Edgar Filing: WESTERN ALLIANCE BANCORPORATION

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended March 31, 2012 or

¨	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)


Nevada		88-0365922
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer I.D. Number)

One E. Washington Street, Phoenix, AZ		85004
(Address of Principal Executive Offices)		(Zip Code)

(602) 389-3500

(Registrant’s telephone number, including area code)

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock issued and outstanding: 83,137,711 shares as of April 30, 2012.

Table of Contents


		Page
Index
Part I. Financial Information
	Item 1 – Financial Statements
	Consolidated Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011		3
	Consolidated Income Statements for the three months ended March 31, 2012 and 2011 (unaudited)		4
	Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2012 and 2011 (unaudited)		6
	Consolidated Statement of Stockholders’ Equity (unaudited)		7
	Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011 (unaudited)		8
	Notes to Unaudited Consolidated Financial Statements		10

	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		45
	Item 3 – Quantitative and Qualitative Disclosures About Market Risk		63
	Item 4 – Controls and Procedures		65

Part II. Other Information
	Item 1 – Legal Proceedings Item 1A – Risk Factors		65 65
	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		65
	Item 3 – Defaults Upon Senior Securities		65
	Item 4 – Mine Safety Disclosures		65
	Item 5 – Other Information		65
	Item 6 – Exhibits		65

Signatures			67
Exhibit Index			68

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	March 31,			December 31,
	2012			2011
	(unaudited)
	(in thousands, except per share amounts)
Assets:
Cash and due from banks	$	108,555		$	116,866
Interest-bearing demand deposits in other financial institutions		71,198			38,129

Cash and cash equivalents		179,753			154,995
Money market investments		4,854			7,343
Investment securities—measured, at fair value		6,174			6,515
Investment securities—available-for-sale, at fair value; amortized cost of $1,124,892 at March 31, 2012 and $1,198,185 at December 31, 2011		1,126,637			1,190,385
Investment securities—held-to-maturity, at amortized cost; fair value of $284,971 at March 31, 2012 and $290,035 at December 31, 2011		285,577			286,258
Investments in restricted stock, at cost		32,586			33,520
Loans:
Held for investment, net of deferred fees		4,926,223			4,780,069
Less: allowance for credit losses		98,122			99,170

Total loans		4,828,101			4,680,899
Premises and equipment, net		105,055			105,546
Goodwill		25,925			25,925
Other intangible assets, net		8,918			9,807
Other assets acquired through foreclosure, net		81,445			89,104
Bank owned life insurance		135,021			133,898
Deferred tax assets, net		55,296			61,724
Prepaid expenses		14,708			16,470
Other assets		35,190			42,093
Discontinued operations, assets held for sale		52			59

Total assets	$	6,925,292		$	6,844,541

Liabilities:
Deposits:
Non-interest-bearing demand	$	1,757,693		$	1,558,211
Interest-bearing		4,141,361			4,100,301

Total deposits		5,899,054			5,658,512
Customer repurchase agreements		114,352			123,626
Other borrowings		193,416			353,321
Junior subordinated debt, at fair value		37,275			36,985
Other liabilities		27,150			35,414

Total liabilities		6,271,247			6,207,858

Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock — par value $.0001 and liquidation value per share of $1,000; 20,000,000 authorized;141,000 issued and outstanding at March 31, 2012 and December 31, 2011		141,000			141,000
Common stock — par value $.0001; 200,000,000 authorized; 83,144,156 shares issued and outstanding at March 31, 2012 and 82,361,655 at December 31, 2011		8			8
Additional paid in capital		746,143			743,780
Accumulated deficit		(233,974	)		(243,512	)
Accumulated other comprehensive income (loss)		868			(4,593	)

Total stockholders’ equity		654,045			636,683

Total liabilities and stockholders’ equity	$	6,925,292		$	6,844,541

See the accompanying notes.

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS (unaudited)


	Three Months Ended March 31,
	2012			2011
	(in thousands except per share amounts)
Interest income:
Loans, including fees	$	67,760		$	63,882
Investment securities—taxable		6,412			6,897
Investment securities—non-taxable		2,240			20
Dividends—taxable		280			308
Dividends—non-taxable		653			705
Other		92			154

Total interest income		77,437			71,966

Interest expense:
Deposits		4,762			7,898
Customer repurchase agreements		63			86
Other borrowings		2,071			2,182
Junior subordinated debt		484			702

Total interest expense		7,380			10,868

Net interest income		70,057			61,098
Provision for credit losses		13,081			10,041

Net interest income after provision for credit losses		56,976			51,057

Non-interest income:
Gain on sales of securities, net		361			1,379
Mark to market gains (losses), net		(333	)		(509	)
Service charges and fees		2,285			2,284
Investment advisory fees		619			636
Other fee revenue		1,000			760
Income from bank owned life insurance		1,123			1,184
Operating lease income		273			671
Other		556			425

Total non-interest income		5,884			6,830

Non-interest expense:
Salaries and employee benefits		26,664			22,840
Occupancy expense, net		4,722			4,854
Net loss on sales/valuations of repossessed assets and bank premises, net		2,651			6,129
Insurance		2,050			3,863
Loan and repossessed asset expense		1,684			2,122
Legal, professional and director fees		1,572			1,366
Marketing		1,371			1,157
Data processing		995			848
Intangible amortization		890			890
Customer service		591			892
Merger/restructure expenses		—			217
Operating lease depreciation		208			421
Other		3,499			2,547

Total non-interest expense		46,897			48,146

Income from continuing operations before provision income taxes		15,963			9,741
Income tax provision		4,441			4,029

Income from continuing operations		11,522			5,712
Loss from discontinued operations, net of tax benefit		(222	)		(559	)

Net income		11,300			5,153
Dividends and accretion on preferred stock		1,763			2,503

Net income available to common shareholders	$	9,537		$	2,650

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS (unaudited)

(continued)


	Three Months Ended March 31,
	2012			2011
Income (loss) per share—basic and diluted
Continuing operations	$	0.12		$	0.04
Discontinued		(0.00	)		(0.01	)

	$	0.12		$	0.03
Average number of common shares—basic		81,359			80,794
Average number of common shares—diluted		82,227			81,013
Dividends declared per common share	$	—		$	—

See the accompanying notes.

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)


	Three Months Ended
	March 31,
	2012			2011
	(in thousands)
Net income	$	11,300		$	5,153

Other comprehensive income (loss), net:
Unrealized gain (loss) on securities available-for-sale (AFS), net		6,205			(4,486	)
Realized gain on cash flow hedge, net		(519	)		—
Realized gain on sale of securities AFS included in income, net		(225	)		(833	)

Net other comprehensive income (loss)		5,461			(5,319	)

Comprehensive income (loss)	$	16,761		$	(166	)

See the accompanying notes.

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)


											Accumulated
									Additional		Other						Total
	Preferred Stock				Common Stock				Paid In		Comprehensive			Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Capital		Income (Loss)			Deficit			Equity
									(in thousands)
Balance, December 31, 2011:		141	$	141,000		82,362	$	8	$	743,780	$	(4,593	)	$	(243,512	)	$	636,683
Net income		—		—		—		—		—		—			11,300			11,300
Exercise of stock options		—		—		79		—		552		—			—			552
Stock-based compensation		—		—		74		—		697		—			—			697
Restricted stock grants, net		—		—		630		—		1,114		—			—			1,114
Dividends on preferred stock		—		—		—		—		—		—			(1,763	)		(1,763	)
Other comprehensive income (loss),		—		—		—		—		—		5,461			—			5,461

Balance, March 31, 2012		141	$	141,000		83,145	$	8	$	746,143	$	868		$	(233,974	)	$	654,045

See the accompanying notes.

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Three Months Ended March 31,
	2012			2011
	(in thousands)
Cash flows from operating activities:
Net income	$	11,300		$	5,153
Adjustments to reconcile net income to cash provided by operating activities:
Provision for credit losses		13,081			10,041
Depreciation and amortization		3,228			2,705
Stock-based compensation		1,811			1,005
Deferred income taxes and income taxes receivable		3,487			2,972
Net amortization of discounts and premiums for investment securities		2,656			2,696
(Gains)/Losses on:
Sales of securities, AFS		(361	)		(1,379	)
Derivatives		49			69
Sale of repossessed assets, net		2,587			5,829
Sale of premises and equipment, net		64			300
Sale of loans, net		6			—
Changes in:
Other assets		6,354			10,723
Other liabilities		(8,169	)		(1,601	)
Fair value of assets and liabilities measured at fair value		333			509
Servicing rights, net		2			161

Net cash provided by operating activities		36,428			39,183

Cash flows from investing activities:
Proceeds from loan sales		3,445			—
Principal pay downs and maturities of securities measured at fair value		303			3,606
Proceeds from sale of available-for-sale securities		15,224			72,996
Principal pay downs and maturities of available-for-sale securities		163,449			33,512
Purchase of available-for-sale securities		(106,995	)		(174,320	)
Purchases of securities held-to-maturity		(3	)		—
Loan originations and principal collections, net		(168,648	)		(63,247	)
Investment in money market		2,489			7,786
Liquidation (purchase) of restricted stock		934			1,452
Sale and purchase of premises and equipment, net		(1,911	)		229
Proceeds from sale of other real estate owned and repossessed assets, net		9,986			13,815

Net cash (used) in investing activities		(81,727	)		(104,171	)

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(continued)


	Three Months Ended March 31,
	2012			2011
	(in thousands)
Cash flows from financing activities:
Net increase in deposits		240,542			159,023
Net increase/ (decrease) in borrowings		(169,274	)		53,995
Exercise of stock options		552			312
Cash dividends paid on preferred stock		(1,763	)		(1,750	)

Net cash provided by financing activities		70,057			211,580

Net increase in cash and cash equivalents		24,758			146,592
Cash and cash equivalents at beginning of year		154,995			216,746

Cash and cash equivalents at end of period	$	179,753		$	363,338

Supplemental disclosure:
Cash paid during the period for:
Interest	$	9,526		$	13,018
Income taxes		1,040			—
Non-cash investing and financing activity:
Transfers to other assets acquired through foreclosure, net		4,914			11,175

See the accompanying notes.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operation

Western Alliance Bancorporation (“WAL” or “the Company”), incorporated under the laws of the state of Nevada, is a bank holding company providing full service banking and related services to locally owned businesses, professional firms, real estate developers and investors, local non-profit organizations, high net worth individuals and other consumers through its three wholly owned subsidiary banks: Bank of Nevada, operating in Nevada, Western Alliance Bank, operating in Arizona and Northern Nevada and Torrey Pines Bank, operating in California. In addition, its non-bank subsidiaries, Shine Investment Advisory Services, Inc. and Western Alliance Equipment Finance, offer an array of financial products and services aimed at satisfying the needs of small to mid-sized businesses and their proprietors, including financial planning, investment advice, and equipment finance nationwide. These entities are collectively referred to herein as the Company.

Basis of Presentation

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States (“GAAP”) and conform to practices within the financial services industry. The accounts of the Company and its consolidated subsidiaries are included in these Consolidated Financial Statements. All significant intercompany balances and transactions have been eliminated.

Use of estimates in the preparation of financial statements

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. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for credit losses; fair value of other real estate owned; determination of the valuation allowance related to deferred tax assets; impairment of goodwill and other intangible assets and other than temporary impairment on securities. Although Management believes these estimates to be reasonably accurate, actual amounts may differ. In the opinion of Management, all adjustments considered necessary have been reflected in the financial statements during their preparation.

Principles of consolidation

WAL has 10 wholly-owned subsidiaries: Bank of Nevada (“BON”), Western Alliance Bank (“WAB”), Torrey Pines Bank (“TPB”), which are all banking subsidiaries; Western Alliance Equipment Finance, Inc. (“WAEF”), which provides equipment finance services; and six unconsolidated subsidiaries used as business trusts in connection with issuance of trust-preferred securities. In addition, WAL maintains an 80 percent interest in Shine Investment Advisory Services Inc. (“Shine”), a registered investment advisor.

BON has three wholly-owned subsidiaries: BW Real Estate, Inc. which operates as a real estate investment trust and holds certain of BON’s real estate loans and related securities; BON Investments, Inc., which holds certain securities; and BW Nevada Holdings, LLC, which owns the Company’s 2700 West Sahara Avenue, Las Vegas, Nevada location.

WAB has one wholly-owned subsidiary, WAB Investments, Inc., which holds certain securities, and TPB has one wholly-owned subsidiary, TPB Investments, Inc., which holds certain securities.

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

Reclassifications

Certain amounts in the consolidated financial statements as of December 31, 2011 and for the three months ended March 31, 2011 have been reclassified to conform to the current presentation. The reclassifications have no effect on net income or stockholders’ equity as previously reported.

Interim financial information

The accompanying unaudited consolidated financial statements as of March 31, 2012 and 2011 have been prepared in condensed format, and therefore do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These statements have been prepared on a basis that is substantially consistent with the accounting principles applied to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011.

The information furnished in these interim statements reflects all adjustments which 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 financial statements.

Investment securities

Investment securities may be classified as held-to-maturity (“HTM”), available-for-sale (“AFS”) or trading. The appropriate classification is initially decided at the time of purchase. Securities classified as held-to-maturity are those debt securities the Company has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or general economic conditions. These securities are carried at amortized cost. The sale of a security within three months of its maturity date or after at least 85 percent of the principal outstanding has been collected is considered a maturity for purposes of classification and disclosure.

Securities classified as AFS or trading are reported as an asset on the Consolidated Balance Sheets at their estimated fair value. As the fair value of AFS securities changes, the changes are reported net of income tax as an element of other comprehensive income (“OCI”), except for impaired securities. When AFS securities are sold, the unrealized gain or loss is reclassified from OCI to non-interest income. The changes in the fair values of trading securities are reported in non-interest income. Securities classified as AFS are both equity and debt securities 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.

Interest income is recognized based on the coupon rate and increased by accretion of discounts earned or decreased by the amortization of premiums paid over the contractual life of the security using the interest method. For mortgage-backed securities, estimates of prepayments are considered in the constant yield calculations.

In estimating whether there are any other than temporary impairment losses, management considers 1) the length of time and the extent to which the fair value has been less than amortized cost, 2) the financial condition and near term prospects of the issuer, 3) the impact of changes in market interest rates, and 4) the intent and ability of the Company to retain its investment for a period of time sufficient to allow for any anticipated recovery in fair value and it is not more likely than not the Company would be required to sell the security.

Declines in the fair value of individual debt securities available for sale that are deemed to be other than temporary are reflected in earnings when identified. The fair value of the debt security then becomes the new cost basis. For individual debt securities where the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, the other than temporary decline in fair value of the debt security related to 1) credit loss is recognized in earnings, and 2) market or other factors is recognized in other comprehensive income or loss. Credit loss is recorded if the present value of cash flows is less than amortized cost. For individual debt securities where the Company intends to sell the security or more likely than not will not recover all of its amortized cost, the other than temporary impairment is recognized in earnings equal to the entire difference between the securities cost basis and its fair value at the balance sheet date. For individual debt securities for which a credit loss has been recognized in earnings, interest accruals and amortization and accretion of premiums and discounts are suspended when the credit loss is recognized. Interest received after accruals have been suspended is recognized on a cash basis.

Derivative financial instruments

Derivatives are recognized on the balance sheet at their fair value, with changes in fair value reported in current-period earnings. These instruments consist primarily of interest rate swaps.

Certain derivative transactions that meet specified criteria qualify for hedge accounting. The Company occasionally purchases a financial instrument or originates 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 (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and (2) 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 (1) the host contract is measured at fair value, with changes in fair value reported in current earnings, or (2) 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 balance sheet at fair value and is not designated as a hedging instrument.

Allowance for credit losses

Credit risk is inherent in the business of extending loans and leases to borrowers. Like other financial institutions, the Company must maintain an adequate allowance for credit losses. The allowance for credit losses is established through a provision for credit losses charged to expense. Loans are charged against the allowance for credit losses when Management believes that the contractual principal or interest will not be collected. Subsequent recoveries, if any, are credited to the allowance. The allowance is an amount believed adequate to absorb probable losses on existing loans that may become uncollectable, based on evaluation of the collectability of loans and prior credit loss experience, together with other factors. The Company formally re-evaluates and establishes the appropriate level of the allowance for credit losses on a quarterly basis.

The Company’s allowance for credit loss methodology incorporates several quantitative and qualitative risk factors used to establish the appropriate allowance for credit losses at each reporting date. Quantitative factors include our historical loss experience, delinquency and charge-off trends, collateral values, changes in the level of nonperforming loans and other factors. Qualitative factors include the economic condition of our operating markets and the state of certain industries. Specific changes in the risk factors are based on perceived risk of similar groups of loans classified by collateral type, purpose and term. An internal one-year and three-year loss history are also incorporated into the allowance calculation model. Due to the credit concentration of our loan portfolio in real estate secured loans, the value of collateral is heavily dependent on real estate values in Nevada, Arizona and California, which have declined substantially from their peak. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic or other conditions. In addition, the FDIC and state bank regulatory agencies, as an integral part of their examination processes, periodically review our subsidiary banks’ allowances for credit losses, and may require us to make additions to our allowance based on their judgment about information available to them at the time of their examinations. Management regularly reviews the assumptions and formulae used in determining the allowance and makes adjustments if required to reflect the current risk profile of the portfolio.

The allowance consists of specific and general components. The specific allowance relates to impaired loans. In general, impaired loans include those where interest recognition has been suspended, loans that are more than 90 days delinquent but because of adequate collateral coverage, income continues to be recognized, and other criticized and classified loans not paying substantially according to the original contract terms. For such loans, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan are lower than the carrying value of that loan, pursuant to FASB ASC 310, Receivables (“ASC 310”). Loans not collateral dependent are evaluated based on the expected future cash flows discounted at the original contractual interest rate. The amount to which the present value falls short of the current loan obligation will be set up as a reserve for that account or charged-off.

The Company uses an appraised value method to determine the need for a reserve on impaired, collateral dependent loans and further discounts the appraisal for disposition costs. Due to the rapidly changing economic and market conditions of the regions within which we operate, the Company obtains independent collateral valuation analysis on a regular basis for each loan, typically every six months.

The general allowance covers all non-impaired loans and is based on historical loss experience adjusted for the various qualitative and quantitative factors listed above. The change in the allowance from one reporting period to the next may not directly correlate to the rate of change of the nonperforming loans for the following reasons:

1. A loan moving from impaired performing to impaired nonperforming does not mandate an increased reserve. The individual account is evaluated for a specific reserve requirement when the loan moves to impaired status, not when it moves to nonperforming status, and is reevaluated at each subsequent reporting period. Because our nonperforming loans are predominately collateral dependent, reserves are primarily based on collateral value, which is not affected by borrower performance but rather by market conditions.

2. Not all impaired accounts require a specific reserve. The payment performance of the borrower may require an impaired classification, but the collateral evaluation may support adequate collateral coverage. For a number of impaired accounts in which borrower performance has ceased, the collateral coverage is now sufficient because a partial charge off of the account has been taken. In those instances, neither a general reserve nor a specific reserve is assessed.

Other assets acquired through foreclosure

Other assets acquired through foreclosure consist primarily of properties acquired as a result of, or in-lieu-of, foreclosure. Properties or other assets (primarily repossessed assets formerly leased) are classified as other real estate owned and other repossessed property and are initially reported at fair value of the asset less estimated selling costs. Subsequent write downs are based on the lower of carrying value or fair value, less estimated costs to sell the property. Costs relating to the development or improvement of the assets are capitalized and costs relating to holding the assets are charged to non-interest expense. Property is evaluated regularly to ensure the recorded amount is supported by its current fair value and valuation allowances.

Income taxes

Western Alliance Bancorporation and its subsidiaries, other than BW Real Estate, Inc., file a consolidated federal tax return. Due to tax regulations, several items of income and expense are recognized in different periods for tax return purposes than for financial reporting purposes. These items represent “temporary differences.” Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of Management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.

Although realization is not assured, the Company believes that the realization of the recognized net deferred tax asset of $55.3 million at March 31, 2012 is more likely than not based on expectations as to future taxable income and based on available tax planning strategies as defined in FASB ASC 740, Income Taxes (“ASC 740”) that could be implemented if necessary to prevent a carryforward from expiring.

The most significant source of these timing differences are the credit loss reserve and net operating loss carryforwards, which account for substantially all of the net deferred tax asset.

As a result of the losses incurred in 2009 and 2010, the Company is in a three-year cumulative pretax loss position at March 31, 2012. A cumulative loss position is considered significant negative evidence in assessing the realizability of a deferred tax asset. The Company has concluded that there is sufficient positive evidence to overcome this negative evidence. This positive evidence includes recent positive financial performance in 2011 and the first quarter of 2012, and Company forecasts, exclusive of tax planning strategies, that show full utilization of the net operating losses by the end of 2013 based on current projections. In addition, the Company has evaluated tax planning strategies, including potential sales of businesses and assets in which it could realize the excess of appreciated value over the tax basis of its assets. The amount of deferred tax assets considered realizable, however, could be significantly reduced in the near term if estimates of future taxable income during the carryforward period are significantly lower than forecasted due to deterioration in market conditions.

Based on the above discussion, it is more likely than not that the Company will fully utilize deferred federal and state tax assets pertaining to the existing net operating loss carryforwards and any net operating loss (NOL) that would be created by the reversal of the future net deductions that have not yet been taken on a tax return.

Fair values of financial instruments

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities. FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances 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 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 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— Observable quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

•

Level 2— Observable quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, matrix pricing or model-based valuation techniques where all significant assumptions are observable, either directly or indirectly in the market.

•

Level 3— Model-based techniques where all significant assumptions are not observable, either directly or indirectly, in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques may include use of 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. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

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

FASB ASC 825, Financial Instruments (“ASC 825”) 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 March 31, 2012 or December 31, 2011. The estimated fair value amounts for March 31, 2012 and December 31, 2011 have been measured as of period-end, and have not been reevaluated or updated for purposes of these 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 the period-end.

The information in Note 10, “Fair Value of Financial Instruments,” 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:

Cash and cash equivalents

The carrying amounts reported in the consolidated balance sheets for cash and due from banks and federal funds sold approximate their fair value.

Securities

The fair values of U.S. Treasuries, corporate bonds, mutual funds, and exchange-listed preferred stock are based on quoted market prices and are categorized as Level 1 of the fair value hierarchy.

The fair value of other investment securities were determined based on matrix pricing. Matrix pricing is a mathematical technique that utilizes observable market inputs including, for example, yield curves, credit ratings and prepayment speeds. Fair values determined using matrix pricing are generally categorized as Level 2 in the fair value hierarchy.

The Company owns certain collateralized debt obligations (“CDOs”) for which quoted prices are not available. Quoted prices for similar assets are also not available for these investment securities. In order to determine the fair value of these securities, the Company has estimated the future cash flows and discount rate using observable market inputs adjusted based on assumptions regarding the adjustments a market participant would assume necessary for each specific security. As a result, the resulting fair values have been categorized as Level 3 in the fair value hierarchy

Restricted stock

The Company’s subsidiary banks are members of the Federal Home Loan Bank (“FHLB”) system and maintain an investment in capital stock of the FHLB. The Company’s subsidiary banks also maintain an investment in their primary correspondent bank. These investments are carried at cost since no ready market exists for them, and they have no quoted market value. The Company conducts a periodic review and evaluation of our FHLB stock to determine if any impairment exists.

Loans

Fair value for 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 with 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 disclosed in Note 10, “Fair Value of Financial Instruments,” is categorized as Level 3 in the fair value hierarchy.

Accrued interest receivable and payable

The carrying amounts reported in the consolidated balance sheets for accrued interest receivable and payable approximate their fair value. Accrued interest receivable and payable fair value measurements disclosed in Note 10 “Fair Value of Financial Instruments,” are classified as Level 3 in the fair value hierarchy.

Derivative financial instruments

All derivatives are recognized on the balance sheet at their fair value. The fair value for derivatives is determined based on market prices, broker-dealer quotations on similar product or other related input parameters. As a result, the fair values have been categorized as Level 2 in the fair value hierarchy.

Deposit liabilities

The fair value disclosed for demand and savings deposits is by definition equal to the amount payable on demand at their reporting date (that is, their carrying amount) which the Company believes a market participant would consider in determining fair value. 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 the deposit liabilities disclosed in Note 10, “Fair Value of Instruments,” is categorized as Level 3 in the fair value hierarchy.

Federal Home Loan Bank and Federal Reserve advances and other borrowings

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 FHLB and FRB advances and other borrowings have been categorized as Level 3 in the fair value hierarchy.

Junior subordinated debt

Junior subordinated debt and subordinated debt are valued by comparing interest rates and spreads to benchmark indices offered to institutions with similar credit profiles to our own and discounting the contractual cash flows on our debt using these market rates. The junior subordinated debt has been categorized as Level 3 in the fair value hierarchy.

Off-balance sheet instruments

Fair values for the Company’s off-balance sheet instruments (lending commitments and standby letters of credit) are based on quoted fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.

Recent Accounting Pronouncements

In April 2011, the FASB issued guidance within the ASU 2011-03 “Reconsideration of Effective Control for Repurchase Agreements.” The amendments in ASU 2011-03 remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The adoption of this guidance did not have a material impact on the Company’s consolidated statement of income, its consolidated balance sheet, or its consolidated statement of cash flows.

In May 2011, the FASB issued guidance within the ASU 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The amendments in ASU 2011-04 generally represent clarifications of Topic 820, Fair Value Measurement but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards (“IFRS”). The adoption of this guidance did not have a material impact on the Company’s consolidated statement of income, its consolidated balance sheet, or its consolidated statement of cash flows. See note 9 “Fair Value Accounting” for the enhanced disclosures required by ASU 2011-04.

In June 2011, the FASB issued guidance within the ASU 2011-05 “Presentation of Comprehensive Income.” The amendments in ASU 2011-05 to Topic 220, Comprehensive Income, allow an entity the option to present the total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The adoption of this guidance did not have a material impact on the Company’s consolidated statement of income, its consolidated balance sheet, or its consolidated statement of cash flows.

2. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

In the first quarter of 2010, the Company decided to discontinue its affinity credit card platform, PartnersFirst, and has presented certain activities as discontinued operations. The Company transferred certain assets with balances at March 31, 2012 of $0.1 million to held-for-sale and reported a portion of its operations as discontinued. At March 31, 2012 and December 31, 2011, the Company had $35.1 million and $38.9 million, respectively, of outstanding credit card loans which will have continuing cash flows related to the collection of these loans. These credit card loans are included in loans held for investment as of March 31, 2012 and December 31, 2011

The following table summarizes the operating results of the discontinued operations for the periods indicated:


	Three Months Ended
	March 31,
	2012			2011
	(in thousands)
Affinity card revenue	$	295		$	371
Non-interest expenses		(678	)		(1,335	)

Loss before income taxes		(383	)		(964	)
Income tax benefit		(161	)		(405	)

Net loss	$	(222	)	$	(559	)

3. EARNINGS PER SHARE

Diluted earnings per share is based on the weighted average outstanding common shares during each period, including common stock equivalents. Basic earnings per share is based on the weighted average outstanding common shares during the period.

Basic and diluted earnings per share, based on the weighted average outstanding shares, are summarized as follows:


	Three Months Ended
	March 31,
	2012		2011
	(in thousands, except per share amounts)
Weighted average shares—Basic		81,359		80,794
Dilutive effect of options		868		219

Weighted average shares—Diluted		82,227		81,013

Net income available to common stockholders	$	9,537	$	2,650
Earnings per share—Basic		0.12		0.03
Earnings per share—Diluted		0.12		0.03

The Company had 1,151,230 and 2,092,932 stock options outstanding as of March 31, 2012 and December 31, 2011, respectively, that were not included in the computation of diluted earnings per common share because their effect would be anti-dilutive.

4. INVESTMENT SECURITIES

Carrying amounts and fair values of investment securities at the end of the period indicated are summarized as follows:


	March 31, 2012
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		(Losses)			Value
*Securities held-to-maturity*			(in thousands)
Collateralized debt obligations	$	50	$	970	$	—		$	1,020
Corporate bonds		102,784		325		(4,673	)		98,436
Municipal obligations (1)		181,240		2,849		(77	)		184,012
CRA investments		1,503		—		—			1,503

	$	285,577	$	4,144	$	(4,750	)	$	284,971


			OTTI
			Recognized
			in Other			Gross		Gross
	Amortized		Comprehensive			Unrealized		Unrealized			Fair
	Cost		Loss			Gains		(Losses)			Value
*Securities available-for-sale*	(in thousands)
U.S. Government-sponsored agency securities	$	40,046	$	—		$	65	$	(144	)	$	39,967
Municipal obligations (1)		26,580		—			160		(66	)		26,674
Adjustable-rate preferred stock		60,336		—			1,894		(1,512	)		60,718
Mutual funds (2)		28,978		—			476		—			29,454
Corporate securities		5,000		—			—		(100	)		4,900
Direct U.S. obligations and GSE residential mortgage-backed securities (3)		878,717		—			10,196		(472	)		888,441
Private label residential mortgage-backed securities		24,840		(1,811	)		1,815		(1,126	)		23,718
Private label commercial mortgage-backed securities		5,438		—			86		—			5,524
Trust preferred securities		32,005		—			—		(8,380	)		23,625
CRA investments		22,952		—			664		—			23,616

	$	1,124,892	$	(1,811	)	$	15,356	$	(11,800	)	$	1,126,637

*Securities measured at fair value*
Direct U.S. obligations and GSE residential mortgage-backed securities (3)											$	6,174

(1)	These consist of revenue obligations.

(2)	These are investment grade corporate bonds.

(3)	These are primarily agency collateralized mortgage obligations.


	December 31, 2011
	(in thousands)
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		(Losses)			Value
*Securities held-to-maturity*			(in thousands)
Collateralized debt obligations	$	50	$	972	$	—		$	1,022
Corporate bonds		102,785		171		(2,029	)		100,927
Municipal obligations (1)		181,923		4,695		(32	)		186,586
CRA investments		1,500		—		—			1,500

	$	286,258	$	5,838	$	(2,061	)	$	290,035


			OTTI
			Recognized
			in Other			Gross		Gross
	Amortized		Comprehensive			Unrealized		Unrealized			Fair
	Cost		Loss			Gains		(Losses)			Value
*Securities available-for-sale*	(in thousands)
U.S. Government-sponsored agency securities	$	155,898	$	—		$	368	$	(55	)	$	156,211
Municipal obligations (1)		5,555		—			47		(16	)		5,586
Adjustable-rate preferred stock		59,661		—			1,157		(6,142	)		54,676
Mutual funds (2)		28,978		—			65		(179	)		28,864
Corporate securities		5,000		—			—		(425	)		4,575
Direct U.S. obligations and GSE residential mortgage-backed securities (3)		855,828		—			9,095		(339	)		864,584
Private label residential mortgage-backed securities		26,953		(1,811	)		1,815		(1,173	)		25,784
Private label commercial mortgage-backed securities		5,461		—			—		(30	)		5,431
Trust preferred securities		32,016		—			—		(10,857	)		21,159
CRA investments		22,835		—			680		—			23,515

	$	1,198,185	$	(1,811	)	$	13,227	$	(19,216	)	$	1,190,385

*Securities measured at fair value*
Direct U.S. obligations and GSE residential mortgage-backed securities (3)											$	6,515

(1)	These consist of revenue obligations.

(2)	These are investment grade corporate bonds.

(3)	These are primarily agency collateralized mortgage obligations.

For additional information on the fair value changes of the securities measured at fair value, see the trading securities table in Note 9 “Fair Value Accounting”.

The Company conducts an other-than-temporary impairment (“OTTI”) analysis on a quarterly basis. The initial indication of OTTI for both debt and equity securities is a decline in the market value below the amount recorded for an investment, and the severity and duration of the decline. Another potential indication of OTTI is a downgrade below investment grade. In determining whether an impairment is OTTI, the Company considers the length of time and the extent to which the market value has been below cost, recent events specific to the issuer, including investment downgrades by rating agencies and economic conditions of its industry, and the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. For marketable equity securities, the Company also considers the issuer’s financial condition, capital strength, and near-term prospects.

For debt securities and for adjustable-rate preferred stock (“ARPS”) that are treated as debt securities for the purpose of OTTI analysis, the Company also considers the cause of the price decline (general level of interest rates and industry-and issuer-specific factors), the issuer’s financial condition, near-term prospects and current ability to make future payments in a timely manner, the issuer’s ability to service debt, and any change in agencies’ ratings at evaluation date from acquisition date and any likely imminent action. For ARPS with a fair value below cost that is not attributable to the credit deterioration of the issuer, such as a decline in cash flows from the security or a downgrade in the security’s rating below investment grade, the Company does not recognize an OTTI charge where it is able to assert that it has the intent and ability to retain its investment for a period of time sufficient to allow for any anticipated recovery in fair value.

Gross unrealized losses at March 31, 2012 are primarily caused by interest rate fluctuations, credit spread widening and reduced liquidity in applicable markets. The Company has reviewed securities on which there is an unrealized loss in accordance with its accounting policy for OTTI described above and determined there were no securities impairment charges for the three months ended March 31, 2012 or 2011.

The Company does not consider any other securities to be other-than-temporarily impaired as of March 31, 2012 and December 31, 2011. OTTI is reassessed quarterly. No assurance can be made that additional OTTI will not occur in future periods.

Information pertaining to securities with gross unrealized losses at March 31, 2012 and December 31, 2011, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:


	March 31, 2012
	Less Than Twelve Months				Over Twelve Months
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
*Securities held-to-maturity*	(in thousands)
Corporate bonds	$	4,673	$	90,288	$	—	$	—
Municipal obligations		77		10,649		—		—

	$	4,750	$	100,937	$	—	$	—


	March 31, 2012
	Less Than Twelve Months				Over Twelve Months
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
*Securities available-for-sale*	(in thousands)
U.S. Government-sponsored agency securities	$	144	$	19,856	$	—	$	—
Adjustable-rate preferred stock		1,512		22,861		—		—
Mutual funds		—		—		—		—
Corporate securities		100		4,900		—		—
Direct U.S obligations and GSE residential mortgage-backed securities		320		70,794		152		8,189
Municipal obligations		66		10,752		—		—
Private label residential mortgage-backed securities		478		18,069		648		4,949
Private label commercial mortgage-backed securities		—		—		—		—
Trust preferred securities		—		—		8,380		23,625

	$	2,620	$	147,232	$	9,180	$	36,763


	December 31, 2011
	Less Than Twelve Months				Over Twelve Months
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
*Securities held-to-maturity*	(in thousands)
Corporate bonds	$	2,029	$	77,931	$	—	$	—
Municipal obligations		32		7,774		—		—

	$	2,061	$	85,705	$	—	$	—


	December 31, 2011
	Less Than Twelve Months				Over Twelve Months
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
*Securities available-for-sale*	(in thousands)
U.S. Government-sponsored agency securities	$	55	$	9,944	$	—	$	—
Adjustable-rate preferred stock		6,142		26,335		—		—
Mutual funds		179		15,879		—		—
Corporate securities		425		4,575		—		—
Direct U.S obligations and GSE residential mortgage-backed securities		222		54,668		117		15,239
Municipal obligations		16		2,640		—		—
Private label residential mortgage-backed securities		465		20,045		708		5,034
Private label commercial mortgage-backed securities		30		5,431		—		—
Trust preferred securities		—		—		10,857		21,159

	$	7,534	$	139,517	$	11,682	$	41,432

At March 31, 2012 and December 31, 2011, the Company’s unrealized losses relate primarily to interest rate fluctuations, credit spreads widening and reduced liquidity in applicable markets. The total number of securities in an unrealized loss position at March 31, 2012 was 98 compared to 106 at December 31, 2011. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysis reports. Since material downgrades have not occurred and management does not intend to sell the debt securities for the foreseeable future, none of the securities described in the above table or in this paragraph were deemed to be other than temporarily impaired.

At March 31, 2012, the net unrealized loss on trust preferred securities classified as AFS was $8.4 million, compared with $10.9 million at December 31, 2011. The Company actively monitors its debt and other structured securities portfolios classified as AFS for declines in fair value.

The amortized cost and fair value of securities as of March 31, 2012 and December 31, 2011, by contractual maturities, are shown below. The actual maturities of the mortgage-backed securities may differ from their contractual maturities because the loans underlying the securities may be repaid without any penalties due to borrowers that have the right to call or prepay obligations with or without call or prepayment penalties. Therefore, these securities are listed separately in the maturity summary.


	March 31, 2012				December 31, 2011
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
	(in thousands)
Securities held-to-maturity
Due in one year or less	$	1,503	$	1,503	$	1,500	$	1,500
After one year through five years		8,392		8,402		8,389		8,093
After five years through ten years		114,632		110,593		114,748		114,098
After ten years		161,050		164,473		161,621		166,344

	$	285,577	$	284,971	$	286,258	$	290,035

Securities available-for-sale
Due in one year or less	$	56,764	$	57,983	$	52,815	$	53,399
After one year through five years		6,767		6,898		20,445		20,635
After five years through ten years		44,568		45,134		134,935		135,420
After ten years		138,076		128,181		134,162		116,347
Mortgage backed securities		878,717		888,441		855,828		864,584

	$	1,124,892	$	1,126,637	$	1,198,185	$	1,190,385

The following table summarizes the Company’s investment ratings position as of March 31, 2012:


	As of March 31, 2012
			Split-rated
	AAA		AAA/AA+		AA+ to AA-		A+ to A-		BBB+ to BBB-		BB+ and below		Totals
	(in thousands)
Municipal obligations	$	8,235	$	—	$	117,272	$	74,494	$	7,639	$	274	$	207,914
Direct U.S. obligations & GSE residential mortgage-backed securities		—		894,615		—		—		—		—		894,615
Private label residential mortgage-backed securities		12,157		—		3,830		5,880		—		1,851		23,718
Private label commercial mortgage-backed securities		5,524		—		—		—		—		—		5,524
Mutual funds (3)		—		—		—		—		29,454		—		29,454
U.S. Government-sponsored agency securities		—		39,967		—		—		—		—		39,967
Adjustable-rate preferred stock		—		—		—		—		51,327		8,375		59,702
Trust preferred securities		—		—		—		—		23,625		—		23,625
Collateralized debt obligations		—		—		—		—		—		50		50
Corporate bonds		—		—		7,822		84,862		15,000		—		107,684

Total (1) (2)	$	25,916	$	934,582	$	128,924	$	165,236	$	127,045	$	10,550	$	1,392,253

(1)	The Company used the average credit rating of the combination of S&P, Moody’s and Fitch in the above table where ratings differed.

(2)	Securities values are shown at carrying value as of March 31, 2012. Unrated securities consist of CRA investments with a carrying value of $23.6 million, one ARPS with a carrying value of $1.0 million and an other investment of $1.5 million.

(3)	At least 80% of mutual funds are investment grade corporate bonds.

The following table summarizes the Company’s investment ratings position as of December 31, 2011.


	As of March 31, 2011
			Split-rated
	AAA		AAA/AA+		AA+ to AA-		A+ to A-		BBB+ to BBB-		BB+ and below		Totals
	(in thousands)
Municipal obligations	$	8,273	$	—	$	109,159	$	60,949	$	8,855	$	273	$	187,509
Direct U.S. obligations & GSE residential mortgage-backed securities		—		871,099		—		—		—		—		871,099
Private label residential mortgage-backed securities		13,349		—		4,104		6,438		—		1,893		25,784
Private label commercial mortgage-backed securities		5,431		—		—		—		—		—		5,431
Mutual funds (3)		—		—		—		—		28,864		—		28,864
U.S. Government-sponsored agency securities		—		156,211		—		—		—		—		156,211
Adjustable-rate preferred stock		—		—		—		—		46,530		7,126		53,656
Trust preferred securities		—		—		—		—		21,159		—		21,159
Collateralized debt obligations		—		—		—		—		—		50		50
Corporate bonds		2,695		—		15,130		64,535		15,000		—		97,360

Total (1) (2)	$	29,748	$	1,027,310	$	128,393	$	131,922	$	120,408	$	9,342	$	1,447,123

(1)	The Company used the average credit rating of the combination of S&P, Moody’s and Fitch in the above table where ratings differed.

(2)

Securities values are shown at carrying value as of December 31, 2011. Unrated securities consist of CRA investments with a carrying value of $23.5 million, an HTM Corporate security with a carrying value of $10.0 million, one ARPS with a carrying value of $1.0 million and an other investment of $1.5 million.

(3)	At least 80% of mutual funds are investment grade corporate bonds.

Securities with carrying amounts of approximately $642.1 million and $675.0 million at March 31, 2012 and December 31, 2011, respectively, were pledged for various purposes as required or permitted by law.

For the three months ended March 31, 2012, the Company recorded gross gains and losses on sales of investment securities of $0.6 million and $0.2 million respectively, compared to gross gains and losses on sales of securities for the three months ended March 31, 2011 of $1.4 million and $1,000, respectively.

5. LOANS, LEASES AND ALLOWANCE FOR CREDIT LOSSES

The composition of the Company’s loans held for investment portfolio is as follows:


	March 31,			December 31,
	2012			2011
	(in thousands)
Commercial real estate—owner occupied	$	1,289,968		$	1,252,182
Commercial real estate—non-owner occupied		1,365,680			1,301,172
Commercial and industrial		1,137,430			1,120,107
Residential real estate		434,465			443,020
Construction and land development		347,660			381,676
Commercial leases		299,034			216,475
Consumer		58,718			72,504
Deferred fees and unearned income, net		(6,732	)		(7,067	)

		4,926,223			4,780,069
Allowance for credit losses		(98,122	)		(99,170	)

Total	$	4,828,101		$	4,680,899

The following table presents the contractual aging of the recorded investment in past due loans by class of loans excluding deferred fees:


	March 31, 2012
			30-59 Days		60-89 Days		Over 90 days		Total
	Current		Past Due		Past Due		Past Due		Past Due		Total
	(in thousands)
Commercial real estate
Owner occupied	$	1,275,038	$	1,281	$	736	$	12,913	$	14,930	$	1,289,968
Non-owner occupied		1,215,370		3,540		—		3,341		6,881		1,222,251
Multi-family		142,953		193		—		283		476		143,429
Commercial and industrial
Commercial		1,130,842		2,749		3,178		661		6,588		1,137,430
Leases		298,536		498		—		—		498		299,034
Construction and land development
Construction		181,354		—		—		—		—		181,354
Land		152,997		4,668		378		8,263		13,309		166,306
Residential real estate		415,426		4,875		224		13,940		19,039		434,465
Consumer		56,959		716		428		615		1,759		58,718

Total loans	$	4,869,475	$	18,520	$	4,944	$	40,016	$	63,480	$	4,932,955


	December 31, 2011
			30-59 Days		60-89 Days		Over 90 days		Total
	Current		Past Due		Past Due		Past Due		Past Due		Total
	(in thousands)
Commercial real estate
Owner occupied	$	1,235,707	$	3,150	$	2,488	$	10,837	$	16,475	$	1,252,182
Non-owner occupied		1,168,616		—		2,365		5,051		7,416		1,176,032
Multi-family		124,855		—		—		285		285		125,140
Commercial and industrial
Commercial		1,114,881		683		1,146		3,397		5,226		1,120,107
Leases		216,475		—		—		—		—		216,475
Construction and land development
Construction		210,843		—		—		3,434		3,434		214,277
Land		151,618		6,217		375		9,189		15,781		167,399
Residential real estate		424,086		2,349		4,030		12,555		18,934		443,020
Consumer		70,759		376		602		767		1,745		72,504

Total loans	$	4,717,840	$	12,775	$	11,006	$	45,515	$	69,296	$	4,787,136

The following table presents the recorded investment in nonaccrual loans and loans past due ninety days or more and still accruing interest by class of loans:


	March 31, 2012				December 31, 2011
			Loans past				Loans past
			due 90 days				due 90 days
			or more and				or more and
	Non-accrual		still accruing		Non-accrual		still accruing
			(in thousands)
Commercial real estate
Owner occupied	$	30,005	$	—	$	21,153	$	439
Non-owner occupied		14,582		—		16,250		—
Multi-family		1,216		—		616		—
Commercial and industrial
Commercial		15,998		131		6,818		523
Leases		612		—		592		—
Construction and land development
Construction		9,250		—		14,446		—
Land		13,783		170		14,367		860
Residential real estate		17,377		95		15,747		—
Consumer		663		615		403		767

Total	$	103,486	$	1,011	$	90,392	$	2,589

The reduction in interest income associated with loans on nonaccrual status was approximately $1.3 million and $0.8 million for the three months ended March 31, 2012 and 2011, respectively.

The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Company’s risk rating system, the Company classifies problem and potential problem loans as “Watch,” “Substandard,” “Doubtful”, and “Loss,” which correspond to risk ratings six, seven, eight, and nine, respectively. Substandard loans include those characterized by well defined weaknesses and carry the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful, or risk rated eight, have all the weaknesses inherent in those classified 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. The final rating of Loss covers loans considered uncollectible and having such little recoverable value that it is not practical to defer writing off the asset. Loans that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that deserve management’s close attention, are deemed to be Watch, or risk rated six. Risk ratings are updated, at a minimum, quarterly. The following tables present loans by risk rating:


	March 31, 2012
	Pass		Watch		Substandard		Doubtful		Loss		Total
	(in thousands)
Commercial real estate
Owner occupied	$	1,171,549	$	63,494	$	54,925	$	—	$	—	$	1,289,968
Non-owner occupied		1,155,969		26,410		39,872		—		—		1,222,251
Multi-family		142,213		—		1,216		—		—		143,429
Commercial and industrial
Commercial		1,084,717		23,714		28,999		—		—		1,137,430
Leases		298,236		186		612		—		—		299,034
Construction and land development
Construction		171,902		202		9,250		—		—		181,354
Land		123,393		7,411		35,502		—		—		166,306
Residential real estate		395,672		10,359		28,434		—		—		434,465
Consumer		55,954		1,053		1,711		—		—		58,718

Total	$	4,599,605	$	132,829	$	200,521	$	—	$	—	$	4,932,955


	March 31, 2012
	Pass		Watch		Substandard		Doubtful		Loss		Total
	(in thousands)
Current	$	4,593,661	$	129,856	$	145,958	$	—	$	—	$	4,869,475
Past due 30—59 days		5,487		1,788		11,245		—		—		18,520
Past due 60—89 days		323		1,054		3,567		—		—		4,944
Past due 90 days or more		134		131		39,751		—		—		40,016

Total	$	4,599,605	$	132,829	$	200,521	$	—	$	—	$	4,932,955


	December 31, 2011
	Pass		Watch		Substandard		Doubtful		Loss		Total
	(in thousands)
Commercial real estate
Owner occupied	$	1,139,776	$	67,220	$	45,186	$	—	$	—	$	1,252,182
Non-owner occupied		1,103,593		33,470		38,969		—		—		1,176,032
Multi-family		123,917		414		809		—		—		125,140
Commercial and industrial
Commercial		1,067,602		20,657		31,648		200		—		1,120,107
Leases		215,778		105		592		—		—		216,475
Construction and land development
Construction		193,248		3,087		17,942		—		—		214,277
Land		120,858		8,551		37,990		—		—		167,399
Residential real estate		405,398		12,637		24,985		—		—		443,020
Consumer		68,546		971		2,987		—		—		72,504

Total	$	4,438,716	$	147,112	$	201,108	$	200	$	—	$	4,787,136


	December 31, 2011
	Pass		Watch		Substandard		Doubtful		Loss		Total
	(in thousands)
Current	$	4,429,291	$	143,908	$	144,641	$	—	$	—	$	4,717,840
Past due 30—59 days		6,475		661		5,639		—		—		12,775
Past due 60—89 days		2,950		2,104		5,952		—		—		11,006
Past due 90 days or more		—		439		44,876		200		—		45,515

Total	$	4,438,716	$	147,112	$	201,108	$	200	$	—	$	4,787,136

The table below reflects recorded investment in loans classified as impaired:


	March 31,			December 31,
	2012			2011
	(in thousands)
Impaired loans with a specific valuation allowance under ASC 310	$	46,827		$	28,631
Impaired loans without a specific valuation allowance under ASC 310		166,011			180,860

Total impaired loans	$	212,838		$	209,491

Valuation allowance related to impaired loans	$	(17,404	)	$	(10,377	)

Net impaired loans were $212.8 million at March 31, 2012, a net increase of $3.3 million from December 31, 2011. This increase is primarily attributable to an increase in commercial real estate, commercial and industrial, and residential real estate impaired loans, which were $90.7 million, $25.7 million and $28.8 million, respectively, at December 31, 2011 compared to $102.0 million, $30.4 million and $31.0 million, respectively, at March 31, 2012, an increase of $11.3 million, $4.7 million and $2.2 million, respectively. Impaired construction and land development and impaired consumer loans decreased from $61.9 million and $2.3 million, respectively, at December 31, 2011, to $48.2 million and $1.2 million, respectively, at March 31, 2012.

The following table presents the impaired loans by class:


	March 31,		December 31,
	2012		2011
	(in thousands)
Commercial real estate
Owner occupied	$	56,126	$	46,780
Non-owner occupied		44,684		43,123
Multi-family		1,216		809
Commercial and industrial
Commercial		29,826		25,138
Leases		611		592
Construction and land development
Construction		9,250		20,827
Land		38,928		41,084
Residential real estate		30,986		28,850
Consumer		1,211		2,288

Total	$	212,838	$	209,491

A valuation allowance is established for an impaired loan when the fair value of the loan is less than the recorded investment. In certain cases, portions of impaired loans have been charged-off to realizable value instead of establishing a valuation allowance and are included, when applicable, in the table above as “Impaired loans without specific valuation allowance under ASC 310.” The valuation allowance disclosed above is included in the allowance for credit losses reported in the consolidated balance sheets as of March 31, 2012 and December 31, 2011.

The following table presents average investment in impaired loans by loan class:


	Three Months Ended
	March 31,
	2012		2011
	(in thousands)
Commercial real estate
Owner occupied	$	48,385	$	56,956
Non-owner occupied		45,490		58,215
Multi-family		943		2,972
Commercial and industrial
Commercial		26,957		9,933
Leases		595		3,704
Construction and land development
Construction		14,339		28,012
Land		39,293		24,317
Residential real estate		31,067		39,215
Consumer		1,929		629

Total	$	208,998	$	223,953

The following table presents interest income on impaired loans by class:


	Three Months Ended
	March 31,
	2012		2011
	(in thousands)
Commercial real estate
Owner occupied	$	414	$	351
Non-owner occupied		459		576
Multi-family		—		4
Commercial and industrial
Commercial		255		58
Leases		—		—
Construction and land development
Construction		—		135
Land		352		236
Residential real estate		58		56
Consumer		11		4

Total	$	1,549	$	1,420

The Company is not committed to lend significant additional funds on these impaired loans.

The following table summarizes nonperforming assets:


	March 31,		December 31,
	2012		2011
	(in thousands)
Nonaccrual loans	$	103,486	$	90,392
Loans past due 90 days or more on accrual status		1,011		2,589
Troubled debt restructured loans		104,009		112,483

Total nonperforming loans		208,506		205,464
Foreclosed collateral		81,445		89,104

Total nonperforming assets	$	289,951	$	294,568

Allowance for Credit Losses

The following table summarizes the changes in the allowance for credit losses by portfolio type:


	For the Three Months Ended March 31,
	Construction and		Commercial		Residential		Commercial
	Land Development		Real Estate		Real Estate		and Industrial			Consumer		Total
	(in thousands)
2012
Beginning Balance	$	14,195	$	35,031	$	19,134	$	25,535		$	5,275	$	99,170
Charge-offs		5,087		4,912		1,420		3,654			2,002		17,075
Recoveries		86		1,703		338		777			42		2,946
Provision		3,559		3,296		680		4,243			1,303		13,081

Ending balance	$	12,753	$	35,118	$	18,732	$	26,901		$	4,618	$	98,122

2011
Beginning Balance	$	20,587	$	33,043	$	20,889	$	30,782		$	5,398	$	110,699
Charge-offs		4,198		6,114		3,282		1,407			1,616		16,617
Recoveries		416		471		269		829			25		2,010
Provision		838		6,689		3,662		(2,603	)		1,455		10,041

Ending balance	$	17,643	$	34,089	$	21,538	$	27,601		$	5,262	$	106,133

The following tables present loans individually evaluated for impairment by class of loans:


	March 31, 2012
	Unpaid						Allowance
	Principal		Recorded		Partial		for Credit
	Balance		Investment		Charge-offs		Losses Allocated
			(in thousands)
With no related allowance recorded:
Commercial real estate
Owner occupied	$	55,003	$	50,791	$	4,212	$	—
Non-owner occupied		45,303		40,535		4,768		—
Multi-family		—		—		—		—
Commercial and industrial
Commercial		18,929		17,701		1,228		—
Leases		612		612		—		—
Construction and land development
Construction		—		—		—		—
Land		37,523		32,760		4,763		—
Residential real estate		30,530		22,776		7,754		—
Consumer		876		836		40		—
With an allowance recorded:
Commercial real estate
Owner occupied		6,677		5,334		1,343		2,495
Non-owner occupied		4,204		4,149		55		2,154
Multi-family		1,249		1,216		33		535
Commercial and industrial
Commercial		12,140		12,125		15		5,149
Leases		—		—		—		—
Construction and land development
Construction		12,101		9,250		2,851		450
Land		6,449		6,168		281		2,645
Residential real estate		8,707		8,210		497		3,601
Consumer		750		375		375		375
With an allowance recorded:

Total	$	241,053	$	212,838	$	28,215	$	17,404


	December 31, 2011
	Unpaid						Allowance
	Principal		Recorded		Partial		for Credit
	Balance		Investment		Charge-offs		Losses Allocated
	(in thousands)
With no related allowance recorded:
Commercial real estate
Owner occupied	$	47,792	$	41,338	$	6,454	$	—
Non-owner occupied		41,500		36,806		4,694		—
Multi-family		213		194		19		—
Commercial and industrial
Commercial		24,769		22,804		1,965		—
Leases		592		592		—		—
Construction and land development
Construction		21,774		18,821		2,953		—
Land		39,177		34,067		5,110		—
Residential real estate		32,577		23,950		8,627		—
Consumer		2,328		2,288		40		—
With an allowance recorded:
Commercial real estate
Owner occupied		5,572		5,442		130		1,333
Non-owner occupied		7,865		6,316		1,549		1,276
Multi-family		630		616		14		218
Commercial and industrial
Commercial		2,516		2,334		182		1,863
Leases		—		—		—		—
Construction and land development
Construction		5,018		2,006		3,012		499
Land		7,298		7,017		281		3,002
Residential real estate		5,059		4,900		159		2,186
Consumer		—		—		—		—
With an allowance recorded:

Total	$	244,680	$	209,491	$	35,189	$	10,377

The following tables present the balance in the allowance for credit losses and the recorded investment in loans by portfolio segment and based on impairment method:


	March 31, 2012
	Commercial		Commercial
	Real Estate -		Real Estate -		Commercial		Residential		Construction
	Owner		Non-Owner		and		Real		and Land		Commercial
	Occupied		Occupied		Industrial		Estate		Development		Leases		Consumer		Total
	(in thousands)
Allowance for credit losses:
Ending balance attributable to loans individually evaluated for impairment	$	2,495	$	2,689	$	5,149	$	3,601	$	3,095	$	—	$	375	$	17,404
Collectively evaluated for impairment		15,591		14,343		19,618		15,131		9,658		2,134		4,243		80,718
Acquired with deteriorated credit quality		—		—		—		—		—		—		—		—

Total ending allowance	$	18,086	$	17,032	$	24,767	$	18,732	$	12,753	$	2,134	$	4,618	$	98,122


	December 31, 2011
	Commercial		Commercial
	Real Estate -		Real Estate -		Commercial		Residential		Construction
	Owner		Non-Owner		and		Real		and Land		Commercial
	Occupied		Occupied		Industrial		Estate		Development		Leases		Consumer		Total
	(in thousands)
Allowance for credit losses:
Ending balance attributable to loans individually evaluated for impairment	$	1,333	$	1,494	$	1,863	$	2,186	$	3,501	$	—	$	—	$	10,377
Collectively evaluated for impairment		16,434		15,770		21,605		16,948		10,694		2,067		5,275		88,793
Acquired with deteriorated credit quality		—		—		—		—		—		—		—		—

Total ending allowance	$	17,767	$	17,264	$	23,468	$	19,134	$	14,195	$	2,067	$	5,275	$	99,170

In the first quarter of 2012, the Company modified its allowance for credit losses calculation to exclude cash secured loans. Additional, for internally participated loans historical loss factors have been revised as follows. Previously, the loss factors utilized were based on those of the bank which held the participation. Under the revised methodology, loss characteristics of the originating bank are utilized by the participating bank for the first four quarters after origination during which time the loan becomes seasoned. The net effect of these changes compared to the calculation method used at December 31, 2011 was to decrease the provision and allowance for credit losses by approximately $2.6 million. The net effect by portfolio segment was to decrease provision for credit losses for the commercial real estate, commercial and industrial, consumer, and residential real estate loan portfolios by $1.5 million, $0.8 million, $0.2 million, and $41,000, respectively.

Troubled Debt Restructurings (TDR)

A troubled debt restructured loan is a loan on which the bank, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the bank 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, extensions, deferrals, renewals and rewrites. The majority of the bank’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. A troubled debt restructured loan is also considered impaired. Generally, a loan that is modified at an effective market rate of interest may no longer be disclosed as a troubled debt restructuring in years subsequent to the restructuring if it is not impaired based on the terms specified by the restructuring agreement.

The following table presents information on the financial effects of troubled debt restructured loans by class for the periods presented:


	Three Months Ended
	March 31, 2012
			Pre-Modification		Forgiven		Lost		Post-Modification		Waived Fees
	Number		Outstanding		Principal		Interest		Outstanding		and Other
	of Loans		Recorded Investment		Balance		Income (1)		Recorded Investment		Expenses
	(in thousands)
Commercial real estate
Owner occupied		6	$	12,402	$	—	$	102	$	12,300	$	36
Non-owner occupied		3		9,809		430		127		9,252		5
Multi-family		—		—		—		—		—		—
Commercial and industrial
Commercial		9		2,096		—		26		2,070		21
Leases		—		—		—		—				—
Construction and land development
Construction		—		—		—		—		—		—
Land		2		517		—		55		462		5
Residential real estate		8		1,809		40		241		1,528		3
Consumer		2		68		—		—		68		—

Total