Western Alliance Bancorporation WAL Form 10-Q filing Q2 FY2023

PART I

Item 1. Glossary of Entities and Terms

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 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 WATC Western Alliance Trust Company, N.A.

TERMS:

ACL Allowance for Credit Losses FOMC Federal Open Market Committee

AFS Available-for-Sale FRB Federal Reserve Bank

ALCO Asset and Liability Management Committee FVO Fair Value Option

AOCI Accumulated Other Comprehensive Income GAAP U.S. Generally Accepted Accounting Principles

ASC Accounting Standards Codification GNMA Government National Mortgage Association

ASU Accounting Standards Update GSE Government-Sponsored Enterprise

Basel III Banking Supervision's December 2010 final capital framework HFI Held for Investment

BOD Board of Directors HFS Held for Sale

BTFP Bank Term Funding Program HTM Held-to-Maturity

Capital Rules The FRB, the OCC, and the FDIC 2013 Approved Final Rules HUD U.S. Department of Housing and Urban Development

CDARS Certificate Deposit Account Registry Service ICS Insured Cash Sweep Service

CECL Current Expected Credit Losses IRLC Interest Rate Lock Commitment

CEO Chief Executive Officer ISDA International Swaps and Derivatives Association

CET1 Common Equity Tier 1 LIBOR London Interbank Offered Rate

CFO Chief Financial Officer LIHTC Low-Income Housing Tax Credit

CLO Collateralized Loan Obligation MBS Mortgage-Backed Securities

COVID-19 Coronavirus Disease 2019 MSR Mortgage Servicing Right

CRA Community Reinvestment Act NPV Net Present Value

CRE Commercial Real Estate OCI Other Comprehensive Income

DTA Deferred Tax Asset PPNR Pre-Provision Net Revenue

EBO Early buyout SEC Securities and Exchange Commission

EPS Earnings per share SERP Supplemental Executive Retirement Plan

ESG Environmental, Social, and Governance SOFR Secured Overnight Financing Rate

EVE Economic Value of Equity TDR Troubled Debt Restructuring

Exchange Act Securities Exchange Act of 1934, as amended TEB Tax Equivalent Basis

FASB Financial Accounting Standards Board TSR Total Shareholder Return

FDIC Federal Deposit Insurance Corporation UPB Unpaid Principal Balance

FHA Federal Housing Administration USDA United States Department of Agriculture

FHLB Federal Home Loan Bank VA Veterans Affairs

FHLMC Federal Home Loan Mortgage Corporation VIE Variable Interest Entity

FNMA Federal National Mortgage Association XBRL eXtensible Business Reporting Language

Item 1.Financial Statements

See accompanying Notes to Unaudited Consolidated Financial Statements.

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

See accompanying Notes to Unaudited Consolidated Financial Statements.

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

See accompanying Notes to Unaudited Consolidated Financial Statements.

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(1) Share amounts represent Treasury Shares.

See accompanying Notes to Unaudited Consolidated Financial Statements.

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying Notes to Unaudited Consolidated Financial Statements.

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of operations

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 digital payment 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 digital payment services for the class action legal industry through DST. In addition, the Company has the following non-bank subsidiaries: 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, and WATC, which provides corporate trust services and levered loan administration solutions.

Basis of presentation

The accompanying Unaudited Consolidated Financial Statements as of June 30, 2023 and for the three and six months ended June 30, 2023 and 2022 have been prepared in accordance with GAAP for interim financial information and Article 10 of Regulation S-X and, therefore, do not include all of the information and footnotes required by GAAP for complete financial statements. Accordingly, these statements should be read in conjunction with the Company's audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. The accounts of the Company and its consolidated subsidiaries are included in the Consolidated Financial Statements.

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.

Recent accounting pronouncements

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method

In March 2023, the FASB issued guidance within ASU 2023-02, Investments — Equity Method and Joint Ventures (Topic 323). The amendments in this update permit entities to elect to account for tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. Previously this option was only permitted for LIHTC investments. Additionally, the amendments in this update require that all tax equity investments accounted for using the proportional amortization method apply the delayed equity contribution guidance in Subtopic 323-740 and disclosure of the nature of an entity's tax equity investments and their effect on an entity's financial position and results of operations.

The amendments in this update are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years and are applied on a modified retrospective or a retrospective basis. The adoption of this guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.

Recently adopted accounting guidance

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 write-offs 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 Company adopted this accounting guidance prospectively on January 1, 2023. 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 relate to: 1) the determination of the ACL; 2) certain assets and liabilities carried at fair value; and 3) accounting for income taxes.

Principles of consolidation

As of June 30, 2023, WAL has the following significant wholly-owned subsidiaries: WAB and eight 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.

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 had no effect on net income or stockholders’ equity as previously reported.

Goodwill and other intangible assets

The Company evaluated whether the continued effects from the March 2023 bank failures may give rise to a triggering event and elected to perform a Step 0 goodwill impairment assessment, which included analyzing qualitative factors applicable to the Company, the financial performance of the Company, and valuation metrics of publicly traded companies comparable to the Company and its reporting units. As of June 30, 2023, the Company does not believe that these events or circumstances have significantly altered the long-term financial performance of the Company. Accordingly, it was determined that it is more likely than not that the fair value of the Company and its reporting units exceeds their respective carrying values as of June 30, 2023. The Company's goodwill totaled $527 million at June 30, 2023 and December 31, 2022, with $290 million and $237 million allocated to the Commercial and Consumer Related segments, respectively.

2. INVESTMENT SECURITIES

The carrying amounts and fair values of investment securities are summarized as follows:

In addition, the Company held equity securities, which primarily consisted of preferred stock and CRA investments, with a fair value of $139 million and $160 million at June 30, 2023 and December 31, 2022, respectively. Unrealized gains on equity securities of $0.1 million and losses of $10.0 million for the three months ended June 30, 2023 and 2022, respectively, and losses of $8.4 million and $16.7 million for the six months ended June 30, 2023 and 2022, respectively, were recognized in earnings as a component of fair value loss adjustments.

Securities with carrying amounts of approximately $7.3 billion and $1.7 billion at June 30, 2023 and December 31, 2022, respectively, were pledged for various purposes as required or permitted by law.

The following tables summarize the Company's AFS debt securities in an unrealized loss position, aggregated by major security type and length of time in a continuous unrealized loss position:

(1) Includes securities with an ACL that have a fair value of $109 million and unrealized losses of $40 million.

The total number of AFS debt securities in an unrealized loss position at June 30, 2023 was 797, compared to 832 at December 31, 2022.

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 and are highly rated by major rating agencies. 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 are primarily 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 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.

In consideration of the continued effects from the March 2023 bank failures, the Company performed a targeted impairment analysis on its AFS debt securities issued by regional banks held in its corporate debt securities portfolio. The Company considered the issuers' credit ratings, probability of default, and other factors. As a result of the analysis, a $2.2 million and $21.5 million provision for credit losses was recognized during the three and six months ended June 30, 2023, respectively. The provision for credit losses for the six months ended June 30, 2023 included recognition of a $17.1 million charge-off for one debt security issued by a regional bank that was sold. The Company does not intend to sell and it is more likely than not that the Company will not be required to sell the remainder of these regional bank debt securities prior to their anticipated recovery, therefore, no credit losses on the Company's remaining AFS securities portfolio have been recognized during the three and six months ended June 30, 2023.

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 loans. These are variable rate securities that have an investment grade rating of Single-A or better. 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.

The following table presents a rollforward by major security type of the ACL on the Company's AFS debt securities:

There were no credit losses recognized on AFS securities during the three and six months ended June 30, 2022.

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 ACL on the Company's HTM debt securities:

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 at June 30, 2023 and December 31, 2022, and is excluded from the estimate of expected credit losses.

The following tables summarize the carrying amount of the Company’s investment ratings position, which are updated quarterly and used to monitor the credit quality of the Company's securities:

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

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

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 30, 2023, the Company 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 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.

The following table presents gross gains and losses on sales of investment securities:

During the three months ended June 30, 2023, the Company sold securities with a carrying value of $355 million and recognized a net loss of $13.6 million. During the six months ended June 30, 2023, the Company sold securities with a carrying value of $814 million and recognized a net loss of $26.1 million. Sales of CLOs were executed as part of the Company's balance sheet repositioning strategy and resulted in the gross losses above. Sales of MBS and tax-exempt municipal securities were completed to secure gains. During the three and six months ended June 30, 2022, the Company sold securities with a carrying value of $22 million and $107 million, respectively, and incurred a net loss of $0.2 million and a net gain of $6.7 million.

3. LOANS HELD FOR SALE

The Company purchases and originates residential mortgage loans to be sold or securitized through its AmeriHome mortgage banking business channel. In addition, as of March 31, 2023, the Company transferred $5.9 billion of loans (primarily commercial and industrial loans) to HFS. During the three months ended June 30, 2023, the Company successfully completed loan dispositions from this transferred loan pool totaling $3.5 billion and transferred a net $0.7 billion of HFS loans back to HFI at the end of the period as a result of a change in management's intentions. As of June 30, 2023, $1.8 billion of these loans remain classified as HFS.

The following is a summary of loans HFS by type:

(1) EBO loans are delinquent FHA, VA, or USDA loans repurchased under the terms of the GNMA 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.

If management’s intent or ability to hold loans for investment has changed, such loans will be transferred to HFS. Loans transferred from HFI to HFS are transferred at the lower of its amortized cost basis (adjusted for any charge-offs) or fair value. If the amortized cost basis of the transferred loan exceeds its fair value, a valuation allowance equal to the difference in these amounts will be established on the transfer date and any subsequent changes in the valuation allowance will be recognized in earnings. Any ACL previously recorded on transferred loans is reversed and recognized in earnings at the time of the transfer.

The following is a summary of the net gain on loan purchase, origination, and sale activities on residential mortgage loans to be sold or securitized:

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

4. LOANS, LEASES AND ALLOWANCE FOR CREDIT LOSSES

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

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 ACL. Net deferred loan fees of $115 million and $141 million reduced the carrying value of loans as of June 30, 2023 and December 31, 2022, respectively. Net unamortized purchase premiums on acquired and purchased loans of $187 million and $195 million increased the carrying value of loans as of June 30, 2023 and December 31, 2022, 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:

Loans contractually delinquent by 90 days or more and still accruing totaled $481 million at June 30, 2023 and consisted of government guaranteed EBO residential loans.

Loans contractually delinquent by 90 days or more and still accruing totaled $582 million at December 31, 2022 and consisted of government guaranteed EBO residential loans.

The reduction in interest income associated with loans on nonaccrual status was approximately $2.8 million and $1.2 million for the three months ended June 30, 2023 and 2022, respectively, and $3.6 million and $2.3 million for the six months ended June 30, 2023 and 2022, respectively.

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

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 following tables present risk ratings by loan portfolio segment and origination year. The origination year is the year of origination or renewal.

Restructurings for Borrowers Experiencing Financial Difficulty

The Company adopted the amendments in ASU 2022-02, which eliminated accounting guidance on TDR loans for creditors and requires enhanced disclosures for loan modifications to borrowers experiencing financial difficulty that were made on or after January 1, 2023. See “Note 1. Summary of Significant Accounting Policies” of these Notes to Unaudited Financial Statements for further discussion of the amendments in this update.

The following table presents the amortized cost basis of loans HFI that were modified during the period by loan portfolio segment:

The performance of these modified loans is monitored for 12 months following the modification. As of June 30, 2023, modified loans on nonaccrual status totaled $35 million and the remaining $55 million were current with contractual payments.

In the normal course of business, the Company also modifies EBO loans, which are delinquent FHA, VA, or USDA insured or guaranteed loans repurchased under the terms of the GNMA MBS program and can be repooled or resold when loans are brought current. During the three and six months ended June 30, 2023, the Company completed modifications of EBO loans with an amortized cost of $35 million and $92 million, respectively. These modifications were largely payment delays and term extensions, or both.

Troubled Debt Restructurings

Prior to the adoption of ASU 2022-02, the Company accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a TDR. The loan terms that were modified or restructured due to a borrower’s financial situation included, but were 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 were extensions in terms or deferral of payments which resulted in no lost principal or interest. Consistent with regulatory guidance, a TDR loan that was subsequently modified in another restructuring agreement but had shown sustained performance and classification as a TDR, was removed from TDR status provided that the modified terms were market-based at the time of modification.

The following table presents TDR loans by loan portfolio segment:

As of December 31, 2022, the ACL on TDR loans totaled $4 million and there were no outstanding commitments on TDR loans.

During the three months ended June 30, 2022, the Company had no new TDR loans. During the six months ended June 30, 2022, the Company had one new TDR loan with a recorded investment of $4 million. No principal amounts were forgiven and there were no waived fees or other expenses resulting from this TDR.

During the three and six months ended June 30, 2022, there were no loans for which there was a payment default within 12 months following the modification.

Collateral-Dependent Loans

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

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 30, 2023.

Allowance for Credit Losses

The ACL consists of the ACL on funded loans HFI and an ACL on unfunded loan commitments. The ACL on HTM securities is estimated separately from loans, see "Note 2. Investment Securities" of these Notes to Unaudited Consolidated Financial Statements for further discussion. Management considers the level of ACL to be a reasonable and supportable estimate of expected credit losses inherent within the Company's HFI loan portfolio as of June 30, 2023.

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

Accrued interest receivable of $296 million and $304 million at June 30, 2023 and December 31, 2022, respectively, was excluded from the estimate of credit losses. Whereas, accrued interest receivable related to the Company's Residential-EBO loan portfolio segment was included in the estimate of credit losses and had an allowance of $6 million and $9 million, as of June 30, 2023 and December 31, 2022, respectively.

In addition to the ACL on funded loans HFI, the Company maintains a separate ACL related to off-balance sheet credit exposures, including unfunded loan commitments. This allowance is included in Other liabilities on the Consolidated Balance Sheets.

The below table reflects the activity in the ACL on unfunded loan commitments:

The following tables disaggregate the Company's ACL on funded loans HFI and loan balances by measurement methodology:

Loan Purchases and Sales

During the three and six months ended June 30, 2023, loan purchases totaled $511 million and $1.0 billion, respectively, which consisted primarily of commercial and industrial and residential loans. Loan purchases during the three and six months ended June 30, 2022 totaled $3.1 billion and $5.5 billion, respectively, which consisted primarily of residential loans. There were no loans purchased with more-than-insignificant deterioration in credit quality during the three and six months ended June 30, 2023 and 2022.

The Company transferred $6.0 billion of loans HFI (primarily commercial and industrial loans) to HFS as of March 31, 2023. During the three months ended June 30, 2023, the Company successfully completed loan sales from this transferred loan pool totaling $2.6 billion and transferred a net $0.7 billion of HFS loans back to HFI at the end of the period as a result of a change in management's intentions.

The Company also transferred loans from HFI to HFS, where the loan sales settled during the period that the transfer was made. During the three and six months ended June 30, 2023, loans with a carrying value of approximately $212 million and $1.1 billion, respectively, were transferred. A net loss of $8.6 million and $25.9 million for the three and six months ended June 30, 2023, respectively, was recognized on these loan sales. During the three and six months ended June 30, 2022, the Company did not have significant sales of loans HFI.

5. MORTGAGE SERVICING RIGHTS

The following table presents the changes in fair value of the Company's MSR portfolio related to its mortgage banking business and other information related to its servicing portfolio:

Changes in the fair value of MSRs are recorded as 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. During the three months ended June 30, 2023, MSR sales had an aggregate net sales price of $150 million and the UPB of loans underlying these sales totaled $8.8 billion. During the six months ended June 30, 2023, MSR sales had an aggregate net sales price of $501 million and the UPB of loans underlying these sales totaled $28.3 billion. During the three and six months ended June 30, 2022, the Company sold MSRs for an aggregate net sales price of $350 million and the UPB of the loans underlying these sales totaled $24.1 billion. As of June 30, 2023 and December 31, 2022, the Company had a remaining receivable balance of $74 million and $39 million, respectively, related to holdbacks on MSR sales for servicing transfers, which were recorded 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 $54.0 million and $116.9 million for the three and six months ended June 30, 2023, respectively, and $48.9 million and $91.8 million for the three and six months ended June 30, 2022, respectively, which are recorded as 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 30, 2023 and December 31, 2022, net servicing advances totaled $77 million and $102 million, respectively, which are recorded as Other assets on the Consolidated Balance Sheet.

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:

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.

6. DEPOSITS

The table below summarizes deposits by type:

A summary of the contractual maturities for all time deposits as of June 30, 2023 is as follows:

WAB is a participant in the IntraFi Network, a network that offers deposit placement services such as CDARS and ICS, and other reciprocal deposit networks which offer products that qualify large deposits for FDIC insurance. At June 30, 2023, the Company had $11.4 billion of reciprocal deposits, compared to $2.8 billion at December 31, 2022.

Brokered deposits provide an additional source of deposits and are placed with the Bank through third-party brokers. At June 30, 2023 and December 31, 2022, the Company reported wholesale brokered deposits of $18.3 billion and $4.8 billion, respectively. As of June 30, 2023, $11.4 billion of reciprocal deposits were included as brokered deposits. Although classified as brokered deposits, due to the reciprocal nature of these deposits, the Company believes that these deposits carry a lower risk of withdrawal and deposit volatility. To improve depositor stability, the Company undertook an initiative to encourage its depositors to move their accounts into reciprocal deposit structures. This significantly increased the Company's insured deposit ratio from 45% at December 31, 2022 to 77% at June 30, 2023.

In addition, deposits for which the Company provides account holders with earnings credits or referral fees totaled $14.9 billion and $12.9 billion at June 30, 2023 and December 31, 2022, respectively. The Company incurred $87.8 million and $17.3 million in deposit related costs on these deposits during the three months ended June 30, 2023 and 2022, respectively. The Company incurred $173.4 million and $26.0 million in deposit related costs on these deposits during the six months ended June 30, 2023 and 2022, respectively. These costs are reported as Deposit costs in non-interest expense. The increase in these costs from the prior year is due to an increase in average earnings credit rates as well as an increase in average deposit balances eligible for earnings credits or referral fees.

7. OTHER BORROWINGS

The following table summarizes the Company’s borrowings by type:

Short-Term Borrowings

Federal Funds Lines of Credit

The Company maintains overnight federal fund lines of credit totaling $175 million as of June 30, 2023, which have rates comparable to the federal funds effective rate plus 0.10% to 0.20%.

FHLB and FRB Advances

The Company also maintains secured overnight 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 30, 2023 and December 31, 2022, the Company had additional available credit with the FHLB of approximately $6.2 billion and $6.8 billion respectively. The weighted average rate on FHLB advances was 5.32% and 4.70% as of June 30, 2023 and December 31, 2022, respectively.

The FRB established the BTFP in March 2023, which offers loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral valued at par. The rate for BTFP advances is the one-year overnight index swap rate plus 10 basis points and is fixed for the term of the advance. The weighted average rate on BTFP advances was 4.76% as of June 30, 2023. The Company had additional available credit of $34 million under the BTFP as of June 30, 2023. Other available credit with the FRB totaled $16.0 billion and $5.2 billion as of June 30, 2023 and December 31, 2022, 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 30, 2023, the Company had access to approximately $2.8 billion in uncommitted warehouse funding, of which $55 million was drawn at a weighted average borrowing rate of 6.92%. There were no warehouse borrowings outstanding at December 31, 2022.

Repurchase Agreements

Other repurchase facilities include CLO securities, EBO loan, and customer repurchase agreements. The Company's securities repurchase agreements are collateralized by $1.9 billion of CLO investments. The balance and weighted average rate on these agreements was $1.4 billion and 6.46%, respectively, as of June 30, 2023. There were no securities repurchase agreements outstanding at December 31, 2022.

The balance and weighted average rate of EBO loan repurchase agreements was $1.1 billion and 7.06%, respectively, as of June 30, 2023. These repurchase agreements are collateralized with $1.4 billion of EBO loans. There were no EBO loan backed repurchase agreements at December 31, 2022.

The balance of customer repurchase agreements was $5 million and $27 million as of June 30, 2023 and December 31, 2022, respectively, and the weighted average rate was 0.22% and 0.15% as of June 30, 2023 and December 31, 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 6.54% and 6.39% as of June 30, 2023 and December 31, 2022, respectively.

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 entered into credit linked note transactions that effectively transferred 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. There have been no historical losses on the warehouse lines of credit and equity fund resource loans.

The Company 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.

The Company's outstanding credit linked note issuances are detailed in the tables below:

(1) There are multiple classes of these notes, each with an interest rate of SOFR plus a spread that ranges from 2.25% to 11.00% (or, a weighted average spread of 7.80%) on a reference pool balance of $1.8 billion as of June 30, 2023 and December 31, 2022.

(2) There are multiple classes of these notes, each with an interest rate of SOFR plus a spread that ranges from 2.25% to 15.00% (or, a weighted average spread of 6.00%) on a reference pool balance of $3.7 billion and $3.8 billion as of June 30, 2023 and December 31, 2022, respectively.

(3) These notes had a reference pool balance of $1.6 billion as of December 31, 2022.

(4) 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%) on a reference pool balance of $3.9 billion and $4.0 billion as of June 30, 2023 and December 31, 2022, respectively.

(5) These notes had a reference pool balance of $689 million as of December 31, 2022.

During the three and six months ended June 30, 2023, the Company recognized a gain on extinguishment of debt of $0.7 million and $13.4 million, respectively, related to the pay off of the credit linked notes on its warehouse and equity fund resource loans.

8. QUALIFYING DEBT

Subordinated Debt

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

(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.

(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.

The carrying value of all subordinated debt issuances totaled $817 million at June 30, 2023 and December 31, 2022.

Junior Subordinated Debt

The Company has formed or acquired through acquisition eight 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 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 $71 million and $76 million as of June 30, 2023 and December 31, 2022, respectively, with maturity dates ranging from 2033 through 2037. The weighted average interest rate of all junior subordinated debt as of June 30, 2023 was 7.88%, which is equal to three-month LIBOR plus the contractual spread of 2.34%, compared to a weighted average interest rate of 7.11% at December 31, 2022. Subsequent to June 30, 2023, interest rates on the Company's junior subordinated debt will be based on 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 and stock grants made to non-employee WAL directors generally vest over six months. 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 months ended June 30, 2023 was $0.7 million and $45.2 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 months ended June 30, 2023, the Company recognized $9.1 million and $17.6 million, respectively, in stock-based compensation expense related to employee and WAL director stock grants, compared to $7.6 million and $14.7 million for the three and six months ended June 30, 2022, respectively.

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. During the three and six months ended June 30, 2023, the Company recognized stock-based compensation expense of $1.4 million and a net reversal of stock-based compensation expense of $1.1 million on unvested performance stock units due to revised performance expectations, compared to $3.4 million and $6.2 million in stock-based compensation expense for such units during the three and six months ended June 30, 2022, respectively.

The three-year performance period for the 2020 grant ended on December 31, 2022, and based on the Company's cumulative EPS and TSR performance measure for the performance period, these shares vested at 180% of the target award under the terms of the grant. As a result, 157,784 shares became fully vested and distributed to executive management in the first quarter of 2023.

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 were distributed to executive management in the first quarter of 2022.

Preferred Stock

The Company has 12,000,000 depositary shares outstanding, 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 months ended June 30, 2023 and 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 million, respectively.

Common Stock Issuances

Pursuant to ATM Distribution Agreement

During the three months ended June 30, 2022, the Company did not sell any shares under the ATM program. During the six months ended June 30, 2022, the Company sold 1.3 million shares under the ATM program at a weighted-average selling price of $86.78 per share for gross proceeds of $108.4 million. Sales under the ATM program were 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). Total related offering costs were $0.7 million for the six months ended June 30, 2022, substantially all of which related to compensation costs paid to the distribution agents. There were no sales under the ATM program during the three and six months ended June 30, 2023 and as of June 30, 2023, the remaining number of shares that can be sold under this agreement totaled 1,107,769.

Cash Dividend on Common Shares

During the three and six months ended June 30, 2023, the Company declared and paid a quarterly cash dividend of $0.36 per share, for a total dividend payment to shareholders of $39.4 million and $78.8 million, respectively. During the three and six months ended June 30, 2022, the Company declared and paid a quarterly cash dividend of $0.35 per share, for a total dividend payment to shareholders of $37.9 million and $75.2 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 months ended June 30, 2023, the Company purchased treasury shares of 7,815 and 151,219, respectively, at a weighted average price of $31.96 and $72.49 per share, respectively. During the three and six months ended June 30, 2022, the Company purchased treasury shares of 2,635 and 188,169, respectively, at a weighted average price of $77.50 and $93.29 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:

11. DERIVATIVES AND HEDGING ACTIVITIES

The Company is a party to various derivative instruments. The primary types of derivatives that the Company uses are interest rate contracts, 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 converted to SOFR plus a spread adjustment upon the discontinuation of LIBOR in June 2023.

The Company also has pay fixed/receive variable interest rate swaps, designated as fair value hedges using the portfolio 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 portfolio layer hedges provide the Company the ability to execute a fair value hedge of the interest rate risk associated with a portfolio of similar prepayable assets. Under these interest rate swap contracts, the Company receives a variable rate based on SOFR and pays a fixed rate on the outstanding notional amount.

The Company also had pay fixed/receive variable interest rate swaps, designated as fair value hedges using the last-of-layer method. Upon termination of these last-of-layer hedges in 2022, the cumulative basis adjustment on these hedges was allocated across the remaining loan pool and is being amortized over the remaining term. At June 30, 2023, the remaining cumulative basis adjustment on the terminated last-of-layer hedges totaled $15 million.

Derivatives Not Designated in Hedge Relationships

Management enters into certain foreign exchange derivative contracts, back-to-back interest rate contracts, and risk participation agreements 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 contracts are used to allow customers to manage long-term interest rate risk. Risk participation agreements are entered into with lead banks in certain loan syndications to share in the risk of default on interest rate swaps on the participated loan.

The Company also uses derivative financial instruments to manage exposure to interest rate risk within its mortgage banking business 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, interest rate futures and interest rate swaps.

Fair Value Hedges

As of June 30, 2023 and December 31, 2022, the following amounts are reflected on the Consolidated Balance Sheets related to cumulative basis adjustments for outstanding fair value hedges:

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

(2) As of June 30, 2023, included portfolio layer method derivative instruments with $3.5 billion designated as the hedged amount (from a closed portfolio of prepayable fixed rate loans with a carrying value of $6.8 billion). The cumulative basis adjustment included in the carrying value of these hedged items totaled $29 million.

For the Company's derivative instruments that are designated and qualify as fair value hedges, 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 period earnings. The loss or gain on the hedged item is recognized 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, as shown in the table below.

In addition to the gains and losses on the Company's outstanding fair value hedges presented in the above table, the Company recognized $2.9 million and $5.9 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 months ended June 30, 2023, respectively.

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 30, 2023, December 31, 2022, and June 30, 2022. The change in the notional amounts of these derivatives from June 30, 2022 to June 30, 2023 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.