.6)			Net proceeds from sale of loans (1)	(207.1)			(107.4)		(905.7)		(251.0)
Provision for and change in estimate of liability for losses under representations and warranties, net	Provision for and change in estimate of liability for losses under representations and warranties, net	0.8				(0.7)		1.6			Provision for and change in estimate of liability for losses under representations and warranties, net	0.7			1.1		2.3		0.4
Change in fair value of loans held for sale	Change in fair value of loans held for sale	59.3				13.2		(6.9)			Change in fair value of loans held for sale	(75.1)			(18.4)		(82.0)		(5.2)

Change in fair value of derivatives related to loans HFS:	Change in fair value of derivatives related to loans HFS:										Change in fair value of derivatives related to loans HFS:
Unrealized (loss) gain on derivatives		(49.8)				(55.2)		31.4
Realized gain on derivatives		167.9				9.4		303.5
Unrealized gain (loss) on derivatives											Unrealized gain (loss) on derivatives	80.7			24.0		112.1		(31.2)
Realized gain (loss) on derivatives											Realized gain (loss) on derivatives	18.3			(35.9)		321.8		(26.5)
Total change in fair value of derivatives	Total change in fair value of derivatives	118.1				(45.8)		334.9			Total change in fair value of derivatives	99.0			(11.9)		433.9		(57.7)
Net gain on loans held for sale		$	9.9			$	105.4	$	28.5
Net (loss) gain on loans held for sale											Net (loss) gain on loans held for sale	$	(1.9)		$	93.8	$	26.6	$	199.2
Loan acquisition and origination fees	Loan acquisition and origination fees	17.3				26.6		35.6			Loan acquisition and origination fees	16.4			27.2		52.0		53.8
Net gain on loan origination and sale activities	Net gain on loan origination and sale activities	$	27.2			$	132.0	$	64.1		Net gain on loan origination and sale activities	$	14.5		$	121.0	$	78.6	$	253.0

(1) Represents the difference between cash proceeds received upon settlement and loan basis.

(2) Period from April 7, 2021, the acquisition date of AmeriHome, through September 30, 2021.

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5. LOANS, LEASES AND ALLOWANCE FOR CREDIT LOSSES

The composition of the Company's HFI loan portfolio is as follows:


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
		(in millions)					(in millions)
Warehouse lending	Warehouse lending	$	5,132	$	5,156	Warehouse lending	$	5,525	$	5,156
Municipal & nonprofit	Municipal & nonprofit	1,548		1,579		Municipal & nonprofit	1,522		1,579
Tech & innovation	Tech & innovation	1,648		1,418		Tech & innovation	2,175		1,418
Equity fund resources	Equity fund resources	4,752		3,830		Equity fund resources	5,107		3,830
Other commercial and industrial	Other commercial and industrial	7,832		6,465		Other commercial and industrial	8,182		6,465
CRE - owner occupied	CRE - owner occupied	1,681		1,723		CRE - owner occupied	1,686		1,723
Hotel franchise finance	Hotel franchise finance	3,112		2,534		Hotel franchise finance	3,602		2,534
Other CRE - non-owner occupied	Other CRE - non-owner occupied	4,625		3,952		Other CRE - non-owner occupied	5,021		3,952
Residential	Residential	12,967		9,243		Residential	13,810		9,243
Residential - EBO	Residential - EBO	1,897		—		Residential - EBO	1,815		—
Construction and land development	Construction and land development	3,199		3,006		Construction and land development	3,579		3,006
Other	Other	179		169		Other	177		169
Total loans HFI	Total loans HFI	48,572		39,075		Total loans HFI	52,201		39,075
Allowance for credit losses	Allowance for credit losses	(273)		(252)		Allowance for credit losses	(304)		(252)
Total loans HFI, net of allowance	Total loans HFI, net of allowance	$	48,299	$	38,823	Total loans HFI, net of allowance	$	51,897	$	38,823

Loans classified as HFI are stated at the amount of unpaid principal, adjusted for net deferred fees and costs, premiums and discounts on acquired and purchased loans, and an allowance for credit losses. Net deferred loan fees of ~~$122~~$141 million and $86 million reduced the carrying value of loans as of ~~June~~September 30, 2022 and December 31, 2021, respectively. Net unamortized purchase premiums on acquired and purchased loans of ~~$192~~$197 million and $185 million increased the carrying value of loans as of ~~June~~September 30, 2022 and December 31, 2021, respectively.

Nonaccrual and Past Due Loans

Loans are placed on nonaccrual status when management determines that the full repayment of principal and collection of interest according to contractual terms is no longer likely, generally when the loan becomes 90 days or more past due.

The following tables present nonperforming loan balances by loan portfolio segment:


		June 30, 2022									September 30, 2022
		Nonaccrual with No Allowance for Credit Loss		Nonaccrual with an Allowance for Credit Loss		Total Nonaccrual		Loans Past Due 90 Days or More and Still Accruing			Nonaccrual with No Allowance for Credit Loss		Nonaccrual with an Allowance for Credit Loss		Total Nonaccrual		Loans Past Due 90 Days or More and Still Accruing
		(in millions)									(in millions)

Municipal & nonprofit										Municipal & nonprofit	$	—	$	7	$	7	$	—
Tech & innovation	Tech & innovation	$	—	$	5	$	5	$	—	Tech & innovation	—		4		4		—

Other commercial and industrial	Other commercial and industrial	18		5		23		—		Other commercial and industrial	12		6		18		—
CRE - owner occupied	CRE - owner occupied	7		2		9		—		CRE - owner occupied	9		2		11		—
Hotel franchise finance	Hotel franchise finance	—		10		10		—		Hotel franchise finance	—		10		10		—
Other CRE - non-owner occupied	Other CRE - non-owner occupied	19		1		20		—		Other CRE - non-owner occupied	17		2		19		—
Residential	Residential	—		17		17		—		Residential	—		20		20		—
Residential - EBO	Residential - EBO	—		—		—		827		Residential - EBO	—		—		—		644
Construction and land development	Construction and land development	1		—		1		—		Construction and land development	1		—		1		—

Total	Total	$	45	$	40	$	85	$	827	Total	$	39	$	51	$	90	$	644

~~Loan~~Loans contractually delinquent by 90 days or more and still accruing totaled ~~$827~~$644 million at ~~June~~September 30, 2022 and consist entirely of government guaranteed EBO residential loans.

Table of Contents


	December 31, 2021
	Nonaccrual with No Allowance for Credit Loss		Nonaccrual with an Allowance for Credit Loss		Total Nonaccrual		Loans Past Due 90 Days or More and Still Accruing
	(in millions)


Tech & innovation	$	2	$	11	$	13	$	—
Equity fund resources	—		1		1		—
Other commercial and industrial	13		3		16		—
CRE - owner occupied	12		1		13		—

Other CRE - non-owner occupied	11		2		13		—
Residential	—		15		15		—
Construction and land development	1		—		1		—
Other	—		1		1		—
Total	$	39	$	34	$	73	$	—

The reduction in interest income associated with loans on nonaccrual status was approximately ~~$1.2~~$1.3 million and ~~$1.5~~$1.4 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$2.3~~$3.6 million and ~~$3.0~~$4.4 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

The following table presents an aging analysis of past due loans by loan portfolio segment:


		June 30, 2022													September 30, 2022
		Current		30-59 Days Past Due		60-89 Days Past Due		Over 90 days Past Due		Total Past Due		Total			Current		30-59 Days Past Due		60-89 Days Past Due		Over 90 days Past Due		Total Past Due		Total
		(in millions)													(in millions)
Warehouse lending	Warehouse lending	$	5,132	$	—	$	—	$	—	$	—	$	5,132	Warehouse lending	$	5,525	$	—	$	—	$	—	$	—	$	5,525
Municipal & nonprofit	Municipal & nonprofit	1,548		—		—		—		—		1,548		Municipal & nonprofit	1,522		—		—		—		—		1,522
Tech & innovation	Tech & innovation	1,648		—		—		—		—		1,648		Tech & innovation	2,175		—		—		—		—		2,175
Equity fund resources	Equity fund resources	4,751		1		—		—		1		4,752		Equity fund resources	5,107		—		—		—		—		5,107
Other commercial and industrial	Other commercial and industrial	7,823		9		—		—		9		7,832		Other commercial and industrial	8,181		1		—		—		1		8,182
CRE - owner occupied	CRE - owner occupied	1,681		—		—		—		—		1,681		CRE - owner occupied	1,686		—		—		—		—		1,686
Hotel franchise finance	Hotel franchise finance	3,112		—		—		—		—		3,112		Hotel franchise finance	3,593		—		9		—		9		3,602
Other CRE - non-owner occupied	Other CRE - non-owner occupied	4,625		—		—		—		—		4,625		Other CRE - non-owner occupied	5,021		—		—		—		—		5,021
Residential	Residential	12,859		100		8		—		108		12,967		Residential	13,764		42		4		—		46		13,810
Residential - EBO	Residential - EBO	868		134		68		827		1,029		1,897		Residential - EBO	926		166		79		644		889		1,815
Construction and land development	Construction and land development	3,199		—		—		—		—		3,199		Construction and land development	3,579		—		—		—		—		3,579
Other	Other	179		—		—		—		—		179		Other	177		—		—		—		—		177
Total loans	Total loans	$	47,425	$	244	$	76	$	827	$	1,147	$	48,572	Total loans	$	51,256	$	209	$	92	$	644	$	945	$	52,201


	December 31, 2021
	Current		30-59 Days Past Due		60-89 Days Past Due		Over 90 days Past Due		Total Past Due		Total
	(in millions)
Warehouse lending	$	5,156	$	—	$	—	$	—	$	—	$	5,156
Municipal & nonprofit	1,579		—		—		—		—		1,579
Tech & innovation	1,418		—		—		—		—		1,418
Equity fund resources	3,830		—		—		—		—		3,830
Other commercial and industrial	6,465		—		—		—		—		6,465
CRE - owner occupied	1,723		—		—		—		—		1,723
Hotel franchise finance	2,534		—		—		—		—		2,534
Other CRE - non-owner occupied	3,952		—		—		—		—		3,952
Residential	9,191		51		1		—		52		9,243
Construction and land development	3,006		—		—		—		—		3,006
Other	169		—		—		—		—		169
Total loans	$	39,023	$	51	$	1	$	—	$	52	$	39,075

Table of Contents

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk. This analysis is performed on a quarterly basis. The risk rating categories are described in "Note 1. Summary of Significant Accounting Policies" of these Notes to Unaudited Consolidated Financial Statements. The following tables present risk ratings by loan portfolio segment and origination year. The origination year is the year of origination or renewal.


		Term Loan Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis				Total			Term Loan Amortized Cost Basis by Origination Year														Revolving Loans Amortized Cost Basis				Total
June 30, 2022		2022		2021		2020		2019		2018		Prior
September 30, 2022																				September 30, 2022	2022				2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis				Total
		(in millions)																			(in millions)

Warehouse lending	Warehouse lending																			Warehouse lending
Pass	Pass	$	32	$	231	$	2	$	—	$	—	$	—			$	4,867					$	5,132	Pass	$	429	$	43	$	140	$	—	$	—			$	—			$	4,913	$	5,525
Special mention	Special mention	—		—		—		—		—		—		—				—		Special mention	—				—		—		—		—		—		—				—
Classified	Classified	—		—		—		—		—		—		—				—		Classified	—				—		—		—		—		—		—				—
Total	Total	$	32	$	231	$	2	$	—	$	—	$	—	$	4,867			$	5,132	Total	$	429			$	43	$	140	$	—	$	—	$	—	$	4,913			$	5,525

Municipal & nonprofit	Municipal & nonprofit																			Municipal & nonprofit
Pass	Pass	$	73	$	155	$	193	$	74	$	45	$	1,002	$	—			$	1,542	Pass	$	101			$	179	$	189	$	72	$	43	$	925	$	—			$	1,509
Special mention	Special mention	—		—		—		6		—		—		—				6		Special mention	—				—		—		6		—		—		—				6
Classified	Classified	—		—		—		—		—		—		—				—		Classified	—				—		—		—		—		7		—				7
Total	Total	$	73	$	155	$	193	$	80	$	45	$	1,002	$	—			$	1,548	Total	$	101			$	179	$	189	$	78	$	43	$	932	$	—			$	1,522

Tech & innovation	Tech & innovation																			Tech & innovation
Pass	Pass	$	263	$	698	$	88	$	59	$	5	$	1	$	471			$	1,585	Pass	$	639			$	510	$	86	$	71	$	5	$	1	$	779			$	2,091
Special mention	Special mention	4		17		8		—		—		—		29				58		Special mention	20				17		3		—		—		—		21				61
Classified	Classified	—		—		1		4		—		—		—				5		Classified	4				8		—		9		—		—		2				23
Total	Total	$	267	$	715	$	97	$	63	$	5	$	1	$	500			$	1,648	Total	$	663			$	535	$	89	$	80	$	5	$	1	$	802			$	2,175

Equity fund resources	Equity fund resources																			Equity fund resources
Pass	Pass	$	848	$	35	$	—	$	—	$	—	$	2	$	3,867			$	4,752	Pass	$	1,617			$	1,585	$	214	$	45	$	—	$	—	$	1,646			$	5,107
Special mention	Special mention	—		—		—		—		—		—		—				—		Special mention	—				—		—		—		—		—		—				—
Classified	Classified	—		—		—		—		—		—		—				—		Classified	—				—		—		—		—		—		—				—
Total	Total	$	848	$	35	$	—	$	—	$	—	$	2	$	3,867			$	4,752	Total	$	1,617			$	1,585	$	214	$	45	$	—	$	—	$	1,646			$	5,107

Other commercial and industrial	Other commercial and industrial																			Other commercial and industrial
Pass	Pass	$	2,277	$	1,818	$	252	$	299	$	195	$	189	$	2,695			$	7,725	Pass	$	2,676			$	1,817	$	259	$	393	$	339	$	251	$	2,353			$	8,088
Special mention	Special mention	1		6		20		21		17		—		9				74		Special mention	1				32		20		3		—		—		3				59
Classified	Classified	4		1		8		6		1		1		12				33		Classified	5				3		5		6		3		1		12				35
Total	Total	$	2,282	$	1,825	$	280	$	326	$	213	$	190	$	2,716			$	7,832	Total	$	2,682			$	1,852	$	284	$	402	$	342	$	252	$	2,368			$	8,182

CRE - owner occupied	CRE - owner occupied																			CRE - owner occupied
Pass	Pass	$	160	$	368	$	192	$	177	$	223	$	462	$	53			$	1,635	Pass	$	322			$	359	$	184	$	168	$	214	$	359	$	32			$	1,638
Special mention	Special mention	—		10		—		—		—		7		2				19		Special mention	—				2		—		—		—		1		11				14
Classified	Classified	8		2		3		—		5		9		—				27		Classified	8				10		1		—		5		10		—				34
Total	Total	$	168	$	380	$	195	$	177	$	228	$	478	$	55			$	1,681	Total	$	330			$	371	$	185	$	168	$	219	$	370	$	43			$	1,686

Hotel franchise finance	Hotel franchise finance																			Hotel franchise finance
Pass	Pass	$	697	$	741	$	145	$	606	$	331	$	184	$	123			$	2,827	Pass	$	1,386			$	727	$	54	$	559	$	321	$	164	$	118			$	3,329
Special mention	Special mention	—		—		26		76		—		—		—				102		Special mention	—				—		26		51		—		—		—				77
Classified	Classified	9		20		—		99		45		10		—				183		Classified	18				20		—		113		45		—		—				196
Total	Total	$	706	$	761	$	171	$	781	$	376	$	194	$	123			$	3,112	Total	$	1,404			$	747	$	80	$	723	$	366	$	164	$	118			$	3,602

Other CRE - non-owner occupied	Other CRE - non-owner occupied																			Other CRE - non-owner occupied
Pass	Pass	$	1,195	$	1,255	$	757	$	455	$	226	$	332	$	310			$	4,530	Pass	$	1,950			$	1,187	$	874	$	268	$	166	$	233	$	259			$	4,937
Special mention	Special mention	6		19		3		22		6		1		—				57		Special mention	6				27		—		19		—		—		—				52
Classified	Classified	—		—		11		4		4		19		—				38		Classified	—				—		—		3		10		19		—				32
Total	Total	$	1,201	$	1,274	$	771	$	481	$	236	$	352	$	310			$	4,625	Total	$	1,956			$	1,214	$	874	$	290	$	176	$	252	$	259			$	5,021

Table of Contents


		Term Loan Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis				Total			Term Loan Amortized Cost Basis by Origination Year														Revolving Loans Amortized Cost Basis				Total
June 30, 2022		2022		2021		2020		2019		2018		Prior
September 30, 2022																				September 30, 2022	2022				2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis				Total
		(in millions)																			(in millions)
Residential	Residential																			Residential
Pass	Pass	$	2,978	$	8,419	$	921	$	333	$	162	$	99			$	38					$	12,950	Pass	$	3,714	$	8,581	$	891	$	318	$	156			$	91			$	39	$	13,790
Special mention	Special mention	—		—		—		—		—		—		—				—		Special mention	—				—		—		—		—		—		—				—
Classified	Classified	1		12		1		1		—		2		—				17		Classified	1				13		—		3		1		2		—				20
Total	Total	$	2,979	$	8,431	$	922	$	334	$	162	$	101	$	38			$	12,967	Total	$	3,715			$	8,594	$	891	$	321	$	157	$	93	$	39			$	13,810

Residential - EBO	Residential - EBO																			Residential - EBO
Pass	Pass	$	—	$	270	$	753	$	448	$	175	$	251	$	—			$	1,897	Pass	$	—			$	262	$	719	$	428	$	167	$	239	$	—			$	1,815
Special mention	Special mention	—		—		—		—		—		—		—				—		Special mention	—				—		—		—		—		—		—				—
Classified	Classified	—		—		—		—		—		—		—				—		Classified	—				—		—		—		—		—		—				—
Total	Total	$	—	$	270	$	753	$	448	$	175	$	251	$	—			$	1,897	Total	$	—			$	262	$	719	$	428	$	167	$	239	$	—			$	1,815

Construction and land development	Construction and land development																			Construction and land development
Pass	Pass	$	514	$	1,006	$	550	$	107	$	—	$	3	$	1,005			$	3,185	Pass	$	1,034			$	978	$	385	$	28	$	—	$	2	$	1,099			$	3,526
Special mention	Special mention	—		—		—		—		—		—		—				—		Special mention	—				2		41		—		—		—		—				43
Classified	Classified	—		1		12		1		—		—		—				14		Classified	—				1		8		1		—		—		—				10
Total	Total	$	514	$	1,007	$	562	$	108	$	—	$	3	$	1,005			$	3,199	Total	$	1,034			$	981	$	434	$	29	$	—	$	2	$	1,099			$	3,579

Other	Other																			Other
Pass	Pass	$	5	$	14	$	14	$	6	$	3	$	82	$	54			$	178	Pass	$	18			$	12	$	13	$	6	$	3	$	62	$	63			$	177
Special mention	Special mention	—		—		—		—		—		1		—				1		Special mention	—				—		—		—		—		—		—				—
Classified	Classified	—		—		—		—		—		—		—				—		Classified	—				—		—		—		—		—		—				—
Total	Total	$	5	$	14	$	14	$	6	$	3	$	83	$	54			$	179	Total	$	18			$	12	$	13	$	6	$	3	$	62	$	63			$	177

Total by Risk Category	Total by Risk Category																			Total by Risk Category
Pass	Pass	$	9,042	$	15,010	$	3,867	$	2,564	$	1,365	$	2,607	$	13,483			$	47,938	Pass	$	13,886			$	16,240	$	4,008	$	2,356	$	1,414	$	2,327	$	11,301			$	51,532
Special mention	Special mention	11		52		57		125		23		9		40				317		Special mention	27				80		90		79		—		1		35				312
Classified	Classified	22		36		36		115		55		41		12				317		Classified	36				55		14		135		64		39		14				357
Total	Total	$	9,075	$	15,098	$	3,960	$	2,804	$	1,443	$	2,657	$	13,535			$	48,572	Total	$	13,949			$	16,375	$	4,112	$	2,570	$	1,478	$	2,367	$	11,350			$	52,201


	Term Loan Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Total
December 31, 2021	2021		2020		2019		2018		2017		Prior
	(in millions)








Warehouse lending
Pass	$	243	$	12	$	—	$	—	$	—	$	—	$	4,901	$	5,156
Special mention	—		—		—		—		—		—		—		—
Classified	—		—		—		—		—		—		—		—
Total	$	243	$	12	$	—	$	—	$	—	$	—	$	4,901	$	5,156

Municipal & nonprofit
Pass	$	129	$	195	$	101	$	53	$	219	$	878	$	4	$	1,579
Special mention	—		—		—		—		—		—		—		—
Classified	—		—		—		—		—		—		—		—
Total	$	129	$	195	$	101	$	53	$	219	$	878	$	4	$	1,579

Tech & innovation
Pass	$	763	$	157	$	101	$	6	$	—	$	1	$	334	$	1,362
Special mention	26		5		—		—		—		—		8		39
Classified	3		5		7		—		—		—		2		17
Total	$	792	$	167	$	108	$	6	$	—	$	1	$	344	$	1,418

Equity fund resources
Pass	$	9	$	2	$	—	$	—	$	2	$	—	$	3,817	$	3,830
Special mention	—		—		—		—		—		—		—		—
Classified	—		—		—		—		—		—		—		—
Total	$	9	$	2	$	—	$	—	$	2	$	—	$	3,817	$	3,830

Table of Contents


	Term Loan Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Total
December 31, 2021	2021		2020		2019		2018		2017		Prior
	(in millions)
Other commercial and industrial
Pass	$	2,911	$	360	$	387	$	210	$	80	$	98	$	2,306	$	6,352
Special mention	5		27		22		18		—		—		15		87
Classified	—		10		6		2		1		—		7		26
Total	$	2,916	$	397	$	415	$	230	$	81	$	98	$	2,328	$	6,465

CRE - owner occupied
Pass	$	417	$	199	$	220	$	190	$	278	$	322	$	56	$	1,682
Special mention	—		—		—		10		—		2		—		12
Classified	2		2		1		5		8		11		—		29
Total	$	419	$	201	$	221	$	205	$	286	$	335	$	56	$	1,723









Hotel franchise finance
Pass	$	721	$	205	$	659	$	332	$	135	$	64	$	123	$	2,239
Special mention	—		—		88		51		—		—		—		139
Classified	30		—		99		16		11		—		—		156
Total	$	751	$	205	$	846	$	399	$	146	$	64	$	123	$	2,534

Other CRE - non-owner occupied
Pass	$	1,398	$	755	$	673	$	279	$	186	$	283	$	315	$	3,889
Special mention	15		—		10		—		—		1		—		26
Classified	—		—		4		5		—		17		11		37
Total	$	1,413	$	755	$	687	$	284	$	186	$	301	$	326	$	3,952

Residential
Pass	$	7,459	$	1,019	$	396	$	201	$	42	$	75	$	36	$	9,228
Special mention	—		—		—		—		—		—		—		—
Classified	9		1		3		1		—		1		—		15
Total	$	7,468	$	1,020	$	399	$	202	$	42	$	76	$	36	$	9,243

Construction and land development
Pass	$	958	$	632	$	394	$	112	$	4	$	—	$	870	$	2,970
Special mention	—		22		—		—		6		—		—		28
Classified	1		4		1		—		—		—		2		8
Total	$	959	$	658	$	395	$	112	$	10	$	—	$	872	$	3,006

Other
Pass	$	16	$	12	$	4	$	4	$	4	$	82	$	46	$	168
Special mention	—		—		—		—		—		—		—		—
Classified	—		—		—		—		—		1		—		1
Total	$	16	$	12	$	4	$	4	$	4	$	83	$	46	$	169

Total by Risk Category
Pass	$	15,024	$	3,548	$	2,935	$	1,387	$	950	$	1,803	$	12,808	$	38,455
Special mention	46		54		120		79		6		3		23		331
Classified	45		22		121		29		20		30		22		289
Total	$	15,115	$	3,624	$	3,176	$	1,495	$	976	$	1,836	$	12,853	$	39,075

Troubled Debt Restructurings

A TDR loan is a loan on which the Company, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. The loan terms that have been modified or restructured due to a borrower’s financial situation include, but are not limited to, a reduction in the stated interest rate, an extension of the maturity or renewal of the loan at an interest rate below current market, a reduction in the face amount of the debt, a reduction in the accrued interest, or deferral of interest payments. The majority of the Company's modifications are extensions in terms or deferral of payments which result in no lost principal or ~~interest followed by reductions in interest rates or accrued~~ interest. Consistent with regulatory guidance, a TDR loan that is subsequently modified in another restructuring agreement but has shown sustained performance and classification as a TDR, will be removed from TDR status provided that the modified terms were market-based at the time of modification.

Table of Contents

The following table presents TDR loans:


		June 30, 2022			December 31, 2021				September 30, 2022			December 31, 2021
		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment			Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
		(dollars in millions)							(dollars in millions)

Tech & innovation	Tech & innovation	1	$	4	2	$	2	Tech & innovation	1	$	3	2	$	2

Other commercial and industrial	Other commercial and industrial	8	5		7	6		Other commercial and industrial	7	8		7	6
CRE - owner occupied	CRE - owner occupied	1	1		1	1		CRE - owner occupied	1	1		1	1

Hotel franchise finance								Hotel franchise finance	1	10		—	—
Other CRE - non-owner occupied	Other CRE - non-owner occupied	5	10		5	11		Other CRE - non-owner occupied	3	8		5	11

Construction and land development	Construction and land development	1	1		1	1		Construction and land development	1	1		1	1

Total	Total	16	$	21	16	$	21	Total	14	$	31	16	$	21

The allowance for credit losses on TDR loans totaled $1$5 million and zero as of ~~June~~September 30, 2022 and December 31, 2021, respectively. There were no$1 million and zero outstanding commitments on TDR loans as of ~~June~~September 30, 2022 and December 31, ~~2021.~~2021, respectively.

During the three months ended ~~June~~September 30, 2022, the Company had notwo new TDR ~~loans.~~loans with a recorded investment of $14 million. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company had 1four new TDR ~~loan~~loans with a recorded investment of $4$17 million. No principal amounts were forgiven and there were no waived fees or other expenses resulting from ~~this~~these TDR ~~loan.~~loans. During the three months ended ~~June~~September 30, 2021, the Company had 6no new TDR ~~loans with a recorded investment of $10 million.~~loans. During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company had 9 new TDR loans with a recorded investment of ~~$14~~$13 million. No principal amounts were forgiven and there were no waived fees or other expenses resulting from these TDR loans.

A TDR loan is deemed to have a payment default when it becomes past due 90 days under the modified terms, goes on nonaccrual status, or is restructured again. Payment defaults, along with other qualitative indicators, are considered by management in the determination of the allowance for credit losses. During the three and ~~six~~nine months ended ~~June~~September 30, 2022, there were no loans for which there was a payment default within 12 months following the modification. During the three ~~and six~~ months ended ~~June~~September 30, 2021, there were no loans for which there was a payment default within 12 months following the modification. During the nine months ended September 30, 2021, there was 1one commercial and industrial loan with a recorded investment of $6$4 million for which there was a payment default within 12 months following the modification, which resulted in a charge-off of $2 million.

Collateral-Dependent Loans

The following table presents the amortized cost basis of collateral-dependent loans by loan portfolio segment:


		June 30, 2022						December 31, 2021							September 30, 2022						December 31, 2021
		Real Estate Collateral		Other Collateral		Total		Real Estate Collateral		Other Collateral		Total			Real Estate Collateral		Other Collateral		Total		Real Estate Collateral		Other Collateral		Total
		(in millions)													(in millions)

Municipal & nonprofit														Municipal & nonprofit	$	—	$	8	$	8	$	—	$	—	$	—

Other commercial and industrial	Other commercial and industrial	$	—	$	20	$	20	$	—	$	13	$	13	Other commercial and industrial	—		16		16		—		13		13
CRE - owner occupied	CRE - owner occupied	22		—		22		23		—		23		CRE - owner occupied	24		—		24		23		—		23
Hotel franchise finance	Hotel franchise finance	183		—		183		156		—		156		Hotel franchise finance	182		—		182		156		—		156
Other CRE - non-owner occupied	Other CRE - non-owner occupied	34		—		34		31		—		31		Other CRE - non-owner occupied	28		—		28		31		—		31

Construction and land development	Construction and land development	10		—		10		4		—		4		Construction and land development	10		—		10		4		—		4

Total	Total	$	249	$	20	$	269	$	214	$	13	$	227	Total	$	244	$	24	$	268	$	214	$	13	$	227

The Company did not identify any significant changes in the extent to which collateral secures its collateral dependent loans, whether in the form of general deterioration or from other factors during the period ended ~~June~~September 30, 2022.

Table of Contents

Allowance for Credit Losses

The allowance for credit losses consists of the allowance for credit losses on funded HFI loans and an allowance for credit losses on unfunded loan commitments. The allowance for credit losses on HTM securities is estimated separately from loans, see "Note 3. Investment Securities" of these Notes to Unaudited Consolidated Financial Statements for further discussion. Management considers the level of allowance for credit losses to be a reasonable and supportable estimate of expected credit losses inherent within the Company's HFI loan portfolio as of ~~June~~September 30, 2022.

The below tables reflect the activity in the allowance for credit losses on HFI loans by loan portfolio segment, which includes an estimate of future recoveries:


		Three Months Ended June 30, 2022										Three Months Ended September 30, 2022
		Balance, March 31, 2022		Provision for (Recovery of) Credit Losses		Write-offs		Recoveries		Balance, June 30, 2022				Balance, June 30, 2022		Provision for (Recovery of) Credit Losses		Charge-offs		Recoveries		Balance, September 30, 2022
		(in millions)										(in millions)
Warehouse lending	Warehouse lending	$	2.9	$	0.8	$	—	$	—	$	3.7		Warehouse lending	$	3.7	$	0.7	$	—	$	—	$	4.4
Municipal & nonprofit	Municipal & nonprofit	13.4		0.2		—		—		13.6			Municipal & nonprofit	13.6		1.6		—		—		15.2
Tech & innovation	Tech & innovation	28.0		(2.6)		—		—		25.4			Tech & innovation	25.4		(0.2)		—		—		25.2
Equity fund resources	Equity fund resources	6.6		7.4		—		—		14.0			Equity fund resources	14.0		(3.1)		—		—		10.9
Other commercial and industrial	Other commercial and industrial	115.7		5.1		2.3		(0.7)		119.2			Other commercial and industrial	119.2		(14.7)		2.1		(3.8)		106.2
CRE - owner occupied	CRE - owner occupied	8.1		(0.7)		—		(0.1)		7.5			CRE - owner occupied	7.5		(0.8)		—		—		6.7
Hotel franchise finance	Hotel franchise finance	30.6		3.2		—		—		33.8			Hotel franchise finance	33.8		17.2		—		—		51.0
Other CRE - non-owner occupied	Other CRE - non-owner occupied	15.3		6.8		—		—		22.1			Other CRE - non-owner occupied	22.1		11.2		—		(0.1)		33.4
Residential	Residential	23.8		(5.0)		—		—		18.8			Residential	18.8		6.8		—		—		25.6
Residential - EBO	Residential - EBO	—		—		—		—		—			Residential - EBO	—		—		—		—		—
Construction and land development	Construction and land development	10.7		1.5		—		—		12.2			Construction and land development	12.2		10.1		—		(0.1)		22.4
Other	Other	2.5		0.3		0.1		(0.2)		2.9			Other	2.9		0.2		—		—		3.1
Total	Total	$	257.6	$	17.0	$	2.4	$	(1.0)	$	273.2		Total	$	273.2	$	29.0	$	2.1	$	(4.0)	$	304.1


		Six Months Ended June 30, 2022										Nine Months Ended September 30, 2022
		Balance, December 31, 2021		Provision for (Recovery of) Credit Losses		Write-offs		Recoveries		Balance, June 30, 2022				Balance, December 31, 2021		Provision for (Recovery of) Credit Losses		Charge-offs		Recoveries		Balance, September 30, 2022
		(in millions)										(in millions)
Warehouse lending	Warehouse lending	$	3.0	$	0.7	$	—	$	—	$	3.7		Warehouse lending	$	3.0	$	1.4	$	—	$	—	$	4.4
Municipal & nonprofit	Municipal & nonprofit	13.7		(0.1)		—		—		13.6			Municipal & nonprofit	13.7		1.5		—		—		15.2
Tech & innovation	Tech & innovation	25.7		(2.3)		—		(2.0)		25.4			Tech & innovation	25.7		(2.5)		—		(2.0)		25.2
Equity fund resources	Equity fund resources	9.6		4.4		—		—		14.0			Equity fund resources	9.6		1.3		—		—		10.9
Other commercial and industrial	Other commercial and industrial	103.6		19.4		4.9		(1.1)		119.2			Other commercial and industrial	103.6		4.7		7.0		(4.9)		106.2
CRE - owner occupied	CRE - owner occupied	10.6		(3.2)		—		(0.1)		7.5			CRE - owner occupied	10.6		(4.0)		—		(0.1)		6.7
Hotel franchise finance	Hotel franchise finance	41.5		(7.7)		—		—		33.8			Hotel franchise finance	41.5		9.5		—		—		51.0
Other CRE - non-owner occupied	Other CRE - non-owner occupied	16.9		5.2		—		—		22.1			Other CRE - non-owner occupied	16.9		16.4		—		(0.1)		33.4
Residential	Residential	12.5		6.3		—		—		18.8			Residential	12.5		13.1		—		—		25.6
Residential - EBO	Residential - EBO	—		—		—		—		—			Residential - EBO	—		—		—		—		—
Construction and land development	Construction and land development	12.5		(0.3)		—		—		12.2			Construction and land development	12.5		9.8		—		(0.1)		22.4
Other	Other	2.9		(0.1)		0.1		(0.2)		2.9			Other	2.9		0.1		0.1		(0.2)		3.1
Total	Total	$	252.5	$	22.3	$	5.0	$	(3.4)	$	273.2		Total	$	252.5	$	51.3	$	7.1	$	(7.4)	$	304.1

Table of Contents


		Three Months Ended June 30, 2021										Three Months Ended September 30, 2021
		Balance, March 31, 2021		Provision for (Recovery of) Credit Losses		Write-offs		Recoveries		Balance, June 30, 2021				Balance, June 30, 2021		Provision for (Recovery of) Credit Losses		Charge-offs		Recoveries		Balance, September 30, 2021
		(in millions)										(in millions)
Warehouse lending	Warehouse lending	$	3.6	$	(0.4)	$	—	$	—	$	3.2		Warehouse lending	$	3.2	$	(0.6)	$	—	$	—	$	2.6
Municipal & nonprofit	Municipal & nonprofit	15.2		0.7		—		—		15.9			Municipal & nonprofit	15.9		(0.7)		—		—		15.2
Tech & innovation	Tech & innovation	23.0		(0.6)		2.0		(0.1)		20.5			Tech & innovation	20.5		8.6		—		(0.1)		29.2
Equity fund resources	Equity fund resources	0.9		0.2		—		—		1.1			Equity fund resources	1.1		6.1		—		—		7.2
Other commercial and industrial	Other commercial and industrial	78.4		(2.0)		0.3		(0.3)		76.4			Other commercial and industrial	76.4		18.3		3.3		(0.2)		91.6
CRE - owner occupied	CRE - owner occupied	9.7		(0.4)		—		—		9.3			CRE - owner occupied	9.3		0.1		—		—		9.4
Hotel franchise finance	Hotel franchise finance	49.4		—		—		—		49.4			Hotel franchise finance	49.4		0.2		—		—		49.6
Other CRE - non-owner occupied	Other CRE - non-owner occupied	32.7		(4.1)		—		(1.2)		29.8			Other CRE - non-owner occupied	29.8		(9.7)		—		—		20.1
Residential	Residential	3.2		4.8		—		(0.1)		8.1			Residential	8.1		(2.0)		—		—		6.1
Construction and land development	Construction and land development	25.9		(11.8)		—		—		14.1			Construction and land development	14.1		(2.6)		—		—		11.5
Other	Other	5.1		(0.5)		—		(0.5)		5.1			Other	5.1		(0.7)		—		—		4.4
Total	Total	$	247.1	$	(14.1)	$	2.3	$	(2.2)	$	232.9		Total	$	232.9	$	17.0	$	3.3	$	(0.3)	$	246.9


		Six Months Ended June 30, 2021										Nine Months Ended September 30, 2021
		Balance, January 1, 2020		Provision for (Recovery of) Credit Losses		Write-offs		Recoveries		Balance, June 30, 2021				Balance, December 31, 2020		Provision for (Recovery of) Credit Losses		Charge-offs		Recoveries		Balance, September 30, 2021
		(in millions)										(in millions)
Warehouse lending	Warehouse lending	$	3.4	$	(0.2)	$	—	$	—	$	3.2		Warehouse lending	$	3.4	$	(0.8)	$	—	$	—	$	2.6
Municipal & nonprofit	Municipal & nonprofit	15.9		—		—		—		15.9			Municipal & nonprofit	15.9		(0.7)		—		—		15.2
Tech & innovation	Tech & innovation	33.4		(11.2)		2.0		(0.3)		20.5			Tech & innovation	33.4		(2.6)		2.0		(0.4)		29.2
Equity fund resources	Equity fund resources	1.9		(0.8)		—		—		1.1			Equity fund resources	1.9		5.3		—		—		7.2
Other commercial and industrial	Other commercial and industrial	94.7		(18.5)		0.4		(0.6)		76.4			Other commercial and industrial	94.7		(0.2)		3.7		(0.8)		91.6
CRE - owner occupied	CRE - owner occupied	18.6��		(9.3)		—		—		9.3			CRE - owner occupied	18.6		(9.2)		—		—		9.4
Hotel franchise finance	Hotel franchise finance	43.3		6.1		—		—		49.4			Hotel franchise finance	43.3		6.3		—		—		49.6
Other CRE - non-owner occupied	Other CRE - non-owner occupied	39.9		(9.5)		2.0		(1.4)		29.8			Other CRE - non-owner occupied	39.9		(19.2)		2.0		(1.4)		20.1
Residential	Residential	0.8		7.2		—		(0.1)		8.1			Residential	0.8		5.2		—		(0.1)		6.1
Construction and land development	Construction and land development	22.0		(7.9)		—		—		14.1			Construction and land development	22.0		(10.5)		—		—		11.5
Other	Other	5.0		(0.4)		—		(0.5)		5.1			Other	5.0		(1.1)		—		(0.5)		4.4
Total	Total	$	278.9	$	(44.5)	$	4.4	$	(2.9)	$	232.9		Total	$	278.9	$	(27.5)	$	7.7	$	(3.2)	$	246.9

Accrued interest receivable on loans totaled ~~$237~~$263 million and $198 million at ~~June~~September 30, 2022 and December 31, 2021, respectively, and is excluded from the estimate of credit losses, except for accrued interest related to the Residential-EBO loan portfolio segment, which has an allowance of $7 million as of ~~June~~September 30, 2022.

The below table reflects the activity in the allowance for credit losses on unfunded loan commitments:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in millions)									(in millions)
Balance, beginning of period	Balance, beginning of period	$	43.3	$	32.6	$	37.6	$	37.0	Balance, beginning of period	$	53.8	$	31.3	$	37.6	$	37.0
Provision for (recovery of) credit losses		10.5		(1.3)		16.2		(5.7)
(Recovery of) provision for credit losses										(Recovery of) provision for credit losses	(1.7)		0.8		14.5		(4.9)
Balance, end of period	Balance, end of period	$	53.8	$	31.3	$	53.8	$	31.3	Balance, end of period	$	52.1	$	32.1	$	52.1	$	32.1

Table of Contents

The following tables disaggregate the Company's allowance for credit losses on funded HFI loans and loan balances by measurement methodology:


		June 30, 2022													September 30, 2022
		Loans						Allowance							Loans						Allowance
		Collectively Evaluated for Credit Loss		Individually Evaluated for Credit Loss		Total		Collectively Evaluated for Credit Loss		Individually Evaluated for Credit Loss		Total			Collectively Evaluated for Credit Loss		Individually Evaluated for Credit Loss		Total		Collectively Evaluated for Credit Loss		Individually Evaluated for Credit Loss		Total
		(in millions)													(in millions)
Warehouse lending	Warehouse lending	$	5,132	$	—	$	5,132	$	3.7	$	—	$	3.7	Warehouse lending	$	5,525	$	—	$	5,525	$	4.4	$	—	$	4.4
Municipal & nonprofit	Municipal & nonprofit	1,548		—		1,548		13.6		—		13.6		Municipal & nonprofit	1,515		7		1,522		12.7		2.5		15.2
Tech & innovation	Tech & innovation	1,644		4		1,648		24.5		0.9		25.4		Tech & innovation	2,152		23		2,175		21.9		3.3		25.2
Equity fund resources	Equity fund resources	4,752		—		4,752		14.0		—		14.0		Equity fund resources	5,107		—		5,107		10.9		—		10.9
Other commercial and industrial	Other commercial and industrial	7,802		30		7,832		115.0		4.2		119.2		Other commercial and industrial	8,149		33		8,182		99.6		6.6		106.2
CRE - owner occupied	CRE - owner occupied	1,657		24		1,681		7.5		—		7.5		CRE - owner occupied	1,655		31		1,686		6.7		—		6.7
Hotel franchise finance	Hotel franchise finance	2,929		183		3,112		27.1		6.7		33.8		Hotel franchise finance	3,406		196		3,602		44.6		6.4		51.0
Other CRE - non-owner occupied	Other CRE - non-owner occupied	4,587		38		4,625		22.1		—		22.1		Other CRE - non-owner occupied	4,991		30		5,021		33.4		—		33.4
Residential	Residential	12,967		—		12,967		18.8		—		18.8		Residential	13,810		—		13,810		25.6		—		25.6
Residential EBO	Residential EBO	1,897		—		1,897		—		—		—		Residential EBO	1,815		—		1,815		—		—		—
Construction and land development	Construction and land development	3,185		14		3,199		12.2		—		12.2		Construction and land development	3,569		10		3,579		22.4		—		22.4
Other	Other	179		—		179		2.9		—		2.9		Other	177		—		177		3.1		—		3.1
Total	Total	$	48,279	$	293	$	48,572	$	261.4	$	11.8	$	273.2	Total	$	51,871	$	330	$	52,201	$	285.3	$	18.8	$	304.1


	December 31, 2021
	Loans						Allowance
	Collectively Evaluated for Credit Loss		Individually Evaluated for Credit Loss		Total		Collectively Evaluated for Credit Loss		Individually Evaluated for Credit Loss		Total
	(in millions)
Warehouse lending	$	5,156	$	—	$	5,156	$	3.0	$	—	$	3.0
Municipal & nonprofit	1,579		—		1,579		13.7		—		13.7
Tech & innovation	1,401		17		1,418		22.9		2.8		25.7
Equity fund resources	3,830		—		3,830		9.6		—		9.6
Other commercial and industrial	6,442		23		6,465		101.1		2.5		103.6
CRE - owner occupied	1,699		24		1,723		10.6		—		10.6
Hotel franchise finance	2,378		156		2,534		30.7		10.8		41.5
Other CRE - non-owner occupied	3,917		35		3,952		16.9		—		16.9
Residential	9,243		—		9,243		12.5		—		12.5
Construction and land development	2,998		8		3,006		12.5		—		12.5
Other	169		—		169		2.9		—		2.9
Total	$	38,812	$	263	$	39,075	$	236.4	$	16.1	$	252.5

Loan Purchases and Sales

Loan purchases during the three months ended ~~June~~September 30, 2022 and 2021 totaled ~~$3.1~~$2.7 billion and ~~$2.4~~$2.9 billion, respectively, which primarily consisted of residential loan purchases. Loan purchases during the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 totaled ~~$5.5~~$8.2 billion and ~~$3.4~~$6.3 billion, respectively, ~~which~~and also primarily consisted of residential loan purchases. There were no loans purchased with more-than-insignificant deterioration in credit quality during the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021.

During the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company had loan sales with a carrying value of $210 million and $226 million and recognized a net loss of $0.5 million and $0.8 million, respectively. During the three and nine months ended September 30, 2021, the Company did not have significant sales of HFI loans.

Table of Contents

6. MORTGAGE SERVICING RIGHTS

The Company acquired MSRs initially as part of the AmeriHome acquisition and continues to generate new MSRs from its mortgage banking business. The following table presents the changes in fair value of the Company's MSR assets and other information related to its servicing portfolio:


		Three Months Ended June 30,				Six Months Ended June 30, 2022			Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021 (1)					2022		2021 (1)		2022		2021 (1) (2)
		(in millions)							(in millions)
Balance, beginning of period	Balance, beginning of period	$	950	$	—	$	698	Balance, beginning of period	$	826	$	726	$	698	$	—
Acquired in AmeriHome acquisition	Acquired in AmeriHome acquisition	—		1,376		—		Acquired in AmeriHome acquisition	—		—		—		1,376
Additions from loans sold with servicing rights retained	Additions from loans sold with servicing rights retained	194		282		398		Additions from loans sold with servicing rights retained	180		230		578		513
MSRs sold	MSRs sold	(350)		(872)		(350)		MSRs sold	—		(327)		(350)		(1,199)
Change in fair value	Change in fair value	62		7		143		Change in fair value	63		15		206		22
Realization of cash flows	Realization of cash flows	(30)		(67)		(63)		Realization of cash flows	(25)		(39)		(88)		(107)
Balance, end of period	Balance, end of period	$	826	$	726	$	826	Balance, end of period	$	1,044	$	605	$	1,044	$	605

Unpaid principal balance of mortgage loans serviced for others	Unpaid principal balance of mortgage loans serviced for others	$	52,184	$	57,089			Unpaid principal balance of mortgage loans serviced for others	$	62,841	$	47,211

(1)Does not include the effect of acquisition measurement period adjustments recorded during the fourth quarter of 2021, as disclosed in the Company's audited Consolidated Financial Statements.

(2)Period from April 7, 2021, the acquisition date of AmeriHome, through September 30, 2021.

Changes in the fair value of MSRs are recorded as ~~part of~~ Net loan servicing revenue in the Consolidated Income Statement. Due to the regulatory capital impact of MSRs on capital ratios, the Company sells certain MSRs and related servicing advances in the normal course of business. ~~These~~During the three months ended September 30, 2022, the Company did not have MSR sales. During the nine months ended September 30, 2022, MSR sales had an aggregate net sales price of $350 million and ~~were completed during~~ the ~~three and six months ended June 30, 2022. The~~ UPB of loans underlying these sales totaled $24.1 billion. During the three months ended September 30, 2021, these sales had an aggregate net sales price of $329 million and the UPB of loans underlying these sales totaled $23.3 billion. During the period from the AmeriHome acquisition date through ~~June~~September 30, 2021, the Company completed sales of MSRs and related servicing advances with an aggregate net sales price of ~~$872 million~~$1.2 billion and UPB of loans underlying these sales of ~~$65.3~~$88.6 billion. As of ~~June~~September 30, 2022, the Company had a remaining receivable balance of ~~$68~~$49 million related to holdbacks on MSR sales for pending servicing transfer, which was recorded ~~as part of~~in Other assets on the Consolidated Balance Sheet.

The Company receives loan servicing fees, net of subservicing costs, based on the UPB of the underlying loans. Loan servicing fees are collected from payments made by borrowers. The Company may receive other remuneration from rights to various borrower contracted fees, such as late charges, collateral reconveyance charges, and non-sufficient funds fees. Contractually specified servicing fees, late fees, and ancillary income associated with the Company's MSR portfolio totaled $48.9 million and ~~$91.8~~$140.7 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, and ~~$61.0~~$41.5 million and $102.4 million for the three months and period from the AmeriHome acquisition ~~date~~on April 7, 2021 through ~~June~~September 30, 2021, respectively, which are recorded as ~~part of~~ Net loan servicing revenue in the Consolidated Income Statement.

In accordance with its contractual loan servicing obligations, the Company is required to advance funds to or on behalf of investors when borrowers do not make payments. The Company advances property taxes and insurance premiums for borrowers who have insufficient funds in escrow accounts, plus any other costs to preserve real estate properties. The Company may also advance funds to maintain, repair, and market foreclosed real estate properties. The Company is entitled to recover all or a portion of the advances from borrowers of reinstated and performing loans, from the proceeds of liquidated properties or from the government agency or GSE guarantor of charged-off loans. Servicing advances are charged-off when they are deemed to be uncollectible. As of ~~June~~September 30, 2022 and December 31, 2021, net servicing advances totaled ~~$68~~$76 million and $82 million, respectively, which are recorded as ~~part of~~ Other assets on the Consolidated Balance Sheet.

Table of Contents

The following table presents the effect of hypothetical changes in the fair value of MSRs caused by assumed immediate changes in interest rates, discount rates, and prepayment speeds that are used to determine fair value:

~~June~~September 30, 2022

(in millions)

Fair value of mortgage servicing rights

~~826~~1,044

Increase (decrease) in fair value resulting from:

Interest rate change of 50 basis points

Adverse change

~~(35)~~(36)

Favorable change

2728

Discount rate change of 50 basis points

Increase

~~(16)~~(21)

Decrease

1722

Conditional prepayment rate change of 1%

Increase

~~(23)~~(26)

Decrease

2529

Cost to service change of 10%

Increase

~~(10)~~(13)

Decrease

1013

Sensitivities are hypothetical changes in fair value and cannot be extrapolated because the relationship of changes in assumptions to changes in fair value may not be linear. In addition, the offsetting effect of hedging activities are not contemplated in these results and further, the effect of a variation in a particular assumption is calculated without changing any other assumptions, whereas a change in one factor may result in changes to another. Accordingly, no assurance can be given that actual results would be consistent with the results of these estimates. As a result, actual future changes in MSR values may differ significantly from those reported.

7. OTHER BORROWINGS

The following table summarizes the Company’s borrowings as of ~~June~~September 30, 2022 and December 31, 2021:


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
		(in millions)					(in millions)
Short-Term:	Short-Term:					Short-Term:
Federal funds purchased	Federal funds purchased	$	1,860	$	675	Federal funds purchased	$	1,010	$	675
FHLB advances	FHLB advances	2,000		—		FHLB advances	4,000		—

Repurchase agreements	Repurchase agreements	79		17		Repurchase agreements	26		17
Secured borrowings	Secured borrowings	40		35		Secured borrowings	60		35
Total short-term borrowings	Total short-term borrowings	$	3,979	$	727	Total short-term borrowings	$	5,096	$	727
Long-Term:	Long-Term:					Long-Term:

AmeriHome senior notes, net of fair value adjustment	AmeriHome senior notes, net of fair value adjustment	$	316	$	318	AmeriHome senior notes, net of fair value adjustment	$	316	$	318
Credit linked notes, net of debt issuance costs	Credit linked notes, net of debt issuance costs	915		457		Credit linked notes, net of debt issuance costs	907		457
Total long-term borrowings	Total long-term borrowings	$	1,231	$	775	Total long-term borrowings	$	1,223	$	775

Total other borrowings	Total other borrowings	$	5,210	$	1,502	Total other borrowings	$	6,319	$	1,502

Short-Term Borrowings

Federal Funds Lines of Credit

The Company maintains federal fund lines of credit totaling ~~$3.4~~$4.7 billion as of ~~June~~September 30, 2022, which have rates comparable to the federal funds effective rate plus 0.10% to 0.20%.

FHLB Advances

The Company also maintains secured lines of credit with the FHLB and the FRB. The Company’s borrowing capacity is determined based on collateral pledged, generally consisting of investment securities and loans, at the time of the borrowing. As of ~~June~~September 30, 2022 and December 31, 2021, the Company had additional available credit with the FHLB of approximately $7.1 billion and $7.8 billion respectively, and with the FRB of approximately ~~$4.7~~$5.0 billion and $3.4 billion, respectively. The weighted average rate on FHLB advances was ~~1.68%~~3.22% as of ~~June~~September 30, 2022.

Table of Contents

Repurchase Agreements

Other short-term borrowing sources available to the Company include customer and securities repurchase agreements. The weighted average rate on customer repurchase agreements was 0.16% and 0.15% as of ~~June~~September 30, 2022 and December 31, 2021, ~~and was 1.96% for securities repurchase agreements as of June 30, 2022.~~respectively.

Secured Borrowings

Secured borrowings consist of transfers of loans HFS not qualifying for sales accounting treatment. The weighted average interest rate on secured borrowings was ~~4.75%~~5.46% and 3.05% as of ~~June~~September 30, 2022 and December 31, 2021, respectively.

Warehouse Borrowings

Warehouse borrowing lines of credit are used to finance the acquisition of loans through the use of repurchase agreements. Repurchase agreements operate as financings under which the Company transfers loans to secure these borrowings. The borrowing amounts are based on the attributes of the collateralized loans and are defined in the repurchase agreement of each warehouse lender. The Company retains beneficial ownership of the transferred loans and will receive the loans from the lender upon full repayment of the borrowing. The repurchase agreements may require the Company to transfer additional assets to the lender in the event the estimated fair value of the existing transferred loans declines.

As of ~~June~~September 30, 2022, the Company had access to approximately $1.0 billion in uncommitted warehouse funding, of which no amounts were drawn.

Long-Term Borrowings

AmeriHome Senior Notes

Prior to the Company's acquisition of AmeriHome, in October 2020, AmeriHome issued senior notes with an aggregate principal amount of $300 million, maturing on October 26, 2028. The senior notes accrue interest at a rate of 6.50% per annum, paid semiannually. The senior notes contain provisions that allow for redemption of up to 40% of the original aggregate principal amount of the notes during the first three years after issuance at a price equal to 106.50%, plus accrued and unpaid interest. After this three-year period, AmeriHome may redeem some or all of the senior notes at a price equal to 103.25% of the outstanding principal amount, plus accrued and unpaid interest. In 2025, the redemption price of these senior notes declines to 100% of the outstanding principal balance. The carrying amount of the senior notes includes a fair value adjustment (premium) of $19 million recognized as of the acquisition date that is being amortized over the term of the notes.

Credit Linked Notes

The Company has entered into credit linked note transactions that effectively transfer the risk of first losses on certain pools of the Company’s warehouse and equity fund resource loans to the purchasers of these notes. In the event of a failure to pay by the relevant obligor, insolvency of the relevant obligor, or restructuring of such loans that results in a loss on a loan that is included in any of the reference pools, the principal balance of the notes will be reduced to the extent of such loss and a gain on recovery of credit guarantees will be recognized within non-interest income in the Consolidated Income Statement. The purchasers of the notes have the option to acquire the underlying reference loan in the event of obligor default. Losses on the warehouse lines of credit ~~residential mortgages,~~ and equity fund resource loans have not generally been significant.

On June 28, 2021, the Company issued $242 million aggregate principal amount of senior unsecured credit linked notes, which were recorded net of $3 million in debt issuance costs, on a $963 million reference pool of the Company's warehouse loans. The notes mature on December 30, 2024 and accrue interest at a rate equal to three-month LIBOR plus 5.50%, (which will convert to SOFR upon the discontinuation of LIBOR in June 2023), payable quarterly.

On June 23, 2022, the Company issued $300 million aggregate principal amount of senior unsecured credit linked notes, which were recorded net of $5 million in debt issuance costs, on a $2.2 billion reference pool of the Company's equity fund resource loans. The notes mature on June 30, 2028 and accrue interest at a rate equal to SOFR plus 6.75%, payable quarterly.

The Company has also entered into credit linked note transactions that effectively transfer the risk of first losses on reference pools of the Company's loans purchased under its residential mortgage purchase program to the purchasers of the notes. The principal and interest payable on these notes may be reduced by a portion of the Company's loss on such loans if one of the following occurs with respect to a covered loan: (i) realized losses incurred by the Company on a loan following a liquidation of the loan or certain other events, or (ii) a modification of the loan resulting in a reduction in payments. The aggregate losses, if any, for each payment date will be allocated to reduce the class principal amount and (for modifications) the current interest of the notes in reverse order of class priority. Losses on residential mortgages have not generally been significant.

Table of Contents

~~On December 29, 2021, the Company issued $228 million aggregate principal amount of senior unsecured~~The Company's credit linked note issuances are detailed in the tables below:

September 30, 2022

Description

Issuance Date

Maturity Date

Interest Rate

Principal

Debt Issuance Costs

(in millions)

Residential mortgage loans (1)

June 30, 2022

April 25, 2052

SOFR + 6.00%

191

Equity fund resource loans (2)

June 23, 2022

June 30, 2028

SOFR + 6.75%

300

Residential mortgage loans (3)

December 29, 2021

July 25, 2059

SOFR + 4.67%

206

Warehouse loans (4)

June 28, 2021

December 30, 2024

LIBOR + 5.50%

242

Total

939

(1) There are multiple classes of these notes, ~~which were recorded net~~each with an interest rate of ~~$3 million in debt issuance costs,~~SOFR plus a spread that ranges from 2.25% to 15.00% (or, a weighted average spread of 6.00%) on a ~~$4.1 billion~~ reference pool balance of ~~the Company's residential loans.~~$3.8 billion as of September 30, 2022.

(2) These notes had a reference pool balance of $2.2 billion as of September 30, 2022.

(3) There are six classes of these notes, each with an interest rate of SOFR plus a spread that ranges from 3.15% to 8.50% (or, a weighted average spread of 4.67%)~~, maturing on July 25, 2059.~~

~~On June 30, 2022, the Company issued $194 million aggregate principal amount of senior unsecured credit linked notes, which were recorded net of $3 million in debt issuance costs,~~ on a ~~$3.9 billion~~ reference pool balance of $4.0 billion as of September 30, 2022.

(4) The benchmark rate on these notes will convert to SOFR upon the ~~Company's residential loans.~~discontinuation of LIBOR in June 2023. These notes had a reference pool balance of $754 million as of September 30, 2022.

December 31, 2021

Description

Issuance Date

Maturity Date

Interest Rate

Principal

Debt Issuance Costs

(in millions)

Residential mortgage loans (1)

December 29, 2021

July 25, 2059

SOFR + 4.67%

228

Warehouse loans (2)

June 28, 2021

December 30, 2024

LIBOR + 5.50%

242

Total

470

(1) There are ~~multiple~~six classes of these notes, each with an interest rate of SOFR plus a spread that ranges from ~~2.25%~~3.15% to ~~15.00%~~8.50% (or, a weighted average spread of ~~6.00%~~4.67%)~~, maturing~~ on ~~April 25, 2052.~~a reference pool balance of $4.6 billion as of December 31, 2021.

(2) The benchmark rate on these notes will convert to SOFR upon the discontinuation of LIBOR in June 2023. These notes had a reference pool balance of $1.9 billion as of December 31, 2021.

8. QUALIFYING DEBT

Subordinated Debt

The Company's subordinated debt issuances are detailed in the ~~tables~~table below:


June 30, 2022 and December 31, 2021
September 30, 2022										September 30, 2022
Description	Description	Issuance Date	Maturity Date	Interest Rate		Principal		Debt Issuance Costs at Origination		Description	Issuance Date	Maturity Date	Interest Rate		Principal		Debt Issuance Costs
						(in millions)									(in millions)
WAL fixed-to-variable-rate (1)	WAL fixed-to-variable-rate (1)	June 2021	June 15, 2031	3.00	%	$	600	$	8	WAL fixed-to-variable-rate (1)	June 2021	June 15, 2031	3.00	%	$	600	$	7
WAB fixed-to-variable-rate (2)	WAB fixed-to-variable-rate (2)	May 2020	June 1, 2030	5.25	%	225		3		WAB fixed-to-variable-rate (2)	May 2020	June 1, 2030	5.25	%	225		2
Total	Total					$	825	$	11	Total					$	825	$	9

(1) Notes are redeemable, in whole or in part, beginning on June 15, 2026 at their principal amount plus accrued and unpaid interest and has a fixed interest rate of 3.00%. The notes also convert to a variable rate ~~on this date, which is expected to be~~of three-month SOFR plus 225 basis points on this date.

(2) Debt is redeemable, in whole or in part, on or after June 1, 2025 at its principal amount plus accrued and unpaid interest and has a fixed interest rate of 5.25% through June 1, 2025 and then converts to a variable rate per annum equal to three-month SOFR plus 512 basis points.


December 31, 2021
Description	Issuance Date	Maturity Date	Interest Rate		Principal		Debt Issuance Costs
					(in millions)
WAL fixed-to-variable-rate (1)	June 2021	June 15, 2031	3.00	%	$	600	$	8
WAB fixed-to-variable-rate (2)	May 2020	June 1, 2030	5.25	%	225		2
Total					$	825	$	10

(1) Notes are redeemable, in whole or in part, beginning on June 15, 2026 at their principal amount plus accrued and unpaid interest and has a fixed interest rate of 3.00%. The notes also convert to a variable rate of three-month SOFR plus 225 basis points on this date.

The carrying value of all subordinated debt issuances totaled $816 million and $815 million at ~~June~~September 30, 2022 and December 31, 2021, respectively.

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Junior Subordinated Debt

The Company has formed or acquired through acquisition 8eight statutory business trusts, which exist for the exclusive purpose of issuing Cumulative Trust Preferred Securities.

With the exception of debt issued by Bridge Capital Trust I and Bridge Capital Trust II, junior subordinated debt is recorded at fair value at each reporting date due to the FVO election made by the Company under ASC 825. The Company did not make the FVO election for the junior subordinated debt acquired ~~as part of~~in the Bridge acquisition. Accordingly, the carrying value of these trusts does not reflect the current fair value of the debt and includes a fair market value adjustment established at acquisition that is being accreted over the remaining life of the trusts.

The carrying value of junior subordinated debt was ~~$75~~$73 million and $81 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively. The weighted average interest rate of all junior subordinated debt as of ~~June~~September 30, 2022 was ~~4.62%~~6.09%, which is equal to three-month LIBOR plus the contractual spread of 2.34%, compared to a weighted average interest rate of 2.55% at December 31, 2021. Subsequent to June 30, 2023, interest rates on the Company's junior subordinated debt will be based on ~~SOFR.~~SOFR plus a spread adjustment.

In the event of certain changes or amendments to regulatory requirements or federal tax rules, the debt is redeemable in whole. The obligations under these instruments are fully and unconditionally guaranteed by the Company and rank subordinate and junior in right of payment to all other liabilities of the Company. Based on guidance issued by the FRB, the Company's securities continue to qualify as Tier 1 Capital.

9. STOCKHOLDERS' EQUITY

Stock-Based Compensation

Restricted Stock Awards

Restricted stock awards granted to employees generally vest over a 3-year period. Stock grants made to non-employee WAL directors in 2022 ~~will be~~were fully vested on July 1, 2022. The Company estimates the compensation cost for stock grants based upon the grant date fair value. Stock compensation expense is recognized on a straight-line basis over the requisite service period for the entire award. The aggregate grant date fair value for the restricted stock awards granted during the three and ~~six~~

~~Table of Contents~~

nine months ended ~~June~~September 30, 2022 was ~~$1.4~~$0.8 million and ~~$41.4~~$42.2 million, respectively. Stock compensation expense related to restricted stock awards granted to employees is included in Salaries and employee benefits in the Consolidated Income Statement. For restricted stock awards granted to WAL directors, the related stock compensation expense is included in Legal, professional, and directors' fees. For the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company recognized ~~$7.6~~$7.1 million and ~~$14.7~~$21.8 million, respectively, in stock-based compensation expense related to these stock grants, compared to ~~$6.6~~$5.0 million and ~~$12.2~~$17.2 million for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively.

In addition, the Company previously granted shares of restricted stock to certain members of executive management that had both performance and service conditions that affect vesting. There were no such grants made during the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, however expense was still being recognized through June 30, 2021 for a grant made in 2017 with a four-year vesting period. The Company recognized ~~$0.3 million and~~ $0.6 million in stock-based compensation expense related to these performance-based restricted stock grants during the ~~three and six~~nine months ended ~~June~~September 30, ~~2021, respectively.~~2021.

Performance Stock Units

The Company grants performance stock units to members of its executive management that do not vest unless the Company achieves a specified cumulative EPS target and a TSR performance measure over a three-year performance period. The number of shares issued will vary based on the cumulative EPS target and relative TSR performance factor that is achieved. The Company estimates the cost of performance stock units based upon the grant date fair value and expected vesting percentage over the three-year performance period. For the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company recognized ~~$3.4~~$2.3 million and ~~$6.2~~$8.5 million, respectively, in stock-based compensation expense related to these performance stock units, compared to ~~$2.5~~$3.1 million and ~~$4.6~~$7.7 million in stock-based compensation expense for such units during the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively.

The three-year performance period for the 2019 grant ended on December 31, 2021, and the Company's cumulative EPS and TSR performance measure for the performance period exceeded the level required for a maximum award under the terms of the grant. As a result, 203,646 shares became fully vested and distributed to executive management in the first quarter of 2022.

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Preferred Stock

On September 15, 2021, the Company entered into an underwriting agreement, pursuant to which the Company agreed to issue and sell an aggregate of 12,000,000 depositary shares, each representing a 1/400th ownership interest in a share of the Company’s 4.250% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Shares, Series A, par value $0.0001 per share, with a liquidation preference of $25 per depositary share (equivalent to $10,000 per share of Series A preferred stock).

During the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company declared and paid a quarterly cash dividend of $0.27 per depositary share, for a total dividend payment to preferred shareholders of $3.2 million and ~~$6.4~~$9.6 million, respectively. The Company did not pay a dividend to preferred shareholders during the three and nine months ended September 30, 2021.

Common Stock Issuances

Pursuant to ATM Distribution Agreement

The Company has a distribution agency agreement with J.P. Morgan Securities LLC and Piper Sandler & Co., under which the Company may sell up to 6,132,670 shares of its common stock on the NYSE. The Company pays the distribution agents a mutually agreed rate, not to exceed 2% of the gross offering proceeds of the shares sold pursuant to the distribution agency agreement. The common stock will be sold at prevailing market prices at the time of the sale or at negotiated prices and, as a result, prices will vary. Sales under the ATM program are being made pursuant to a prospectus dated May 14, 2021 and prospectus supplements filed with the SEC in an offering of shares from the Company's shelf registration statement on Form S-3 (No. 333-256120). During the three and nine months ended ~~June 30, 2022, the Company did not sell any shares under the ATM program. During the six months ended June~~September 30, 2022, the Company sold ~~1.3~~0.6 million and 1.9 million shares, respectively, under the ATM program at a weighted-average selling price of ~~$86.78~~$78.27 and $83.89 per share for gross proceeds of ~~$108.4 million.~~$50.3 million and $158.7 million, respectively. There were no sales under the ATM program during the three months ended September 30, 2021. During the ~~three and six~~nine months ended ~~June~~September 30, 2021, the Company sold ~~700,000~~0.7 million shares under the ATM program at a weighted-average selling price of $100.59 per share for gross proceeds of $70.4 million. Total related offering costs were ~~$0.7~~$0.3 million and $1.0 million, respectively, for the ~~six~~three and nine months ended ~~June~~September 30, 2022, substantially all of which relates to compensation costs paid to the distribution agents, and $0.6 million for the ~~three and six~~nine months ended ~~June~~September 30, 2021, of which $0.4 million relates to compensation costs paid to the distribution agent. As of ~~June~~September 30, 2022, the remaining number of shares that can be sold under this agreement totaled ~~1,750,856.~~1,107,769.

Registered Direct Offering

The Company sold 2.3 million shares of its common stock in a registered direct offering during the ~~six~~nine months ended ~~June~~September 30, 2021. The shares were sold for $91.00 per share for aggregate net proceeds of $209.2 million.

~~Table of Contents~~

Cash Dividend on Common Shares

During the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company declared and paid a quarterly cash dividend of $0.35 per share for the first two quarters of the year and increased the quarterly cash dividend to $0.36 per share in the third quarter, for a total dividend payment to shareholders of ~~$37.9~~$39.0 million and ~~$75.2~~$114.2 million, respectively. During the three and ~~six~~nine months ended ~~June~~September 30, 2021, the Company declared and paid aquarterly cash dividends of $0.25 per share for the first two quarters of the year and increased the quarterly cash dividend ~~of $0.25~~to $0.35 per share in the third quarter, for a total dividend payment to shareholders of ~~$25.8~~$36.5 million and ~~$51.1~~$87.6 million, respectively.

Treasury Shares

Treasury share purchases represent shares surrendered to the Company equal in value to the statutory payroll tax withholding obligations arising from the vesting of employee restricted stock awards. During the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company purchased treasury shares of ~~2,635~~11,039 and ~~188,169,~~199,208, respectively, at a weighted average price of ~~$77.50~~$77.36 and ~~$93.29~~$92.40 per share, respectively. During the three and ~~six~~nine months ended ~~June~~September 30, 2021, the Company purchased treasury shares of ~~2,256~~16,858 and ~~156,419,~~173,277, respectively, at a weighted average price of ~~$106.23~~$96.90 and ~~$83.89~~$85.15 per share, respectively.

10. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes in accumulated other comprehensive income (loss) by component, net of tax, for the periods indicated:


		Three Months Ended June 30,								Three Months Ended September 30,
		Unrealized holding gains (losses) on AFS securities		Unrealized holding losses on SERP		Unrealized holding gains (losses) on junior subordinated debt		Total				Unrealized holding gains (losses) on AFS securities		Unrealized holding losses on SERP		Unrealized holding gains (losses) on junior subordinated debt		Total
		(in millions)								(in millions)
Balance, March 31, 2022		$	(236.3)	$	(0.3)	$	1.5	$	(235.1)
Balance, June 30, 2022											Balance, June 30, 2022	$	(521.1)	$	(0.3)	$	3.5	$	(517.9)
Other comprehensive (loss) income before reclassifications	Other comprehensive (loss) income before reclassifications	(284.5)		—		2.0		(282.5)			Other comprehensive (loss) income before reclassifications	(219.9)		—		1.6		(218.3)
Amounts reclassified from AOCI	Amounts reclassified from AOCI	(0.3)		—		—		(0.3)			Amounts reclassified from AOCI	—		—		—		—
Net current-period other comprehensive (loss) income	Net current-period other comprehensive (loss) income	(284.8)		—		2.0		(282.8)			Net current-period other comprehensive (loss) income	(219.9)		—		1.6		(218.3)
Balance, June 30, 2022		$	(521.1)	$	(0.3)	$	3.5	$	(517.9)
Balance, September 30, 2022											Balance, September 30, 2022	$	(741.0)	$	(0.3)	$	5.1	$	(736.2)

Balance, March 31, 2021		$	20.0	$	(0.3)	$	0.2	$	19.9
Other comprehensive income (loss) before reclassifications		44.8		—		(0.2)		44.6
Balance, June 30, 2021											Balance, June 30, 2021	$	64.8	$	(0.3)	$	—	$	64.5
Other comprehensive loss before reclassifications											Other comprehensive loss before reclassifications	(21.8)		—		(0.1)		(21.9)
Amounts reclassified from AOCI	Amounts reclassified from AOCI	—		—		—		—			Amounts reclassified from AOCI	—		—		—		—
Net current-period other comprehensive income (loss)		44.8		—		(0.2)		44.6
Balance, June 30, 2021		$	64.8	$	(0.3)	$	—	$	64.5
Net current-period other comprehensive loss											Net current-period other comprehensive loss	(21.8)		—		(0.1)		(21.9)
Balance, September 30, 2021											Balance, September 30, 2021	$	43.0	$	(0.3)	$	(0.1)	$	42.6

		Six Months Ended June 30,								Nine Months Ended September 30,
		Unrealized holding gains (losses) on AFS securities		Unrealized holding losses on SERP		Unrealized holding gains (losses) on junior subordinated debt		Total				Unrealized holding gains (losses) on AFS securities		Unrealized holding losses on SERP		Unrealized holding gains (losses) on junior subordinated debt		Total
		(in millions)								(in millions)
Balance, December 31, 2021	Balance, December 31, 2021	$	16.7	$	(0.3)	$	(0.7)	$	15.7		Balance, December 31, 2021	$	16.7	$	(0.3)	$	(0.7)	$	15.7
Other comprehensive (loss) income before reclassifications	Other comprehensive (loss) income before reclassifications	(532.4)		—		4.2		(528.2)			Other comprehensive (loss) income before reclassifications	(752.3)		—		5.8		(746.5)
Amounts reclassified from AOCI	Amounts reclassified from AOCI	(5.4)		—		—		(5.4)			Amounts reclassified from AOCI	(5.4)		—		—		(5.4)
Net current-period other comprehensive (loss) income	Net current-period other comprehensive (loss) income	(537.8)		—		4.2		(533.6)			Net current-period other comprehensive (loss) income	(757.7)		—		5.8		(751.9)
Balance, June 30, 2022		$	(521.1)	$	(0.3)	$	3.5	$	(517.9)
Balance, September 30, 2022											Balance, September 30, 2022	$	(741.0)	$	(0.3)	$	5.1	$	(736.2)

Balance, December 31, 2020	Balance, December 31, 2020	$	92.1	$	(0.3)	$	0.5	$	92.3		Balance, December 31, 2020	$	92.1	$	(0.3)	$	0.5	$	92.3
Other comprehensive loss before reclassifications	Other comprehensive loss before reclassifications	(27.2)		—		(0.5)		(27.7)			Other comprehensive loss before reclassifications	(49.0)		—		(0.6)		(49.6)
Amounts reclassified from AOCI	Amounts reclassified from AOCI	(0.1)		—		—		(0.1)			Amounts reclassified from AOCI	(0.1)		—		—		(0.1)
Net current-period other comprehensive loss	Net current-period other comprehensive loss	(27.3)		—		(0.5)		(27.8)			Net current-period other comprehensive loss	(49.1)		—		(0.6)		(49.7)
Balance, June 30, 2021		$	64.8	$	(0.3)	$	—	$	64.5
Balance, September 30, 2021											Balance, September 30, 2021	$	43.0	$	(0.3)	$	(0.1)	$	42.6

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11. DERIVATIVES AND HEDGING ACTIVITIES

The Company is a party to various derivative instruments. Derivative instruments are contracts between two or more parties that have a notional amount and an underlying variable, require a small or no initial investment, and allow for the net settlement of positions. A derivative’s notional amount serves as the basis for the payment provision of the contract and takes the form of units, such as shares or dollars. A derivative’s underlying variable is a specified interest rate, security price, commodity price, foreign exchange rate, index, or other variable. The interaction between the notional amount and the underlying variable determines the number of units to be exchanged between the parties and influences the fair value of the derivative contract.

The primary types of derivatives that the Company uses are interest rate swaps, forward purchase and sale commitments, and interest rate futures. Generally, these instruments are used to help manage the Company's exposure to interest rate risk related to IRLCs and its inventory of loans HFS and MSRs and also to meet client financing and hedging needs.

Derivatives are recorded at fair value on the Consolidated Balance Sheets, after taking into account the effects of bilateral collateral and master netting agreements. These agreements allow the Company to settle all derivative contracts held with the same counterparty on a net basis, and to offset net derivative positions with related cash collateral, where applicable.

Derivatives Designated in Hedge Relationships

The Company utilizes derivatives that have been designated as part of a hedge relationship in accordance with the applicable accounting guidance to minimize the exposure to changes in benchmark interest rates and volatility of net interest income and EVE to interest rate fluctuations. The primary derivative instruments used to manage interest rate risk are interest rate swaps, which convert the contractual interest rate index of agreed-upon amounts of assets and liabilities (i.e., notional amounts) from either a fixed rate to a variable rate, or from a variable rate to a fixed rate.

The Company has pay fixed/receive variable interest rate swaps designated as fair value hedges of certain fixed rate loans. As a result, the Company receives variable-rate interest payments in exchange for making fixed-rate payments over the lives of the contracts without exchanging the notional amounts. The variable-rate interest payments are based on LIBOR and will convert to SOFR plus a spread adjustment upon the discontinuation of LIBOR in June 2023.

The Company also had pay fixed/receive variable interest rate swaps, designated as fair value hedges using the last-of-layer method to manage the exposure to changes in fair value associated with fixed rate loans, resulting from changes in the designated benchmark interest rate (federal funds rate). These last-of-layer hedges provided the Company the ability to execute a fair value hedge of the interest rate risk associated with a portfolio of similar prepayable assets whereby the last dollar amount estimated to remain in the portfolio of assets was identified as the hedged item. Under these interest rate swap contracts, the Company received a variable rate and paid a fixed rate on the outstanding notional amount. During the year ended December 31, 2021, the Company completed a partial discontinuation of one of its last-of-layer hedges, which reduced the total hedged amount on these hedges from $1.0 billion to $880 million. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company discontinued the remaining portion of these last-of-layer hedges. The cumulative basis adjustment on the discontinued last-of-layer hedges totaled $31 million, which was allocated across the remaining loan pool upon termination of the hedges and is being amortized over the remaining term.

The Company had a receive fixed/pay variable interest rate swap, designated as a fair value hedge on its $175 million subordinated debentures issued on June 16, 2016. This swap was terminated during the year ended December 31, 2021 in connection with the full redemption of the debt. The Company was paying a variable rate of three-month LIBOR plus 3.25% and was receiving quarterly fixed payments of 6.25% to match the payments on the debt.

Derivatives Not Designated in Hedge Relationships

Management enters into certain foreign exchange derivative contracts and back-to-back interest rate swaps which are not designated as accounting hedges. Foreign exchange derivative contracts include spot, forward, forward window, and swap contracts. The purpose of these derivative contracts is to mitigate foreign currency risk on transactions entered into, or on behalf of customers. Contracts with customers, along with the related derivative trades that the Company places, are both remeasured at fair value, and are referred to as economic hedges since they economically offset the Company's exposure. The Company's back-to-back interest rate swaps are used to allow customers to manage long-term interest rate risk.

As it relates to the Company's mortgage banking business, it also uses derivative financial instruments to manage exposure to interest rate risk related to IRLCs and its inventory of loans HFS and MSRs. The Company economically hedges the changes in fair value associated with changes in interest rates generally by utilizing forward sale commitments and interest rate futures.

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Fair Value Hedges

As of ~~June~~September 30, 2022 and December 31, 2021, the following amounts are reflected on the Consolidated Balance Sheets related to cumulative basis adjustments for outstanding fair value hedges:

June 30, 2022 December 31, 2021
Carrying Value of Hedged Assets/(Liabilities) Cumulative Fair Value Hedging Adjustment (1) Carrying Value of Hedged Assets/(Liabilities) Cumulative Fair Value Hedging Adjustment (1)
(in millions)
Loans HFI, net of deferred loan fees and costs (2) $ 494 $ 6 $ 1,391 $ 39


	September 30, 2022				December 31, 2021
	Carrying Value of Hedged Assets/(Liabilities)		Cumulative Fair Value Hedging Adjustment (1)		Carrying Value of Hedged Assets/(Liabilities)		Cumulative Fair Value Hedging Adjustment (1)
	(in millions)
Loans HFI, net of deferred loan fees and costs (2)	$	447	$	22	$	1,391	$	39

(1)Included in the carrying value of the hedged assets/(liabilities).

(2)As of December 31, 2021, included last-of-layer derivative instruments, with $880 million designated as the hedged amount (from a closed portfolio of prepayable fixed rate loans with a carrying value of $1.4 billion). The cumulative basis adjustment included in the carrying value of these hedged items totaled $16 million and the basis adjustment related to the discontinued portion was $1 million as of December 31, 2021.

For the Company's derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings in the same line item as the offsetting loss or gain on the related interest rate swaps. For loans, the gain or loss on the hedged item is included in interest income and for subordinated debt, the gain or loss on the hedged items was included in interest expense, as shown in the table below.


		Three Months Ended June 30,									Three Months Ended September 30,
		2022				2021					2022				2021
Income Statement Classification	Income Statement Classification	Gain/(Loss) on Swaps		Gain/(Loss) on Hedged Item		Gain/(Loss) on Swaps		Gain/(Loss) on Hedged Item		Income Statement Classification	Gain/(Loss) on Swaps		Gain/(Loss) on Hedged Item		Gain/(Loss) on Swaps		Gain/(Loss) on Hedged Item
		(in millions)									(in millions)
Interest income	Interest income	$	15.2	$	(15.2)	$	(10.8)	$	10.8	Interest income	$	27.5	$	(27.5)	$	7.5	$	(7.4)
Interest expense	Interest expense	—		—		3.7		(3.7)		Interest expense	—		—		(0.5)		0.5

		Six Months Ended June 30,									Nine Months Ended September 30,
		2022				2021					2022				2021
Income Statement Classification	Income Statement Classification	Gain/(Loss) on Swaps		Gain/(Loss) on Hedged Item		Gain/(Loss) on Swaps		Gain/(Loss) on Hedged Item		Income Statement Classification	Gain/(Loss) on Swaps		Gain/(Loss) on Hedged Item		Gain/(Loss) on Swaps		Gain/(Loss) on Hedged Item
		(in millions)									(in millions)
Interest income	Interest income	$	48.7	$	(48.7)	$	27.9	$	(27.9)	Interest income	$	76.3	$	(76.2)	$	35.4	$	(35.3)
Interest expense	Interest expense	—		—		(1.9)		1.9		Interest expense	—		—		(2.4)		2.4

In addition to the gains and losses on the Company's outstanding fair value hedges presented in the above table, the Company recognized $3.0 million and ~~$4.0~~$7.0 million in interest income related to the amortization of the cumulative basis adjustment on its discontinued last-of-layer hedges during the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively.

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Fair Values, Volume of Activity, and Gain/Loss Information Related to Derivative Instruments

The following table summarizes the fair value of the Company's derivative instruments on a gross basis as of ~~June~~September 30, 2022, December 31, 2021, and ~~June~~September 30, 2021. The change in the notional amounts of these derivatives from ~~June~~September 30, 2021 to ~~June~~September 30, 2022 indicates the volume of the Company's derivative transaction activity during these periods. The derivative asset and liability balances are presented on a gross basis, prior to the application of bilateral collateral and master netting agreements. Total derivative assets and liabilities are adjusted to take into account the impact of legally enforceable master netting agreements that allow the Company to settle all derivative contracts with the same counterparty on a net basis and to offset the net derivative position with the related cash collateral. Where master netting agreements are not in effect or are not enforceable under bankruptcy laws, the Company does not adjust those derivative amounts with counterparties.


		June 30, 2022						December 31, 2021						June 30, 2021							September 30, 2022						December 31, 2021						September 30, 2021
				Fair Value						Fair Value						Fair Value							Fair Value						Fair Value						Fair Value
		Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities			Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities
		(in millions)																			(in millions)
Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:																			Derivatives designated as hedging instruments:
Fair value hedges	Fair value hedges																			Fair value hedges
Interest rate swaps (1)	Interest rate swaps (1)	$	500	$	5	$	11	$	1,383	$	14	$	55	$	1,682	$	9	$	66	Interest rate swaps (1)	$	483	$	22	$	—	$	1,383	$	14	$	55	$	1,547	$	7	$	57
Total	Total	500		5		11		1,383		14		55		1,682		9		66		Total	483		22		—		1,383		14		55		1,547		7		57

Derivatives not designated as hedging instruments (2):	Derivatives not designated as hedging instruments (2):																			Derivatives not designated as hedging instruments (2):
Foreign currency contracts	Foreign currency contracts	$	138	$	1	$	—	$	180	$	—	$	1	$	132	$	1	$	1	Foreign currency contracts	$	146	$	2	$	1	$	180	$	—	$	1	$	118	$	2	$	—
Forward purchase contracts	Forward purchase contracts	4,764		32		10		11,714		8		18		7,293		22		3		Forward purchase contracts	8,226		3		249		11,714		8		18		6,551		1		37
Forward sales contracts	Forward sales contracts	9,621		35		35		17,358		16		18		12,156		10		33		Forward sales contracts	11,792		380		6		17,358		16		18		13,984		71		4
Futures purchase contracts (3)	Futures purchase contracts (3)	192,369		—		—		218,054		—		—		230,600		—		—		Futures purchase contracts (3)	172,333		—		—		218,054		—		—		224,325		—		—
Futures sales contracts (3)	Futures sales contracts (3)	197,741		—		—		229,040		—		—		248,399		—		—		Futures sales contracts (3)	180,454		—		—		229,040		—		—		232,527		—		—
Interest rate lock commitments	Interest rate lock commitments	2,819		15		3		3,033		11		2		3,753		32		1		Interest rate lock commitments	1,918		3		31		3,033		11		2		3,576		15		6
Interest rate swaps	Interest rate swaps	64		—		—		4		—		—		3		—		—		Interest rate swaps	2,155		5		5		4		—		—		4		—		—
Options contracts	Options contracts	—		—		—		—		—		—		650		2		—		Options contracts	—		—		—		—		—		—		50		—		—
Total	Total	$	407,516	$	83	$	48	$	479,383	$	35	$	39	$	502,986	$	67	$	38	Total	$	377,024	$	393	$	292	$	479,383	$	35	$	39	$	481,135	$	89	$	47
Margin	Margin			(9)		24				1		6				—		—		Margin			(100)		(11)				1		6				1		37
Total, including margin	Total, including margin	$	407,516	$	74	$	72	$	479,383	$	36	$	45	$	502,986	$	67	$	38	Total, including margin	$	377,024	$	293	$	281	$	479,383	$	36	$	45	$	481,135	$	90	$	84

(1)Interest rate swap amounts include a notional amount of $880 million ~~and $1.0 billion~~ related to the last-of-layer hedges at December 31, 2021 and ~~June~~September 30, ~~2021, respectively.~~2021.

(2)Relate to economic hedging arrangements.

(3)The Company enters into forward purchase and sales contracts that are subject to daily remargining and almost all of which are based on three-month LIBOR to hedge against its MSR valuation exposure. The notional amount on these contracts is substantial as these contracts have a duration of only 0.25 years and are intended to cover the longer duration of MSR hedges.

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The fair value of derivative contracts, after taking into account the effects of master netting agreements, is included in other assets or other liabilities on the Consolidated Balance Sheets, as summarized in the table below:


		June 30, 2022						December 31, 2021						June 30, 2021							September 30, 2022						December 31, 2021						September 30, 2021
		Gross amount of recognized assets (liabilities)		Gross offset		Net assets (liabilities)		Gross amount of recognized assets (liabilities)		Gross offset		Net assets (liabilities)		Gross amount of recognized assets (liabilities)		Gross offset		Net assets (liabilities)			Gross amount of recognized assets (liabilities)		Gross offset		Net assets (liabilities)		Gross amount of recognized assets (liabilities)		Gross offset		Net assets (liabilities)		Gross amount of recognized assets (liabilities)		Gross offset		Net assets (liabilities)
		(in millions)																			(in millions)
Derivatives subject to master netting arrangements:	Derivatives subject to master netting arrangements:																			Derivatives subject to master netting arrangements:
Assets	Assets																			Assets
Forward purchase contracts	Forward purchase contracts	$	31	$	—	$	31	$	8	$	—	$	8	$	21	$	—	$	21	Forward purchase contracts	$	3	$	—	$	3	$	8	$	—	$	8	$	1	$	—	$	1
Forward sales contracts	Forward sales contracts	33		—		33		15		—		15		10		—		10		Forward sales contracts	360		—		360		15		—		15		69		—		69
Interest rate swaps	Interest rate swaps	5		—		5		14		—		14		9		—		9		Interest rate swaps	22		—		22		14		—		14		7		—		7
Margin	Margin	(9)		—		(9)		1		—		1		—		—		—		Margin	(100)		—		(100)		1		—		1		1		—		1
Netting	Netting	—		(55)		(55)		—		(28)		(28)		—		(31)		(31)		Netting	—		(233)		(233)		—		(28)		(28)		—		(66)		(66)
		$	60	$	(55)	$	5	$	38	$	(28)	$	10	$	40	$	(31)	$	9		$	285	$	(233)	$	52	$	38	$	(28)	$	10	$	78	$	(66)	$	12
Liabilities	Liabilities																			Liabilities
Forward purchase contracts	Forward purchase contracts	$	(10)	$	—	$	(10)	$	(18)	$	—	$	(18)	$	(3)	$	—	$	(3)	Forward purchase contracts	$	(242)	$	—	$	(242)	$	(18)	$	—	$	(18)	$	(37)	$	—	$	(37)
Forward sales contracts	Forward sales contracts	(34)		—		(34)		(18)		—		(18)		(33)		—		(33)		Forward sales contracts	(6)		—		(6)		(18)		—		(18)		(4)		—		(4)
Interest rate swaps	Interest rate swaps	(11)		—		(11)		(54)		—		(54)		(66)		—		(66)		Interest rate swaps	—		—		—		(54)		—		(54)		(57)		—		(57)
Margin	Margin	(24)		—		(24)		(6)		—		(6)		—		—		—		Margin	11		—		11		(6)		—		(6)		(37)		—		(37)
Netting	Netting	—		55		55		—		28		28		—		31		31		Netting	—		233		233		—		28		28		—		66		66
		$	(79)	$	55	$	(24)	$	(96)	$	28	$	(68)	$	(102)	$	31	$	(71)		$	(237)	$	233	$	(4)	$	(96)	$	28	$	(68)	$	(135)	$	66	$	(69)
Derivatives not subject to master netting arrangements:	Derivatives not subject to master netting arrangements:																			Derivatives not subject to master netting arrangements:
Assets	Assets																			Assets
Foreign currency contracts	Foreign currency contracts	$	1	$	—	$	1	$	—	$	—	$	—	$	1	$	—	$	1	Foreign currency contracts	$	2	$	—	$	2	$	—	$	—	$	—	$	2	$	—	$	2
Forward purchase contracts		1		—		1		—		—		—		—		—		—

Forward sales contracts	Forward sales contracts	2		—		2		1		—		1		—		—		—		Forward sales contracts	20		—		20		1		—		1		2		—		2
Interest rate lock commitments	Interest rate lock commitments	15		—		15		11		—		11		32		—		32		Interest rate lock commitments	3		—		3		11		—		11		15		—		15
Interest rate swaps																				Interest rate swaps	5		—		5		—		—		—		—		—		—

Options contracts		—		—		—		—		—		—		3		—		3
		$	19	$	—	$	19	$	12	$	—	$	12	$	36	$	—	$	36		$	30	$	—	$	30	$	12	$	—	$	12	$	19	$	—	$	19
Liabilities	Liabilities																			Liabilities
Foreign currency contracts	Foreign currency contracts	$	—	$	—	$	—	$	(2)	$	—	$	(2)	$	(1)	$	—	$	(1)	Foreign currency contracts	$	(1)	$	—	$	(1)	$	(2)	$	—	$	(2)	$	—	$	—	$	—
Forward purchase contracts																				Forward purchase contracts	(7)		—		(7)		—		—		—		—		—		—

Forward sales contracts		(1)		—		(1)		—		—		—		—		—		—
Interest rate lock commitments	Interest rate lock commitments	(3)		—		(3)		(2)		—		(2)		(1)		—		(1)		Interest rate lock commitments	(31)		—		(31)		(2)		—		(2)		(6)		—		(6)

Interest rate swaps																				Interest rate swaps	(5)		—		(5)		—		—		—		—		—		—
		$	(4)	$	—	$	(4)	$	(4)	$	—	$	(4)	$	(2)	$	—	$	(2)		$	(44)	$	—	$	(44)	$	(4)	$	—	$	(4)	$	(6)	$	—	$	(6)
Total derivatives and margin	Total derivatives and margin																			Total derivatives and margin
Assets	Assets	$	79	$	(55)	$	24	$	50	$	(28)	$	22	$	76	$	(31)	$	45	Assets	$	315	$	(233)	$	82	$	50	$	(28)	$	22	$	97	$	(66)	$	31
Liabilities	Liabilities	$	(83)	$	55	$	(28)	$	(100)	$	28	$	(72)	$	(104)	$	31	$	(73)	Liabilities	$	(281)	$	233	$	(48)	$	(100)	$	28	$	(72)	$	(141)	$	66	$	(75)

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The following table summarizes the net gain (loss) on derivatives included in income:


		Three Months Ended June 30,				Six Months Ended June 30, 2022			Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021					2022		2021		2022		2021
		($ in millions)							($ in millions)
Net gain (loss) on loan origination and sale activities:	Net gain (loss) on loan origination and sale activities:							Net gain (loss) on loan origination and sale activities:
Interest rate lock commitments	Interest rate lock commitments	$	23.2	$	19.6	$	2.4	Interest rate lock commitments	$	(39.3)	$	(26.6)	$	(36.9)	$	(7.0)
Forward contracts	Forward contracts	101.0		(67.7)		342.3		Forward contracts	145.3		17.1		487.6		(50.6)

Interest rate swaps								Interest rate swaps	(8.6)		—		(8.6)		—
Other contracts	Other contracts	(6.1)		2.3		(9.8)		Other contracts	1.6		(2.4)		(8.2)		(0.1)
Total gain		$	118.1	$	(45.8)	$	334.9
Total gain (loss)								Total gain (loss)	$	99.0	$	(11.9)	$	433.9	$	(57.7)
Net loan servicing revenue:	Net loan servicing revenue:							Net loan servicing revenue:
Forward contracts	Forward contracts	$	(8.0)	$	12.7	$	(42.9)	Forward contracts	$	(18.0)	$	(2.6)	$	(60.9)	$	10.1
Options contracts	Options contracts	—		(1.0)		—		Options contracts	—		1.4		—		0.4
Futures contracts	Futures contracts	(21.9)		24.6		(43.9)		Futures contracts	2.4		(8.9)		(41.5)		15.7
Interest rate swaps								Interest rate swaps	(52.8)		—		(52.8)		—
Total loss	Total loss	$	(29.9)	$	36.3	$	(86.8)	Total loss	$	(68.4)	$	(10.1)	$	(155.2)	$	26.2

Counterparty Credit Risk

Like other financial instruments, derivatives contain an element of credit risk. This risk is measured as the expected replacement value of the contracts. Management enters into bilateral collateral and master netting agreements that provide for the net settlement of all contracts with the same counterparty. Additionally, management monitors counterparty credit risk exposure on each contract to determine appropriate limits on the Company's total credit exposure across all product types, which may require the Company to post collateral to counterparties when these contracts are in a net liability position and conversely, for counterparties to post collateral to the Company when these contracts are in a net asset position. Management reviews the Company's collateral positions on a daily basis and exchanges collateral with counterparties in accordance with standard ISDA documentation and other related agreements. The Company generally posts or holds collateral in the form of cash deposits or highly rated securities issued by the U.S. Treasury or government-sponsored enterprises, such as GNMA, FNMA, and FHLMC. The ~~total~~net collateral pledged by the Company to counterparties for its derivatives designated as hedging instruments totaled ~~$27~~$5 million, $67 million, and ~~$104~~$98 million as of ~~June~~September 30, 2022, December 31, 2021, and ~~June~~September 30, 2021, respectively.

12. EARNINGS PER SHARE

Diluted EPS is based on the weighted average outstanding common shares during the period, including common stock equivalents. Basic EPS is based on the weighted average outstanding common shares during the period.

The following table presents the calculation of basic and diluted EPS:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in millions, except per share amounts)									(in millions, except per share amounts)
Weighted average shares - basic	Weighted average shares - basic	107.3		102.7		106.7		101.8		Weighted average shares - basic	107.5		103.3		107.0		102.3
Dilutive effect of stock awards	Dilutive effect of stock awards	0.4		0.7		0.4		0.6		Dilutive effect of stock awards	0.4		0.6		0.4		0.6
Weighted average shares - diluted	Weighted average shares - diluted	107.7		103.4		107.1		102.4		Weighted average shares - diluted	107.9		103.9		107.4		102.9
Net income available to common stockholders	Net income available to common stockholders	$	257.0	$	223.8	$	493.9	$	416.3	Net income available to common stockholders	$	260.8	$	236.9	$	754.7	$	653.2
Earnings per share - basic	Earnings per share - basic	2.40		2.18		4.63		4.09		Earnings per share - basic	2.43		2.29		7.06		6.39
Earnings per share - diluted	Earnings per share - diluted	2.39		2.17		4.61		4.07		Earnings per share - diluted	2.42		2.28		7.03		6.35

The Company had no anti-dilutive stock options outstanding as of ~~June~~September 30, 2022 and 2021.

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13. INCOME TAXES

The Company's effective tax rate was ~~19.6%~~19.9% and ~~19.0%~~21.7% for the three months ended ~~June~~September 30, 2022 and 2021, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, the Company's effective tax rate was ~~19.5% and 18.5%, respectively.~~19.7%. The ~~increase~~decrease in the three month effective tax rate was primarily due to ~~projected pretax book income growth outpacing growth~~increases in ~~permanent~~solar tax ~~benefit items for the year~~credit investments and ~~an increase~~a decrease in state tax expense.

As of ~~June~~September 30, 2022, the net DTA balance totaled ~~$223~~$302 million, an increase of ~~$202~~$281 million from $21 million at December 31, 2021. This overall increase in the net DTA was primarily the result of decreases in the fair market value of AFS securities and expected tax credit carryovers. These items were not fully offset by increases to MSRs.

Although realization is not assured, the Company believes that the realization of the recognized deferred tax asset of ~~$223~~$302 million at ~~June~~September 30, 2022 is more-likely-than-not based on expectations as to future taxable income and based on available tax planning strategies that could be implemented if necessary to prevent a carryover from expiring.

At ~~June~~September 30, 2022 and December 31, 2021, the Company had no deferred tax valuation allowance.

LIHTC and renewable energy projects

The Company holds ownership interests in limited partnerships and limited liability companies that invest in affordable housing and renewable energy projects. These investments are designed to generate a return primarily through the realization of federal tax credits and deductions. The limited liability entities are considered to be VIEs; however, as a limited partner, the Company is not the primary beneficiary and is not required to consolidate these entities.

Investments in LIHTC and renewable energy totaled ~~$722~~$727 million and $631 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively. Unfunded LIHTC and renewable energy obligations are included ~~as part of~~in Other liabilities on the Consolidated Balance Sheets and totaled ~~$424~~$431 million and $361 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively. For the three months ended ~~June~~September 30, 2022 and 2021, ~~$15.4~~$16.8 million and ~~$8.2~~$12.9 million, respectively, of amortization related to LIHTC investments was recognized as a component of income tax expense. For the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, ~~$28.8~~$45.6 million and ~~$23.7~~$36.6 million, respectively, of amortization related to LIHTC investments was recognized as a component of income tax expense.

14. COMMITMENTS AND CONTINGENCIES

Unfunded Commitments and Letters of Credit

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. They involve, to varying degrees, elements of credit risk in excess of amounts recognized on the Consolidated Balance Sheets.

Lines of credit are obligations to lend money to a borrower. Credit risk arises when the borrower's current financial condition may indicate less ability to pay than when the commitment was originally made. In the case of letters of credit, the risk arises from the potential failure of the customer to perform according to the terms of a contract. In such a situation, the third party might draw on the letter of credit to pay for completion of the contract and the Company would look to its customer to repay these funds with interest. To minimize the risk, the Company uses the same credit policies in making commitments and conditional obligations as it would for a loan to that customer.

Letters of credit and financial guarantees are commitments issued by the Company to guarantee the performance of a customer to a third party in borrowing arrangements. The Company generally has recourse to recover from the customer any amounts paid under the guarantees. Typically, letters of credit issued have expiration dates within one year.

~~Table of Contents~~

A summary of the contractual amounts for unfunded commitments and letters of credit are as follows:


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
		(in millions)					(in millions)
Commitments to extend credit, including unsecured loan commitments of $1,596 at June 30, 2022 and $1,200 at December 31, 2021		$	16,798	$	13,396
Commitments to extend credit, including unsecured loan commitments of $1,326 at September 30, 2022 and $1,200 at December 31, 2021						Commitments to extend credit, including unsecured loan commitments of $1,326 at September 30, 2022 and $1,200 at December 31, 2021	$	18,229	$	13,396
Credit card commitments and financial guarantees	Credit card commitments and financial guarantees	346		307		Credit card commitments and financial guarantees	365		307
Letters of credit, including unsecured letters of credit of $5 at June 30, 2022 and $13 at December 31, 2021		251		198
Letters of credit, including unsecured letters of credit of $7 at September 30, 2022 and $13 at December 31, 2021						Letters of credit, including unsecured letters of credit of $7 at September 30, 2022 and $13 at December 31, 2021	273		198
Total	Total	$	17,395	$	13,901	Total	$	18,867	$	13,901

Table of Contents

Commitments to extend credit are agreements to lend to a customer provided that there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company enters into credit arrangements that generally provide for the termination of advances in the event of a covenant violation or other event of default. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party. The commitments are collateralized by the same types of assets used as loan collateral.

The Company has exposure to credit losses from unfunded commitments and letters of credit. As funds have not been disbursed on these commitments, they are not reported as loans outstanding. Credit losses related to these commitments are included in Other liabilities as a separate loss contingency and are not included in the allowance for credit losses reported in "Note 5. Loans, Leases and Allowance for Credit Losses" of these Unaudited Consolidated Financial Statements. This loss contingency for unfunded loan commitments and letters of credit was ~~$54~~$52 million and $38 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively. Changes to this liability are adjusted through the provision for credit losses in the Consolidated Income Statement.

Concentrations of Lending Activities

The Company does not have a single external customer from which it derives 10% or more of its revenues. The Company monitors concentrations of lending activities at the product and borrower relationship level. Commercial and industrial loans made up 43% and 47% of the Company's HFI loan portfolio as of ~~June~~September 30, 2022 and December 31, 2021, respectively. The Company's loan portfolio includes significant credit exposure to the CRE market. As of ~~June~~September 30, 2022 and December 31, 2021, CRE related loans accounted for approximately ~~26%~~27% and 29% of total loans, respectively. Substantially all of these loans are secured by first liens with an initial loan-to-value ratio of generally not more than 75%. Approximately ~~19%~~18% and 23% of these CRE loans, excluding construction and land loans, were owner-occupied as of ~~June~~September 30, 2022 and as of December 31, 2021, respectively. No borrower relationships at both the commitment and funded loan level exceeded 5% of total HFI loans as of ~~June~~September 30, 2022 and December 31, 2021.

Contingencies

The Company is involved in various lawsuits of a routine nature that are being handled and defended in the ordinary course of the Company’s business. Expenses are being incurred in connection with these lawsuits, but in the opinion of management, based in part on consultation with outside legal counsel, the resolution of these lawsuits and associated defense costs will not have a material impact on the Company’s financial position, results of operations, or cash flows.

Lease Commitments

The Company has operating leases under which it leases its branch offices, corporate headquarters, other offices, and data facility centers. Operating lease costs totaled $6.2 million and ~~$12.1~~$18.3 million during the three and ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~$4.4~~$5.8 million and ~~$8.1~~$13.9 million for the three and ~~six~~nine months ended ~~June~~September 30, 2021. Other lease costs, which include common area maintenance, parking, and taxes, and were included as ~~part of~~ occupancy expense, totaled ~~$1.0~~$1.2 million and ~~$2.1~~$3.3 million during the three and ~~six~~nine months ended ~~June~~September 30, 2022, compared to $0.9 million and ~~$1.9~~$2.8 million for the three and ~~six~~nine months ended ~~June~~September 30, 2021.

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15. FAIR VALUE ACCOUNTING

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach, and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC 825 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 825 are described in "Note 1. Summary of Significant Accounting Policies" of these Notes to Unaudited Consolidated Financial Statements.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally-developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth below.

Under ASC 825, the Company elected the FVO treatment for junior subordinated debt issued by WAL. This election is irrevocable and results in the recognition of unrealized gains and losses on the debt at each reporting date. These unrealized gains and losses are recognized ~~as part of~~in OCI rather than earnings. The Company did not elect FVO treatment for the junior subordinated debt assumed in the Bridge Capital Holdings acquisition.

For the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, unrealized gains and losses from fair value changes on junior subordinated debt were as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in millions)									(in millions)
Unrealized losses (gains)	Unrealized losses (gains)	$	2.7	$	(0.2)	$	5.6	$	(0.6)	Unrealized losses (gains)	$	2.1	$	(0.2)	$	7.7	$	(0.8)
Changes included in OCI, net of tax	Changes included in OCI, net of tax	2.0		(0.2)		4.2		(0.5)		Changes included in OCI, net of tax	1.6		(0.1)		5.8		(0.6)

Fair value on a recurring basis

Financial assets and financial liabilities measured at fair value on a recurring basis include the following:

AFS debt securities: Securities classified as AFS are reported at fair value utilizing Level 1 and Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include quoted prices in active markets, dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond’s terms and conditions, among other things.

Equity securities: Preferred stock and CRA investments are reported at fair value primarily utilizing Level 1 inputs.

Independent pricing service: The Company's independent pricing service provides pricing information on the majority of the Company's Level 1 and Level 2 AFS debt securities. For a small subset of securities, other pricing sources are used, including observed prices on publicly-traded securities and dealer quotes. Management independently evaluates the fair value measurements received from the Company's third-party pricing service through multiple review steps. First, management reviews what has transpired in the marketplace with respect to interest rates, credit spreads, volatility, and mortgage rates, among other things, and develops an expectation of changes to the securities' valuations from the previous quarter. Then, management selects a sample of investment securities and compares the values provided by its primary third-party pricing service to the market values obtained from secondary sources, including other pricing services and safekeeping statements, and evaluates those with notable variances. In instances where there are discrepancies in pricing from various sources and

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management expectations, management may manually price securities using currently observed market data to determine whether they can develop similar prices or may utilize bid information from broker dealers. Any remaining discrepancies between management’s review and the prices provided by the vendor are discussed with the vendor and/or the Company’s other valuation advisors.

Loans HFS: Government-insured or guaranteed and agency-conforming loans HFS are salable into active markets. Accordingly, the fair value of these loans is based on quoted market or contracted selling prices or a market price equivalent, which are categorized as Level 2 in the fair value hierarchy.

The fair value of EBO loans, non-agency loans, and loans that are delinquent or have an underwriting defect are valued using Level 3 inputs since they lack active markets.

Mortgage servicing rights: MSRs are measured based on valuation techniques using Level 3 inputs. The Company uses a discounted cash flow model that incorporates assumptions that market participants would use in estimating the fair value of servicing rights, including, but not limited to, option adjusted spread, conditional prepayment rate, servicing fee rate, recapture rate, and cost to service.

Derivative financial instruments: Treasury futures and options, Eurodollar futures, and swap futures are measured based on valuation techniques using Level 1 inputs from exchange-provided daily settlement quotes. Forward purchase and sales contracts are measured based on valuation techniques using Level 2 inputs, such as quoted market price, contracted selling price, or market price equivalent. Interest rate swaps are reported at fair value utilizing Level 2 inputs. The Company obtains dealer quotations to value its interest rate swaps. IRLCs are measured based on valuation techniques that consider loan type, underlying loan amount, maturity date, note rate, loan program, and expected settlement date, with Level 3 inputs for the servicing release premium and pull-through rate. These measurements are adjusted at the loan level to consider the servicing release premium and loan pricing adjustment specific to each loan. The base value is then adjusted for the pull-through rate. The pull-through rate and servicing fee multiple are unobservable inputs based on historical experience.

Junior subordinated debt: The Company estimates the fair value of its junior subordinated debt using a discounted cash flow model which incorporates the effect of the Company’s own credit risk in the fair value of the liabilities (Level 3). The Company’s cash flow assumptions are based on contractual cash flows as the Company anticipates that it will pay the debt according to its contractual terms.

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The fair value of assets and liabilities measured at fair value on a recurring basis was determined using the following inputs as of the periods presented:


		Fair Value Measurements at the End of the Reporting Period Using:									Fair Value Measurements at the End of the Reporting Period Using:
		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
		(in millions)									(in millions)
June 30, 2022
September 30, 2022										September 30, 2022
Assets:	Assets:									Assets:

Available-for-sale debt securities	Available-for-sale debt securities									Available-for-sale debt securities
CLO	CLO	$	—	$	2,678	$	—	$	2,678	CLO	$	—	$	2,641	$	—	$	2,641
Commercial MBS issued by GSEs	Commercial MBS issued by GSEs	—		61		—		61		Commercial MBS issued by GSEs	—		62		—		62
Corporate debt securities	Corporate debt securities	—		399		—		399		Corporate debt securities	—		391		—		391
Private label residential MBS	Private label residential MBS	—		1,312		—		1,312		Private label residential MBS	—		1,228		—		1,228
Residential MBS issued by GSEs	Residential MBS issued by GSEs	—		1,821		—		1,821		Residential MBS issued by GSEs	—		1,694		—		1,694
Tax-exempt	Tax-exempt	—		924		—		924		Tax-exempt	—		874		—		874

Other	Other	25		48		—		73		Other	25		45		—		70
Total AFS debt securities	Total AFS debt securities	$	25	$	7,243	$	—	$	7,268	Total AFS debt securities	$	25	$	6,935	$	—	$	6,960
Equity securities	Equity securities									Equity securities
CRA investments	CRA investments	$	25	$	26	$	—	$	51	CRA investments	$	24	$	25	$	—	$	49
Preferred stock	Preferred stock	119		—		—		119		Preferred stock	116		—		—		116
Total equity securities	Total equity securities	$	144	$	26	$	—	$	170	Total equity securities	$	140	$	25	$	—	$	165
Loans HFS	Loans HFS	$	—	$	2,603	$	1	$	2,604	Loans HFS	$	—	$	2,052	$	1	$	2,053
Mortgage servicing rights	Mortgage servicing rights	—		—		826		826		Mortgage servicing rights	—		—		1,044		1,044
Derivative assets (1)	Derivative assets (1)	—		64		15		79		Derivative assets (1)	—		312		3		315
Liabilities:	Liabilities:									Liabilities:
Junior subordinated debt (2)	Junior subordinated debt (2)	$	—	$	—	$	62	$	62	Junior subordinated debt (2)	$	—	$	—	$	60	$	60
Derivative liabilities (1)	Derivative liabilities (1)	—		80		3		83		Derivative liabilities (1)	—		250		31		281

(1)See "Note 11. Derivatives and Hedging Activities." In addition, the carrying value of loans is ~~increased~~decreased by $6$22 million as of ~~June~~September 30, 2022 for the effective portion of the hedge, which relates to the fair value of the hedges put in place to mitigate against fluctuations in interest rates.

(2)Includes only the portion of junior subordinated debt that is recorded at fair value at each reporting period pursuant to the election of FVO treatment.

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	Fair Value Measurements at the End of the Reporting Period Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
	(in millions)
December 31, 2021
Assets:




Available-for-sale debt securities
CLO	$	—	$	926	$	—	$	926
Commercial MBS issued by GSEs	—		69		—		69
Corporate debt securities	—		383		—		383
Private label residential MBS	—		1,508		—		1,508
Residential MBS issued by GSEs	—		1,993		—		1,993
Tax-exempt	—		1,215		—		1,215

U.S. treasury securities	13		—		—		13
Other	28		54		—		82
Total AFS debt securities	$	41	$	6,148	$	—	$	6,189
Equity securities
CRA investments	$	28	$	17	$	—	$	45
Preferred stock	114		—		—		114
Total equity securities	$	142	$	17	$	—	$	159
Loans - HFS	$	—	$	3,894	$	46	$	3,940
Mortgage servicing rights	—		—		698		698
Derivative assets (1)	—		39		11		50
Liabilities:
Junior subordinated debt (2)	$	—	$	—	$	67	$	67
Derivative liabilities (1)	—		98		2		100

(1)See "Note 11. Derivatives and Hedging Activities." In addition, the carrying value of loans is increased by $39 million as of December 31, 2021 for the effective portion of the hedge, which relates to the fair value of the hedges put in place to mitigate against fluctuations in interest rates.

(2)Includes only the portion of junior subordinated debt that is recorded at fair value at each reporting period pursuant to the election of FVO treatment.

For the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, the change in Level 3 liabilities measured at fair value on a recurring basis included in OCI was as follows:


		Junior Subordinated Debt									Junior Subordinated Debt
		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in millions)									(in millions)
Beginning balance	Beginning balance	$	(64.5)	$	(66.3)	$	(67.4)	$	(65.9)	Beginning balance	$	(61.8)	$	(66.5)	$	(67.4)	$	(65.9)
Change in fair value (1)	Change in fair value (1)	2.7		(0.2)		5.6		(0.6)		Change in fair value (1)	2.1		(0.2)		7.7		(0.8)
Ending balance	Ending balance	$	(61.8)	$	(66.5)	$	(61.8)	$	(66.5)	Ending balance	$	(59.7)	$	(66.7)	$	(59.7)	$	(66.7)

(1)Unrealized gains/(losses) attributable to changes in the fair value of junior subordinated debt are recorded ~~as part of~~in OCI, net of tax, and totaled ~~$2.0~~$1.6 million and ~~$(0.2)~~$(0.1) million for three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$4.2~~$5.8 million and ~~$(0.5)~~$(0.6) million for the ~~six~~nine months ended ~~June~~September 30, 2022, and 2021, respectively.

The significant unobservable inputs used in the fair value measurements of these Level 3 liabilities were as follows:

June 30, 2022 Valuation Technique Significant Unobservable Inputs Input Value
(in millions)
Junior subordinated debt $ 62 Discounted cash flow Implied credit rating of the Company 5.63 %

September 30, 2022

Valuation Technique

Significant Unobservable Inputs

Input Value

(in millions)

Junior subordinated debt

Discounted cash flow

Implied credit rating of the Company

7.67

December 31, 2021

Valuation Technique

Significant Unobservable Inputs

Input Value

(in millions)

Junior subordinated debt

Discounted cash flow

Implied credit rating of the Company

2.61

The significant unobservable inputs used in the fair value measurement of the Company’s junior subordinated debt as of ~~June~~September 30, 2022 and December 31, 2021 was the implied credit risk for the Company. As of ~~June~~September 30, 2022 and ~~December 31, 2021, the~~

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December 31, 2021, the implied credit risk spread was calculated as the difference between the average of the 15-year 'BB' and 'BBB' rated financial indexes over the corresponding swap index.

As of ~~June~~September 30, 2022, the Company estimates the discount rate at ~~5.63%~~7.67%, which represents an implied credit spread of ~~3.34%~~3.92% plus three-month LIBOR ~~(2.29%~~(3.75%). As of December 31, 2021, the Company estimated the discount rate at 2.61%, which was a 2.40% credit spread plus three-month LIBOR (0.21%).

The change in Level 3 assets and liabilities measured at fair value on a recurring basis included in income was as follows:

Three Months Ended June 30, 2022
Loans held for sale Mortgage servicing rights Net interest rate lock commitments (1)
(in millions)
Balance, March 31, 2022 $ 8 $ 950 $ (11)
Purchases and additions 68 194 5,575
Sales and payments (75) (350) —
Settlement of interest rate lock commitments upon acquisition or origination of loans HFS — — (5,543)
Change in fair value — 62 (9)
Realization of cash flows — (30) —
Balance, June 30, 2022 $ 1 $ 826 $ 12
Unrealized gains included in income related to assets held at period end $ — $ 40 $ 12

~~(1) Interest rate lock commitment asset and liability positions are presented net.~~
Six Months Ended June 30, 2022
Loans held for sale Mortgage servicing rights Net interest rate lock commitments (1)
(in millions)
Balance, December 31, 2021 $ 46 $ 698 $ 9
Purchases and additions 405 398 10,898
Sales and payments (471) (350) —
Transfers from Level 2 to Level 3 39 — —
Transfers from Level 3 to Level 2 (18) — —
Settlement of interest rate lock commitments upon acquisition or origination of loans HFS — — (10,864)
Change in fair value — 143 (31)
Realization of cash flows — (63) —
Balance, June 30, 2022 $ 1 $ 826 $ 12
Unrealized gains included in income related to assets held at period end $ — $ 89 $ 12
~~(1) Interest rate lock commitment asset and liability positions are presented net.~~


		Three Months Ended June 30, 2021							Three Months Ended September 30, 2022						Nine Months Ended September 30, 2022
		Loans held for sale		Mortgage servicing rights		Net interest rate lock commitments (1)			Loans held for sale		Mortgage servicing rights		Net interest rate lock commitments (1)		Loans held for sale		Mortgage servicing rights		Net interest rate lock commitments (1)
		(in millions)							(in millions)
Fair value, March 31, 2021		$	—	$	—	$	—
Acquired in AMH acquisition		1		1,376		24
Balance, beginning of period								Balance, beginning of period	$	1	$	826	$	12	$	46	$	698	$	9
Purchases and additions	Purchases and additions	—		282		6,338		Purchases and additions	241		180		5,205		1,121		578		16,104
Sales and payments	Sales and payments	(1)		(871)		—		Sales and payments	(241)		—		—		(1,187)		(350)		—
Transfers from Level 2 to Level 3	Transfers from Level 2 to Level 3	1		—		—		Transfers from Level 2 to Level 3	—		—		—		38		—		—

Transfers from Level 3 to Level 2								Transfers from Level 3 to Level 2	—		—		—		(17)		—		—
Settlement of interest rate lock commitments upon acquisition or origination of loans HFS	Settlement of interest rate lock commitments upon acquisition or origination of loans HFS	—		—		(6,324)		Settlement of interest rate lock commitments upon acquisition or origination of loans HFS	—		—		(5,235)		—		—		(16,099)
Change in fair value	Change in fair value	—		7		(7)		Change in fair value	—		63		(10)		—		206		(42)
Realization of cash flows	Realization of cash flows	—		(68)		—		Realization of cash flows	—		(25)		—		—		(88)		—
Fair value, June 30, 2021		$	1	$	726	$	31
Unrealized gains (losses) included in income related to assets held at period end		$	—	$	(31)	$	31
Balance, end of period								Balance, end of period	$	1	$	1,044	$	(28)	$	1	$	1,044	$	(28)
Changes in unrealized gains (losses) for the period (2)								Changes in unrealized gains (losses) for the period (2)	$	—	$	62	$	(28)	$	—	$	150	$	(28)

(1) Interest rate lock commitment asset and liability positions are presented net.

(2) Amounts included in income that are attributable to Level 3 assets or liabilities held at period end.


	Three Months Ended September 30, 2021						Nine Months Ended September 30, 2021
	Loans held for sale		Mortgage servicing rights		Net interest rate lock commitments (1)		Loans held for sale		Mortgage servicing rights		Net interest rate lock commitments (1)
	(in millions)
Balance, beginning of period	$	1	$	726	$	31	$	—	$	—	$	—
Acquired in AMH acquisition	—		—		—		1		1,376		24
Purchases and additions	3		230		8,331		3		513		14,669
Sales and payments	(3)		(327)		—		(4)		(1,199)		—
Transfers from Level 2 to Level 3	4		—		—		5		—		—

Settlement of interest rate lock commitments upon acquisition or origination of loans HFS	—		—		(8,357)		—		—		(14,681)
Change in fair value	—		15		4		—		22		(3)
Realization of cash flows	—		(39)		—		—		(107)		—
Balance, end of period	$	5	$	605	$	9	$	5	$	605	$	9
Changes in unrealized gains (losses) for the period (2)	$	—	$	6	$	9	$	—	$	(9)	$	9

(1) Interest rate lock commitment asset and liability positions are presented net.

(2) Amounts included in income that are attributable to Level 3 assets or liabilities held at period end.

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The significant unobservable inputs used in the fair value measurements of these Level 3 assets and liabilities were as follows:

~~June~~September 30, 2022

Asset/liability

Key inputs

Range

Weighted average

Mortgage servicing rights:

Option adjusted spread (in basis points)

~~372~~209 - ~~672~~631

~~486~~375

Conditional prepayment rate (1)

8.4% - 17.2%

~~12.9%~~12.7%

Recapture rate

20.0% - 20.0%

20.0%

Servicing fee rate (in basis points)

~~19.0~~25.0 - 56.5

~~32.5~~33

Cost to service

$87 - $94

$90

Loans held for sale:

Whole loan spread to TBA price (in basis points)

~~(3.3)~~1.9 - ~~(1.3)~~3.1

~~(2.3)~~2.7

Interest rate lock commitments:

Servicing fee multiple

~~3.1~~3.3 - ~~5.5~~6.1

~~4.5~~5.1

Pull-through rate

~~74%~~73% - 100%

~~89%~~88%


		December 31, 2021
Asset/liability	Key inputs	Range	Weighted average
Mortgage servicing rights:	Option adjusted spread (in basis points)	553 - 735	600
	Conditional prepayment rate (1)	9.9% - 20.7%	15.2%
	Recapture rate	20.0% - 20.0%	20.0%
	Servicing fee rate (in basis points)	25.0 - 50.0	29.5
	Cost to service	$84 - $91	$86
Loans held for sale:	Whole loan spread to TBA price (in basis points)	(3.7) - (2.9)	(3.3)
Interest rate lock commitments:	Servicing fee multiple	3.6 - 5.4	4.6
	Pull-through rate	75% - 100%	90%

(1) Lifetime total prepayment speed annualized.

The following is a summary of the difference between the aggregate fair value and the aggregate UPB of loans HFS for which the fair value option has been elected:


		June 30, 2022						December 31, 2021							September 30, 2022						December 31, 2021
		Fair value		Unpaid principal balance		Difference		Fair value		Unpaid principal balance		Difference			Fair value		Unpaid principal balance		Difference		Fair value		Unpaid principal balance		Difference
		(in millions)													(in millions)
Loans held for sale:	Loans held for sale:													Loans held for sale:
Current through 89 days delinquent	Current through 89 days delinquent	$	2,602	$	2,552	$	50	$	3,938	$	3,808	$	130	Current through 89 days delinquent	$	2,053	$	2,098	$	(45)	$	3,938	$	3,808	$	130
90 days or more delinquent	90 days or more delinquent	2		2		—		2		2		—		90 days or more delinquent	1		1		—		2		2		—
Total	Total	$	2,604	$	2,554	$	50	$	3,940	$	3,810	$	130	Total	$	2,054	$	2,099	$	(45)	$	3,940	$	3,810	$	130

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Fair value on a nonrecurring basis

Certain assets are measured at fair value on a nonrecurring basis. That is, the assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of credit deterioration). The following table presents such assets carried on the Consolidated Balance Sheet by caption and by level within the ASC 825 hierarchy:


		Fair Value Measurements at the End of the Reporting Period Using									Fair Value Measurements at the End of the Reporting Period Using
		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Active Markets for Similar Assets (Level 2)		Unobservable Inputs (Level 3)			Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Active Markets for Similar Assets (Level 2)		Unobservable Inputs (Level 3)
		(in millions)									(in millions)
As of June 30, 2022:
As of September 30, 2022:										As of September 30, 2022:
Loans HFI	Loans HFI	$	260	$	—	$	—	$	260	Loans HFI	$	254	$	—	$	—	$	254
Other assets acquired through foreclosure	Other assets acquired through foreclosure	12		—		—		12		Other assets acquired through foreclosure	11		—		—		11
As of December 31, 2021:	As of December 31, 2021:									As of December 31, 2021:
Loans HFI	Loans HFI	$	216	$	—	$	—	$	216	Loans HFI	$	216	$	—	$	—	$	216
Other assets acquired through foreclosure	Other assets acquired through foreclosure	12		—		—		12		Other assets acquired through foreclosure	12		—		—		12

For Level 3 assets measured at fair value on a nonrecurring basis as of ~~June~~September 30, 2022 and December 31, 2021, the significant unobservable inputs used in the fair value measurements were as follows:

~~June~~September 30, 2022

Valuation Technique(s)

Significant Unobservable Inputs

Range

(in millions)

Loans HFI

~~260~~254

Collateral method

Third party appraisal

Costs to sell

6.0% to 10.0%

Discounted cash flow method

Discount rate

Contractual loan rate

3.0% to ~~6.0%~~8.0%

Scheduled cash collections

Probability of default

0% to 20.0%

Proceeds from non-real estate collateral

Loss given default

0% to 70.0%

Other assets acquired through foreclosure

1211

Collateral method

Third party appraisal

Costs to sell

4.0% to 10.0%

December 31, 2021

Valuation Technique(s)

Significant Unobservable Inputs

Range

(in millions)

Loans HFI

216

Collateral method

Third party appraisal

Costs to sell

6.0% to 10.0%

Discounted cash flow method

Discount rate

Contractual loan rate

3.0% to 6.0%

Scheduled cash collections

Probability of default

0% to 20.0%

Proceeds from non-real estate collateral

Loss given default

0% to 70.0%

Other assets acquired through foreclosure

Collateral method

Third party appraisal

Costs to sell

4.0% to 10.0%

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Loans HFI: Loans measured at fair value on a nonrecurring basis include collateral dependent loans. The specific reserves for these loans are based on collateral value, net of estimated disposition costs and other identified quantitative inputs. Collateral value is determined based on independent third-party appraisals or internally-developed discounted cash flow analyses. Appraisals may utilize a single valuation approach or a combination of approaches, including comparable sales and the income approach. Fair value is determined, where possible, using market prices derived from an appraisal or evaluation, which are considered to be Level 2. However, certain assumptions and unobservable inputs are often used by the appraiser, therefore qualifying the assets as Level 3 in the fair value hierarchy. In addition, when adjustments are made to an appraised value to reflect various factors such as the age of the appraisal or known changes in the market or the collateral, such valuation inputs are considered unobservable and the fair value measurement is categorized as a Level 3 measurement. Internal discounted cash flow analyses are also utilized to estimate the fair value of these loans, which considers internally-developed, unobservable inputs such as discount rates, default rates, and loss severity.

Total Level 3 collateral dependent loans had an estimated fair value of ~~$260~~$254 million and $216 million at ~~June~~September 30, 2022 and December 31, 2021, respectively, net of a specific allowance for credit losses of $9$14 million and $11 million at ~~June~~September 30, 2022 and December 31, 2021, respectively.

Other assets acquired through foreclosure: Other assets acquired through foreclosure consist of properties acquired as a result of, or in-lieu-of, foreclosure. These assets are initially reported at the fair value determined by independent appraisals using appraised value less estimated cost to sell. Such properties are generally re-appraised every twelve months. Costs relating to the development or improvement of the assets are capitalized and costs relating to holding the assets are charged to expense.

Fair value is determined, where possible, using market prices derived from an appraisal or evaluation, which are considered to be Level 2. However, certain assumptions and unobservable inputs are often used by the appraiser, therefore qualifying the assets as Level 3 in the fair value hierarchy. When significant adjustments are based on unobservable inputs, such as when a current appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the resulting fair value measurement has been categorized as a Level 3 measurement. The Company had $11 million and $12 million of such assets at ~~June~~September 30, 2022 and December 31, ~~2021.~~2021, respectively.

Fair Value of Financial Instruments

The estimated fair value of the Company’s financial instruments is as follows:


		June 30, 2022															September 30, 2022
		Carrying Amount			Fair Value												Carrying Amount			Fair Value
				Level 1			Level 2			Level 3			Total						Level 1			Level 2			Level 3			Total
				(in millions)															(in millions)
Financial assets:	Financial assets:															Financial assets:

Investment securities:	Investment securities:															Investment securities:
HTM	HTM	$	1,218		$	—		$	1,122		$	—		$	1,122	HTM	$	1,270		$	—		$	1,084		$	—		$	1,084
AFS	AFS	7,268			25			7,243			—			7,268		AFS	6,960			25			6,935			—			6,960
Equity	Equity	170			144			26			—			170		Equity	165			140			25			—			165
Derivative assets	Derivative assets	79			—			64			15			79		Derivative assets	315			—			312			3			315
Loans HFS	Loans HFS	2,803			—			2,603			201			2,804		Loans HFS	2,204			—			2,053			152			2,205
Loans HFI, net	Loans HFI, net	48,299			—			—			46,549			46,549		Loans HFI, net	51,897			—			—			50,068			50,068
Mortgage servicing rights	Mortgage servicing rights	826			—			—			826			826		Mortgage servicing rights	1,044			—			—			1,044			1,044
Accrued interest receivable	Accrued interest receivable	272			—			272			—			272		Accrued interest receivable	313			—			313			—			313
Financial liabilities:	Financial liabilities:															Financial liabilities:
Deposits	Deposits	$	53,712		$	—		$	53,711		$	—		$	53,711	Deposits	$	55,589		$	—		$	55,600		$	—		$	55,600
Other borrowings	Other borrowings	5,210			—			5,232			—			5,232		Other borrowings	6,319			—			6,217			—			6,217
Qualifying debt	Qualifying debt	891			—			767			74			841		Qualifying debt	889			—			743			72			815
Derivative liabilities	Derivative liabilities	83			—			80			3			83		Derivative liabilities	281			—			250			31			281
Accrued interest payable	Accrued interest payable	11			—			11			—			11		Accrued interest payable	20			—			20			—			20

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	December 31, 2021
	Carrying Amount		Fair Value
			Level 1		Level 2		Level 3		Total
	(in millions)
Financial assets:
Investment securities:
HTM	$	1,107	$	—	$	1,146	$	—	$	1,146
AFS	6,189		41		6,148		—		6,189
Equity securities	159		142		17		—		159
Derivative assets	50		—		39		11		50
Loans HFS	5,635		—		3,894		1,760		5,654
Loans HFI, net	38,823		—		—		39,218		39,218
Mortgage servicing rights	698		—		—		698		698
Accrued interest receivable	228		—		228		—		228
Financial liabilities:
Deposits	$	47,612	$	—	$	47,616	$	—	$	47,616
Other borrowings	1,502		—		1,518		—		1,518
Qualifying debt	896		—		858		81		939
Derivative liabilities	100		—		98		2		100
Accrued interest payable	9		—		9		—		9

Interest rate risk

The Company assumes interest rate risk (the risk to the Company’s earnings and capital from changes in interest rate levels) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments, as well as its future net interest income, will change when interest rate levels change and that change may be either favorable or unfavorable to the Company.

Interest rate risk exposure is measured using interest rate sensitivity analysis to determine the Company's change in EVE and net interest income resulting from hypothetical changes in interest rates. If potential changes to EVE and net interest income resulting from hypothetical interest rate changes are not within the limits established by the BOD, the BOD may direct management to adjust the asset and liability mix to bring interest rate risk within BOD-approved limits.

WAB has an ALCO charged with managing interest rate risk within the BOD-approved limits. Limits are structured to preclude an interest rate risk profile that does not conform to both management and BOD risk tolerances without ALCO approval. There is also ALCO reporting at the Parent level for reviewing interest rate risk for the Company, which gets reported to the BOD and its Finance and Investment Committee.

Fair value of commitments

The estimated fair value of letters of credit outstanding at ~~June~~September 30, 2022 and December 31, 2021 approximates zero as there have been no significant changes in borrower creditworthiness. Loan commitments on which the committed interest rates are less than the current market rate are insignificant at ~~June~~September 30, 2022 and December 31, 2021.

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16. SEGMENTS

The Company's reportable segments are aggregated with a focus on products and services offered and consist of three reportable segments:

•Commercial segment: provides commercial banking and treasury management products and services to small and middle-market businesses, specialized banking services to sophisticated commercial institutions and investors within niche industries, as well as financial services to the real estate industry.

•Consumer Related segment: offers consumer banking services, such as mortgage banking and commercial banking services to enterprises in consumer-related sectors and beginning on January 25, 2022 includes the financial results of DST.

•Corporate & Other segment: consists of the Company's investment portfolio, Corporate borrowings and other related items, income and expense items not allocated to our other reportable segments, and inter-segment eliminations.

The Company's segment reporting process begins with the assignment of all loan and deposit accounts directly to the segments where these products are originated and/or serviced. Equity capital is assigned to each segment based on the risk profile of their assets and liabilities. With the exception of goodwill, which is assigned a 100% weighting, equity capital allocations ranged from 0% to 20% during the year. Any excess or deficient equity not allocated to segments based on risk is assigned to the Corporate & Other segment.

Net interest income, provision for credit losses, and non-interest expense amounts are recorded in their respective segments to the extent that the amounts are directly attributable to those segments. Net interest income is recorded in each segment on a TEB with a corresponding increase in income tax expense, which is eliminated in the Corporate & Other segment.

Further, net interest income of a reportable segment includes a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Using this funds transfer pricing methodology, liquidity is transferred between users and providers. A net user of funds has lending/investing in excess of deposits/borrowings and a net provider of funds has deposits/borrowings in excess of lending/investing. A segment that is a user of funds is charged for the use of funds, while a provider of funds is credited through funds transfer pricing, which is determined based on the average life of the assets or liabilities in the portfolio. Residual funds transfer pricing mismatches are allocable to the Corporate & Other segment and presented ~~as part of~~in net interest income.

The net income amount for each reportable segment is further derived by the use of expense allocations. Certain expenses not directly attributable to a specific segment are allocated across all segments based on key metrics, such as number of employees, number of transactions processed for loans and deposits, and average loan and deposit balances. These types of expenses include information technology, operations, human resources, finance, risk management, credit administration, legal, and marketing.

Income taxes are applied to each segment based on the effective tax rate for the geographic location of the segment. Any difference in the corporate tax rate and the aggregate effective tax rates in the segments are adjusted in the Corporate & Other segment.

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The following is a summary of operating segment information for the periods indicated:


Balance Sheet:	Balance Sheet:	Consolidated Company		Commercial		Consumer Related		Corporate & Other		Balance Sheet:	Consolidated Company		Commercial		Consumer Related		Corporate & Other
At June 30, 2022:		(in millions)
At September 30, 2022:										At September 30, 2022:	(in millions)
Assets:	Assets:									Assets:
Cash, cash equivalents, and investment securities	Cash, cash equivalents, and investment securities	$	10,688	$	15	$	—	$	10,673	Cash, cash equivalents, and investment securities	$	10,213	$	12	$	—	$	10,201
Loans held for sale	Loans held for sale	2,803		—		2,803		—		Loans held for sale	2,204		—		2,204		—
Loans, net of deferred fees and costs	Loans, net of deferred fees and costs	48,572		29,448		19,124		—		Loans, net of deferred fees and costs	52,201		32,060		20,141		—
Less: allowance for credit losses	Less: allowance for credit losses	(273)		(242)		(31)		—		Less: allowance for credit losses	(304)		(266)		(38)		—
Total loans	Total loans	48,299		29,206		19,093		—		Total loans	51,897		31,794		20,103		—
Other assets acquired through foreclosure, net	Other assets acquired through foreclosure, net	12		12		—		—		Other assets acquired through foreclosure, net	11		11		—		—
Goodwill and other intangible assets, net	Goodwill and other intangible assets, net	695		294		401		—		Goodwill and other intangible assets, net	682		294		388		—
Other assets	Other assets	3,558		275		1,510		1,773		Other assets	4,158		370		1,890		1,898
Total assets	Total assets	$	66,055	$	29,802	$	23,807	$	12,446	Total assets	$	69,165	$	32,481	$	24,585	$	12,099
Liabilities:	Liabilities:									Liabilities:
Deposits	Deposits	$	53,712	$	29,482	$	19,690	$	4,540	Deposits	$	55,589	$	30,006	$	20,957	$	4,626
Borrowings and qualifying debt	Borrowings and qualifying debt	6,101		29		356		5,716		Borrowings and qualifying debt	7,208		26		375		6,807
Other liabilities	Other liabilities	1,283		235		300		748		Other liabilities	1,347		105		447		795
Total liabilities	Total liabilities	61,096		29,746		20,346		11,004		Total liabilities	64,144		30,137		21,779		12,228
Allocated equity:	Allocated equity:	4,959		2,842		1,852		265		Allocated equity:	5,021		2,802		1,711		508
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	66,055	$	32,588	$	22,198	$	11,269	Total liabilities and stockholders' equity	$	69,165	$	32,939	$	23,490	$	12,736
Excess funds provided (used)	Excess funds provided (used)	—		2,786		(1,609)		(1,177)		Excess funds provided (used)	—		458		(1,095)		637

Income Statement:	Income Statement:									Income Statement:
Three Months Ended June 30, 2022:		(in millions)
Three Months Ended September 30, 2022:										Three Months Ended September 30, 2022:	(in millions)
Net interest income										Net interest income	$	602.1	$	413.0	$	235.0	$	(45.9)
Provision for credit losses										Provision for credit losses	28.5		19.9		7.6		1.0
Net interest income (expense) after provision for credit losses										Net interest income (expense) after provision for credit losses	573.6		393.1		227.4		(46.9)
Non-interest income										Non-interest income	61.8		16.1		44.2		1.5
Non-interest expense										Non-interest expense	305.8		111.0		178.4		16.4
Income (loss) before income taxes										Income (loss) before income taxes	329.6		298.2		93.2		(61.8)
Income tax expense (benefit)										Income tax expense (benefit)	65.6		71.0		22.3		(27.7)
Net income (loss)										Net income (loss)	$	264.0	$	227.2	$	70.9	$	(34.1)

Nine Months Ended September 30, 2022:										Nine Months Ended September 30, 2022:	(in millions)
Net interest income	Net interest income	$	525.0	$	370.5	$	219.4	$	(64.9)	Net interest income	$	1,576.6	$	1,118.3	$	637.7	$	(179.4)
Provision for (recovery of) credit losses	Provision for (recovery of) credit losses	27.5		32.7		(5.2)		—		Provision for (recovery of) credit losses	65.0		53.1		12.9		(1.0)
Net interest income (expense) after provision for credit losses	Net interest income (expense) after provision for credit losses	497.5		337.8		224.6		(64.9)		Net interest income (expense) after provision for credit losses	1,511.6		1,065.2		624.8		(178.4)
Non-interest income	Non-interest income	95.0		18.0		74.6		2.4		Non-interest income	263.1		51.0		198.0		14.1
Non-interest expense	Non-interest expense	268.9		115.9		139.1		13.9		Non-interest expense	823.3		341.4		442.5		39.4
Income (loss) before income taxes	Income (loss) before income taxes	323.6		239.9		160.1		(76.4)		Income (loss) before income taxes	951.4		774.8		380.3		(203.7)
Income tax expense (benefit)	Income tax expense (benefit)	63.4		57.3		38.1		(32.0)		Income tax expense (benefit)	187.1		184.4		90.8		(88.1)
Net income (loss)	Net income (loss)	$	260.2	$	182.6	$	122.0	$	(44.4)	Net income (loss)	$	764.3	$	590.4	$	289.5	$	(115.6)

Six Months Ended June 30, 2022:		(in millions)
Net interest income		$	974.5	$	705.3	$	402.7	$	(133.5)
Provision for (recovery of) credit losses		36.5		33.2		5.3		(2.0)
Net interest income (expense) after provision for credit losses		938.0		672.1		397.4		(131.5)
Non-interest income		201.3		34.9		153.8		12.6
Non-interest expense		517.5		230.4		264.1		23.0
Income (loss) before income taxes		621.8		476.6		287.1		(141.9)
Income tax expense (benefit)		121.5		113.4		68.5		(60.4)
Net income (loss)		$	500.3	$	363.2	$	218.6	$	(81.5)

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Balance Sheet:	Balance Sheet:	Consolidated Company		Commercial		Consumer Related		Corporate		Balance Sheet:	Consolidated Company		Commercial		Consumer Related		Corporate
At December 31, 2021:	At December 31, 2021:	(in millions)								At December 31, 2021:	(in millions)
Assets:	Assets:									Assets:
Cash, cash equivalents, and investment securities	Cash, cash equivalents, and investment securities	$	8,057	$	13	$	82	$	7,962	Cash, cash equivalents, and investment securities	$	8,057	$	13	$	82	$	7,962
Loans held for sale	Loans held for sale	5,635		—		5,635		—		Loans held for sale	5,635		—		5,635		—
Loans, net of deferred fees and costs	Loans, net of deferred fees and costs	39,075		25,092		13,983		—		Loans, net of deferred fees and costs	39,075		25,092		13,983		—
Less: allowance for credit losses	Less: allowance for credit losses	(252)		(226)		(26)		—		Less: allowance for credit losses	(252)		(226)		(26)		—
Total loans	Total loans	38,823		24,866		13,957		—		Total loans	38,823		24,866		13,957		—
Other assets acquired through foreclosure, net	Other assets acquired through foreclosure, net	12		12		—		—		Other assets acquired through foreclosure, net	12		12		—		—
Goodwill and other intangible assets, net	Goodwill and other intangible assets, net	635		295		340		—		Goodwill and other intangible assets, net	635		295		340		—
Other assets	Other assets	2,821		254		1,278		1,289		Other assets	2,821		254		1,278		1,289
Total assets	Total assets	$	55,983	$	25,440	$	21,292	$	9,251	Total assets	$	55,983	$	25,440	$	21,292	$	9,251
Liabilities:	Liabilities:									Liabilities:
Deposits	Deposits	$	47,612	$	30,467	$	15,363	$	1,782	Deposits	$	47,612	$	30,467	$	15,363	$	1,782
Borrowings and qualifying debt	Borrowings and qualifying debt	2,398		—		353		2,045		Borrowings and qualifying debt	2,398		—		353		2,045
Other liabilities	Other liabilities	1,010		233		138		639		Other liabilities	1,010		233		138		639
Total liabilities	Total liabilities	51,020		30,700		15,854		4,466		Total liabilities	51,020		30,700		15,854		4,466
Allocated equity:	Allocated equity:	4,963		2,588		1,596		779		Allocated equity:	4,963		2,588		1,596		779
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	55,983	$	33,288	$	17,450	$	5,245	Total liabilities and stockholders' equity	$	55,983	$	33,288	$	17,450	$	5,245
Excess funds provided (used)	Excess funds provided (used)	—		7,848		(3,842)		(4,006)		Excess funds provided (used)	—		7,848		(3,842)		(4,006)

Income Statements:	Income Statements:									Income Statements:
Three Months Ended June 30, 2021:		(in millions)
Three Months Ended September 30, 2021:										Three Months Ended September 30, 2021:	(in millions)
Net interest income										Net interest income	$	410.4	$	304.4	$	170.3	$	(64.3)
Provision for (recovery of) credit losses										Provision for (recovery of) credit losses	12.3		19.3		(5.5)		(1.5)
Net interest income (expense) after provision for credit losses										Net interest income (expense) after provision for credit losses	398.1		285.1		175.8		(62.8)
Non-interest income										Non-interest income	138.1		15.1		123.8		(0.8)
Non-interest expense										Non-interest expense	233.8		107.0		123.6		3.2
Income (loss) before income taxes										Income (loss) before income taxes	302.4		193.2		176.0		(66.8)
Income tax expense (benefit)										Income tax expense (benefit)	65.5		46.5		42.6		(23.6)
Net income (loss)										Net income (loss)	$	236.9	$	146.7	$	133.4	$	(43.2)

Nine Months Ended September 30, 2021:										Nine Months Ended September 30, 2021:	(in millions)
Net interest income	Net interest income	$	370.5	$	280.7	$	139.5	$	(49.7)	Net interest income	$	1,098.2	$	848.8	$	417.8	$	(168.4)
(Recovery of) provision for credit losses	(Recovery of) provision for credit losses	(14.5)		(18.6)		7.2		(3.1)		(Recovery of) provision for credit losses	(34.6)		(35.5)		3.4		(2.5)
Net interest income (expense) after provision for credit losses	Net interest income (expense) after provision for credit losses	385.0		299.3		132.3		(46.6)		Net interest income (expense) after provision for credit losses	1,132.8		884.3		414.4		(165.9)
Non-interest income	Non-interest income	136.0		13.9		116.9		5.2		Non-interest income	293.8		48.2		241.1		4.5
Non-interest expense	Non-interest expense	244.8		104.1		135.6		5.1		Non-interest expense	613.6		309.4		294.4		9.8
Income (loss) before income taxes	Income (loss) before income taxes	276.2		209.1		113.6		(46.5)		Income (loss) before income taxes	813.0		623.1		361.1		(171.2)
Income tax expense (benefit)	Income tax expense (benefit)	52.4		50.4		27.5		(25.5)		Income tax expense (benefit)	159.8		149.8		87.5		(77.5)
Net income (loss)	Net income (loss)	$	223.8	$	158.7	$	86.1	$	(21.0)	Net income (loss)	$	653.2	$	473.3	$	273.6	$	(93.7)

Six Months Ended June 30, 2021:		(in millions)
Net interest income		$	687.8	$	544.5	$	247.5	$	(104.2)
(Recovery of) provision for credit losses		(46.9)		(54.8)		8.9		(1.0)
Net interest income (expense) after provision for credit losses		734.7		599.3		238.6		(103.2)
Non-interest income		155.7		33.1		117.4		5.2
Non-interest expense		379.8		202.4		170.9		6.5
Income (loss) before income taxes		510.6		430.0		185.1		(104.5)
Income tax expense (benefit)		94.3		103.2		44.9		(53.8)
Net income (loss)		$	416.3	$	326.8	$	140.2	$	(50.7)

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17. REVENUE FROM CONTRACTS WITH CUSTOMERS

ASC 606, Revenue from Contracts with Customers, requires revenue to be recognized at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. The majority of the Company’s revenue streams are outside the scope of ASC 606. Revenue streams within the scope of ASC 606 include service charges and fees, interchange fees on credit and debit cards, success fees, and legal settlement service fees.

Performance Obligations

Many of the services the Company performs for its customers are ongoing, and either party may cancel at any time. The fees for these contracts are dependent upon various underlying factors, such as customer deposit balances, and as such may be considered variable. The Company’s performance obligations for these services are satisfied as the services are rendered and payment is collected on a monthly, quarterly, or semi-annual basis. For services provided at a point in time, fees are recognized at the time such services are rendered. The Company had no material unsatisfied performance obligations as of ~~June~~September 30, 2022 or December 31, 2021.

Service Charges and Fees

The Company performs deposit account services for its customers, which include analysis and treasury management services, use of safe deposit boxes, check upcharges, and other ancillary services. The depository arrangements the Company holds with its customers are considered day-to-day contracts with ongoing renewals and optional purchases, and as such, the contract duration does not extend beyond the services performed. Due to the short-term nature of such contracts, the Company generally recognizes revenue for deposit related fees as services are rendered. From time to time, the Company may waive certain fees for its customers. The Company considers historical experience when recognizing revenue from contracts with customers, and may reduce the transaction price to account for fee waivers or refunds.

Debit and Credit Card Interchange

When a credit or debit card issued by the Company is used to purchase goods or services from a merchant, the Company earns an interchange fee. Interchange fees on credit and debit cards are included ~~as part of~~in Commercial banking related income in the Consolidated Income Statements. The Company considers the merchant to be its customer in these transactions as nightly settlement services between the payment network and the merchant are being provided to the merchant. This transmission of data and funds represents the Company’s performance obligation and is performed nightly. As the payment network is in direct control of setting the rates, the Company acts as an agent. Interchange fees are recorded net of expenses as the services are provided.

Success Fees

Success fees are one-time fees detailed as part of certain loan agreements and are earned upon occurrence of a triggering event. Examples of triggering events include: a borrower obtaining its next round of funding, an acquisition, or completion of a public offering. Success fees are variable as the transaction price can vary and is contingent on the occurrence or non-occurrence of a triggering event. These fees are included ~~as part of~~in Income from equity investments in the Consolidated Income Statements.

Legal Settlement Services

The Company provides payment services for claim administrators responsible for distributing funds from legal settlements, such as class action lawsuits. Claimants access the Company's platform, select their preferred method of payment, and funds are transferred to the claimant. Upon the transfer of funds, the Company is entitled to a fee paid by the claim administrator. Revenue is recognized upon each transfer of funds to a claimant.

Revenues within the scope of ASC 606 totaled ~~$11.3 million and $9.2~~$9.0 million for the three months ended ~~June~~September 30, 2022 and ~~2021, respectively.~~2021. Revenues within the scope of ASC 606 totaled ~~$25.6~~$34.6 million and ~~$18.4~~$27.6 million for the ~~six~~nine months ended ~~June~~September 30, 2022, and 2021, respectively.

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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations.

This discussion is designed to provide insight into management's assessment of significant trends related to the Company's consolidated financial condition, results of operations, liquidity, capital resources, and interest rate sensitivity. This Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2021 and the interim Unaudited Consolidated Financial Statements and Notes to Unaudited Consolidated Financial Statements hereto and financial information appearing elsewhere in this report. Unless the context requires otherwise, the terms "Company," "we," and "our" refer to Western Alliance Bancorporation and its wholly-owned subsidiaries on a consolidated basis.

Forward-Looking Information

Certain statements contained in this Quarterly Report on Form 10-Q for the quarter ended ~~June~~September 30, 2022 are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including statements that are related to or are dependent on estimates or assumptions relating 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 in this Form 10-Q reflect the Company's current views about future events and financial performance and involve certain risks, uncertainties, assumptions, and changes in circumstances that may cause the Company's actual results to differ significantly from historical results and those expressed in any forward-looking statement. Risks and uncertainties include those set forth in the Company's filings with the SEC and the following factors that could cause actual results to differ materially from those presented: 1) the potential adverse effects of the ongoing COVID-19 pandemic and any governmental or societal responses thereto; 2) other adverse financial market and economic conditions, including the effects of any recession in the United States, the potential impact on borrowers of supply chain disruptions and the economic and market impacts of the military conflict between Russia and Ukraine; 3) changes in interest rates and increased rate competition; 4) exposure of financial instruments to certain market risks that may increase the volatility of earnings and AOCI; 5) the inherent risk associated with accounting estimates, including the impact to the Company's allowance, provision for credit losses, and capital levels under the CECL accounting standard; 6) exposure to natural and man-made disasters in markets that the Company operates and the impact of climate change on the Company and its customers; 7) dependency on real estate and events that negatively impact the real estate market; 8) high concentration of commercial real estate, residential mortgage, and commercial and industrial loans; 9) residual risk retained by the Company on reference pools covered by credit linked notes; 10) exposure to environmental liabilities related to the properties to which the Company acquires title; 11) the Company's ability to compete in a highly competitive market; 12) expansion strategies that may not be successful; 13) uncertainty associated with digital payment initiatives; 14) the Company's ability to recruit and retain qualified employees and implement adequate succession planning to mitigate the loss of key members of its senior management team; 15) dependence on low-cost deposits; 16) risks related to representations and warranties made on third-party loan sales; 17) ability to borrow from the FHLB or the FRB; 18) a change in the Company's creditworthiness; 19) information security breaches; 20) reliance on third parties to provide key components of the Company's infrastructure; 21) perpetration of fraud; 22) the Company's ability to implement and improve its controls and processes to keep pace with its growth; 23) the replacement of LIBOR; 24) the Company's ability to adapt to technological change; 25) risk of operating in a highly regulated industry and the Company's ability to remain in compliance; 26) failure to comply with state and federal banking agency laws and regulations; 27) results of any tax audit findings, challenges to the Company's tax positions, or adverse changes or interpretations of tax laws; ~~28) potential negative publicity~~ and ~~reputational harm from certain allegations with respect to the Phoenix Suns and Robert Sarver; and 29)~~28) risks related to ownership and price of the Company's common stock.

For more information regarding risks that may cause the Company's actual results to differ materially from any forward-looking statements, see “Risk Factors” in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2021. All forward-looking statements that are made or attributable to us are expressly qualified in their entirety by this cautionary notice. The forward-looking statements included herein are only made as of the date of this Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Recent Developments: Acquisition of Digital Disbursements

On January 25, 2022, the Company completed its acquisition of Digital Settlement Technologies LLC, doing business as Digital Disbursements, a digital payments platform for the class action legal industry. DST's proprietary platform enables claimants to select their payment method, including direct-to-bank account options and popular digital wallets. This provides the Company with the internal capability to significantly increase efficacy, reduce distribution costs and improve potential fraud detection for the legal class action market. The acquisition is expected to grow the Company's deposit base and continue to extend the suite of legal banking services offered while serving adjacent sectors that will benefit from digital payments technology.

Financial Overview and Highlights

WAL is a bank holding company headquartered in Phoenix, Arizona, incorporated under the laws of the state of Delaware. WAL provides a full spectrum of customized loan, deposit and treasury management capabilities, including 24/7 funds transfer and other blockchain-based offerings through its wholly-owned banking subsidiary, WAB.

WAB operates the following full-service banking divisions: ABA, BON and FIB, Bridge, and TPB. The Company also provides an array of specialized financial services across the country, including mortgage banking services through AmeriHome, and has added to its capabilities with the acquisition of DST on January 25, 2022, which provides digital payment services for the class action legal industry.

Financial Results Highlights for the ~~Second~~Third Quarter of 2022

•Net income available to common stockholders of ~~$257.0~~$260.8 million, compared to ~~$223.8~~$236.9 million for the ~~second~~third quarter 2021

•Diluted earnings per share of ~~$2.39,~~$2.42, compared to ~~$2.17~~$2.28 per share for the ~~second~~third quarter 2021

•Net revenue of ~~$620.0~~$663.9 million, an increase of ~~22.4%~~21.0%, or ~~$113.5~~$115.4 million, compared to the ~~second~~third quarter 2021, with non-interest expense increase of ~~9.8%~~30.8%, or ~~$24.1~~$72.0 million, compared to the ~~second~~third quarter 2021

•PPNR of ~~$351.1~~$358.1 million, up ~~34.2%~~13.8% from ~~$261.7~~$314.7 million in the ~~second~~third quarter 20211

•Total HFI loans of ~~$48.6~~$52.2 billion, up ~~$9.5~~$13.1 billion, ~~which includes transfer of $1.5 billion in government guaranteed EBO loans from HFS to HFI,~~or 33.6%, from December 31, 2021

•Total deposits of ~~$53.7~~$55.6 billion, up ~~$6.1~~$8.0 billion, or 16.8%, from December 31, 2021

•Stockholders' equity of $5.0 billion, ~~a decrease~~an increase of $4$58 million from December 31, 2021

•Nonperforming assets (nonaccrual loans and repossessed assets) decreased to 0.15% of total assets, from ~~0.20%~~0.17% at ~~June~~September 30, 2021

•Annualized net loan (recoveries) charge-offs to average loans outstanding of ~~0.01%~~(0.02)%, compared to ~~approximately 0.00%~~0.04% for the ~~second~~third quarter 2021

•Net interest margin of ~~3.54%~~3.78%, compared to ~~3.51%~~3.43% in the ~~second~~third quarter 2021

•Tangible common equity ratio of ~~6.1%~~5.9%, compared to ~~7.1%~~6.9% at ~~June~~September 30, 20211

•Book value per common share of ~~$43.07,~~$43.39, an increase of ~~11.3%~~7.2% from ~~$38.70~~$40.49 at ~~June~~September 30, 2021

•Tangible book value per share, net of tax, of ~~$36.67,~~$37.16, an increase of ~~$3.81,~~$2.49, or ~~11.6%~~7.2%, from ~~$32.86~~$34.67 at ~~June~~September 30, 20211

•Efficiency ratio of ~~42.8%~~45.5% in the ~~second~~third quarter 2022, compared to ~~47.5%~~42.0% in the ~~second~~third quarter 20211

The impact to the Company from these items, and others of both a positive and negative nature, are discussed in more detail below as they pertain to the Company’s overall comparative performance for the three and ~~six~~nine months ended ~~June~~September 30, 2022.

1 See Non-GAAP Financial Measures section beginning on page 78.

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As a bank holding company, management focuses on key ratios in evaluating the Company's financial condition and results of operations.

Results of Operations and Financial Condition

A summary of the Company's results of operations, financial condition, and selected metrics are included in the following tables:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2022			2021			2022			2021				2022			2021			2022			2021
		(in millions, except per share amounts)													(in millions, except per share amounts)
Net income	Net income	$	260.2		$	223.8		$	500.3		$	416.3		Net income	$	264.0		$	236.9		$	764.3		$	653.2
Net income available to common stockholders	Net income available to common stockholders	257.0			223.8			493.9			416.3			Net income available to common stockholders	260.8			236.9			754.7			653.2
Earnings per share - basic	Earnings per share - basic	2.40			2.18			4.63			4.09			Earnings per share - basic	2.43			2.29			7.06			6.39
Earnings per share - diluted	Earnings per share - diluted	2.39			2.17			4.61			4.07			Earnings per share - diluted	2.42			2.28			7.03			6.35
Return on average assets	Return on average assets	1.62		%	1.86		%	1.63		%	1.89		%	Return on average assets	1.53		%	1.83		%	1.60		%	1.89		%
Return on average equity	Return on average equity	20.8			23.7			20.2			23.0			Return on average equity	20.3			22.5			20.2			22.8
Return on average tangible common equity (1)	Return on average tangible common equity (1)	25.6			28.1			24.8			26.2			Return on average tangible common equity (1)	24.9			26.6			24.8			26.3
Net interest margin	Net interest margin	3.54			3.51			3.44			3.45			Net interest margin	3.78			3.43			3.56			3.44

(1) See Non-GAAP Financial Measures section beginning on page 78.


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
		(in millions)					(in millions)
Total assets	Total assets	$	66,055	$	55,983	Total assets	$	69,165	$	55,983
Loans HFS	Loans HFS	2,803		5,635		Loans HFS	2,204		5,635
Loans HFI, net of deferred loan fees and costs	Loans HFI, net of deferred loan fees and costs	48,572		39,075		Loans HFI, net of deferred loan fees and costs	52,201		39,075
Total deposits	Total deposits	53,712		47,612		Total deposits	55,589		47,612
Other borrowings	Other borrowings	5,210		1,502		Other borrowings	6,319		1,502
Qualifying debt	Qualifying debt	891		896		Qualifying debt	889		896
Stockholders' equity	Stockholders' equity	4,959		4,963		Stockholders' equity	5,021		4,963
Tangible common equity, net of tax (1)	Tangible common equity, net of tax (1)	3,971		4,035		Tangible common equity, net of tax (1)	4,047		4,035

(1) See Non-GAAP Financial Measures section beginning on page 78.

Asset Quality

For all banks and bank holding companies, asset quality plays a significant role in the overall financial condition of the institution and results of operations. The Company measures asset quality in terms of nonaccrual loans as a percentage of gross loans and net charge-offs as a percentage of average loans. Net charge-offs are calculated as the difference between charged-off loans and recovery payments received on previously charged-off loans. The following table summarizes the Company's key asset quality metrics for HFI loans:


		June 30, 2022			December 31, 2021				September 30, 2022			December 31, 2021
		(dollars in millions)							(dollars in millions)
Nonaccrual loans	Nonaccrual loans	$	85		$	73		Nonaccrual loans	$	90		$	73
Repossessed assets	Repossessed assets	12			12			Repossessed assets	11			12
Non-performing assets	Non-performing assets	100			87			Non-performing assets	103			87
Nonaccrual loans to funded loans	Nonaccrual loans to funded loans	0.17		%	0.19		%	Nonaccrual loans to funded loans	0.17		%	0.19		%
Nonaccrual and repossessed assets to total assets	Nonaccrual and repossessed assets to total assets	0.15			0.15			Nonaccrual and repossessed assets to total assets	0.15			0.15
Allowance for loan losses to funded loans	Allowance for loan losses to funded loans	0.56			0.65			Allowance for loan losses to funded loans	0.58			0.65
Allowance for credit losses to funded loans	Allowance for credit losses to funded loans	0.67			0.74			Allowance for credit losses to funded loans	0.68			0.74
Net charge-offs to average loans outstanding (1)		0.01			0.02
Net (recoveries) charge-offs to average loans outstanding (1)								Net (recoveries) charge-offs to average loans outstanding (1)	(0.02)			0.02

(1)Annualized on an actual/actual basis for the three months ended ~~June~~September 30, 2022. Actual year-to-date for the year ended December 31, 2021.

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Asset and Deposit Growth

The Company’s assets and liabilities are comprised primarily of loans and deposits. Therefore, the ability to originate new loans and attract new deposits is fundamental to the Company’s growth.

Total assets increased to ~~$66.1~~$69.2 billion at ~~June~~September 30, 2022 from $56.0 billion at December 31, 2021. The increase in total assets of ~~$10.1~~$13.2 billion, or ~~18.0%~~23.5%, was driven by continued organic loan and deposit growth, which contributed to an increase in cash of ~~$1.4~~$1.1 billion as well as an increase in investment securities of ~~$1.2 billion.~~$941 million. HFI loans increased by ~~$9.5~~$13.1 billion, or ~~24.3%~~33.6%, to ~~$48.6~~$52.2 billion as of ~~June~~September 30, 2022, compared to $39.1 billion as of December 31, 2021. The increase in HFI loans from December 31, 2021 was driven by increases in residential real estate loans of ~~$5.6~~$6.4 billion (includes a ~~$1.5 billion~~ transfer of EBO loans from HFS to ~~HFI)~~HFI in the second quarter of 2022 with a balance of $1.8 billion at September 30, 2022), commercial and industrial loans of ~~$2.5~~$4.0 billion, CRE, non-owner occupied loans of ~~$1.2~~$2.1 billion, and construction and land development loans of ~~$208~~$598 million. These increases were partially offset by ~~decreases~~a decrease in CRE, owner occupied loans of $50 million. In addition, HFS loans decreased by ~~$2.8~~$3.4 billion, from $5.6 billion as of December 31, 2021, primarily related to a ~~$1.5 billion~~ transfer of EBO loans from HFS to HFI ~~during~~in the ~~three months ended June~~second quarter of 2022 with a balance of $1.8 billion at September 30, 2022.

Total deposits increased ~~$6.1~~$8.0 billion, or ~~12.8%~~16.8%, to ~~$53.7~~$55.6 billion as of ~~June~~September 30, 2022 from $47.6 billion as of December 31, 2021. The increase in deposits from December 31, 2021 was driven by increases of ~~$2.4~~$3.6 billion in non-interest bearing demand deposits, ~~$1.7~~$1.9 billion in savings and money market accounts, ~~$1.5~~$1.4 billion in interest bearing demand deposits, and ~~$522 million~~$1.1 billion in certificates of deposit.

RESULTS OF OPERATIONS

The following table sets forth a summary financial overview for the comparable periods:


		Three Months Ended June 30,				Increase		Six Months Ended June 30,				Increase			Three Months Ended September 30,				Increase		Nine Months Ended September 30,				Increase
		2022		2021		(Decrease)		2022		2021		(Decrease)			2022		2021		(Decrease)		2022		2021		(Decrease)
		(in millions, except per share amounts)													(in millions, except per share amounts)
Consolidated Income Statement Data:	Consolidated Income Statement Data:													Consolidated Income Statement Data:
Interest income	Interest income	$	579.6	$	398.5	$	181.1	$	1,064.1	$	732.6	$	331.5	Interest income	$	739.4	$	442.8	$	296.6	$	1,803.5	$	1,175.4	$	628.1
Interest expense	Interest expense	54.6		28.0		26.6		89.6		44.8		44.8		Interest expense	137.3		32.4		104.9		226.9		77.2		149.7
Net interest income	Net interest income	525.0		370.5		154.5		974.5		687.8		286.7		Net interest income	602.1		410.4		191.7		1,576.6		1,098.2		478.4
Provision for (recovery of) credit losses	Provision for (recovery of) credit losses	27.5		(14.5)		42.0		36.5		(46.9)		83.4		Provision for (recovery of) credit losses	28.5		12.3		16.2		65.0		(34.6)		99.6
Net interest income after provision for (recovery of) credit losses	Net interest income after provision for (recovery of) credit losses	497.5		385.0		112.5		938.0		734.7		203.3		Net interest income after provision for (recovery of) credit losses	573.6		398.1		175.5		1,511.6		1,132.8		378.8
Non-interest income	Non-interest income	95.0		136.0		(41.0)		201.3		155.7		45.6		Non-interest income	61.8		138.1		(76.3)		263.1		293.8		(30.7)
Non-interest expense	Non-interest expense	268.9		244.8		24.1		517.5		379.8		137.7		Non-interest expense	305.8		233.8		72.0		823.3		613.6		209.7
Income before provision for income taxes	Income before provision for income taxes	323.6		276.2		47.4		621.8		510.6		111.2		Income before provision for income taxes	329.6		302.4		27.2		951.4		813.0		138.4
Income tax expense	Income tax expense	63.4		52.4		11.0		121.5		94.3		27.2		Income tax expense	65.6		65.5		0.1		187.1		159.8		27.3
Net income	Net income	260.2		223.8		36.4		500.3		416.3		84.0		Net income	264.0		236.9		27.1		764.3		653.2		111.1
Dividends on preferred stock	Dividends on preferred stock	3.2		—		3.2		6.4		—		6.4		Dividends on preferred stock	3.2		—		3.2		9.6		—		9.6
Net income available to common stockholders	Net income available to common stockholders	$	257.0	$	223.8	$	33.2	$	493.9	$	416.3	$	77.6	Net income available to common stockholders	$	260.8	$	236.9	$	23.9	$	754.7	$	653.2	$	101.5
Earnings per share:	Earnings per share:													Earnings per share:
Basic	Basic	$	2.40	$	2.18	$	0.22	$	4.63	$	4.09	$	0.54	Basic	$	2.43	$	2.29	$	0.14	$	7.06	$	6.39	$	0.67
Diluted	Diluted	2.39		2.17		0.22		$	4.61	$	4.07	$	0.54	Diluted	2.42		2.28		0.14		$	7.03	$	6.35	$	0.68

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Non-GAAP Financial Measures

The following discussion and analysis contains financial information determined by methods other than those prescribed by GAAP. The Company's management uses these non-GAAP financial measures in their analysis of the Company's performance. Management believes presentation of these non-GAAP financial measures provides useful supplemental information that is essential to a complete understanding of the operating results of the Company. Since the presentation of these non-GAAP performance measures and their impact differ between companies, these non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Pre-Provision Net Revenue

Banking regulations define PPNR as the sum of net interest income and non-interest income less expenses before adjusting for loss provisions. Management believes that this is an important metric as it illustrates the underlying performance of the Company, it enables investors and others to assess the Company's ability to generate capital to cover credit losses through the credit cycle, and provides consistent reporting with a key metric used by bank regulatory agencies.

The following table shows the components of PPNR for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in millions)									(in millions)
Net interest income	Net interest income	$	525.0	$	370.5	$	974.5	$	687.8	Net interest income	$	602.1	$	410.4	$	1,576.6	$	1,098.2
Total non-interest income	Total non-interest income	95.0		136.0		201.3		155.7		Total non-interest income	61.8		138.1		263.1		293.8
Net revenue	Net revenue	$	620.0	$	506.5	$	1,175.8	$	843.5	Net revenue	$	663.9	$	548.5	$	1,839.7	$	1,392.0
Total non-interest expense	Total non-interest expense	268.9		244.8		517.5		379.8		Total non-interest expense	305.8		233.8		823.3		613.6

Pre-provision net revenue	Pre-provision net revenue	$	351.1	$	261.7	$	658.3	$	463.7	Pre-provision net revenue	$	358.1	$	314.7	$	1,016.4	$	778.4
Less:	Less:									Less:

Provision for (recovery of) credit losses	Provision for (recovery of) credit losses	27.5		(14.5)		36.5		(46.9)		Provision for (recovery of) credit losses	28.5		12.3		65.0		(34.6)
Income tax expense	Income tax expense	63.4		52.4		121.5		94.3		Income tax expense	65.6		65.5		187.1		159.8
Net income	Net income	$	260.2	$	223.8	$	500.3	$	416.3	Net income	$	264.0	$	236.9	$	764.3	$	653.2

Efficiency Ratio

The following table shows the components used in the calculation of the efficiency ratio, which management uses as a metric for assessing cost efficiency:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2022			2021			2022			2021				2022			2021			2022			2021
		(dollars in millions)													(dollars in millions)
Total non-interest expense	Total non-interest expense	$	268.9		$	244.8		$	517.5		$	379.8		Total non-interest expense	$	305.8		$	233.8		$	823.3		$	613.6
Divided by:	Divided by:													Divided by:
Total net interest income	Total net interest income	$	525.0		$	370.5		$	974.5		$	687.8		Total net interest income	602.1			410.4			1,576.6			1,098.2
Plus:	Plus:													Plus:
Tax equivalent interest adjustment	Tax equivalent interest adjustment	8.2			8.5			16.2			16.5			Tax equivalent interest adjustment	8.5			8.5			24.7			24.9
Total non-interest income	Total non-interest income	95.0			136.0			201.3			155.7			Total non-interest income	61.8			138.1			263.1			293.8
		$	628.2		$	515.0		$	1,192.0		$	860.0			$	672.4		$	557.0		$	1,864.4		$	1,416.9
Efficiency ratio - tax equivalent basis	Efficiency ratio - tax equivalent basis	42.8		%	47.5		%	43.4		%	44.2		%	Efficiency ratio - tax equivalent basis	45.5		%	42.0		%	44.2		%	43.3		%

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Tangible Common Equity

The following table presents financial measures related to tangible common equity. Tangible common equity represents total stockholders' equity, less identifiable intangible assets and goodwill. Management believes that tangible common equity financial measures are useful in evaluating the Company's capital strength, financial condition, and ability to manage potential losses. In addition, management believes that these measures improve comparability to other institutions that have not engaged in acquisitions that resulted in recorded goodwill and other intangible assets.


		June 30, 2022			December 31, 2021				September 30, 2022			December 31, 2021
		(dollars and shares in millions)							(dollars and shares in millions)
Total stockholders' equity	Total stockholders' equity	$	4,959		$	4,963		Total stockholders' equity	$	5,021		$	4,963
Less:	Less:							Less:
Goodwill and intangible assets	Goodwill and intangible assets	695			635			Goodwill and intangible assets	682			635
Preferred stock	Preferred stock	295			295			Preferred stock	295			295
Total tangible common stockholders' equity	Total tangible common stockholders' equity	3,969			4,033			Total tangible common stockholders' equity	4,044			4,033
Plus: deferred tax - attributed to intangible assets	Plus: deferred tax - attributed to intangible assets	2			2			Plus: deferred tax - attributed to intangible assets	3			2
Total tangible common equity, net of tax	Total tangible common equity, net of tax	$	3,971		$	4,035		Total tangible common equity, net of tax	$	4,047		$	4,035

Total assets	Total assets	$	66,055		$	55,983		Total assets	$	69,165		$	55,983
Less: goodwill and intangible assets, net	Less: goodwill and intangible assets, net	695			635			Less: goodwill and intangible assets, net	682			635
Tangible assets	Tangible assets	65,360			55,348			Tangible assets	68,483			55,348
Plus: deferred tax - attributed to intangible assets	Plus: deferred tax - attributed to intangible assets	2			2			Plus: deferred tax - attributed to intangible assets	3			2
Total tangible assets, net of tax	Total tangible assets, net of tax	$	65,362		$	55,350		Total tangible assets, net of tax	$	68,486		$	55,350

Tangible common equity ratio	Tangible common equity ratio	6.1		%	7.3		%	Tangible common equity ratio	5.9		%	7.3		%
Common shares outstanding	Common shares outstanding	108.3			106.6			Common shares outstanding	108.9			106.6
Book value per common share	Book value per common share	$	43.07		$	43.78		Book value per common share	$	43.39		$	43.78
Tangible book value per common share, net of tax	Tangible book value per common share, net of tax	36.67			37.84			Tangible book value per common share, net of tax	37.16			37.84

7879

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Regulatory Capital

The following table presents certain financial measures related to regulatory capital under Basel III, which includes common equity tier 1 and total capital. The FRB and other banking regulators use CET1 and total capital as a basis for assessing a bank's capital adequacy; therefore, management believes it is useful to assess financial condition and capital adequacy using this same basis. Specifically, the total capital ratio takes into consideration the risk levels of assets and off-balance sheet financial instruments. In addition, management believes that the classified assets to CET1 plus allowance measure is an important regulatory metric for assessing asset quality.

As permitted by the regulatory capital rules, the Company elected to delay the estimated impact of CECL on its regulatory capital over a five-year transition period ending December 31, 2024. Beginning in 2022, capital ratios and amounts include a 25% reduction to the capital benefit that resulted from the increased allowance for credit losses related to the adoption of ASC 326.


		June 30, 2022			December 31, 2021				September 30, 2022			December 31, 2021
		(dollars in millions)							(dollars in millions)
Common equity tier 1:	Common equity tier 1:							Common equity tier 1:
Common equity	Common equity	$	4,700		$	4,715		Common equity	$	4,762		$	4,715
Less:	Less:							Less:
Non-qualifying goodwill and intangibles	Non-qualifying goodwill and intangibles	690			631			Non-qualifying goodwill and intangibles	675			631

Disallowed deferred tax asset	Disallowed deferred tax asset	6			—			Disallowed deferred tax asset	52			—
AOCI related adjustments	AOCI related adjustments	(521)			16			AOCI related adjustments	(741)			16
Unrealized gain on changes in fair value liabilities	Unrealized gain on changes in fair value liabilities	4			—			Unrealized gain on changes in fair value liabilities	5			—
Common equity tier 1	Common equity tier 1	$	4,521		$	4,068		Common equity tier 1	$	4,771		$	4,068
Divided by: Risk-weighted assets	Divided by: Risk-weighted assets	$	50,292		$	44,697		Divided by: Risk-weighted assets	$	55,053		$	44,697
Common equity tier 1 ratio	Common equity tier 1 ratio	9.0		%	9.1		%	Common equity tier 1 ratio	8.7		%	9.1		%

Common equity tier 1	Common equity tier 1	$	4,521		$	4,068		Common equity tier 1	$	4,771		$	4,068

Plus: Preferred stock and trust preferred securities	Plus: Preferred stock and trust preferred securities	376			376			Plus: Preferred stock and trust preferred securities	376			376

Tier 1 capital	Tier 1 capital	$	4,897		$	4,444		Tier 1 capital	$	5,147		$	4,444
Divided by: Tangible average assets	Divided by: Tangible average assets	$	64,085		$	56,973		Divided by: Tangible average assets	$	68,330		$	56,973
Tier 1 leverage ratio	Tier 1 leverage ratio	7.6		%	7.8		%	Tier 1 leverage ratio	7.5		%	7.8		%

Total capital:	Total capital:							Total capital:
Tier 1 capital	Tier 1 capital	$	4,897		$	4,444		Tier 1 capital	$	5,147		$	4,444
Plus:	Plus:							Plus:
Subordinated debt	Subordinated debt	816			815			Subordinated debt	816			815
Adjusted allowances for credit losses	Adjusted allowances for credit losses	288			240			Adjusted allowances for credit losses	319			240

Tier 2 capital	Tier 2 capital	$	1,104		$	1,055		Tier 2 capital	1,135			1,055

Total capital	Total capital	$	6,001		$	5,499		Total capital	$	6,282		$	5,499
Total capital ratio	Total capital ratio	11.9		%	12.3		%	Total capital ratio	11.4		%	12.3		%

Classified assets to tier 1 capital plus allowance:	Classified assets to tier 1 capital plus allowance:							Classified assets to tier 1 capital plus allowance:
Classified assets	Classified assets	$	346		$	301		Classified assets	$	385		$	301

Divided by: Tier 1 capital	Divided by: Tier 1 capital	4,897			4,444			Divided by: Tier 1 capital	5,147			4,444
Plus: Adjusted allowances for credit losses	Plus: Adjusted allowances for credit losses	288			240			Plus: Adjusted allowances for credit losses	319			240
Total Tier 1 capital plus adjusted allowances for credit losses	Total Tier 1 capital plus adjusted allowances for credit losses	$	5,185		$	4,684		Total Tier 1 capital plus adjusted allowances for credit losses	$	5,466		$	4,684
Classified assets to tier 1 capital plus allowance	Classified assets to tier 1 capital plus allowance	6.7		%	6.4		%	Classified assets to tier 1 capital plus allowance	7.0		%	6.4		%

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Net Interest Margin

The net interest margin is reported on a TEB. A tax equivalent adjustment is added to reflect interest earned on certain securities and loans that are exempt from federal and state income tax. The following tables set forth the average balances, interest income, interest expense, and average yield (on a fully TEB) for the periods indicated:


		Three Months Ended June 30,													Three Months Ended September 30,
		2022						2021							2022						2021
		Average Balance		Interest		Average Yield / Cost		Average Balance		Interest		Average Yield / Cost			Average Balance		Interest		Average Yield / Cost		Average Balance		Interest		Average Yield / Cost
		(dollars in millions)													(dollars in millions)
Interest earning assets	Interest earning assets													Interest earning assets
Loans held for sale	Loans held for sale	$	4,333	$	43.1	3.99	%	$	5,347	$	42.7	3.21	%	Loans held for sale	$	3,993	$	49.0	4.87	%	$	7,254	$	61.3	3.35	%
Loans held for investment:	Loans held for investment:													Loans held for investment:
Commercial and industrial	Commercial and industrial	19,576		205.6		4.27		13,897		148.2		4.37		Commercial and industrial	21,551		282.1		5.25		14,943		156.1		4.23
CRE - non-owner-occupied	CRE - non-owner-occupied	7,152		83.1		4.67		5,698		67.8		4.78		CRE - non-owner-occupied	8,128		111.4		5.44		5,754		68.5		4.73
CRE - owner-occupied	CRE - owner-occupied	1,836		22.7		5.05		2,025		24.1		4.88		CRE - owner-occupied	1,839		23.3		5.12		2,030		25.1		5.00
Construction and land development	Construction and land development	3,336		47.7		5.73		2,792		39.9		5.73		Construction and land development	3,471		59.5		6.80		2,863		40.6		5.63
Residential real estate	Residential real estate	13,698		113.8		3.33		3,748		30.7		3.29		Residential real estate	15,125		130.9		3.43		5,907		46.0		3.09
Consumer	Consumer	58		0.6		4.29		34		0.4		4.52		Consumer	63		0.8		5.32		44		0.4		4.18
Total HFI loans (1), (2), (3)	Total HFI loans (1), (2), (3)	45,656		473.5		4.19		28,194		311.1		4.48		Total HFI loans (1), (2), (3)	50,177		608.0		4.84		31,541		336.7		4.28
Securities:	Securities:													Securities:
Securities - taxable	Securities - taxable	6,674		41.3		2.48		5,630		26.0		1.85		Securities - taxable	6,680		56.4		3.35		5,521		25.6		1.84
Securities - tax-exempt	Securities - tax-exempt	2,017		18.0		4.53		2,166		17.5		4.07		Securities - tax-exempt	2,047		19.5		4.73		2,223		17.9		4.00
Total securities (1)	Total securities (1)	8,691		59.3		2.94		7,796		43.5		2.47		Total securities (1)	8,727		75.9		3.66		7,744		43.5		2.46
Other	Other	1,650		3.7		0.91		1,911		1.2		0.25		Other	1,239		6.5		2.07		1,883		1.3		0.27
Total interest earning assets	Total interest earning assets	60,330		579.6		3.91		43,248		398.5		3.77		Total interest earning assets	64,136		739.4		4.62		48,422		442.8		3.70
Non-interest earning assets	Non-interest earning assets													Non-interest earning assets
Cash and due from banks	Cash and due from banks	262						458						Cash and due from banks	242						291
Allowance for credit losses	Allowance for credit losses	(266)						(257)						Allowance for credit losses	(282)						(242)
Bank owned life insurance	Bank owned life insurance	179						178						Bank owned life insurance	180						179
Other assets	Other assets	3,766						4,518						Other assets	4,100						2,684
Total assets	Total assets	$	64,271					$	48,145					Total assets	$	68,376					$	51,334
Interest-bearing liabilities	Interest-bearing liabilities													Interest-bearing liabilities
Interest-bearing deposits:	Interest-bearing deposits:													Interest-bearing deposits:
Interest-bearing transaction accounts	Interest-bearing transaction accounts	$	8,346	$	8.0	0.38	%	$	4,370	$	1.5	0.14	%	Interest-bearing transaction accounts	$	8,466	$	24.5	1.15	%	$	4,787	$	1.4	0.12	%
Savings and money market accounts	Savings and money market accounts	18,771		16.5		0.35		15,168		8.0		0.21		Savings and money market accounts	18,515		44.5		0.95		16,833		8.9		0.21
Certificates of deposit	Certificates of deposit	2,040		2.6		0.52		1,737		2.1		0.49		Certificates of deposit	2,843		8.6		1.19		1,902		2.0		0.41
Total interest-bearing deposits	Total interest-bearing deposits	29,157		27.1		0.37		21,275		11.6		0.22		Total interest-bearing deposits	29,824		77.6		1.03		23,522		12.3		0.21
Short-term borrowings	Short-term borrowings	2,917		8.6		1.19		1,506		4.5		1.21		Short-term borrowings	4,136		27.0		2.59		418		1.1		1.07
Long-term debt	Long-term debt	786		10.3		5.24		353		4.7		5.30		Long-term debt	1,228		23.8		7.69		558		8.2		5.79
Qualifying debt	Qualifying debt	894		8.6		3.85		701		7.2		4.12		Qualifying debt	891		8.9		3.94		1,076		10.8		3.98
Total interest-bearing liabilities	Total interest-bearing liabilities	33,754		54.6		0.65		23,835		28.0		0.47		Total interest-bearing liabilities	36,079		137.3		1.51		25,574		32.4		0.50
Interest cost of funding earning assets	Interest cost of funding earning assets					0.37						0.26		Interest cost of funding earning assets					0.84						0.27
Non-interest-bearing liabilities	Non-interest-bearing liabilities													Non-interest-bearing liabilities
Non-interest-bearing demand deposits	Non-interest-bearing demand deposits	24,327						18,385						Non-interest-bearing demand deposits	25,865						20,732
Other liabilities	Other liabilities	1,169						2,140						Other liabilities	1,282						855
Stockholders’ equity	Stockholders’ equity	5,021						3,785						Stockholders’ equity	5,150						4,173
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	64,271					$	48,145					Total liabilities and stockholders' equity	$	68,376					$	51,334
Net interest income and margin (4)	Net interest income and margin (4)			$	525.0	3.54	%			$	370.5	3.51	%	Net interest income and margin (4)			$	602.1	3.78	%			$	410.4	3.43	%

(1)Yields on loans and securities have been adjusted to a TEB. The taxable-equivalent adjustment was ~~$8.2 million and~~ $8.5 million for the three months ended ~~June~~September 30, 2022 and ~~2021, respectively.~~2021.

(2)Included in the yield computation are net loan fees of ~~$36.4~~$31.9 million and ~~$32.6~~$30.4 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively.

(3)Includes non-accrual loans.

(4)Net interest margin is computed by dividing net interest income by total average earning assets, annualized on an actual/actual basis.

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		Six Months Ended June 30,													Nine Months Ended September 30,
		2022						2021							2022						2021
		Average Balance		Interest		Average Yield / Cost		Average Balance		Interest		Average Yield / Cost			Average Balance		Interest		Average Yield / Cost		Average Balance		Interest		Average Yield / Cost
		(dollars in millions)													(dollars in millions)
Interest earning assets	Interest earning assets													Interest earning assets
Loans held for sale	Loans held for sale	$	5,421	$	93.6	3.48	%	$	2,688	$	42.7	3.21	%	Loans held for sale	$	4,939	$	142.5	3.86	%	$	4,235	$	104.1	3.29	%
Loans held for investment:	Loans held for investment:													Loans held for investment:
Commercial and industrial	Commercial and industrial	18,537		371.5		4.10		13,925		299.1		4.43		Commercial and industrial	19,553		653.5		4.53		14,268		455.3		4.36
CRE - non-owner occupied	CRE - non-owner occupied	6,922		156.2		4.56		5,674		132.9		4.73		CRE - non-owner occupied	7,328		267.6		4.89		5,701		201.3		4.73
CRE - owner occupied	CRE - owner occupied	1,847		45.5		5.06		2,059		48.5		4.86		CRE - owner occupied	1,844		68.8		5.08		2,050		73.5		4.91
Construction and land development	Construction and land development	3,214		89.3		5.61		2,639		75.5		5.77		Construction and land development	3,301		148.9		6.03		2,714		116.1		5.72
Residential real estate	Residential real estate	12,050		194.1		3.25		3,131		52.7		3.39		Residential real estate	13,087		325.0		3.32		4,067		98.6		3.24
Consumer	Consumer	55		1.1		4.14		34		0.8		4.96		Consumer	58		2.0		4.57		37		1.3		4.65
Total HFI loans (1), (2), (3)	Total HFI loans (1), (2), (3)	42,625		857.7		4.09		27,462		609.5		4.53		Total HFI loans (1), (2), (3)	45,171		1,465.8		4.37		28,837		946.1		4.44
Securities:	Securities:													Securities:
Securities - taxable	Securities - taxable	6,107		71.1		2.35		5,084		44.5		1.77		Securities - taxable	6,300		127.5		2.71		5,231		70.2		1.79
Securities - tax-exempt	Securities - tax-exempt	2,076		36.2		4.41		2,074		33.0		4.03		Securities - tax-exempt	2,067		55.7		4.51		2,124		50.8		4.02
Total securities (1)	Total securities (1)	8,183		107.3		2.86		7,158		77.5		2.42		Total securities (1)	8,367		183.2		3.14		7,355		121.0		2.44
Other	Other	1,853		5.5		0.60		3,877		2.9		0.15		Other	1,646		12.0		0.97		3,205		4.2		0.17
Total interest earning assets	Total interest earning assets	58,082		1,064.1		3.75		41,185		732.6		3.67		Total interest earning assets	60,123		1,803.5		4.06		43,632		1,175.4		3.68
Non-interest earning assets	Non-interest earning assets													Non-interest earning assets
Cash and due from banks	Cash and due from banks	254						313						Cash and due from banks	250						306
Allowance for credit losses	Allowance for credit losses	(264)						(273)						Allowance for credit losses	(270)						(263)
Bank owned life insurance	Bank owned life insurance	180						177						Bank owned life insurance	180						178
Other assets	Other assets	3,534						2,904						Other assets	3,724						2,392
Total assets	Total assets	$	61,786					$	44,306					Total assets	$	64,007					$	46,245
Interest-bearing liabilities	Interest-bearing liabilities													Interest-bearing liabilities
Interest-bearing deposits:	Interest-bearing deposits:													Interest-bearing deposits:
Interest-bearing transaction accounts	Interest-bearing transaction accounts	$	8,046	$	10.7	0.27	%	$	4,139	$	2.8	0.14	%	Interest-bearing transaction accounts	$	8,188	$	35.2	0.57	%	$	4,357	$	4.2	0.13	%
Savings and money market accounts	Savings and money market accounts	18,453		26.1		0.29		14,584		15.1		0.21		Savings and money market accounts	18,474		70.6		0.51		15,342		24.0		0.21
Certificates of deposit	Certificates of deposit	1,981		4.4		0.45		1,709		4.5		0.54		Certificates of deposit	2,271		13.0		0.76		1,774		6.5		0.49
Total interest-bearing deposits	Total interest-bearing deposits	28,480		41.2		0.29		20,432		22.4		0.22		Total interest-bearing deposits	28,933		118.8		0.55		21,473		34.7		0.22
Short-term borrowings	Short-term borrowings	2,038		10.4		1.03		769		4.6		1.21		Short-term borrowings	2,745		37.4		1.82		664		5.8		1.16
Long-term debt	Long-term debt	778		21.0		5.45		178		4.7		5.30		Long-term debt	930		44.8		6.45		309		12.8		5.55
Qualifying debt	Qualifying debt	895		17.0		3.83		625		13.1		4.24		Qualifying debt	893		25.9		3.87		777		23.9		4.12
Total interest-bearing liabilities	Total interest-bearing liabilities	32,191		89.6		0.56		22,004		44.8		0.41		Total interest-bearing liabilities	33,501		226.9		0.91		23,223		77.2		0.44
Interest cost of funding earning assets	Interest cost of funding earning assets					0.31						0.22		Interest cost of funding earning assets					0.50						0.24
Non-interest-bearing liabilities	Non-interest-bearing liabilities													Non-interest-bearing liabilities
Non-interest-bearing demand deposits	Non-interest-bearing demand deposits	23,458						17,186						Non-interest-bearing demand deposits	24,269						18,380
Other liabilities	Other liabilities	1,132						1,460						Other liabilities	1,183						812
Stockholders’ equity	Stockholders’ equity	5,005						3,656						Stockholders’ equity	5,054						3,830
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	61,786					$	44,306					Total liabilities and stockholders' equity	$	64,007					$	46,245
Net interest income and margin (4)	Net interest income and margin (4)			$	974.5	3.44	%			$	687.8	3.45	%	Net interest income and margin (4)			$	1,576.6	3.56	%			$	1,098.2	3.44	%

(1)Yields on loans and securities have been adjusted to a TEB. The taxable-equivalent adjustment was ~~$16.2~~$24.7 million and ~~$16.5~~$24.9 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

(2)Included in the yield computation are net loan fees of ~~$65.5~~$97.4 million and $95.9 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and ~~2021.~~2021, respectively.

(3)Includes non-accrual loans.

(4)Net interest margin is computed by dividing net interest income by total average earning assets, annualized on an actual/actual basis.

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		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2022 versus 2021						2022 versus 2021							2022 versus 2021						2022 versus 2021
		Increase (Decrease) Due to Changes in (1)						Increase (Decrease) Due to Changes in (1)							Increase (Decrease) Due to Changes in (1)						Increase (Decrease) Due to Changes in (1)
		Volume		Rate		Total		Volume		Rate		Total			Volume		Rate		Total		Volume		Rate		Total
		(in millions)													(in millions)
Interest income:	Interest income:													Interest income:
Loans held for sale	Loans held for sale	$	(10.1)	$	10.5	$	0.4	$	47.2	$	3.7	$	50.9	Loans held for sale	$	(40.0)	$	27.7	$	(12.3)	$	20.3	$	18.1	$	38.4
Loans:	Loans:													Loans:
Commercial and industrial	Commercial and industrial	59.6		(2.2)		57.4		92.4		(20.0)		72.4		Commercial and industrial	86.5		39.5		126.0		176.6		21.6		198.2
CRE - non-owner occupied	CRE - non-owner occupied	16.9		(1.6)		15.3		28.2		(4.9)		23.3		CRE - non-owner occupied	32.5		10.4		42.9		59.4		6.9		66.3
CRE - owner-occupied	CRE - owner-occupied	(2.3)		0.9		(1.4)		(5.2)		2.2		(3.0)		CRE - owner-occupied	(2.4)		0.6		(1.8)		(7.7)		3.0		(4.7)
Construction and land development	Construction and land development	7.8		—		7.8		16.0		(2.2)		13.8		Construction and land development	10.4		8.5		18.9		26.4		6.4		32.8
Residential real estate	Residential real estate	82.7		0.4		83.1		143.7		(2.3)		141.4		Residential real estate	79.8		5.1		84.9		224.0		2.4		226.4
Consumer	Consumer	0.2		—		0.2		0.4		(0.1)		0.3		Consumer	0.2		0.2		0.4		0.7		—		0.7
Total HFI loans	Total HFI loans	164.9		(2.5)		162.4		275.5		(27.3)		248.2		Total HFI loans	207.0		64.3		271.3		479.4		40.3		519.7
Securities:	Securities:													Securities:
Securities - taxable	Securities - taxable	6.5		8.8		15.3		11.9		14.7		26.6		Securities - taxable	9.8		21.0		30.8		21.6		35.7		57.3
Securities - tax-exempt	Securities - tax-exempt	(1.3)		1.8		0.5		—		3.2		3.2		Securities - tax-exempt	(1.7)		3.3		1.6		(1.6)		6.5		4.9
Total securities	Total securities	5.2		10.6		15.8		11.9		17.9		29.8		Total securities	8.1		24.3		32.4		20.0		42.2		62.2
Other	Other	(0.6)		3.1		2.5		(6.0)		8.6		2.6		Other	(3.4)		8.6		5.2		(11.4)		19.2		7.8
Total interest income	Total interest income	159.4		21.7		181.1		328.6		2.9		331.5		Total interest income	171.7		124.9		296.6		508.3		119.8		628.1

Interest expense:	Interest expense:													Interest expense:
Interest-bearing transaction accounts	Interest-bearing transaction accounts	3.8		2.7		6.5		5.2		2.7		7.9		Interest-bearing transaction accounts	10.6		12.5		23.1		16.5		14.5		31.0
Savings and money market	Savings and money market	3.2		5.3		8.5		5.5		5.5		11.0		Savings and money market	4.0		31.6		35.6		12.0		34.6		46.6
Certificates of deposit	Certificates of deposit	0.4		0.1		0.5		0.6		(0.7)		(0.1)		Certificates of deposit	2.8		3.8		6.6		2.8		3.7		6.5
Short-term borrowings	Short-term borrowings	4.2		(0.1)		4.1		6.5		(0.7)		5.8		Short-term borrowings	24.3		1.6		25.9		28.4		3.2		31.6
Long-term debt	Long-term debt	5.7		(0.1)		5.6		16.2		0.1		16.3		Long-term debt	13.0		2.6		15.6		29.9		2.1		32.0
Qualifying debt	Qualifying debt	1.9		(0.5)		1.4		5.1		(1.2)		3.9		Qualifying debt	(1.8)		(0.1)		(1.9)		3.4		(1.4)		2.0
Total interest expense	Total interest expense	19.2		7.4		26.6		39.1		5.7		44.8		Total interest expense	52.9		52.0		104.9		93.0		56.7		149.7

Net change	Net change	$	140.2	$	14.3	$	154.5	$	289.5	$	(2.8)	$	286.7	Net change	$	118.8	$	72.9	$	191.7	$	415.3	$	63.1	$	478.4

(1) Changes attributable to both volume and rate are designated as volume changes.

Comparison of interest income, interest expense and net interest margin

The Company's primary source of revenue is interest income. For the three months ended ~~June~~September 30, 2022, interest income was ~~$579.6~~$739.4 million, an increase of ~~$181.1~~$296.6 million, or ~~45.4%~~67.0%, compared to ~~$398.5~~$442.8 million for the three months ended ~~June~~September 30, 2021. This increase was primarily the result of a ~~$162.4~~$271.3 million increase in interest income from HFI loans that was driven by ~~a $17.5~~an $18.6 billion increase in the average HFI loan balance, coupled with a ~~$15.8~~$32.4 million increase in interest income from investment securities due to higher investment yields and an increase in the average investment balance of ~~$895 million and higher investment yields.~~$983 million.

For the ~~six~~nine months ended ~~June~~September 30, 2022, interest income was ~~$1.1~~$1.8 billion, an increase of ~~$331.5~~$628.1 million, or ~~45.2%~~53.4%, compared to ~~$732.6 million~~$1.2 billion for the ~~six~~nine months ended ~~June~~September 30, 2021. This increase was primarily the result of a ~~$15.2~~$16.3 billion increase in the average HFI loan balance, which drove a ~~$248.2~~$519.7 million increase in HFI loan interest income for the ~~six~~nine months ended ~~June~~September 30, 2022 as well as an increase in investment yields and the average ~~HFS loan~~investment balance of ~~$2.7~~$1.0 billion resulting in an increase in interest income of ~~$50.9 million in HFS loan interest income.~~$62.2 million.

For the three months ended ~~June~~September 30, 2022, interest expense was ~~$54.6~~$137.3 million, an increase of ~~$26.6~~$104.9 million, or ~~95.0%~~323.8%, compared to ~~$28.0~~$32.4 million for the three months ended ~~June~~September 30, 2021. Increased interest expense was due to an increase in interest expense on deposits of ~~$15.5~~$65.3 million driven by increased interest rates and a ~~$7.9~~$6.3 billion increase in the average interest-bearing deposit balance ~~and~~combined with a ~~$9.7~~$41.5 million increase in interest expense on other borrowings resulting from an increase in the average balance of ~~$1.8~~$4.4 billion.

For the ~~six~~nine months ended ~~June~~September 30, 2022, interest expense was ~~$89.6~~$226.9 million, an increase of ~~$44.8~~$149.7 million, or ~~100.0%~~193.9%, compared to ~~$44.8~~$77.2 million for the ~~six~~nine months ended ~~June~~September 30, 2021. Interest expense on ~~total debt~~deposits increased by ~~$26.0~~$84.1 million driven by an increase in ~~the average debt balance of $2.1 billion~~deposit rates and an increase in the average ~~interest-bearing deposits~~deposit balance of ~~$8.0~~$7.5 billion coupled with an increase in the average balance of other borrowings of $2.7 billion, which drove ~~an $18.8~~a $63.6 million increase in interest expense.

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For the three months ended ~~June~~September 30, 2022, net interest income was ~~$525.0~~$602.1 million, an increase of ~~$154.5~~$191.7 million, or ~~41.7%~~46.7%, compared to ~~$370.5~~$410.4 million for the three months ended ~~June~~September 30, 2021. The increase in net interest income reflects a ~~$17.1~~$15.7 billion increase in average interest-earning assets, partially offset by an increase of ~~$9.9~~$10.5 billion in average interest-bearing liabilities. The increase in net interest margin of 335 basis points to ~~3.54%~~3.78% is largely the result of an increase in loan balances, partially offset by higher deposit balances and rates compared to the same period in 2021.

For the ~~six~~nine months ended ~~June~~September 30, 2022, net interest income was ~~$974.5 million,~~$1.6 billion, an increase of ~~$286.7~~$478.4 million, or ~~41.7%~~43.6%, compared to ~~$687.8 million~~$1.1 billion for the ~~six~~nine months ended ~~June~~September 30, 2021. The increase in net interest income reflects a ~~$16.9~~$16.5 billion increase in average interest-earning assets, partially offset by an increase of ~~$10.2~~$10.3 billion in average interest-bearing liabilities. The ~~decrease~~increase in net interest margin of 112 basis point to ~~3.44%~~3.56% is the result of ~~a decrease~~an increase in loan ~~yields due to a loan portfolio shift towards residential mortgage loans and higher deposit and borrowing costs. The decrease to net interest margin was~~balances, partially offset by higher ~~investment yields~~deposit rates and increase in the balance of deposits and other borrowings compared to the same period in 2021.

Provision for Credit Losses

The provision for credit losses in each period is reflected as a reduction in earnings for that period and includes amounts related to funded loans, unfunded loan commitments, and investment securities. The provision is equal to the amount required to maintain the allowance for credit losses at a level that is adequate to absorb estimated lifetime credit losses inherent in the loan and investment securities portfolios at the time that the loan is originated or the security is purchased. The Company's CECL models incorporate historical experience, current conditions, and reasonable and supportable forecasts in measuring expected credit losses. For the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company recorded a provision for credit losses of ~~$27.5~~$28.5 million and ~~$36.5~~$65.0 million, respectively, compared to $12.3 million and a release of credit loss provisions of ~~$14.5 million and $46.9~~$34.6 million, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2021. The increase in the provision for credit losses from the three and ~~six~~nine months ended ~~June~~September 30, 2021 is primarily related to loan growth and ~~emerging~~heightened economic uncertainty.

Non-interest Income

The following table presents a summary of non-interest income for the periods presented:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2022		2021		Increase (Decrease)		2022		2021		Increase (Decrease)			2022		2021		Increase (Decrease)		2022		2021		Increase (Decrease)
		(in millions)													(in millions)
Net loan servicing revenue (expense)	Net loan servicing revenue (expense)	$	45.4	$	(20.8)	$	66.2	$	86.5	$	(20.8)	$	107.3	Net loan servicing revenue (expense)	$	23.0	$	2.2	$	20.8	$	109.5	$	(18.6)	$	128.1
Net gain on loan origination and sale activities	Net gain on loan origination and sale activities	27.2		132.0		(104.8)		64.1		132.0		(67.9)		Net gain on loan origination and sale activities	14.5		121.0		(106.5)		78.6		253.0		(174.4)
Gain on recovery from credit guarantees		9.0		—		9.0		11.3		—		11.3
Service charges and fees	Service charges and fees	7.6		7.4		0.2		14.6		14.1		0.5		Service charges and fees	6.5		7.1		(0.6)		21.1		21.2		(0.1)
Commercial banking related income	Commercial banking related income	5.8		4.5		1.3		10.9		7.9		3.0		Commercial banking related income	5.1		4.6		0.5		16.0		12.5		3.5
Income from equity investments	Income from equity investments	5.2		6.8		(1.6)		9.3		14.4		(5.1)		Income from equity investments	4.3		2.5		1.8		13.6		16.9		(3.3)
(Loss) gain on sales of investment securities		(0.2)		—		(0.2)		6.7		0.1		6.6
Gain on recovery from credit guarantees														Gain on recovery from credit guarantees	0.4		—		0.4		11.7		—		11.7
Gain on sales of investment securities														Gain on sales of investment securities	—		—		—		6.7		0.1		6.6

Fair value (loss) gain on assets measured at fair value, net		(10.0)		3.2		(13.2)		(16.6)		1.7		(18.3)
Fair value loss on assets measured at fair value, net														Fair value loss on assets measured at fair value, net	(2.8)		(2.2)		(0.6)		(19.4)		(0.5)		(18.9)
Other income	Other income	5.0		2.9		2.1		14.5		6.3		8.2		Other income	10.8		2.9		7.9		25.3		9.2		16.1
Total non-interest income	Total non-interest income	$	95.0	$	136.0	$	(41.0)	$	201.3	$	155.7	$	45.6	Total non-interest income	$	61.8	$	138.1	$	(76.3)	$	263.1	$	293.8	$	(30.7)

Total non-interest income for the three months ended ~~June~~September 30, 2022 compared to the same period in 2021 decreased ~~$41.0~~$76.3 million. ~~The~~The decrease in non-interest income was driven by a decrease in net gain on loan origination and sale activities of ~~$104.8~~$106.5 million due to ~~lower mortgage loan~~compressed margins, a decline in production volume, and losses due to fair value changes. This decrease was offset in part by an increase in net loan servicing revenue of $20.8 million from lower payoffs, gain on sales of MSRs, and higher servicing fees.

Total non-interest income for the nine months ended September 30, 2022 compared to the same period in 2021 decreased $30.7 million. The decrease in non-interest income was driven by a decrease in net gain on loan origination and sale activities of $174.4 million due to compressed margins, decline in production volume in capitalized MSRs, and a decrease in ~~gain on sale margins. Mark~~gains due to ~~market~~fair value changes. Mark-to-market losses on equity securities also resulted in a decrease to non-interest income of ~~$13.2 million from the prior year.~~$18.9 million. These decreases were offset in part by an increase in net loan servicing revenue of ~~$66.2~~$128.1 million ~~and~~from lower payoffs, gain on ~~recovery from credit guarantees~~sales of ~~$9.0 million related to the credit risk transfer transactions undertaken by the Company that transfer first loss exposure to unrelated third parties~~MSRs, and higher servicing fees..

Total non-interest income for the six months ended June 30, 2022 compared to the same period in 2021 increased $45.6 million. The increase in non-interest income was driven by an increase in net loan servicing revenue of $107.3 million and gain on recovery from credit guarantees of $11.3 million. These increases were offset in part by a decrease of $67.9 million in net gain on loan origination and sale activities and mark to market losses on equity securities, which totaled $16.6 million ~~for the six months ended June 30, 2022.~~

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Non-interest Expense

The following table presents a summary of non-interest expense for the periods presented:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2022		2021		Increase (Decrease)		2022		2021		Increase (Decrease)			2022		2021		Increase (Decrease)		2022		2021		Increase (Decrease)
		(in millions)													(in millions)
Salaries and employee benefits	Salaries and employee benefits	$	139.0	$	128.9	$	10.1	$	277.3	$	212.6	$	64.7	Salaries and employee benefits	$	136.5	$	133.5	$	3.0	$	413.8	$	346.1	$	67.7
Deposit costs														Deposit costs	56.2		7.3		48.9		83.6		20.7		62.9
Legal, professional, and directors' fees	Legal, professional, and directors' fees	25.1		14.0		11.1		49.1		24.1		25.0		Legal, professional, and directors' fees	24.8		13.7		11.1		73.9		37.8		36.1
Data processing	Data processing	19.7		15.0		4.7		37.3		24.9		12.4		Data processing	21.8		15.4		6.4		59.1		40.3		18.8
Deposit costs		18.1		7.1		11.0		27.4		13.4		14.0
Loan servicing expenses	Loan servicing expenses	14.7		22.3		(7.6)		25.5		22.3		3.2		Loan servicing expenses	15.2		15.6		(0.4)		40.7		37.9		2.8
Occupancy	Occupancy	13.0		10.4		2.6		25.8		19.0		6.8		Occupancy	13.9		12.4		1.5		39.7		31.4		8.3
Insurance	Insurance	6.9		5.5		1.4		14.1		9.7		4.4		Insurance	8.1		6.2		1.9		22.2		15.9		6.3
Loan acquisition and origination expenses	Loan acquisition and origination expenses	6.4		10.5		(4.1)		12.9		10.5		2.4		Loan acquisition and origination expenses	5.8		9.7		(3.9)		18.7		20.2		(1.5)
Business development and marketing	Business development and marketing	5.4		3.2		2.2		9.8		4.6		5.2		Business development and marketing	5.0		2.8		2.2		14.8		7.4		7.4
Net gain on sales and valuations of repossessed and other assets	Net gain on sales and valuations of repossessed and other assets	(0.3)		(1.5)		1.2		(0.2)		(1.8)		1.6		Net gain on sales and valuations of repossessed and other assets	(0.2)		(1.3)		1.1		(0.4)		(3.1)		2.7
Acquisition and restructure expenses	Acquisition and restructure expenses	—		15.7		(15.7)		0.4		16.1		(15.7)		Acquisition and restructure expenses	—		2.4		(2.4)		0.4		18.5		(18.1)

Other expense	Other expense	20.9		13.7		7.2		38.1		24.4		13.7		Other expense	18.7		16.1		2.6		56.8		40.5		16.3
Total non-interest expense	Total non-interest expense	$	268.9	$	244.8	$	24.1	$	517.5	$	379.8	$	137.7	Total non-interest expense	$	305.8	$	233.8	$	72.0	$	823.3	$	613.6	$	209.7

Total non-interest expense for the three months ended ~~June~~September 30, 2022 increased ~~$24.1~~$72.0 million compared to the same period in 2021. The increase in non-interest expense was driven by increases in deposit costs, legal, professional, and directors' fees, ~~deposit costs,~~ and ~~salaries and employee benefits. Legal, professional, and directors' fees increased $11.1 million primarily related to an increase in IT and consulting initiatives.~~data processing costs. The increase in deposit costs primarily relates to an increase in ~~deposit earnings credits paid~~overall deposits and higher average ECR rates. The increase in legal, professional, and directors' fees and data processing costs relates to ~~account holders due~~an increase in project initiatives and consulting work to higher balances and rising interest rates. Salaries and employee benefits increased $10.1 million from the addition of employees as part of the AmeriHome acquisition that closed on April 7, 2021. These increases to non-interest expense were offset in part by a reduction in acquisition and restructure expenses of $15.7 million incurred as part of the AmeriHome acquisition.support ongoing implementations.

Total non-interest expense for the ~~six~~nine months ended ~~June~~September 30, 2022 increased ~~$137.7~~$209.7 million compared to the same period in 2021. The increase in non-interest expense was driven by increases in salaries and employee benefits, deposit costs, and legal, professional, and directors' fees. The increase in deposit costs primarily relates to an increase in overall deposits and higher average ECR rates. Salaries and employee benefits increased $67.7 million from an increase in headcount year over year. The increase in legal, professional, and directors' fees relates to an increase in project initiatives and ~~deposit costs, offset in part by a reduction in acquisition and restructure expenses. These fluctuations in non-interest expense are discussed in the paragraph above.~~consulting work to support ongoing implementations.

Income Taxes

The Company's effective tax rate was ~~19.6%~~19.9% and ~~19.0%~~21.7% for the three months ended ~~June~~September 30, 2022 and 2021, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, the Company's effective tax rate was ~~19.5% and 18.5%, respectively.~~ 19.7%. The ~~increase~~decrease in the three month effective tax rate was primarily due to ~~projected pretax book income growth outpacing growth~~increases in ~~permanent~~solar tax ~~benefit items for the year~~credit investments and ~~an increase~~a decrease in state tax expense.

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Business Segment Results

The Company's reportable segments are aggregated with a focus on products and services offered and consist of three reportable segments:

The following tables present selected operating segment information for the periods presented:


		Consolidated Company		Commercial		Consumer Related		Corporate & Other			Consolidated Company		Commercial		Consumer Related		Corporate & Other
At June 30, 2022		(in millions)
At September 30, 2022										At September 30, 2022	(in millions)
HFI loans, net of deferred loan fees and costs	HFI loans, net of deferred loan fees and costs	$	48,572	$	29,448	$	19,124	$	—	HFI loans, net of deferred loan fees and costs	$	52,201	$	32,060	$	20,141	$	—
Deposits	Deposits	53,712		29,482		19,690		4,540		Deposits	55,589		30,006		20,957		4,626

At December 31, 2021	At December 31, 2021									At December 31, 2021
HFI loans, net of deferred loan fees and costs	HFI loans, net of deferred loan fees and costs	$	39,075	$	25,092	$	13,983	$	—	HFI loans, net of deferred loan fees and costs	$	39,075	$	25,092	$	13,983	$	—
Deposits	Deposits	47,612		30,467		15,363		1,782		Deposits	47,612		30,467		15,363		1,782


Three Months Ended June 30, 2022		(in millions)
Three Months Ended September 30, 2022										Three Months Ended September 30, 2022	(in millions)
Pre-tax income (loss)	Pre-tax income (loss)	$	323.6	$	239.9	$	160.1	$	(76.4)	Pre-tax income (loss)	$	329.6	$	298.2	$	93.2	$	(61.8)

Six Months Ended June 30, 2022
Nine Months Ended September 30, 2022										Nine Months Ended September 30, 2022
Pre-tax income (loss)	Pre-tax income (loss)	$	621.8	$	476.6	$	287.1	$	(141.9)	Pre-tax income (loss)	$	951.4	$	774.8	$	380.3	$	(203.7)

Three Months Ended June 30, 2021
Three Months Ended September 30, 2021										Three Months Ended September 30, 2021
Pre-tax income (loss)	Pre-tax income (loss)	$	276.2	$	209.1	$	113.6	$	(46.5)	Pre-tax income (loss)	$	302.4	$	193.2	$	176.0	$	(66.8)

Six Months Ended June 30, 2021
Nine Months Ended September 30, 2021										Nine Months Ended September 30, 2021
Pre-tax income (loss)	Pre-tax income (loss)	$	510.6	$	430.0	$	185.1	$	(104.5)	Pre-tax income (loss)	$	813.0	$	623.1	$	361.1	$	(171.2)

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BALANCE SHEET ANALYSIS

Total assets increased ~~$10.1~~$13.2 billion, or ~~18.0%~~23.5%, to ~~$66.1~~$69.2 billion at ~~June~~September 30, 2022, compared to $56.0 billion at December 31, 2021. The increase in total assets was driven by continued organic loan and deposit growth, which contributed to an increase in cash of ~~$1.4~~$1.1 billion as well as an increase in investment securities of ~~$1.2 billion.~~$941 million. HFI loans increased by ~~$9.5~~$13.1 billion, or ~~24.3%~~33.6%, to ~~$48.6~~$52.2 billion as of ~~June~~September 30, 2022, compared to $39.1 billion as of December 31, 2021. The increase in HFI loans from December 31, 2021 was driven by increases in residential real estate loans of ~~$5.6~~$6.4 billion ~~(includes a $1.5 billion transfer of~~(including EBO loans transferred from HFS to ~~HFI)~~HFI in the second quarter 2022 with a $1.8 billion balance at September 30, 2022), commercial and industrial loans of ~~$2.5~~$4.0 billion, CRE, non-owner occupied loans of ~~$1.2~~$2.1 billion, and construction and land development loans of ~~$208~~$598 million. These increases were partially offset by a decrease in CRE, owner occupied loans of $50 million. In addition, HFS loans decreased by ~~$2.8~~$3.4 billion, down from $5.6 billion as of December 31, 2021, primarily related to ~~a $1.5 billion~~the transfer of EBO loans from HFS to HFI during the ~~three~~nine months ended ~~June~~September 30, 2022.

Total liabilities increased ~~$10.1~~$13.1 billion, or ~~19.7%~~25.7%, to ~~$61.1~~$64.1 billion at ~~June~~September 30, 2022, compared to $51.0 billion at December 31, 2021. The increase in liabilities is due primarily to an increase in total deposits of ~~$6.1~~$8.0 billion, or ~~12.8%~~16.8%, to ~~$53.7~~$55.6 billion. The increase in deposits from December 31, 2021 was driven by increases of ~~$2.4~~$3.6 billion in non-interest bearing demand deposits, ~~$1.7~~$1.9 billion in savings and money market accounts, ~~$1.5~~$1.4 billion in interest bearing demand deposits, and ~~$522 million~~$1.1 billion in certificates of deposit. Other borrowings also increased ~~$3.7~~$4.8 billion from December 31, 2021 due to an increase in short-term borrowings of ~~$3.2~~$4.3 billion and issuance of two credit linked notes in June 2022, with a principal balance totaling $494 million.

Total stockholders’ equity of $5.0 billion at ~~June~~September 30, 2022 ~~decreased~~increased by $4$58 million, or ~~0.1%~~1.2%, from December 31, 2021. The ~~decrease~~increase in stockholders' equity is primarily a function of net income and net proceeds of ~~$107.7~~$157.7 million from issuance of common stock during the ~~six~~nine months ended ~~June~~September 30, 2022, offset by quarterly dividends to common and preferred shareholders and unrealized fair value losses on AFS securities recorded net of tax in other comprehensive income.

Investment securities

Debt securities are classified at the time of acquisition as either HTM, AFS, or trading based upon various factors, including asset/liability management strategies, liquidity and profitability objectives, and regulatory requirements. HTM securities are carried at amortized cost, adjusted for amortization of premiums or accretion of discounts. AFS securities are securities that may be sold prior to maturity based upon asset/liability management decisions. Investment securities classified as AFS are carried at fair value with unrealized gains or losses on these securities recorded ~~as part of~~in AOCI in stockholders’ equity, net of tax. Amortization of premiums or accretion of discounts on MBS is periodically adjusted for estimated prepayments. Trading securities are reported at fair value, with unrealized gains and losses on these securities included in current period earnings.

The Company's investment securities portfolio is utilized as collateral for borrowings, required collateral for public deposits and customer repurchase agreements, and to manage liquidity, capital, and interest rate risk.

The following table summarizes the carrying value of the investment securities portfolio for each of the periods below:


		June 30, 2022		December 31, 2021		Increase (Decrease)			September 30, 2022		December 31, 2021		Increase (Decrease)
		(in millions)							(in millions)
Debt securities	Debt securities							Debt securities
CLO	CLO	$	2,678	$	926	$	1,752	CLO	$	2,641	$	926	$	1,715
Commercial MBS issued by GSEs	Commercial MBS issued by GSEs	61		69		(8)		Commercial MBS issued by GSEs	62		69		(7)
Corporate debt securities	Corporate debt securities	399		383		16		Corporate debt securities	391		383		8

Private label residential MBS	Private label residential MBS	1,519		1,725		(206)		Private label residential MBS	1,429		1,725		(296)
Residential MBS issued by GSEs	Residential MBS issued by GSEs	1,821		1,993		(172)		Residential MBS issued by GSEs	1,694		1,993		(299)
Tax-exempt	Tax-exempt	1,935		2,105		(170)		Tax-exempt	1,943		2,105		(162)

U.S. treasury securities	U.S. treasury securities	—		13		(13)		U.S. treasury securities	—		13		(13)
Other	Other	73		82		(9)		Other	70		82		(12)
Total debt securities	Total debt securities	$	8,486	$	7,296	$	1,190	Total debt securities	$	8,230	$	7,296	$	934

Equity securities	Equity securities							Equity securities
CRA investments	CRA investments	$	51	$	45	$	6	CRA investments	$	49	$	45	$	4
Preferred stock	Preferred stock	119		114		5		Preferred stock	116		114		2
Total equity securities	Total equity securities	$	170	$	159	$	11	Total equity securities	$	165	$	159	$	6

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Loans HFS

The Company purchases and originates residential mortgage loans through its AmeriHome mortgage banking business channel that are held for sale or securitization. At ~~June~~September 30, 2022, the Company had ~~$2.8~~$2.2 billion of loans HFS, compared to $5.6 billion at December 31, 2021. The decrease in loans HFS from December 31, 2021 relates to sales, a decline in production volumes, and a transfer ~~of $1.5 billion~~ of EBO loans during the ~~three~~nine months ended ~~June~~September 30, 2022 that were previously classified as HFS to ~~HFI as management no longer intends to sell these loans.~~HFI.

Loans HFI

The table below summarizes the distribution of the Company’s held for investment loan portfolio:


		June 30, 2022		December 31, 2021		Increase (Decrease)			September 30, 2022		December 31, 2021		Increase (Decrease)
		(in millions)							(in millions)
Warehouse lending	Warehouse lending	$	5,132	$	5,156	$	(24)	Warehouse lending	$	5,525	$	5,156	$	369
Municipal & nonprofit	Municipal & nonprofit	1,548		1,579		(31)		Municipal & nonprofit	1,522		1,579		(57)
Tech & innovation	Tech & innovation	1,648		1,418		230		Tech & innovation	2,175		1,418		757
Equity fund resources	Equity fund resources	4,752		3,830		922		Equity fund resources	5,107		3,830		1,277
Other commercial and industrial	Other commercial and industrial	7,832		6,465		1,367		Other commercial and industrial	8,182		6,465		1,717
CRE - owner occupied	CRE - owner occupied	1,681		1,723		(42)		CRE - owner occupied	1,686		1,723		(37)
Hotel franchise finance	Hotel franchise finance	3,112		2,534		578		Hotel franchise finance	3,602		2,534		1,068
Other CRE - non-owner occupied	Other CRE - non-owner occupied	4,625		3,952		673		Other CRE - non-owner occupied	5,021		3,952		1,069
Residential	Residential	12,967		9,243		3,724		Residential	13,810		9,243		4,567
Residential - EBO	Residential - EBO	1,897		—		1,897		Residential - EBO	1,815		—		1,815
Construction and land development	Construction and land development	3,199		3,006		193		Construction and land development	3,579		3,006		573
Other	Other	179		169		10		Other	177		169		8
Total loans HFI	Total loans HFI	48,572		39,075		9,497		Total loans HFI	52,201		39,075		13,126
Allowance for credit losses	Allowance for credit losses	(273)		(252)		(21)		Allowance for credit losses	(304)		(252)		(52)
Total loans HFI, net of allowance	Total loans HFI, net of allowance	$	48,299	$	38,823	$	9,476	Total loans HFI, net of allowance	$	51,897	$	38,823	$	13,074

Concentrations of Lending Activities

The Company monitors concentrations of lending activities at the product and borrower relationship level. ~~The Company’s loan portfolio includes significant credit exposure to the CRE market.~~ Commercial and industrial loans made up 43% and 47% of the Company's HFI loan portfolio as of ~~June~~September 30, 2022 and December 31, 2021, respectively. In addition, the Company’s loan portfolio includes significant credit exposure to the CRE market as CRE related loans accounted for approximately ~~26%~~27% and 29% of total loans at ~~June~~September 30, 2022 and December 31, 2021, respectively. Substantially all of these CRE loans are secured by first liens with an initial loan to value ratio of generally not more than 75%. Approximately ~~19%~~18% and 23% of these CRE loans, excluding construction and land loans, were owner-occupied at ~~June~~September 30, 2022 and December 31, 2021, respectively. No borrower relationships at both the commitment and funded loan level exceeded 5% of total HFI loans as of ~~June~~September 30, 2022 and December 31, 2021.

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Non-performing Assets

Total non-performing loans increased ~~$12~~$16 million to ~~$88~~$92 million at ~~June~~September 30, 2022, from $76 million at December 31, 2021.


		June 30, 2022			December 31, 2021				September 30, 2022			December 31, 2021
		(dollars in millions)							(dollars in millions)
Total nonaccrual loans (1)	Total nonaccrual loans (1)	$	85		$	73		Total nonaccrual loans (1)	$	90		$	73
Loans past due 90 days or more on accrual status (2)	Loans past due 90 days or more on accrual status (2)	—			—			Loans past due 90 days or more on accrual status (2)	—			—
Accruing troubled debt restructured loans	Accruing troubled debt restructured loans	3			3			Accruing troubled debt restructured loans	2			3
Total nonperforming loans	Total nonperforming loans	$	88		$	76		Total nonperforming loans	$	92		$	76

Other assets acquired through foreclosure, net	Other assets acquired through foreclosure, net	$	12		$	12		Other assets acquired through foreclosure, net	$	11		$	12

Nonaccrual loans to funded HFI loans	Nonaccrual loans to funded HFI loans	0.17		%	0.19		%	Nonaccrual loans to funded HFI loans	0.17		%	0.19		%
Loans past due 90 days or more on accrual status to funded HFI loans	Loans past due 90 days or more on accrual status to funded HFI loans	—			—			Loans past due 90 days or more on accrual status to funded HFI loans	—			—

(1)Includes non-accrual TDR loans of ~~$19~~$29 million and $18 million at ~~June~~September 30, 2022 and December 31, 2021, respectively.

(2)Excludes government guaranteed residential mortgage loans of ~~$827 million~~$644 million and zero at ~~June~~September 30, 2022 and December 31, 2021, respectively.

Interest income that would have been recorded under the original terms of nonaccrual loans was ~~$1.2~~$1.3 million and ~~$1.5~~$1.4 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$2.3~~$3.6 million and ~~$3.0~~$4.4 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

The composition of nonaccrual HFI loans by loan portfolio segment were as follows:


		June 30, 2022							September 30, 2022
		Nonaccrual Balance		Percent of Nonaccrual Balance		Percent of Total HFI Loans			Nonaccrual Balance		Percent of Nonaccrual Balance		Percent of Total HFI Loans
		(dollars in millions)							(dollars in millions)

Municipal & nonprofit								Municipal & nonprofit	$	7	7.8	%	0.01	%
Tech & innovation	Tech & innovation	$	5	5.9	%	0.01	%	Tech & innovation	4		4.5		0.01

Other commercial and industrial	Other commercial and industrial	23		27.0		0.05		Other commercial and industrial	18		20.0		0.03
CRE - owner occupied	CRE - owner occupied	9		10.6		0.02		CRE - owner occupied	11		12.2		0.02
Hotel franchise finance	Hotel franchise finance	10		11.8		0.02		Hotel franchise finance	10		11.1		0.02
Other CRE - non-owner occupied	Other CRE - non-owner occupied	20		23.5		0.04		Other CRE - non-owner occupied	19		21.1		0.04
Residential	Residential	17		20.0		0.03		Residential	20		22.2		0.04

Construction and land development	Construction and land development	1		1.2		0.00		Construction and land development	1		1.1		0.00

Total non-accrual loans	Total non-accrual loans	$	85	100.0	%	0.17	%	Total non-accrual loans	$	90	100.0	%	0.17	%


	December 31, 2021
	Nonaccrual Balance		Percent of Nonaccrual Balance		Percent of Total HFI Loans
	(dollars in millions)


Tech & innovation	$	13	18.3	%	0.03	%
Equity fund resources	1		0.8		0.00
Other commercial and industrial	16		22.2		0.05
CRE - owner occupied	13		17.9		0.03

Other CRE - non-owner occupied	13		18.0		0.03
Residential	15		20.8		0.05
Construction and land development	1		1.4		0.00
Other	1		0.6		0.00
Total non-accrual loans	$	73	100.0	%	0.19	%

Table of Contents

Troubled Debt Restructured Loans

A TDR loan is a loan on which the Company, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. The loan terms that have been modified or restructured due to a borrower’s financial situation include, but are not limited to, a reduction in the stated interest rate, an extension of the maturity or renewal of the loan at an interest rate below current market, a reduction in the face amount of the debt, a reduction in the accrued interest, or deferral of interest payments. The majority of the Company's modifications are extensions in terms or deferral of payments which result in no lost principal or interest followed by reductions in interest rates or accrued interest. Consistent with regulatory guidance, a TDR loan that is subsequently modified in another restructuring agreement but has shown sustained performance and classification as a TDR, will be removed from TDR status provided that the modified terms were market-based at the time of modification.

~~Table of Contents~~

The following table presents TDR loans:


		June 30, 2022			December 31, 2021				September 30, 2022			December 31, 2021
		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment			Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
		(dollars in millions)							(dollars in millions)

Tech & innovation	Tech & innovation	1	$	4	2	$	2	Tech & innovation	1	$	3	2	$	2

Other commercial and industrial	Other commercial and industrial	8	5		7	6		Other commercial and industrial	7	8		7	6
CRE - owner occupied	CRE - owner occupied	1	1		1	1		CRE - owner occupied	1	1		1	1

Hotel franchise finance								Hotel franchise finance	1	10		—	—
Other CRE - non-owner occupied	Other CRE - non-owner occupied	5	10		5	11		Other CRE - non-owner occupied	3	8		5	11

Construction and land development	Construction and land development	1	1		1	1		Construction and land development	1	1		1	1

Total	Total	16	$	21	16	$	21	Total	14	$	31	16	$	21

Table of Contents

Allowance for Credit Losses on HFI Loans

The allowance for credit losses consists of the allowance for credit losses on loans and an allowance for credit losses on unfunded loan commitments. The allowance for credit losses on HTM securities is estimated separately from loans and is discussed within the Investment Securities section.

The following table summarizes the allocation of the allowance for credit losses on HFI loans by loan portfolio segment:


		June 30, 2022						December 31, 2021							September 30, 2022						December 31, 2021
		Allowance for credit losses		Percent of total allowance for credit losses		Percent of loan type to total HFI loans		Allowance for credit losses		Percent of total allowance for credit losses		Percent of loan type to total HFI loans			Allowance for credit losses		Percent of total allowance for credit losses		Percent of loan type to total HFI loans		Allowance for credit losses		Percent of total allowance for credit losses		Percent of loan type to total HFI loans
		(dollars in millions)						(dollars in millions)							(dollars in millions)						(dollars in millions)
Warehouse lending	Warehouse lending	$	3.7	1.4	%	10.6	%	$	3.0	1.2	%	13.2	%	Warehouse lending	$	4.4	1.4	%	10.6	%	$	3.0	1.2	%	13.2	%
Municipal & nonprofit	Municipal & nonprofit	13.6		5.0		3.2		13.7		5.4		4.1		Municipal & nonprofit	15.2		5.0		2.9		13.7		5.4		4.1
Tech & innovation	Tech & innovation	25.4		9.3		3.4		25.7		10.2		3.6		Tech & innovation	25.2		8.3		4.2		25.7		10.2		3.6
Equity fund resources	Equity fund resources	14.0		5.1		9.8		9.6		3.8		9.8		Equity fund resources	10.9		3.6		9.8		9.6		3.8		9.8
Other commercial and industrial	Other commercial and industrial	119.2		43.6		16.1		103.6		41.0		16.5		Other commercial and industrial	106.2		34.9		15.7		103.6		41.0		16.5
CRE - owner occupied	CRE - owner occupied	7.5		2.7		3.4		10.6		4.2		4.4		CRE - owner occupied	6.7		2.2		3.2		10.6		4.2		4.4
Hotel franchise finance	Hotel franchise finance	33.8		12.4		6.4		41.5		16.4		6.5		Hotel franchise finance	51.0		16.8		6.9		41.5		16.4		6.5
Other CRE - non-owner occupied	Other CRE - non-owner occupied	22.1		8.1		9.5		16.9		6.7		10.1		Other CRE - non-owner occupied	33.4		11.0		9.6		16.9		6.7		10.1
Residential	Residential	18.8		6.9		26.7		12.5		5.0		23.7		Residential	25.6		8.4		26.4		12.5		5.0		23.7
Residential - EBO	Residential - EBO	—		—		3.9		—		—		—		Residential - EBO	—		—		3.5		—		—		—
Construction and land development	Construction and land development	12.2		4.5		6.6		12.5		5.0		7.7		Construction and land development	22.4		7.4		6.9		12.5		5.0		7.7
Other	Other	2.9		1.1		0.4		2.9		1.1		0.4		Other	3.1		1.0		0.3		2.9		1.1		0.4
Total	Total	$	273.2	100.0	%	100.0	%	$	252.5	100.0	%	100.0	%	Total	$	304.1	100.0	%	100.0	%	$	252.5	100.0	%	100.0	%

During the three months ended ~~June~~September 30, 2022 and 2021, net loan (recoveries) charge-offs to average loans outstanding ~~was 0.01%~~were (0.02)% and ~~approximately 0.00%~~0.04%, respectively.

In addition to the allowance for credit losses on funded HFI loans, the Company maintains a separate allowance for credit losses related to off-balance sheet credit exposures, including unfunded loan commitments. This allowance balance totaled ~~$53.8~~$52.1 million and $37.6 million at ~~June~~September 30, 2022 and December 31, 2021, respectively, and is included in Other liabilities on the Consolidated Balance Sheets.

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Problem Loans

The Company classifies loans consistent with federal banking regulations using a nine category grading system. These loan grades are described in further detail in "Note 1. Summary of Significant Accounting Policies" in the Notes to Unaudited Consolidated Financial Statements" of this report. The following table presents information regarding potential and actual problem loans, consisting of loans graded as Special Mention, Substandard, Doubtful, and Loss, but which are still performing:


		June 30, 2022								September 30, 2022
		Number of Loans	Problem Loan Balance		Percent of Problem Loan Balance		Percent of Total HFI Loans			Number of Loans	Problem Loan Balance		Percent of Problem Loan Balance		Percent of Total HFI Loans
		(dollars in millions)								(dollars in millions)

Municipal & nonprofit	Municipal & nonprofit	1	$	6	1.9	%	0.01	%	Municipal & nonprofit	1	$	6	1.8	%	0.01	%
Tech & innovation	Tech & innovation	16	59		19.2		0.12		Tech & innovation	24	61		18.1		0.12

Other commercial and industrial	Other commercial and industrial	82	47		15.3		0.10		Other commercial and industrial	66	46		13.6		0.09
CRE - owner occupied	CRE - owner occupied	11	16		5.2		0.03		CRE - owner occupied	10	16		4.7		0.03
Hotel franchise finance	Hotel franchise finance	6	88		28.7		0.18		Hotel franchise finance	5	76		22.5		0.15
Other CRE - non-owner occupied	Other CRE - non-owner occupied	13	43		14.0		0.09		Other CRE - non-owner occupied	11	53		15.7		0.10
Residential	Residential	39	18		5.9		0.04		Residential	44	21		6.2		0.04

Construction and land development									Construction and land development	2	44		13.0		0.08
Other	Other	20	30		9.8		0.06		Other	17	15		4.4		0.03
Total	Total	188	$	307	100.0	%	0.63	%	Total	180	$	338	100.0	%	0.65	%


	December 31, 2021
	Number of Loans	Problem Loan Balance		Percent of Problem Loan Balance		Percent of Total HFI Loans
	(dollars in millions)


Tech & innovation	13	$	39	11.4	%	0.10	%

Other commercial and industrial	66	60		17.9		0.16
CRE - owner occupied	14	16		4.7		0.04
Hotel franchise finance	9	139		40.9		0.35
Other CRE - non-owner occupied	5	11		3.4		0.03
Residential	35	16		4.6		0.04
Construction and land development	7	28		8.3		0.07
Other	17	30		8.8		0.08
Total	166	$	339	100.0	%	0.87	%

Mortgage Servicing Rights

The fair value of the Company's MSRs related to residential mortgage loans totaled ~~$826 million~~$1.0 billion and $698 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively.

The following is a summary of the UPB of loans underlying in the Company's MSR portfolio by type:


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
		(in millions)					(in millions)
FNMA and FHLMC	FNMA and FHLMC	$	26,627	$	38,754	FNMA and FHLMC	$	33,493	$	38,754
GNMA	GNMA	23,989		14,379		GNMA	27,692		14,379
Non-agency	Non-agency	1,568		1,215		Non-agency	1,656		1,215
Total unpaid principal balance of loans	Total unpaid principal balance of loans	$	52,184	$	54,348	Total unpaid principal balance of loans	$	62,841	$	54,348

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Goodwill and Other Intangible Assets

Goodwill represents the excess consideration paid for net assets acquired in a business combination over their fair value. Goodwill and other intangible assets acquired in a business combination that are determined to have an indefinite useful life are not subject to amortization, but are subsequently evaluated for impairment at least annually. The Company has goodwill totaling ~~$530~~$526 million at ~~June~~September 30, 2022. The increase from $491 million at December 31, 2021 is attributable to the DST acquisition in January 2022. See "Note 2. Mergers, Acquisitions and Dispositions" for further discussion of the acquisition.

The Company performs its annual goodwill and intangibles impairment tests as of October 1 each year, or more often if events or circumstances indicate that the carrying value may not be recoverable. During the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, there were no events or circumstances that indicated an interim impairment test of goodwill or other intangible assets was necessary.

Deferred Tax Assets

At ~~June~~September 30, 2022 and December 31, 2021, the Company had no deferred tax valuation allowance.

Deposits

Deposits are the primary source for funding the Company's asset growth. Total deposits increased to ~~$53.7~~$55.6 billion at ~~June~~September 30, 2022, from $47.6 billion at December 31, 2021, an increase of ~~$6.1~~$8.0 billion, or ~~12.8%~~16.8%. By deposit type, the increase in deposits is attributable to increases in non-interest bearing demand deposits of ~~$2.4~~$3.6 billion, savings and money market accounts of ~~$1.7~~$1.9 billion, interest bearing demand deposits of ~~$1.5~~$1.4 billion, and certificates of deposit of ~~$522 million.~~$1.1 billion.

WAB is a participant in the IntraFi Network, a network that offers deposit placement services such as CDARS and ICS, which offer products that qualify large deposits for FDIC insurance. At ~~June~~September 30, 2022, the Company had ~~$685~~$705 million of CDARS deposits and ~~$2.1~~$2.2 billion of ICS deposits, compared to $729 million of CDARS deposits and $1.8 billion of ICS deposits at December 31, 2021. At ~~June~~September 30, 2022 and December 31, 2021, the Company also had wholesale brokered deposits of ~~$3.6~~$3.8 billion and $1.8 billion, respectively.

In addition, deposits for which the Company provides account holders with earnings credits or referral fees totaled $~~14.5~~15.9 billion and $10.8 billion at ~~June~~September 30, 2022 and December 31, 2021, respectively. The Company incurred ~~$17.3~~$55.4 million and $6.6 million in deposit related costs on these deposits during the three months ended ~~June~~September 30, 2022 and 2021, respectively. The Company incurred ~~$26.0~~$81.4 million and $12.4 million in deposit related costs on these deposits during the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. These costs are reported inas Deposit costs ~~as part of~~in non-interest expense. The increase in these costs from the prior year is due to an increase in earnings credit rates as well as an increase in average deposit balances eligible for earnings credits or referral fees.

The average balances and weighted average rates paid on deposits are presented below:


		Three Months Ended June 30,									Three Months Ended September 30,
		2022				2021					2022				2021
		Average Balance		Rate		Average Balance		Rate			Average Balance		Rate		Average Balance		Rate
		(dollars in millions)									(dollars in millions)
Interest-bearing transaction accounts	Interest-bearing transaction accounts	$	8,346	0.38	%	$	4,370	0.14	%	Interest-bearing transaction accounts	$	8,466	1.15	%	$	4,787	0.12	%
Savings and money market accounts	Savings and money market accounts	18,771		0.35		15,168		0.21		Savings and money market accounts	18,515		0.95		16,833		0.21
Certificates of deposit	Certificates of deposit	2,040		0.52		1,737		0.49		Certificates of deposit	2,843		1.19		1,902		0.41
Total interest-bearing deposits	Total interest-bearing deposits	29,157		0.37		21,275		0.22		Total interest-bearing deposits	29,824		1.03		23,522		0.21
Non-interest-bearing demand deposits	Non-interest-bearing demand deposits	24,327		—		18,385		—		Non-interest-bearing demand deposits	25,865		—		20,732		—
Total deposits	Total deposits	$	53,484	0.20	%	$	39,660	0.12	%	Total deposits	$	55,689	0.55	%	$	44,254	0.11	%

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		Six Months Ended June 30,									Nine Months Ended September 30,
		2022				2021					2022				2021
		Average Balance		Rate		Average Balance		Rate			Average Balance		Rate		Average Balance		Rate
		(dollars in millions)									(dollars in millions)
Interest-bearing transaction accounts	Interest-bearing transaction accounts	$	8,046	0.27	%	$	4,139	0.14	%	Interest-bearing transaction accounts	$	8,188	0.57	%	$	4,357	0.13	%
Savings and money market accounts	Savings and money market accounts	18,453		0.29		14,584		0.21		Savings and money market accounts	18,474		0.51		15,342		0.21
Certificates of deposit	Certificates of deposit	1,981		0.45		1,709		0.54		Certificates of deposit	2,271		0.76		1,774		0.49
Total interest-bearing deposits	Total interest-bearing deposits	28,480		0.29		20,432		0.22		Total interest-bearing deposits	28,933		0.55		21,473		0.22
Non-interest-bearing demand deposits	Non-interest-bearing demand deposits	23,458		—		17,186		—		Non-interest-bearing demand deposits	24,269		—		18,381		—
Total deposits	Total deposits	$	51,938	0.16	%	$	37,618	0.12	%	Total deposits	$	53,202	0.30	%	$	39,854	0.12	%

Other Borrowings

Short-Term Borrowings

The Company utilizes short-term borrowed funds to support short-term liquidity needs generally created by increased loan demand. The majority of these short-term borrowed funds consist of advances from the FHLB, federal funds purchased from correspondent banks or the FHLB, and repurchase agreements. The Company’s borrowing capacity with the FHLB is determined based on collateral pledged, generally consisting of securities and loans. In addition, the Company has borrowing capacity from other sources, collateralized by securities, including securities sold under agreements to repurchase, which are reflected at the amount of cash received in connection with the transaction, and may require additional collateral based on the fair value of the underlying securities. At ~~June~~September 30, 2022, total short-term borrowed funds consisted of FHLB advances of ~~$2.0~~$4.0 billion, federal funds purchased of ~~$1.9~~$1.0 billion, repurchase agreements of ~~$79~~$26 million, and secured borrowings of ~~$40~~$60 million. At December 31, 2021, total short-term borrowed funds consisted of federal funds purchased of $675 million, secured borrowings of $35 million, and repurchase agreements of $17 million.

Long-Term Borrowings

The Company's long-term borrowings consist of AmeriHome senior notes from the acquisition on April 7, 2021 and credit linked notes issued, inclusive of issuance costs and fair market value adjustments. At ~~June~~September 30, 2022, the carrying value of long-term borrowings was $1.2 billion, compared to $775 million at December 31, 2021. The increase in long-term borrowings from December 31, 2021 relates to new credit linked note issuances during the ~~three~~nine months ended ~~June~~September 30, 2022, totaling $486 million, net of issuance costs.

Qualifying Debt

Qualifying debt consists of subordinated debt and junior subordinated debt, inclusive of issuance costs and fair market value adjustments. At ~~June~~September 30, 2022, the carrying value of qualifying debt was ~~$891~~$889 million, compared to $896 million at December 31, 2021.

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Capital Resources

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements could trigger certain mandatory or discretionary actions that, if undertaken, could have a direct material effect on the Company’s business and financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items (discussed in "Note 14. Commitments and Contingencies" to the Unaudited Consolidated Financial Statements) as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

In connection with its adoption of CECL on January 1, 2020, the Company elected the five-year CECL transition option that delayed the estimated impact on regulatory capital resulting from the adoption of CECL. As a result of this election, the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology was delayed for two years, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. Beginning in 2022, capital ratios and amounts include a 25% reduction to the capital benefit that resulted from the increased allowance for credit losses related to the adoption of ASC 326.

As a result of the Company's continued commercial loan growth and the acquisition of AmeriHome, the Company continues to undertake various capital actions to ensure that its capital levels remain strong, which during the ~~six~~nine months ended ~~June~~September 30, 2022, included sales of common stock under the Company's ATM program and two credit linked note issuances. As of ~~June~~September 30, 2022 and December 31, 2021, the Company and the Bank exceeded the capital levels necessary to be classified as well-capitalized, as defined by the various banking agencies. The actual capital amounts and ratios for the Company and the Bank are presented in the following tables as of the periods indicated:


		Total Capital		Tier 1 Capital		Risk-Weighted Assets		Tangible Average Assets		Total Capital Ratio		Tier 1 Capital Ratio		Tier 1 Leverage Ratio		Common Equity Tier 1			Total Capital		Tier 1 Capital		Risk-Weighted Assets		Tangible Average Assets		Total Capital Ratio		Tier 1 Capital Ratio		Tier 1 Leverage Ratio		Common Equity Tier 1
		(dollars in millions)																	(dollars in millions)
June 30, 2022
September 30, 2022																		September 30, 2022
WAL	WAL	$	6,001	$	4,897	$	50,292	$	64,085	11.9	%	9.7	%	7.6	%	9.0	%	WAL	$	6,282	$	5,147	$	55,053	$	68,330	11.4	%	9.3	%	7.5	%	8.7	%
WAB	WAB	5,638		5,126		50,228		64,051		11.2		10.2		8.0		10.2		WAB	5,936		5,394		54,977		68,264		10.8		9.8		7.9		9.8
Well-capitalized ratios	Well-capitalized ratios									10.0		8.0		5.0		6.5		Well-capitalized ratios									10.0		8.0		5.0		6.5
Minimum capital ratios	Minimum capital ratios									8.0		6.0		4.0		4.5		Minimum capital ratios									8.0		6.0		4.0		4.5

December 31, 2021	December 31, 2021																	December 31, 2021
WAL	WAL	$	5,499	$	4,444	$	44,697	$	56,973	12.3	%	9.9	%	7.8	%	9.1	%	WAL	$	5,499	$	4,444	$	44,697	$	56,973	12.3	%	9.9	%	7.8	%	9.1	%
WAB	WAB	5,120		4,658		44,726		56,962		11.4		10.4		8.2		10.4		WAB	5,120		4,658		44,726		56,962		11.4		10.4		8.2		10.4
Well-capitalized ratios	Well-capitalized ratios									10.0		8.0		5.0		6.5		Well-capitalized ratios									10.0		8.0		5.0		6.5
Minimum capital ratios	Minimum capital ratios									8.0		6.0		4.0		4.5		Minimum capital ratios									8.0		6.0		4.0		4.5

The Company is also required to maintain specified levels of capital to remain in good standing with certain federal government agencies, including FNMA, FHLMC, GNMA, and HUD. These capital requirements are generally tied to the unpaid balances of loans included in the Company's servicing portfolio or loan production volume. Noncompliance with these capital requirements can result in various remedial actions up to, and including, removing the Company's ability to sell loans to and service loans on behalf of the respective agency. The Company believes that it is in compliance with these requirements as of ~~June~~September 30, 2022.

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Critical Accounting Estimates

Critical accounting ~~policies~~estimates are defined as those that are reflective of significant judgments and uncertainties and could potentially result in materially different results under different assumptions and conditions. The critical accounting estimates upon which the Company's financial condition and results of operations depend, and which involve the most complex subjective decisions or assessments, are included in the discussion entitled "Critical Accounting Policies" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and all amendments thereto, as filed with the SEC. There were no material changes to the critical accounting policies disclosed in the Annual Report on Form 10-K.

Liquidity

Liquidity is the ongoing ability to accommodate liability maturities and deposit withdrawals, fund asset growth and business operations, and meet contractual obligations through unconstrained access to funding at reasonable market rates. Liquidity management involves forecasting funding requirements and maintaining sufficient capacity to meet the needs and accommodate fluctuations in asset and liability levels due to changes in the Company's business operations or unanticipated events.

The ability to have readily available funds sufficient to repay fully maturing liabilities is of primary importance to depositors, creditors, and regulators. The Company's liquidity, represented by cash and amounts due from banks, federal funds sold, HFS mortgages, and non-pledged marketable securities, is a result of the Company's operating, investing, and financing activities and related cash flows. In order to ensure funds are available when necessary, on at least a quarterly basis, the Company projects the amount of funds that will be required over a twelve-month period and it also strives to maintain relationships with a diversified customer base. Liquidity requirements can also be met through short-term borrowings or the disposition of short-term assets.

The following table presents the available and outstanding balances on the Company's lines of credit:

June 30, 2022
Available
Balance Outstanding Balance
(in millions)
Unsecured fed funds credit lines at correspondent banks $ 3,408 $ 1,860


	September 30, 2022
	Available Balance		Outstanding Balance
	(in millions)
Unsecured fed funds credit lines at correspondent banks	$	4,706	$	1,010

In addition to lines of credit, the Company has borrowing capacity with the FHLB and FRB from pledged loans and securities and warehouse borrowing lines of credit. The borrowing capacity, outstanding borrowings, and available credit as of ~~June~~September 30, 2022 are presented in the following table:


	~~June~~September 30, 2022
	(in millions)
FHLB:
Borrowing capacity	$	~~9,774~~11,084
Outstanding borrowings	~~2,000~~4,000
Letters of credit	21
Total available credit	$	~~7,753~~7,063

FRB:
Borrowing capacity	$	~~4,728~~4,976
Outstanding borrowings	—
Total available credit	$	~~4,728~~4,976

Warehouse borrowings:
Borrowing capacity	$	1,000
Outstanding borrowings	—
Total available credit	$	1,000

The Company has a formal liquidity policy and, in the opinion of management, its liquid assets are considered adequate to meet cash flow needs for loan funding and deposit cash withdrawals for the next 90-120 days. At ~~June~~September 30, 2022, there ~~was $10.2~~were $9.0 billion in liquid assets, comprised of ~~$1.9~~$1.6 billion in cash and cash equivalents, ~~$2.8~~$2.0 billion in HFS mortgages, and ~~$5.5~~$5.4 billion in unpledged marketable securities. At December 31, 2021, the Company maintained $8.7 billion in liquid assets,

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comprised of $516 million of cash and cash equivalents, $4.0 billion in HFS mortgages, and $4.2 billion of unpledged marketable securities.

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The Parent maintains liquidity that would be sufficient to fund its operations and certain non-bank affiliate operations for an extended period should funding from normal sources be disrupted. Since deposits are taken by WAB and not by the Parent, Parent liquidity is not dependent on the Bank's deposit balances. In the Company's analysis of Parent liquidity, it is assumed that the Parent is unable to generate funds from additional debt or equity issuances, receives no dividend income from subsidiaries and does not pay dividends to stockholders, while continuing to make non-discretionary payments needed to maintain operations and repayment of contractual principal and interest payments owed by the Parent and affiliated companies. Under this scenario, the amount of time the Parent and its non-bank subsidiary can operate and meet all obligations before the current liquid assets are exhausted is considered as part of the Parent liquidity analysis. Management believes the Parent maintains adequate liquidity capacity to operate without additional funding from new sources for over twelve months.

WAB maintains sufficient funding capacity to address large increases in funding requirements, such as deposit outflows. This capacity is comprised of liquidity derived from a reduction in asset levels and various secured funding sources. On a long-term basis, the Company’s liquidity will be met by changing the relative distribution of its asset portfolios (for example, by reducing investment or loan volumes, or selling or encumbering assets). Further, the Company can increase liquidity by soliciting higher levels of deposit accounts through promotional activities and/or borrowing from correspondent banks, the FHLB of San Francisco, and the FRB. At ~~June~~September 30, 2022, the Company's long-term liquidity needs primarily relate to funds required to support loan originations, commitments, and deposit withdrawals, which can be met by cash flows from investment payments and maturities, and investment sales, if necessary.

The Company’s liquidity is comprised of three primary classifications: 1) cash flows provided by operating activities; 2) cash flows used in investing activities; and 3) cash flows provided by financing activities. Net cash provided by or used in operating activities consists primarily of net income, adjusted for changes in certain other asset and liability accounts and certain non-cash income and expense items, such as the provision for credit losses, investment and other amortization and depreciation. For the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, net cash provided by (used in) operating activities was ~~$960.0 million~~$1.5 billion and ~~$(1.1)~~$(3.3) billion, respectively.

The Company's primary investing activities are the origination of real estate and commercial loans, the collection of repayments of these loans, and the purchase and sale of securities. The Company's net cash provided by and used in investing activities has been primarily influenced by its loan and securities activities. The Company's cash balance during the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 was reduced by ~~$8.0~~$11.7 billion and ~~$3.5~~$8.4 billion, respectively, as a result of a net increase in loans as well as a net increase in investment securities of $1.8 billion and ~~$2.4~~$2.3 billion, respectively.

Net cash provided by financing activities has been impacted significantly by increased deposit levels. During the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, net deposits increased ~~$6.1~~$8.0 billion and ~~$10.0~~$13.4 billion, respectively.

Fluctuations in core deposit levels may increase the Company's need for liquidity as certificates of deposit mature or are withdrawn before maturity, and as non-maturity deposits, such as checking and savings account balances, are withdrawn. Additionally, the Company is exposed to the risk that customers with large deposit balances will withdraw all or a portion of such deposits, due in part to the FDIC limitations on the amount of insurance coverage provided to depositors. To mitigate the uninsured deposit risk, the Company participates in the CDARS and ICS programs, which allow an individual customer to invest up to $50.0 million and $150.0 million, respectively, through one participating financial institution or, a combined total of $200.0 million per individual customer, with the entire amount being covered by FDIC insurance. As of ~~June~~September 30, 2022, the Company has ~~$685~~$705 million of CDARS and ~~$2.1~~$2.2 billion of ICS deposits.

As of ~~June~~September 30, 2022, the Company has ~~$3.6~~$3.8 billion of wholesale brokered deposits outstanding. Brokered deposits are generally considered to be deposits that have been received from a third party who is engaged in the business of placing deposits on behalf of others. A traditional deposit broker will direct deposits to the banking institution offering the highest interest rate available. Federal banking laws and regulations place restrictions on depository institutions regarding brokered deposits because of the general concern that these deposits are not relationship based and are at a greater risk of being withdrawn and placed on deposit at another institution offering a higher interest rate, thus posing liquidity risk for institutions that gather brokered deposits in significant amounts.

Federal and state banking regulations place certain restrictions on dividends paid. The total amount of dividends which may be paid at any date is generally limited to the retained earnings of the bank. Dividends paid by WAB to the Parent would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements. During the three and ~~six~~nine months ended ~~June 30, 2022, WAB paid dividends to the Parent of $50 million. Subsequent to June~~September 30, 2022, WAB paid dividends to the Parent of $55 ~~million.~~million and $105 million, respectively.

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Item 3.Quantitative and Qualitative Disclosures about Market Risk.

Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices and rates, foreign currency exchange rates, commodity prices, and equity prices. The Company's market risk arises primarily from interest rate risk inherent in its lending, investing, and deposit taking activities. To that end, management actively monitors and manages the Company's interest rate risk exposure. The Company generally manages its interest rate sensitivity by evaluating re-pricing opportunities on its earning assets to those on its funding liabilities.

Management uses various asset/liability strategies to manage the re-pricing characteristics of the Company's assets and liabilities, all of which are designed to ensure that exposure to interest rate fluctuations is limited to within the Company's guidelines of acceptable levels of risk-taking. Hedging strategies, including the terms and pricing of loans and deposits and management of the deployment of its securities, are used to reduce mismatches in interest rate re-pricing opportunities of portfolio assets and their funding sources.

Interest rate risk is addressed by ALCO, which includes members of executive management, finance, and operations. ALCO monitors interest rate risk by analyzing the potential impact on the net EVE and net interest income from potential changes in interest rates and considers the impact of alternative strategies or changes in balance sheet structure. The Company manages its balance sheet in part to maintain the potential impact on EVE and net interest income within acceptable ranges despite changes in interest rates.

The Company's exposure to interest rate risk is reviewed at least quarterly by ALCO. Interest rate risk exposure is measured using interest rate sensitivity analysis to determine its change in both EVE and net interest income in the event of hypothetical changes in interest rates. If potential changes to EVE and net interest income resulting from hypothetical interest rate changes are not within the limits established by the BOD, the BOD may direct management to adjust the asset and liability mix to bring interest rate risk within Board-approved limits.

Net Interest Income Simulation. In order to measure interest rate risk at ~~June~~September 30, 2022, the Company used a simulation model to project changes in net interest income that result from forecasted changes in interest rates. This analysis calculates the difference between a baseline net interest income forecast using current yield curves that do not take into consideration any future anticipated rate hikes, compared to forecasted net income resulting from an immediate parallel shift in rates upward or downward, along with other scenarios directed by ALCO. The income simulation model includes various assumptions regarding re-pricing relationships for each of the Company's products. Many of the Company's assets are variable rate loans, which are assumed to re-price immediately and, proportional to the change in market rates, depending on their contracted index, including the impact of caps or floors. Some loans and investments contain contractual prepayment features (embedded options) and, accordingly, the simulation model incorporates prepayment assumptions. The Company's non-term deposit products re-price concurrently with interest rate changes taken by the FOMC.

This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions. It assumes the balance sheet remains static and that its structure does not change over the course of the year. It does not account for all factors that could impact the Company's results, including changes by management to mitigate interest rate changes or secondary factors, such as changes to the Company's credit risk profile as interest rates change.

Furthermore, loan prepayment rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan prepayment speeds that will differ from the market estimates incorporated in this analysis. Changes that vary significantly from the modeled assumptions may have a significant effect on the Company's actual net interest income.

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This simulation model assesses the changes in net interest income that would occur in response to an instantaneous and sustained increase or decrease (shock) in market interest rates. At ~~June~~September 30, 2022, our net interest income exposure for the next twelve months related to these hypothetical changes in market interest rates was within our current guidelines.

Sensitivity of Net Interest Income


		Parallel Shift Rate Scenario (change in basis points from Base)												Parallel Shift Rate Scenario (change in basis points from Base)
		Down 100			Base		Up 100			Up 200				Down 100			Base		Up 100			Up 200
		(in millions)												(in millions)
Interest Income	Interest Income	$	2,157.7		$	2,434.4	$	2,731.5		$	3,033.1		Interest Income	$	2,775.9		$	3,097.3	$	3,440.4		$	3,793.9
Interest Expense	Interest Expense	288.2			425.9		616.0			807.8			Interest Expense	520.7			721.6		923.2			1,124.9
Net Interest Income	Net Interest Income	$	1,869.5		$	2,008.5	$	2,115.5		$	2,225.3		Net Interest Income	$	2,255.2		$	2,375.7	$	2,517.2		$	2,669.0
% Change	% Change	(6.9)		%			5.3		%	10.8		%	% Change	(5.1)		%			6.0		%	12.3		%


		Interest Rate Ramp Scenario (change in basis points from Base)												Interest Rate Ramp Scenario (change in basis points from Base)
		Down 100			Base		Up 100			Up 200				Down 100			Base		Up 100			Up 200
		(in millions)												(in millions)
Interest Income	Interest Income	$	2,302.4		$	2,434.4	$	2,541.8		$	2,663.5		Interest Income	$	2,960.4		$	3,097.3	$	3,241.0		$	3,390.5
Interest Expense	Interest Expense	355.5			425.9		511.0			597.0			Interest Expense	632.9			721.6		810.6			899.7
Net Interest Income	Net Interest Income	$	1,946.9		$	2,008.5	$	2,030.8		$	2,066.5		Net Interest Income	$	2,327.5		$	2,375.7	$	2,430.4		$	2,490.8
% Change	% Change	(3.1)		%			1.1		%	2.9		%	% Change	(2.0)		%			2.3		%	4.8		%

Economic Value of Equity. The Company measures the impact of market interest rate changes on the NPV of estimated cash flows from its assets, liabilities, and off-balance sheet items, defined as EVE, using a simulation model. This simulation model assesses the changes in the market value of interest rate sensitive financial instruments that would occur in response to an instantaneous and sustained increase or decrease (shock) in market interest rates.

At ~~June~~September 30, 2022, the Company's EVE exposure related to these hypothetical changes in market interest rates was within the Company's current guidelines. The following table shows the Company's projected change in EVE for this set of rate shocks at ~~June~~September 30, 2022:

Economic Value of Equity


		Interest Rate Scenario (change in basis points from Base)																Interest Rate Scenario (change in basis points from Base)
			Down 100			Base		Up 100			Up 200			Up 300					Down 100			Base		Up 100			Up 200			Up 300
		(in millions)																(in millions)
Assets	Assets		$	64,906		$	63,004	$	61,368		$	59,959		$	58,388		Assets		$	66,582		$	64,688	$	63,003		$	61,471		$	60,207
Liabilities	Liabilities		52,850			51,986		50,987			50,072			48,869			Liabilities		53,654			53,551		52,845			52,169			51,529
Net Present Value	Net Present Value		$	12,056		$	11,018	$	10,381		$	9,887		$	9,519		Net Present Value		$	12,928		$	11,137	$	10,158		$	9,302		$	8,678
% Change	% Change		9.4		%			(5.8)		%	(10.3)		%	(13.6)		%	% Change		16.1		%			(8.8)		%	(16.5)		%	(22.1)		%

The computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, asset prepayments, and deposit decay, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the Company may undertake in response to changes in interest rates. Actual amounts may differ from the projections set forth above should market conditions vary from the underlying assumptions.

Derivative Contracts. In the normal course of business, the Company uses derivative instruments to meet the needs of its customers and manage exposure to fluctuations in interest rates. The following table summarizes the aggregate notional amounts, market values, and terms of the Company’s derivative positions as of ~~June~~September 30, 2022 and December 31, 2021:

Outstanding Derivatives Positions


June 30, 2022					December 31, 2021
September 30, 2022										September 30, 2022				December 31, 2021
Notional	Notional	Net Value		Weighted Average Term (Years)	Notional		Net Value		Weighted Average Term (Years)	Notional	Net Value		Weighted Average Term (Years)	Notional		Net Value		Weighted Average Term (Years)
(dollars in millions)	(dollars in millions)									(dollars in millions)
$	408,016	$	(4)	1.3	$	480,766	$	(50)	1.5	377,507	$	34	1.2	$	480,766	$	(50)	1.5

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Item 4.Controls and Procedures.

Evaluation of Disclosure Controls

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, the CEO and CFO have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Additionally, the Company's disclosure controls and procedures were also effective in ensuring that information required to be disclosed by the Company in the reports it files or is subject to under the Exchange Act is accumulated and communicated to the Company's management, including the CEO and CFO, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company's internal control over financial reporting during the quarter ended ~~June~~September 30, 2022, which have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings.

There are no material pending legal proceedings to which the Company is a party or to which any of its properties are subject. There are no material proceedings known to the Company to be contemplated by any governmental authority. From time to time, the Company is involved in a variety of litigation matters in the ordinary course of its business and anticipates that it will become involved in new litigation matters in the future.

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Item 1A.Risk Factors.

There have not been any material changes to the risk factors previously disclosed in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

The following table provides information about the Company's purchases of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act for the periods indicated:

Total Number of Shares Purchased (1)(2) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs
April 2022 2,321 $ 77.90 — $ —
May 2022 — — — —
June 2022 314 74.51 — —
Total 2,635 $ 77.50 — $ —


	Total Number of Shares Purchased (1)(2)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs
July 2022	1,043	$	76.36	—	$	—
August 2022	9,131	78.30		—	—
September 2022	865	68.61		—	—
Total	11,039	$	77.36	—	$	—

(1) Shares purchased during the period were transferred to the Company from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock awards during the period.

(2) The Company currently does not have a common stock repurchase program.

Item 5.Other Information

Not applicable.

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Item 6.Exhibits

EXHIBITS


3.1						Amended and Restated Certificate of Incorporation, effective as of May 19, 2015 (incorporated by reference to Exhibit 3.1 of Western Alliance's Form 10-K filed with the SEC on March 1, 2019).

3.2						Certificate of Amendment designating the 4.250% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A, effective September 22, 2021 (incorporated by reference to Exhibit 3.1 of Western Alliance's Form 8-K filed with the SEC on September 22, 2021).

3.3						Amended and Restated Bylaws of Western Alliance, effective as of June 14,~~, 20~~22 2022 (incorporated by reference to Exhibit 3.1 3.1 of Western Alliance's Form 8-K filed with the SEC on June 16,~~, 20~~22 ) 2022).

3.4						Articles of Conversion, as filed with the Nevada Secretary of State on May 29, 2014 (incorporated by reference to Exhibit 3.1 of Western Alliance’s Form 8-K filed with the SEC on June 3, 2014).

3.5						Certificate of Conversion, as filed with the Delaware Secretary of State on May 29, 2014 (incorporated by reference to Exhibit 3.2 of Western Alliance’s Form 8-K filed with the SEC on June 3, 2014).

10.1±						~~Letter~~Form of Amendment to Executive Restricted Stock Agreement ~~dated as of April 6, 2022, between Western Alliance Bancorporation and Kenneth A. Vecchione (incorporated by reference~~pursuant to ~~Exhibit 10.1 of Western Alliance's Form 8-K filed with~~ the ~~SEC on April 7, 2022).~~Company's 2005 Stock Incentive Plan.

31.1*						CEO Certification Pursuant Rule 13a-14(a)/15d-14(a).

31.2*						CFO Certification Pursuant Rule 13a-14(a)/15d-14(a).

32**						CEO and CFO Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes Oxley Act of 2002.

101						Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of ~~June~~September 30, 2022 and December 31, 2021, (ii) the Consolidated Income Statements for the three months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021 and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, (iii) the Consolidated Statements of Comprehensive Income for the three months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021 and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, (iv) the Consolidated Statements of Stockholders’ Equity for the three months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021 and the ~~six~~nine months ~~June~~September 30, 2022 and 2021, (v) the Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, and (vi) the Notes to unaudited Consolidated Financial Statements. (Pursuant to Rule 406T of Regulation S-T, this information is deemed furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.) (Filed herewith).

104						The cover page of Western Alliance Bancorporation’s Quarterly Report on Form 10-Q for the quarterly period ended ~~June~~September 30, 2022, formatted in Inline XBRL (contained in Exhibit 101).

* Filed herewith.

** Furnished herewith.

± Management contract or compensatory arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

WESTERN ALLIANCE BANCORPORATION

~~July 29,~~November 1, 2022

By:

/s/ Kenneth A. Vecchione

Kenneth A. Vecchione

President and Chief Executive Officer

~~July 29,~~November 1, 2022

By:

/s/ Dale Gibbons

Dale Gibbons

Vice Chairman and Chief Financial Officer

~~July 29,~~November 1, 2022

By:

/s/ J. Kelly Ardrey Jr.

J. Kelly Ardrey Jr.

Chief Accounting Officer

~~101~~103


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Glossary of Entities and Terms	3
	Financial Statements (Unaudited)
	Consolidated Balance Sheets	4
	Consolidated Income Statements	4
	Consolidated Statements of Comprehensive Income	6
	Consolidated Statements of Stockholders’ Equity	7
	Consolidated Statements of Cash Flows	9
	Notes to Unaudited Consolidated Financial Statements	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	7374
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	9698
Item 4.	Controls and Procedures	98100

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	98100
Item 1A.	Risk Factors	99101
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	99101
Item 5.	Other Information	99101
Item 6.	Exhibits	~~100~~102

SIGNATURES		~~101~~103