Edgar Filing: WESTERN ALLIANCE BANCORPORATION

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Form 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

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 Suite 1400, Phoenix, AZ		85004
(Address of Principal Executive Offices)		(Zip Code)

(602)389-3500

(Registrant’s telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, $0.0001 Par Value		New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act Yes ¨ No x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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 definition of “large accelerated filer and accelerated filer” 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

The aggregate market value of the registrant’s voting stock held by non-affiliates was approximately $477.5 million based on the June 29, 2012 closing price of said stock on the New York Stock Exchange ($9.36 per share).

As of February 25, 2013, 86,945,168 shares of the registrant’s common stock were outstanding.

Portions of the registrant’s definitive proxy statement for its 2013 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.

INDEX


		Page
PART I

Forward-Looking Statements			3
Item 1.	Business		3
Item 1A.	Risk Factors		13
Item 1B.	Unresolved Staff Comments		23
Item 2.	Properties		23
Item 3.	Legal Proceedings		24
Item 4.	Mine Safety Disclosures		24

PART II

Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		25
Item 6.	Selected Financial Data		26
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		69
Item 8.	Financial Statements and Supplementary Data		69
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		131
Item 9A.	Controls and Procedures		131
Item 9B.	Other Information		133

PART III

Item 10.	Directors, Executive Officers and Corporate Governance		133
Item 11.	Executive Compensation		133
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		133
Item 13.	Certain Relationships and Related Transactions, and Director Independence		133
Item 14.	Principal Accountant Fees and Services		133

PART IV

Item 15.	Exhibits and Financial Statement Schedules		134

SIGNATURES			138
CERTIFICATIONS

PART I

Forward-Looking Statements

Certain statements contained in this Annual Report on Form 10-K (“Form 10K”) are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements be covered by the safe harbor provisions for forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of Federal and State securities laws, including statements that related to or are dependent on estimates or assumptions relating to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.

The forward-looking statements contained in this Form 10K reflect our current views about future events and financial performance and involve certain risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from historical results and those expressed in any forward-looking statement, including those risks discussed under the heading “Risk Factors” in this 2012 Form 10K. Risks and uncertainties include those set forth in our filings with the Securities and Exchange Commission and the following factors that could cause actual results to differ materially from those presented: 1) dependency on real estate and events that negatively impact real estate; 2) high concentration of commercial real estate, construction and development and commercial and industrial loans; 3) actual credit losses may exceed expected losses in the loan portfolio; 4) the geographic concentrations of our assets increases the risks related to local economic conditions; 5) the effects of interest rates and interest rate policy; 6) exposure of financial instruments to certain market risks may cause volatility in earnings; 7) dependence on low-cost deposits; 8) ability to borrow from Federal Home Loan Bank (“FHLB”) or Federal Reserve Bank (“FRB”); 9) events that further impair goodwill; 10) increase in the cost of funding as the result of changes to our credit rating; 11) expansion strategies may not be successful; 12) our ability to control costs; 13) risk associated with changes in internal controls and processes; 14) our ability to compete in a highly competitive market; 15) our ability to recruit and retain qualified employees, especially seasoned relationship bankers; 16) the effects of terrorist attacks or threats of war; 17) perpetration of internal fraud; 18) risk of operating in a highly regulated industry and our ability to remain in compliance; 19) possible need to revalue our deferred tax assets if stock transactions result in limitations on deductibility of net operating losses or loan losses; 20) exposure to environmental liabilities related to the properties we acquire title; 21) recent legislative and regulatory changes including Emergency Economic Stabilization Act of 2008, or EESA, the American Recovery and Reinvestment Act of 2009, or ARRA, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations that might be promulgated thereunder; 22) cyber security risks; and 23) risks related to ownership and price of our common stock.

For more information regarding risks that may cause our actual results to differ materially from any forward-looking statements, see “Risk Factors” beginning on page 13. Forward-looking statements speak only as of the date they are made, the Company does not undertake any obligations to update forward-looking statements to reflect circumstances and or events that occur after the date the forward-looking statements are made.

Purpose

The following discussion is designed to provide insight on the financial condition and results of operations of Western Alliance Bancorporation and its subsidiaries. Unless otherwise stated, “the Company” or “WAL” refers to this consolidated entity. This discussion should be read in conjunction with the Company’s Consolidated Financial Statements and notes to the Consolidated Financial Statements, herein referred to as “the Consolidated Financial Statements”. These Consolidated Financial Statements are presented beginning on page 72 of this Form 10-K.

ITEM 1.

BUSINESS

Organization Structure and Description of Services

Western Alliance Bancorporation (“WAL” or “the Company”), is a multi-bank holding company headquartered in Phoenix, Arizona that provides full service banking and lending 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 (the “Banks”): Bank of Nevada (“BON”), operating in Southern Nevada, Western Alliance Bank (“WAB”), operating in Arizona and Northern Nevada, and Torrey Pines Bank (“TPB”), operating in California. In addition, the Company’s has two non-bank subsidiaries: Western Alliance Equipment Finance (“WAEF”), which offers equipment leasing nationwide, and Las Vegas Sunset Properties (“LVSP”), which holds certain assets. These entities are collectively referred to herein as the Company. The Company divested its 80 percent owned subsidiary Shine Investment Advisory Services, Inc. (“Shine”) as of October 31, 2012.

WAL also has six unconsolidated subsidiaries used as business trusts in connection with issuance of trust-preferred securities as described in Note 11, “Junior Subordinated and Subordinated Debt” beginning on page 111 of this Form 10-K.

Bank Subsidiaries

Bank Name

Headquarters

Year
Founded

Number of
Locations

Location Cities

Total
Assets

Net
Loans*

Deposits

(in millions)

BON (1)

Las Vegas, Nevada

1994

Las Vegas, North Las
Vegas, Henderson, and
Mesquite

3,029.1

2,125.1

2,569.1

WAB (2)

Phoenix, Arizona

2003

Phoenix, Tucson,
Scottsdale, Sedona, Mesa,
Flagstaff, Reno, Sparks,
Fallon, and Carson City

2,565.1

2,015.8

2,224.2

TPB (3)

San Diego, CA

2003

San Diego, La Mesa,
Carlsbad, Los Angeles,
Oakland, Piedmont, and
Los Altos

2,019.8

1,492.6

1,679.3

*	Including Held for sale loans

(1)

BON commenced operations in 1994 as BankWest of Nevada (“BWN”). In 2006, BWN merged with Nevada First Bank and Bank of Nevada. As part of the mergers, BWN changed its name to BON. 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.

(2)

WAB commenced operations in 2003 as Alliance Bank of Arizona (“ABA”), and subsequently changed its name to WAB on December 31, 2010 as part of an inter-affiliate merger between ABA and First Independent Bank of Nevada (“FIB”). WAB has one wholly-owned subsidiary, WAB Investments, Inc., which holds certain securities.

(3)	TPB commenced operations in 2003. On December 31, 2010, TPB merged with its affiliate Alta Alliance Bank (“AAB”). TPB has one wholly-owned subsidiary, TPB Investments, Inc., which holds certain securities.

Our subsidiary banks are state-chartered and are subject to primary regulation and examination by the Federal Deposit Insurance Corporation (“FDIC”) and, in addition, are regulated and examined by their respective state banking agencies.

Until October 31, 2012, WAL owned an 80 percent interest investment in Shine, a registered investment advisor purchased in July 2007.

Until September 27, 2012, WAL maintained a 24.9 percent interest in Miller/Russell & Associates, Inc. (“MRA”), an Arizona registered investment advisor. MRA provides investment advisory services to individuals, foundations, retirement plans and corporations.

Market Segments

The Company had four reportable operating segments at December 31, 2012 and 2011. The Company’s reporting segments reflect the way the Company manages and assesses the performance of the business as a result of the strategic mergers and divestitures of subsidiaries.

The Company’s reportable operating segments consist of: “Bank of Nevada”, “Western Alliance Bank”, “Torrey Pines Bank” and “Other” (Western Alliance Bancorporation holding company, Western Alliance Equipment Finance, Shine, Inc until October 31, 2012, Premier Trust until September 1, 2010, and the discontinued operations portion of the credit card services).

Management has determined the operating segments using a combination of factors primarily driven by legal entity. Management determined that the legal entities that contributed less than the quantitative thresholds for separate management reporting be combined into the Other segment.

The accounting policies of the reported segments are the same as those of the Company as described in Note 1, “Nature of Operation and Summary of Significant Accounting Policies” beginning on page 79. Transactions between segments consisted primarily of borrowings, loan participations and shared services. All intercompany transactions are eliminated for reporting consolidated results of operations. Loan participations are recorded at par value with no resulting gain or loss. The Company allocated centrally-provided services to the operating segments based upon estimated usage of those services. Please refer to Note 18, “Segments” in our Consolidated Financial Statements for financial information regarding segment reporting beginning on page 128.

The bank operating segments derive a majority of their revenues from net interest income generated from quality loan growth offset by deposit costs. The Company’s chief executive officer relies primarily on the success of loan and deposit growth while maintaining net interest margin and net profits from these efforts to assess the performance of these segments. The other segment derives a majority of its revenue from fees based on assets under management and interest income from investments. The Company’s chief executive officer relies primarily on costs and strategic initiative needs when assessing the performance of and allocating resources to this segment.

Lending Activities

Through its banking segments, the Company provides a variety of financial services to customers, including commercial real estate loans, construction and land development loans, commercial loans, and consumer loans. The Company’s lending has focused primarily on meeting the needs of business customers.

Commercial Real Estate (“CRE”): Loans to finance the purchase or refinancing of CRE and loans to finance inventory and working capital that are additionally secured by CRE make up the majority of our loan portfolio. These CRE loans are secured by apartment buildings, professional offices, industrial facilities, retail centers and other commercial properties. As of December 31, 2012 and 2011, 48.0% and 49.0% of our CRE loans were owner-occupied. Owner-occupied commercial real estate loans are loans secured by owner-occupied nonfarm nonresidential properties for which the primary source of repayment (more than 50%) is the cash flow from the ongoing operations and activities conducted by the borrower who owns the property. Non-owner-occupied commercial real estate loans are commercial real estate loans for which the primary source of repayment is nonaffiliated rental income associated with the collateral property.

Construction and Land Development: Construction and land development loans include multi-family apartment projects, industrial/warehouse properties, office buildings, retail centers and medical facilities. These loans are primarily originated to experienced local developers with whom the Company has a satisfactory lending history. An analysis of each construction project is performed as part of the underwriting process to determine whether the type of property, location, construction costs and contingency funds are appropriate and adequate. Loans to finance commercial raw land are primarily to borrowers who plan to initiate active development of the property within two years.

Commercial and Industrial: Commercial and industrial loans include working capital lines of credit, inventory and accounts receivable lines, mortgage warehouse lines, equipment loans and leases, and other commercial loans. Commercial loans are primarily originated to small and medium-sized businesses in a wide variety of industries. WAB is designated a “Preferred Lender” in Arizona with the Small Business Association (“SBA”) under its “Preferred Lender Program.”

Residential real estate: In 2010 the Company discontinued residential real estate loan origination as a primary business line.

Consumer: Consumer loans are offered to meet customer demand and to respond to community needs. Consumer loans are generally offered at a higher rate and shorter term than residential mortgages. Examples of our consumer loans include: home equity loans and lines of credit; home improvement loans; credit card loans; and personal lines of credit.

As of December 31, 2012, the Company held $31.1 million credit card loans for sale. The held for investment loan portfolio totaled $5.68 billion, or approximately 74.5% of total assets. The following table sets forth the composition of our loan portfolio as of the periods presented.


	December 31,
	2012						2011
	Amount			Percent			Amount			Percent
	(dollars in thousands)
Commercial real estate-owner occupied	$	1,396,797			24.6	%	$	1,252,182			26.1	%
Commercial real estate-non-owner occupied		1,505,600			26.5	%		1,301,172			27.2	%
Commercial and industrial		1,659,003			29.2	%		1,120,107			23.4	%
Residential real estate		407,937			7.2	%		443,020			9.3	%
Construction and land development		394,319			6.9	%		381,676			8.0	%
Commercial leases		288,747			5.1	%		216,475			4.5	%
Consumer		31,836			0.5	%		72,504			1.5	%

Total loans		5,684,239			100.0	%		4,787,136			100.0	%

Net deferred fees		(6,045	)					(7,067	)

Total loans, net of deferred loan fees	$	5,678,194					$	4,780,069

For additional information concerning loans, refer to Note 4, “Loans, Leases and Allowance for Credit Losses” of the Consolidated Financial Statements or see the “Management Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition – Loans” discussions.

General

The Company adheres to a specific set of credit standards across its bank subsidiaries that ensure the proper management of credit risk. Furthermore, our holding company’s management team plays an active role in monitoring compliance with such standards by our banks.

Loan originations are subject to a process that includes the credit evaluation of borrowers, utilizing established lending limits, analysis of collateral, and procedures for continual monitoring and identification of credit deterioration. Loan officers actively monitor their individual credit relationships in order to report suspected risks and potential downgrades as early as possible. The respective boards of directors of each of our banking subsidiaries approve their own loan policies, as well as loan limit authorizations. Except for variances to reflect unique aspects of state law and local market conditions, our lending policies generally incorporate consistent underwriting standards. The Company monitors all changes to each respective bank’s loan policy to ensure this consistency. Our credit culture has helped us to identify troubled credits early, allowing us to take corrective action when necessary.

Loan Approval Procedures and Authority

Our loan approval procedures are executed through a tiered loan limit authorization process, which is structured as follows:

•

Individual Authorities. The chief credit officer (“CCO”) of each subsidiary bank sets the authorization levels for individual loan officers on a case-by-case basis. Generally, the more experienced a loan officer, the higher the authorization level. The maximum approval authority for a loan officer is $2.0 million for real estate secured loans and $750,000 for other loans.

•

Management Loan Committees. Credits in excess of individual loan limits are submitted to the appropriate bank’s Management Loan Committee. The Management Loan Committees consist of members of the senior management team of that bank and are chaired by that bank’s chief credit officer. The Management Loan Committees have approval authority up to $7.0 million.

•

Credit Administration. Credits in excess of the affiliate banks’ Management Loan Committee authority are submitted by the bank subsidiary to Western Alliance Bancorporation’s Credit Committee (“WALCC”). WALCC has approval authority up to established house concentration limits, which range from $15.0 million to $35.0 million, depending on risk grade. WALCC approval is additionally required for new relationships of $12.5 million or greater to borrowers within market footprint, and $5.0 million outside market footprint. WALCC also reviews all affiliate loan approvals to any one borrower of $5.0 million or greater. WALCC is chaired by the Western Alliance Bancorporation Chief Credit Officer and includes the Company’s CEO and COO.

•

Board of Directors Oversight. The chief executive officer (“CEO”) of Western Alliance Bancorporation acting with the Chairman of the Board of Directors of Bank of Nevada has approval authority for any credit extension greater than $30.0 million at December 31, 2012.

The Company’s credit administration department works independent of loan production.

Loans to One Borrower. In addition to the limits set forth above, subject to certain exceptions, state banking law generally limits the amount of funds that a bank may lend to a single borrower. Under Nevada law, the combination of investments in private securities and total amount of outstanding loans that a bank may make to a single borrower generally may not exceed 25% of stockholders’ tangible equity. Under Arizona law, the obligations of one borrower to a bank generally may not exceed 20% of the bank’s capital, plus an additional 10% of its capital if the additional amounts are fully secured by readily marketable collateral. Under California law, the unsecured obligations of any one borrower to a bank generally may not exceed 15% of the sum of the bank’s shareholders’ equity, allowance for credit losses, capital notes and debentures; and the secured and unsecured obligations of any one borrower to a bank generally may not exceed 25% of the sum of the bank’s shareholders’ equity, allowance for credit losses, capital notes and debentures.

Concentrations of Credit Risk. Our lending policies also establish customer and product concentration limits to control single customer and product exposures. Our lending policies have several different measures to limit concentration exposures. Set forth below are the primary segmentation limits and actual measures as of December 31, 2012:


	Percent of Total Capital
	Policy Limit			Actual
Commercial Real Estate (including owner-occupied)		435	%		338	%
Commercial and Industrial (1)		225	%		227	%
Construction/Land		80	%		46	%
Residential Real Estate		75	%		48	%
Consumer		20	%		7	%

(1)	Our policy incorporates a 5% “tolerance” in cases where a concentration limit is exceeded on a short-term basis. In this case, the 227% was reduced to 219% as of January 31, 2013.

Asset Quality

General

To measure asset quality, the Company has instituted a loan grading system consisting of nine different categories. The first five are considered “satisfactory.” The other four grades range from a “watch” category to a “loss” category and are consistent with the grading systems used by Federal banking regulators. All loans are assigned a credit risk grade at the time they are made, and each originating loan officer reviews the credit with his or her immediate supervisor on a quarterly basis to determine whether a change in the credit risk grade is warranted. In addition, the grading of our loan portfolio is reviewed on a test basis, at minimum, annually by our internal Loan Review department or an external, independent loan review firm.

Collection Procedure

If a borrower fails to make a scheduled payment on a loan, the bank attempts to remedy the deficiency by contacting the borrower and seeking payment. Contacts generally are made within 15 business days after the payment becomes past due. Each of the bank affiliates maintains a Special Assets Department, which generally services and collects loans rated substandard or worse. Each bank’s CCO is responsible for monitoring activity that may indicate an increased risk rating, such as past-dues, overdrafts, loan agreement covenant defaults, etc. All charge-offs in excess of $100,000 are reported to each bank’s respective board of directors. Loans deemed uncollectible are proposed for charge-off and subsequently reported at each respective bank’s board meeting.

Nonperforming Assets

Nonperforming assets include loans past due 90 days or more and still accruing interest, nonaccrual loans, troubled debt restructured loans, and repossessed assets including other real estate owned (“OREO”). In general, loans are placed on nonaccrual status when we determine ultimate collection of principal and interest to be in doubt due to the borrower’s financial condition, collateral value, and collection efforts. 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. Other repossessed assets resulted from loans where we have received title or physical possession of the borrower’s assets. Generally, the Company re-appraises OREO and collateral dependent impaired loans every six to twelve months depending on risk factors. Net losses on sales/valuations of repossessed assets were $4.2 million and $24.6 million for the years ended December 31, 2012 and 2011, respectively. These losses may continue in future periods.

Criticized Assets

Federal bank regulators require that each insured bank classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, examiners have authority to identify problem assets, and, if appropriate, re-classify them. Loan grades six through nine of our loan grading system are utilized to identify potential problem assets.

The following describes the potential problem assets in our loan grading system:

•

“Watch List/Special Mention.” Generally these are assets that require more than normal management attention. These loans may involve borrowers with adverse financial trends, higher debt to equity ratios, or weaker liquidity positions, but not to the degree of being considered a “problem loan” where risk of loss may be apparent. Loans in this category are usually performing as agreed, although there may be some minor non-compliance with financial covenants.

•

“Substandard.” These assets contain well-defined credit weaknesses and are characterized by the distinct possibility that the bank will sustain some loss if such weakness or deficiency is not corrected. These loans generally are adequately secured and in the event of a foreclosure action or liquidation, the bank should be protected from loss. All loans 90 days or more past due and all loans on nonaccrual are considered at least “substandard,” unless extraordinary circumstances would suggest otherwise.

•

“Doubtful.” These assets have an extremely high probability of loss, but because of certain known factors which may work to the advantage and strengthening of the asset (for example, capital injection, perfecting liens on additional collateral and refinancing plans), classification as an estimated loss is deferred until a more precise status may be determined.

•

“Loss.” These assets are considered uncollectible, and of such little value that their continuance as assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practicable or desirable to defer writing off the asset, even though partial recovery may be achieved in the future.

Allowance for Credit Losses

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 collectability of the contractual principal or interest is unlikely. 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 the other factors. For a detailed discussion of the Company’s methodology see “Management’s Discussion and Analysis and Financial Condition – Critical Accounting Policies – Allowance for Credit Losses” beginning on page 50.

Investment Activities

Each of our banking subsidiaries and the holding company has its own investment policy, which is approved by each respective bank’s board of directors. These policies dictate that investment decisions will be made based on the safety of the investment, liquidity requirements, potential returns, cash flow targets, and consistency with our interest rate risk management. Each bank’s asset and liability committee is responsible for making securities portfolio decisions in accordance with established policies. The Chief Financial Officer and Treasurer have the authority to purchase and sell securities within specified guidelines established by the Company’s accounting and investment policies. All transactions for a specific bank or for the holding company are reviewed by the respective asset and liability management committee and/or board of directors.

Generally the bank’s investment policies limit securities investments to securities backed by the full faith and credit of the U.S. government, including U.S. treasury bills, notes, and bonds, and direct obligations of Ginnie Mae; mortgage-backed securities (“MBS”) or collateralized mortgage obligations (“CMO”) issued by a government-sponsored enterprise (“GSE”) such as Fannie Mae or Freddie Mac; debt securities issued by a government-sponsored enterprise (“GSE”) such as Fannie Mae, Freddie Mac, and the FHLB; municipal securities with a rating of “Single-A” or higher; adjustable-rate preferred stock (“ARPS”) where the issuing company is rated “BBB” or higher; corporate debt with a rating of “Single-A” or better; investment grade corporate bond mutual funds; private label collateralized mortgage obligations with a single rating of “AA” or higher; commercial mortgage backed securities with a rating of “AAA”; and mandatory purchases of equity securities of the FRB and FHLB. Adjustable rate preferred stock (“ARPS”) holdings are limited to no more than 15% of a bank’s tier 1 capital; municipal securities are limited to no more than 5% of assets; investment grade corporate bond mutual funds are limited to no more than 5% of Total capital; corporate debt holdings are limited to no more than 2.5% of a bank’s assets; and commercial mortgage backed securities are limited to an aggregate purchase limit of $50 million.

The Company no longer purchases (although we may continue to hold previously acquired) collateralized debt obligations. Our policies also govern the use of derivatives, and provide that the Company and its banking subsidiaries are to prudently use derivatives as a risk management tool to reduce the Bank’s overall exposure to interest rate risk, and not for speculative purposes.

All of our investment securities are classified as available-for-sale (“AFS”), held-to-maturity (“HTM”) or measured at fair value (“trading”) pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 320, “Investments” and FASB ASC Topic 825, “Financial Instruments”. Available-for -sale securities are reported at fair value in accordance with FASB Topic 820, “Fair Value Measurements and Disclosures.”

As of December 31, 2012, the Company had an investment securities portfolio of $1.24 billion, representing approximately 16.2% of our total assets, with the majority of the portfolio invested in AAA/AA+-rated securities. The average duration of our investment securities was 2.90 years as of December 31, 2012.

The following table summarizes the investment securities portfolio as of December 31, 2012 and 2011.


	December 31,
	2012					2011
	Amount		Percent			Amount		Percent
	(dollars in millions)
Direct obligations and GSE residential mortgage-backed securities	$	668.3		54.1	%	$	871.1		58.8	%
U.S. Government sponsored agency securities		0.0		0.0	%		156.2		10.5	%
Private label residential mortgage-backed securities		35.6		2.9	%		25.8		1.7	%
Municipal obligations		265.1		21.4	%		187.5		12.7	%
Adjustable-rate preferred stock		75.5		6.1	%		54.7		3.7	%
Mutual funds		38.0		3.1	%		28.8		1.9	%
CRA investments		25.8		2.1	%		25.0		1.7	%
Trust preferred securities		24.1		1.9	%		21.2		1.4	%
Collateralized debt obligations		0.1		0.0	%		0.1		0.0	%
Private label commercial mortgage-backed securities		5.7		0.5	%		5.4		0.4	%
Corporate bonds		97.8		7.9	%		107.4		7.2	%

Total	$	1,236.0		100.0	%	$	1,483.2		100.0	%

As of December 31, 2012 and 2011, the Company had an investment in bank-owned life insurance (“BOLI”) of $138.3 million and $133.9 million, respectively. The BOLI was purchased to help offset employee benefit costs. For additional information concerning investments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Investments.”

Deposit Products

The Company offers a variety of deposit products including checking accounts, savings accounts, money market accounts and other types of deposit accounts, including fixed-rate, fixed maturity retail certificates of deposit. The Company has historically focused on growing its lower cost core customer deposits. As of December 31, 2012, the deposit portfolio was comprised of 29.9% non-interest bearing deposits and 70.1% interest-bearing deposits.

The competition for deposits in our markets is strong. The Company has historically been successful in attracting and retaining deposits due to several factors, including: (1) focus on a high quality of customer service; (2) our experienced relationship bankers who have strong relationships within their communities; (3) the broad selection of cash management services we offer; and (4) incentives to employees for business development. The Company intends to continue its focus on attracting deposits from our business lending relationships in order to maintain low cost of funds and improve net interest margin. The loss of low-cost deposits could negatively impact future profitability.

Deposit balances are generally influenced by national and local economic conditions, changes in prevailing interest rates, internal pricing decisions, perceived stability of financial institutions and competition. The Company’s deposits are primarily obtained from communities surrounding its branch offices. In order to attract and retain quality deposits, we rely on providing quality service and introducing new products and services that meet the needs of customers.

The Company’s deposit rates are determined by each individual bank through an internal oversight process under the direction of its asset and liability committee. The banks consider a number of factors when determining deposit rates, including:

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current and projected national and local economic conditions and the outlook for interest rates;

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local competition;

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loan and deposit positions and forecasts, including any concentrations in either; and

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FHLB advance rates and rates charged on other funding sources.

The following table shows our deposit composition:


	December 31,
	2012					2011
	Amount		Percent			Amount		Percent
			(dollars in thousands)
Non-interest bearing demand	$	1,933,169		29.9	%	$	1,558,211		27.5	%
Interest-bearing demand		582,315		9.0	%		482,729		8.5	%
Savings and money market		2,573,506		39.9	%		2,166,639		38.3	%
Time certificates of $100,000 or more		1,220,938		18.9	%		1,288,681		22.8	%
Other time deposits		145,249		2.3	%		162,252		2.9	%

Total deposits	$	6,455,177		100.0	%	$	5,658,512		100.0	%

In addition to our deposit base, we have access to other sources of funding, including FHLB and FRB advances, repurchase agreements and unsecured lines of credit with other financial institutions. Previously, we have also accessed the capital markets through trust preferred offerings. For additional information concerning our deposits see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Balance Sheet Analysis – Deposits.”

Financial Products and Services

In addition to traditional commercial banking activities, the Company offers other financial services to customers, including: internet banking, wire transfers, electronic bill payment, lock box services, courier, and cash management services.

Customer, Product and Geographic Concentrations

Approximately 57.6% and 61.3% of the loan portfolio at December 31, 2012 and 2011, respectively, consisted of commercial real estate secured loans, including commercial real estate loans and construction and land development loans. The Company’s business is concentrated in the Las Vegas, Los Angeles, Bay Area, Phoenix, Reno, San Diego and Tucson metropolitan areas. Consequently, the Company is dependent on the trends of these regional economies. The Company is not dependent upon any single or limited number of customers, the loss of which would have a material adverse effect on the Company. No material portion of the Company’s business is seasonal.

Foreign Operations

The Company has no foreign operations. The bank subsidiaries provide loans, letters of credit and other trade-related services to commercial enterprises that conduct business outside the United States.

Customer Concentration

Neither the Company nor any of its reportable segments has any customer relationships that individually account for 10% of consolidated or segment revenues, respectively.

Competition

The financial services industry is highly competitive. Many of our competitors are much larger in total assets and capitalization, have greater access to capital markets, and offer a broader range of financial services than we can offer and may have lower cost structures.

This increasingly competitive environment is primarily a result of long term changes in regulation that made mergers and geographic expansion easier; changes in technology and product delivery systems and web-based tools; the accelerating pace of consolidation among financial services providers; and the flight of deposit customers to perceived increased safety. We compete for loans, deposits and customers with other banks, credit unions, securities and brokerage companies, mortgage companies, insurance companies, finance companies, and other non-bank financial services providers. This strong competition for deposit and loan products directly affects the rates of those products and the terms on which they are offered to consumers.

Technological innovation continues to contribute to greater competition in domestic and international financial services markets.

Mergers between financial institutions have placed additional pressure on banks to consolidate their operations, reduce expenses and increase revenues to remain competitive. The competitive environment is also significantly impacted by federal and state legislation that makes it easier for non-bank financial institutions to compete with the Company.

Employees

As of December 31, 2012, the Company had 982 full-time equivalent team members. The Company’s employees are not represented by a union or covered by a collective bargaining agreement. Management believes that its employee relations are good.

Recent Developments and Company Response

The global and U.S. economies, and the economies of the local communities in which we operate, experienced a rapid decline in 2008, the effects of which are still being felt. The financial markets and the financial services industry in particular suffered unprecedented disruption, causing many major institutions to fail or require government intervention to avoid failure. These conditions were brought about largely by the erosion of U.S. and global credit markets, including a significant and rapid deterioration of the mortgage lending and related real estate markets. Despite these conditions, in 2012, we continued to grow net interest income to $290.3 million, up 12.7% from $257.7 million in 2011. However, as with many financial institutions in our markets, we continued to suffer losses resulting primarily from provisions and charge-offs for credit losses, and net losses on sales/valuations of other repossessed assets, though not at the same levels as 2011, resulting in a slightly higher provision for credit losses in 2012 compared to 2011. As a result our net interest income after provision for credit loss in 2012 was $243.4 million, up 15.1% from $211.5 million in 2011.

The United States, state and foreign governments took extraordinary actions in an attempt to deal with this worldwide financial crisis and the severe decline in the economy that followed. On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, into law. The Dodd-Frank Act has had, and will continue to have, a broad impact on the financial services industry. The SEC and the Federal banking agencies, including the Board of Governors of the Federal Reserve System (or the Federal Reserve) and the Federal Deposit Insurance Corporation (or the FDIC), have issued a number of requests for public comment, proposed rules and final regulations to implement the requirements of the Dodd-Frank Act. The following items provide a brief description of the impact of the Dodd-Frank Act on the operations and activities, both currently and prospectively, of the Company and its subsidiaries.

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Deposit Insurance. The Dodd-Frank Act and implementing final rules from the FDIC make permanent the $250,000 deposit insurance limit for insured deposits. The assessment base against which an insured depository institution’s deposit insurance premiums paid to the FDIC’s Deposit Insurance Fund (or the DIF) has been revised to use the institution’s average consolidated total assets less its average equity rather than its deposit base. Although we do not expect these provisions to have a material effect on our deposit insurance premium expense, in the future, they could increase the FDIC deposit insurance premiums paid by our insured depository institution subsidiaries.

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Increased Capital Standards and Enhanced Supervision. The federal banking agencies are required to establish minimum leverage and risk-based capital requirements for banks and bank holding companies. These new standards will be no lower than existing regulatory capital and leverage standards applicable to insured depository institutions and may, in fact, be higher when established by the agencies. Compliance with heightened capital standards may reduce our ability to generate or originate revenue-producing assets and thereby restrict revenue generation from banking and non-banking operations. The Dodd-Frank Act also increases regulatory oversight, supervision and examination of banks, bank holding companies and their respective subsidiaries by the appropriate regulatory agency. Compliance with new regulatory requirements and expanded examination processes could increase our cost of operations.

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Trust Preferred Securities. Under the increased capital standards established by the Dodd-Frank Act, bank holding companies are prohibited from including in their regulatory Tier 1 capital hybrid debt and equity securities issued on or after May 19, 2010. Among the hybrid debt and equity securities included in this prohibition are trust preferred securities, which the Company has used in the past as a tool for raising additional Tier 1 capital and otherwise improving its regulatory capital ratios. Although the Company may continue to include our existing trust preferred securities as Tier 1 capital, the prohibition on the use of these securities as Tier 1 capital going forward may limit the Company’s ability to raise capital in the future.

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The Bureau of Consumer Financial Protection. The Dodd-Frank Act creates a new, independent Bureau of Consumer Financial Protection (or the Bureau) within the Federal Reserve that is tasked with establishing and implementing rules and regulations under certain federal consumer protection laws. These consumer protection laws govern the manner in which we offer many of our financial products and services. On July 21, 2011, the rulemaking and certain enforcement authority for enumerated federal consumer financial protection laws was transferred to the Bureau. As a result of this transfer, the Bureau now has significant interpretive and enforcement authority with respect to many of the federal laws and regulations under which we operate. In accordance with this authority, the Bureau has officially transferred many of the regulations formerly maintained by the Federal Reserve and the U.S. Department of Housing and Urban Development, to a new chapter of Title 12 of the Code of Federal Regulations maintained by the Bureau, many of which deal with consumer credit, account disclosures and residential mortgage lending. Although the Bureau did not make significant or substantive changes to the rules during this transfer, it now has authority to promulgate guidance and interpretations of these rules and regulations in a manner that could differ from prior interpretations from other federal regulatory bodies.

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State Enforcement of Consumer Financial Protection Laws. The Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are stricter than those regulations promulgated by the Bureau. State attorneys general are permitted to enforce consumer protection rules adopted by the Bureau against certain state-chartered institutions. Although consumer products and services represent a relatively small part of our business, compliance with any such new regulations would increase our cost of operations and, as a result, could limit our ability to expand these products and services.

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Transactions with Affiliates and Insiders. The Dodd-Frank Act enhances the requirements for certain transactions with affiliates under Section 23A and 23B of the Federal Reserve Act, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained. Additionally, limitations on transactions with insiders are expanded through the (i) strengthening on loan restrictions to insiders; and (ii) expansion of the types of transactions subject to the various limits, including derivative transactions, repurchase agreements, reverse repurchase agreements and securities lending or borrowing transactions. Restrictions are also placed on certain asset sales to and from an insider to an institution, including requirements that such sales be on market terms and, in certain circumstances, approved by the institution’s board of directors.

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Corporate Governance. The Dodd-Frank Act addresses many corporate governance and executive compensation matters that will affect most U.S. publicly traded companies, including us. The Dodd-Frank Act (1) grants shareholders of U.S. publicly traded companies an advisory vote on executive compensation; (2) enhances independence requirements for compensation committee members; (3) requires companies listed on national securities exchanges to adopt incentive-based compensation claw-back policies for executive officers; and (4) provides the SEC with authority to adopt proxy access rules that would allow shareholders of publicly traded-companies to nominate candidates for election as a director and have those nominees included in a company’s proxy materials. The SEC recently adopted final rules implementing rules for the shareholder advisory vote on executive compensation and golden parachute payments.

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Debit Interchange Fees and Routing. The so-called Durbin Amendment, and the Federal Reserve’s implementing regulations, require that, unless exempt, bank issuers may only receive an interchange fee from merchants that is reasonable and proportional to the cost of clearing the transaction. Although this limitation only applies to banks with total assets, when aggregated or consolidated with the assets of all their affiliates, of $10 billion or more, other provisions of the Durbin Amendment and the Federal Reserve’s regulations also require that banks enable all debit cards with two or more unaffiliated payment networks. Moreover, banks are prohibited from placing restrictions or limiting a merchant’s ability to route an electronic debit transaction initiated through a debit card through any enabled network. These rules became effective on October 1, 2011.

Additional regulations called for in the Dodd-Frank Act, including regulations dealing with the risk retention requirements for assets transferred in a securitization and implementing restrictions on a banking organization’s proprietary trading and sponsorship or ownership of private equity funds or hedge funds are still being finalized. Although the Dodd-Frank Act contains some specific timelines for the Federal regulatory agencies to follow, in some instances the agencies have been unable to meet these deadlines and it remains unclear when implementing rules will be proposed and finalized. We continue to monitor the rulemaking process and, while our current assessment is that the Dodd-Frank Act and the implementing regulations will not have a materially greater effect on the Company than the rest of the industry, given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented, the full extent of the impact such requirements will have on our operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements or limit our growth or expansionary activities. Failure to comply with the new requirements would negatively impact our results of operations and financial condition. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to our investors.

The Company was a participant in programs established by the U.S. Treasury Department under the authority contained in the Emergency Economic Stabilization Act of 2008 (enacted on October 3, 2008) and the American Recovery and Reinvestment Act of 2009 (enacted on February 17, 2009). Among other matters, these laws:

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provide for the government to invest additional capital into banks and otherwise facilitate bank capital formation (commonly referred to as the Troubled Asset Relief Program or TARP);

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increase the limits on federal deposit insurance; and

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provide for various forms of economic stimulus, including to assist homeowners in restructuring and lowering mortgage payments on qualifying loans.

Other laws, regulations, and programs at the federal, state and even local levels are under consideration that seek to address the economic climate and/or the financial institutions industry. The effect of these initiatives cannot be predicted.

During 2008, in addition to two private offerings raising a total of approximately $80 million in capital, the Company also took advantage of TARP Capital Purchase Program or the CPP to raise $140 million of new capital and strengthen its balance sheet.

The Small Business Lending Fund, or SBLF, is a dedicated investment fund that encourages lending to small businesses by providing capital to qualified community banks, with assets of less than $10 billion. Enacted into law as part of the Small Business Jobs Act of 2010, under the SBLF, Treasury makes a capital investment into community banks the dividend payment on which is adjusted depending on the growth in the bank’s qualifying small business lending. On September 27, 2011, as part of the SBLF program, the Company sold $141 million of Non-Cumulative Perpetual Preferred Stock, Series B, to the Secretary of the Treasury, and used approximately $140.8 million of these proceeds to redeem the 140,000 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, issued in 2008 to the Treasury under the CPP, plus the accrued and unpaid dividends owed. As a result of its redemption of the CPP preferred stock, the Company is no longer subject to the limits on executive compensation and other restrictions stipulated under CPP. The Company will be subject to all terms, conditions and other requirements for participation in SBLF for as long as any SBLF Preferred Stock remains outstanding.

The Company’s Bank of Nevada subsidiary has been placed under informal supervisory oversight by banking regulators in the form of a memorandum of understanding. The oversight requires enhanced supervision by the Board of Directors of the bank, and the adoption or revision of written plans and/or policies addressing such matters as asset quality, credit underwriting and administration, the allowance for loan and lease losses, loan and investment portfolio risks, and loan concentrations. The bank is also prohibited from paying dividends or making other distributions to the Company without prior regulatory approval and is required to maintain higher levels of Tier 1 capital than otherwise would be required to be considered well-capitalized under federal capital guidelines. In addition, the bank is required to provide regulators with prior notice of certain management and director changes and, in certain cases, to obtain their non-objection before engaging in a transaction that would materially change its balance sheet composition. The Company believes Bank of Nevada is in full compliance with the requirements of the applicable memorandum of understanding.

Supervision and Regulation

The Company and its subsidiaries are extensively regulated and supervised under both Federal and State laws. A summary description of the laws and regulations which relate to the Company’s operations are discussed beginning on page 56.

Additional Available Information

The Company maintains an Internet website at http://www.westernalliancebancorp.com. The Company makes available its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and other information related to the Company free of charge, through this site as soon as reasonably practicable after it electronically files those documents with, or otherwise furnishes them to the Securities Exchange Commission (“SEC”). The SEC maintains an Internet site, http://www.sec.gov, in which all forms filed electronically may be accessed. The Company’s internet website and the information contained therein are not intended to be incorporated in this Form 10-K.

In addition, copies of the Company’s annual report will be made available, free of charge, upon written request.

ITEM IA.

RISK FACTORS

Investing in our common stock involves various risks, many which are specific to the Company. Several of these risks and uncertainties, are discussed below and elsewhere in this report. This listing should not be considered as all-inclusive. These factors represent risks and uncertainties that could have a material adverse effect on our business, results of operations and financial condition. Other risks that we do not know about now, or that we do not believe are significant, could negatively impact our business or the trading price of our securities. In addition to common business risks such as theft, loss of market share and disasters, the Company is subject to special types of risk due to the nature of its business. See additional discussions about credit, interest rate, market and litigation risks in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this report beginning on page 28 and additional information regarding legislative and regulatory risks in the “Supervision and Regulation” section beginning on page 56.

Risks Relating to Our Business

Our financial performance may be adversely affected by conditions in the financial markets and economic conditions generally

Our financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, is highly dependent upon the business environment in the markets where we operate and in the United States as a whole. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence, limitations on the availability or increases in the cost of credit and capital, increases in inflation or interest rates, natural disasters, terrorist attacks, or a combination of these or other factors.

Since mid-2007, the financial services industry and the securities markets generally have been materially and adversely affected by significant declines in the values of nearly all asset classes and by a serious lack of liquidity. The global markets have been characterized by substantially increased volatility and an overall loss of investor confidence. Market conditions have led to the failure or merger of a number of prominent financial institutions. Financial institution failures or near-failures have resulted in further losses as a consequence of defaults on securities issued by them and defaults under contracts entered into with such entities as counterparties. Furthermore, declining asset values, defaults on mortgages and consumer loans, and the lack of market and investor confidence, as well as other factors, have all combined to increase credit default swap spreads and to cause rating agencies to lower credit ratings. Despite recent stabilization in asset prices, and economic performance, and historically low Federal Reserve borrowing rates, there remains a risk of continued asset and economic deterioration, which may increase the cost and decrease the availability of liquidity. Additionally, some banks and other lenders have suffered significant losses and they have become reluctant to lend, even on a secured basis, because of capital limitations, potentially increased risks of default and the impact of declining asset values on collateral. The foregoing has significantly weakened the strength and liquidity of some financial institutions worldwide.

It is possible that the business environment in the United States will continue to deteriorate for the foreseeable future. There can be no assurance that these conditions will improve in the near term. Such conditions could adversely affect the credit quality of our loans, our results of operations and our financial condition.

The Company is highly dependent on real estate and events that negatively impact the real estate market will hurt our business and earnings

The Company is located in areas in which economic growth is largely dependent on the real estate market, and a substantial majority of our loan portfolio is secured by or otherwise dependent on real estate. Until recently, real estate values have been declining in our markets, in some cases in a material and even dramatic fashion, which affects collateral values and has resulted in increased provisions for credit losses. We expect the weakness in these portions of our loan portfolio may continue through 2013. Accordingly, it is anticipated that our nonperforming asset and charge-off levels will remain elevated.

Further, the effects of recent mortgage market challenges, combined with the decreases in residential real estate market prices and demand, could result in further price reductions in home values, adversely affecting the value of collateral securing the residential real estate and construction loans that we hold, as well as loan originations and gains on sale of real estate and construction loans. A further decline in real estate activity would likely cause a further decline in asset and deposit growth and further negatively impact our earnings and financial condition.

The Company’s high concentration of commercial real estate, construction and land development and commercial and industrial loans expose us to increased lending risks

Commercial real estate, construction and land development and commercial and industrial loans, comprised approximately 87% of our total loan portfolio as of December 31, 2012, and expose the Company to a greater risk of loss than residential real estate and consumer loans, which comprised a smaller percentage of the total loan portfolio at December 31, 2012. Commercial real estate and land development loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential loans. Consequently, an adverse development with respect to one commercial loan or one credit relationship exposes us to a significantly greater risk of loss compared to an adverse development with respect to one residential mortgage loan. In addition, these real estate construction, acquisition and development loans have certain risks that are not present in other types of loans. The primary credit risks associated with real estate construction, acquisition and development loans are underwriting, project risks and market risks. Project risks include cost overruns, borrower credit risk, project completion risk, general contractor credit risk and environmental and other hazard risks. Market risks are risks associated with the sale of the completed residential and commercial units. They include affordability risk, which means the risk that borrowers cannot obtain affordable financing, product design risk, and risks posed by competing projects. Real estate construction, acquisition and development loans also involve additional risks because funds are advanced upon the security of the project, which is of uncertain value prior to its completion, and costs may exceed realizable values in declining real estate markets.

Because of the uncertainties inherent in estimating construction costs and the realizable market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. As a result, real estate construction, acquisition and development loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property, rather than the ability of the borrower or guarantor to repay principal and interest. If our appraisal of the value of the completed project proves to be overstated or market values or rental rates decline, we may have inadequate security for the repayment of the loan upon completion of construction of the project. If we are forced to foreclose on a project prior to or at completion due to a default, there can be no assurance that we will be able to recover all of the unpaid balance and accrued interest on the loan as well as related foreclosure and holding costs. In addition, we may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time while we attempt to dispose of it. The adverse effects of the foregoing matters upon our real estate construction, acquisition and development portfolio could lead to a further increase in non-performing loans related to this portfolio and these non-performing loans may result in a material level of charge-offs, which may have a material adverse effect on our financial condition and results of operations.

Actual credit losses may exceed the losses that we expect in our loan portfolio, which could require us to raise additional capital. If we are not able to raise additional capital, our financial condition, results of operations and capital would be materially and adversely affected

Credit losses are inherent in the business of making loans. We make various assumptions and judgments about the collectability of our consolidated loan portfolio and maintain an allowance for estimated credit losses based on a number of factors, including the size of the portfolio, asset classifications, economic trends, industry experience and trends, industry and geographic concentrations, estimated collateral values, management’s assessment of the credit risk inherent in the portfolio, historical loan loss experience and loan underwriting policies. In addition, the Company evaluates all loans identified as problem loans and augments the allowance based upon our estimation of the potential loss associated with those problem loans. Additions to the allowance for credit losses recorded through our provision for credit losses decrease net income. If such assumptions and judgments are incorrect, our actual credit losses may exceed our allowance for credit losses.

At December 31, 2012, our allowance for credit losses was $95.4 million. Deterioration in the real estate market and/or general economic conditions could affect the ability of our loan customers to service their debt, which could result in additional loan provisions and subsequent increases in our allowance for credit losses in the future. Any increases in the provision or allowance for credit losses will result in a decrease in our net income and, potentially, capital, and may have a material adverse effect on our financial condition and results of operations. Moreover, because future events are uncertain and because we may not successfully identify all deteriorating loans in a timely manner, there may be loans that deteriorate in an accelerated time frame. If actual credit losses materially exceed our allowance for credit losses, we may be required to raise additional capital, which may not be available to us on acceptable terms or at all. Our inability to raise additional capital on acceptable terms when needed could materially and adversely affect our financial condition, results of operations and capital.

In addition, we may be required to increase our allowance for credit losses based on changes in economic and real estate market conditions, new information regarding existing loans, input from regulators in connection with their review of our allowance, as a result of changes in regulatory guidance regulations or accounting standards, identification of additional problem loans and other factors, both within and outside of our management’s control. Increases to our allowance for credit losses would negatively affect our financial condition and earnings.

Because of the geographic concentration of our assets, our business is highly susceptible to local economic conditions

Our business is primarily concentrated in selected markets in Arizona, California and Nevada. As a result of this geographic concentration, our financial condition and results of operations depend largely upon economic conditions in these market areas. Deterioration in economic conditions in the markets we serve could result in one or more of the following: an increase in loan delinquencies; an increase in problem assets and foreclosures; a decrease in the demand for our products and services; and a decrease in the value of collateral for loans, especially real estate, in turn reducing customers’ borrowing power, the value of assets associated with problem loans and collateral coverage.

We could be required to revalue our deferred tax assets if stock transactions result in limitations on the deductibility of our net operating losses or loan losses

Our deferred tax assets consist largely of net operating losses carryovers, loan loss allowances, and capital loss carryovers. The availability of net operating loss carryovers, and loan losses and capital loss carryovers to offset future taxable income would be limited if we were to undergo an “ownership change” as described in Section 382 of the Internal Revenue Code. Our Amended and Restated By-laws, as amended and our Second Amended and Restated Articles of Incorporation, as amended to prohibit certain acquisitions of the Company’s common stock which are intended to protect the Company’s ability to use certain tax assets, such as net operating loss carryovers, capital loss carryovers and certain built-in losses, by preventing stock transactions that would result in an “ownership change” (any such restrictions would most likely affect 5% stockholders or those persons who would seek to acquire 5% of our stock).

Notwithstanding such restrictions there can be no assurance that such restrictions will prevent all acquisitions that could result in an “ownership change” or will be upheld if challenged, or that the restrictions and any remedies or cures for violations would be respected by taxing or other authorities. Further, because such restrictions restrict a stockholder’s ability to acquire, directly or indirectly, additional shares of common stock in excess of the specified limitations, and may limit a stockholder’s ability to dispose of common stock by reducing the universe of potential acquirers for such common stock, and because a stockholder’s ownership of common stock may become subject to such restrictions upon actions taken by persons related to, or affiliated with, such stockholder, the restrictions could adversely affect the marketability and market price for our stock.

The recent downgrade of the U.S. government’s sovereign credit rating, any similar rating agency action in the future, the ongoing debt crisis in Europe and the downgrade of the sovereign credit ratings of several European nations could negatively impact our business, financial condition and results of operations

Standard & Poor’s Rating Services downgraded the U.S. government’s AAA sovereign credit rating to AA+ with a negative outlook in August 2011 and affirmed its AA+ rating following the announcement of a Congressional Committee on November 23, 2011 that it had failed to achieve its stated purpose of $1.2 trillion in deficit reduction. Moody’s Investors Services likewise changed its U.S. government rating outlook to negative on August 2, 2011, also reaffirmed its rating following the Congressional committee’s announcement. On November 22, 2011, Fitch Ratings stated that the failure of the committee to reach an agreement would likely cause it to change its outlook on U.S. government debt to negative. Further, on November 28, 2011, Fitch stated that a downgrade of the U.S. sovereign credit rating would occur without a credible plan in place by 2013 to reduce the U.S. government deficit. Since then, no such plan has been agreed to. The impact of any additional downgrades to the U.S. government’s sovereign credit rating by any of these rating agencies, as well as the perceived creditworthiness of U.S. government-related obligations, is inherently unpredictable and could adversely affect the U.S. and global financial markets and economic conditions and have a material adverse effect on our business, financial condition and results of operation.

In addition, while we don’t have direct exposure certain European nations continue to experience varying degrees of financial stress. Despite various assistance packages, worries about European financial institutions and sovereign finances persist. On January 13, 2012, Standard & Poor’s downgraded the credit ratings of France, Italy and seven other European nations in part as a result of the failure of leaders to address systemic stresses in the Eurozone. Market concerns over the direct and indirect exposure of European banks and insurers to these European Union nations and each other have resulted in a widening of credit spreads and increased costs of funding for some European financial institutions. Risks related to the European economic crisis have had, and are likely to continue to have, a negative impact on global economic activity and the financial markets. As these conditions persist, our financial condition and results of operations could be materially adversely affected.

The Company’s financial instruments expose it to certain market risks and may increase the volatility of reported earnings

The Company holds certain financial instruments measured at fair value. For those financial instruments measured at fair value, the Company is required to recognize the changes in the fair value of such instruments in earnings. Therefore, any increases or decreases in the fair value of these financial instruments have a corresponding impact on reported earnings. Fair value can be affected by a variety of factors, many of which are beyond our control, including our credit position, interest rate volatility, volatility in capital markets and other economic factors. Accordingly, our earnings are subject to mark-to-market risk and the application of fair value accounting may cause our earnings to be more volatile than would be suggested by our underlying performance.

If the Company lost a significant portion of its low-cost deposits, it could negatively impact our liquidity and profitability

The Company’s profitability depends in part on successfully attracting and retaining a stable base of low-cost deposits. While we generally do not believe these core deposits are sensitive to interest rate fluctuations, the competition for these deposits in our markets is strong and customers are increasingly seeking investments that are safe, including the purchase of U.S. Treasury securities and other government-guaranteed obligations, as well as the establishment of accounts at the largest, most-well capitalized banks. If the Company were to lose a significant portion of its low-cost deposits, it would negatively impact its liquidity and profitability.

From time to time, the Company has been dependent on borrowings from the FHLB and the FRB, and there can be no assurance these programs will be available as needed

As of December 31, 2012, the Company has borrowings from the FHLB of San Francisco of $120.0 million and no borrowings from the FRB. The Company in the recent past has been reliant on such borrowings to satisfy its liquidity needs. The Company’s borrowing capacity is generally dependent on the value of the Company’s collateral pledged to these entities. These lenders could reduce the borrowing capacity of the Company or eliminate certain types of collateral and could otherwise modify or even terminate its loan programs. Any change or termination would have an adverse affect on the Company’s liquidity and profitability.

A decline in the Company’s stock price or expected future cash flows, or a material adverse change in our results of operations or prospects, could result in further impairment of our goodwill

Since January 1, 2008, we have written off $191.2 million in goodwill. A further significant and sustained decline in our stock price and market capitalization, a significant decline in our expected future cash flows, a significant adverse change in the business climate or slower growth rates could result in additional impairment of our goodwill. If we were to conclude that a future write-down of our goodwill is necessary, then we would record the appropriate charge, which could be materially adverse to our operating results and financial position. For further discussion, see Note 7, “Goodwill and Other Intangible Assets” in the notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K.

A reduction in the Company’s credit rating could increase the cost of funding from the capital markets

Market participant’s regularly evaluate the credit ratings of the Company and it’s long-term debt based on a number of factors, including our financial strength as well as factors not entirely within our control, including conditions affecting the financial services industry generally. In light of the difficulties in the financial services industry and the real estate and financial markets, there can be no assurance that we will not be subject to credit downgrades. Credit ratings measure a company’s ability to repay its obligations and directly affect the cost and availability to that company of unsecured financing. Downgrades could adversely affect the cost and other terms upon which we are able to obtain funding and increase our cost of capital.

The Company’s expansion strategy may not prove to be successful and our market value and profitability may suffer

The Company continually evaluates expansion through acquisitions of banks, the organization of new banks and the expansion of our existing banks through establishment of new branches. Any future acquisitions will be accompanied by the risks commonly encountered in acquisitions. These risks include, among other things: 1) difficulty of integrating the operations and personnel; 2) potential disruption of our ongoing business; and 3) inability of our management to maximize our financial and strategic position by the successful implementation of uniform product offerings and the incorporation of uniform technology into our product offerings and control systems.

The recent crisis also revealed and caused risks that are unique to acquisitions of financial institutions and banks, and that are difficult to assess, including the risk that the acquired institution has troubled, illiquid, or bad assets or an unstable base of deposits or assets under management. The Company expects that competition for suitable acquisition candidates may be significant. We may compete with other banks or financial service companies with similar acquisition strategies, many of which are larger and have greater financial and other resources. The Company cannot assure you that we will be able to successfully identify and acquire suitable acquisition targets on acceptable terms and conditions.

In addition to the acquisition of existing financial institutions, the Company may consider the organization of new banks in new market areas. We do not have any current plans to organize a new bank. Any acquisition or organization of a new bank carries with it numerous risks, including the following:

•

the inability to obtain all the regulatory approvals;

•

significant costs and anticipated operating losses during the application and organizational phases, and the first years of operation of the new bank;

•

the inability to secure the services of qualified senior management;

•

the local market may not accept the services of a new bank owned and managed by a bank holding company headquartered outside of the market area of the new bank;

•

the inability to obtain attractive locations within a new market at a reasonable cost and

•

the additional strain on management resources and internal systems and controls.

The Company cannot provide any assurance that it will be successful in overcoming these risks or any other problems encountered in connection with acquisitions and the organization of new banks. Further, the Bank of Nevada is currently subject to a memorandum of understanding, which, among other things, imposes requirements that could limit the Bank’s ability to grow its business. See “Legal Proceedings.” Regulatory enforcement actions, like a memorandum of understanding, also may adversely affect our ability to engage in certain expansionary activities. The Company’s inability to provide resources necessary for its subsidiary banks to meet the requirements of any regulatory action or otherwise to overcome these risks could have an adverse effect on the achievement of our business strategy and maintenance of our market value.

The Company may not be able to keep pace with its growth by improving its controls and processes, or its reporting systems and procedures, which could cause it to experience compliance and operational problems or incur additional expenditures beyond current projections, any one of which could adversely affect our financial results

The Company’s future success will depend on the ability of officers and other key employees to continue to implement and improve operational, credit, financial, management and other internal risk controls and processes, and improve reporting systems and procedures, while at the same time maintaining and growing existing businesses and client relationships. We may not successfully implement such improvements in an efficient or timely manner and may discover deficiencies in existing systems and controls, which grow our existing businesses and client relationships and could require us to incur additional expenditures to expand our administrative and operational infrastructure. If we are unable to improve our controls and processes, or our reporting systems and procedures, we may experience compliance and operational problems or incur additional expenditures beyond current projections, any one of which could adversely affect our financial results.

The Company’s future success will depend on our ability to compete effectively in a highly competitive market

The Company faces substantial competition in all phases of our operations from a variety of different competitors. Our competitors, including large commercial banks, community banks, thrift institutions, mutual savings banks, credit unions, consumer finance companies, insurance companies, securities dealers, brokers, mortgage bankers, investment advisors, money market mutual funds and other financial institutions, compete with lending and deposit-gathering services offered by us. Increased competition in our markets may result in reduced loans and deposits.

There is very strong competition for financial services in the market areas in which we conduct our businesses from many local commercial banks as well as numerous national and commercial banks and regionally based commercial banks. Many of these competing institutions have much greater financial and marketing resources than we have. Due to their size, many competitors can achieve larger economies of scale and may offer a broader range of products and services than us. If we are unable to offer competitive products and services, our business may be negatively affected.

Some of the financial services organizations with which we compete are not subject to the same degree of regulation as is imposed on bank holding companies and federally insured depository institutions. As a result, these non-bank competitors have certain advantages over us in accessing funding and in providing various services. The banking business in our primary market areas is very competitive, and the level of competition facing us may increase further, which may limit our asset growth and financial results.

The success of the Company is dependent upon its ability to recruit and retain qualified employees especially seasoned relationship bankers

The Company’s business plan includes and is dependent upon hiring and retaining highly qualified and motivated executives and employees at every level. In particular, our relative success to date has been partly the result of our management’s ability to identify and retain highly qualified relationship bankers that have long-standing relationships in their communities. These professionals bring with them valuable customer relationships and have been an integral part of our ability to attract deposits and to expand our marketshare. From time to time, the Company recruits or utilizes the services of employees who are subject to limitations on their ability to use confidential information of a prior employer, to freely compete with that employer, or to solicit customers of that employer. If the Company is unable to hire or retain qualified employees it may not be able to successfully execute its business strategy. If the Company or its employee is found to have violated any nonsolicitation or other restrictions applicable to it or its employees, the Company or its employee could become subject to litigation or other proceedings.

The Company would be harmed if it lost the services of any of its senior management team or senior relationship bankers

We believe that our success to date has been substantially dependent on our senior management team, which includes Robert Sarver, Chairman and Chief Executive Officer, Kenneth Vecchione, President and Chief Operating Officer, Dale Gibbons, Chief Financial Officer, Robert R. McAuslan, Chief Credit Officer, Bruce Hendricks, Chief Executive Officer of Bank of Nevada, James Lundy, Chief Executive Officer of Western Alliance Bank, Gerald Cady, Chief Executive Officer of Torrey Pines Bank, and certain of our senior relationship bankers. We also believe that our prospects for success in the future are dependent on retaining our senior management team and senior relationship bankers. In addition to their skills and experience as bankers, these persons provide us with extensive community ties upon which our competitive strategy is based. Our ability to retain these persons may be hindered by the fact that we have not entered into employment agreements with any of them. The loss of the services of any of these persons, particularly Mr. Sarver, could have an adverse effect on our business if we cannot replace them with equally qualified persons who are also familiar with our market areas.

Mr. Sarver’s involvement in outside business interests requires substantial time and attention and may adversely affect the Company’s ability to achieve its strategic plan

Mr. Sarver joined the Company in December 2002 and is an integral part of our business. He has substantial business interests that are unrelated to us, including his position as managing partner of the Phoenix Suns National Basketball Association franchise. Mr. Sarver’s other business interests demand significant time commitments, the intensity of which may vary throughout the year. Mr. Sarver’s other commitments may reduce the amount of time he has available to devote to our business. We believe that Mr. Sarver spends the substantial majority of his business time on matters related to our company. However, a significant reduction in the amount of time Mr. Sarver devotes to our business may adversely affect our ability to achieve our strategic plan.

Terrorist attacks and threats of war or actual war may impact all aspects of our operations, revenues, costs and stock price in unpredictable ways

Terrorist attacks in the United States, as well as future events occurring in response or in connection to them including, without limitation, future terrorist attacks against United States targets, rumors or threats of war, actual conflicts involving the United States or its allies or military or trade disruptions, may impact our operations. Any of these events could cause consumer confidence and savings to decrease or result in increased volatility in the United States and worldwide financial markets and economy. Any of these occurrences could have an adverse impact on the Company’s operating results, revenues and costs and may result in the volatility of the market price for our securities, including our common stock, and impair their future price.

The business may be adversely affected by internet fraud

The Company is inherently exposed to many types of operational risk, including those caused by the use of computer, internet and telecommunications systems. These risks may manifest themselves in the form of fraud by employees, by customers, other outside entities targeting us and/or our customers that use our internet banking, electronic banking or some other form of our telecommunications systems. Although we devote substantial resources to maintaining secure systems and to preventing such incidents, given the growing use of electronic, internet-based, and networked systems to conduct business directly or indirectly with our clients, certain fraud losses may not be avoidable regardless of the preventative and detection systems in place.

We may experience interruptions or breaches in our information system security

We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of these information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or security breaches of these information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

A failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors and other service providers, including as a result of cyber attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses

As a financial institution, we are susceptible to fraudulent activity that may be committed against us or our clients, which may result in financial losses to us or our clients, privacy breaches against our clients, or damage to our reputation. Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, and other dishonest acts. In recent periods, there has been a rise in electronic fraudulent activity within the financial services industry, especially in the commercial banking sector, due to cyber criminals targeting commercial bank accounts. Consistent with industry trends, we have also experienced an increase in attempted electronic fraudulent activity in recent periods.

In addition, our operations rely on the secure processing, storage and transmission of confidential and other information on our computer systems and networks. Although we take numerous protective measures to maintain the confidentiality, integrity and availability of our and our clients’ information across all geographic and product lines, and endeavor to modify these protective measures as circumstances warrant, the nature of the threats continues to evolve. As a result, our computer systems, software and networks and those of our customers may be vulnerable to unauthorized access, loss or destruction of data (including confidential client information), account takeovers, unavailability of service, computer viruses or other malicious code, cyber attacks and other events that could have an adverse security impact and result in significant losses by us and/or our customers. Despite the defensive measures we take to manage our internal technological and operational infrastructure, these threats may originate externally from third parties, such as foreign governments, organized crime and other hackers, and outsource or infrastructure-support providers and application developers, or the threats may originate from within our organization. Given the increasingly high volume of our transactions, certain errors may be repeated or compounded before they can be discovered and rectified.

We also face the risk of operational disruption, failure, termination or capacity constraints of any of the third parties that facilitate our business activities, including exchanges, clearing agents, clearing houses or other financial intermediaries. Such parties could also be the source of an attack on, or breach of, our operational systems, data or infrastructure. In addition, we may be at risk of an operational failure with respect to our clients’ systems. Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, the outsourcing of some of our business operations, and the continued uncertain global economic environment. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.

We maintain an insurance policy which we believe provides reasonable coverage at a manageable expense for an institution of our size and scope with similar technological systems. However, we cannot assure that this policy will afford coverage for all possible losses or would be sufficient to cover all financial losses, damages, penalties, including lost revenues, should we experience any one or more of our or a third party’s systems failing or experiencing attack.

Risks Related to the Banking Industry

We operate in a highly regulated environment and the laws and regulations that govern our operations, corporate governance, executive compensation and accounting principles, or changes in them, or our failure to comply with them, may adversely affect us

The Company is subject to extensive regulation, supervision, and legislation that governs almost all aspects of our operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Supervision and Regulation” included in this Annual Report on Form 10-K. Intended to protect customers, depositors and the FDIC’s Deposit Insurance Fund or DIF, these laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on the business activities in which we can engage, limit the dividends or distributions that our banking subsidiaries can pay to the company or the company can pay to its shareholders, restrict the ability of affiliates to guarantee the company’s debt, impose certain specific accounting requirements on us that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than generally accepted accounting principles, among other things. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose significant additional compliance costs. Further, an alleged failure by us to comply with these laws and regulations, even if we acted in good faith or the alleged failure reflects a difference in interpretation, could subject the Company to additional restrictions on its business activities (including mergers, acquisitions and new branches), fines and other penalties, any of which could adversely affect our results of operations, capital base and the price of our securities.

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, into law. The Dodd-Frank Act has had, and will continue to have, a broad impact on the financial services industry, including significant regulatory and compliance changes. Several of the requirements called for in the Dodd-Frank Act are in the process of being implemented by regulations issued by the SEC and Federal banking agencies, such as the FDIC and Federal Reserve, and the precise date on which compliance with various provisions will be required is not known. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on our operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. In particular, the potential impact of the Dodd-Frank Act on our operations and activities, both currently and prospectively, may include, among others:

•

a reduction in our ability to generate or originate revenue-producing assets as a result of compliance with heightened capital standards;

•

an increased cost of operations due to greater regulatory oversight, supervision and examination of banks and bank holding companies, and higher deposit insurance premiums;

•

the limitation on our ability to raise qualifying regulatory capital through the use of trust preferred securities as these securities may no longer be included in Tier 1 capital going forward; and

•

the limitations on our ability to offer certain consumer products and services due to anticipated stricter consumer protection laws and regulations.

Examples of these provisions include, but are not limited to:

•

Creation of the Financial Stability Oversight Council that may recommend to the Federal Reserve increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity;

•

Application of the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies, such as the Company;

•

Changes to the assessment base used by the FDIC to assess insurance premiums from insured depository institutions and increases to the minimum reserve ratio for the DIF, from 1.15% to not less than 1.35%, with provisions to require institutions with total consolidated assets of $10 billion or more to bear a greater portion of the costs associated with increasing the DIF’s reserve ratio;

•

Repeal of the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts;

•

Establishment of the Bureau of Consumer Financial Protection with broad authority to implement new consumer protection regulations and, for bank holding companies with $10 billion or more in assets, to examine and enforce compliance with federal consumer laws;

•

Implementation of risk retention rules for loans (excluding qualified residential mortgages) that are sold by a bank; and

•

Amendment of the Electronic Fund Transfer Act to, among other things, give the Federal Reserve the authority to issue rules have limiting debit-card interchange fees.

In addition, under section 343 of the Dodd-Frank Act, deposits held in noninterest-bearing transaction accounts at our bank subsidiaries were fully insured by the FDIC regardless of the balance in the account through December 31, 2012. This unlimited coverage was available to all depositors and was separate from, and in addition to, the insurance coverage provided for a depositor’s other accounts held at our banks. However, the scheduled expiration of this unlimited deposit insurance occurred on January 1, 2013 which may result in a loss of deposits at our banks and could have an adverse effect on our business and financial condition.

Further, we may be required to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements under the Dodd-Frank Act as we continue to grow and approach $10 billion in total assets, which could include limiting our growth or expansion activities. Failure to comply with the new requirements may negatively impact our results of operations and financial condition. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to our investors.

State and federal banking agencies periodically conduct examinations of our business, including for compliance with laws and regulations, and our failure to comply with any supervisory actions to which we are or become subject as a result of such examinations may adversely affect us

State and federal banking agencies periodically conduct examinations of our business, including for compliance with laws and regulations. If, as a result of an examination, the FDIC or Federal Reserve were to determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of the banks’ operations had become unsatisfactory, or that any of the banks or their management was in violation of any law or regulation, the FDIC or Federal Reserve may take a number of different remedial or enforcement actions it deems appropriate to remedy such a deficiency. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in the bank’s capital, to restrict the bank’s growth, to assess civil monetary penalties against the bank’s officers or directors, to remove officers and directors and, if the FDIC concludes that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate the bank’s deposit insurance. Under Nevada, Arizona and California law, the respective state banking supervisory authority has many of the same enforcement powers with respect to its state-chartered banks.

Bank of Nevada has been placed under informal supervisory oversight by banking regulators in the form of a memorandum of understanding. The oversight requires enhanced supervision by the Board of Directors of the bank, and the adoption or revision of written plans and/or policies addressing such matters as asset quality, credit underwriting and administration, the allowance for loan and lease losses, loan and investment portfolio risks, and loan concentrations. The bank is also prohibited from paying dividends or making other distributions to the Company without prior regulatory approval and is required to maintain higher levels of Tier 1 capital than otherwise would be required to be considered well-capitalized under federal capital guidelines. In addition, the Bank of Nevada is required to provide regulators with prior notice of certain management and director changes and, in certain cases, to obtain their non-objection before engaging in a transaction that would materially change its balance sheet composition.

If we were unable to comply with regulatory directives in the future, or if we were unable to comply with the terms of any future supervisory requirements to which we may become subject, then we could become subject to additional supervisory actions and orders, including cease and desist orders, prompt corrective action and/or other regulatory enforcement actions. If our regulators were to take such additional supervisory actions, then we could, among other things, become subject to greater restrictions on our ability to develop any new business, as well as restrictions on our existing business, and we could be required to raise additional capital, dispose of certain assets and liabilities within a prescribed period of time, or both. Failure to implement the measures in the time frames provided, or at all, could result in additional orders or penalties from federal and state regulators, which could result in one or more of the remedial actions described above. In the event that one or more of our banks was ultimately unable to comply with the terms of a regulatory enforcement action, such a bank could ultimately fail and be placed into receivership by the chartering agency. Under applicable federal law and FDIC regulations, the failure of one of the subsidiary banks could impose liability for any loss to the FDIC or the DIF on the remaining subsidiary banks, further straining the financial resources available to the surviving charters. The terms of any such supervisory action and the consequences associated with any failure to comply therewith could have a material negative effect on our business, operating flexibility and financial condition.

Changes in interest rates and increased rate competition could adversely affect our profitability, business and prospects

Most of the Company’s assets and liabilities are monetary in nature, which subjects us to significant risks from changes in interest rates and can impact our net income and the valuation of our assets and liabilities. Increases or decreases in prevailing interest rates could have an adverse effect on our business, asset quality and prospects. The Company’s operating income and net income depend to a great extent on our net interest margin. Net interest margin is the difference between the interest yields we receive on loans, securities and other earning assets and the interest rates we pay on interest bearing deposits, borrowings and other liabilities. These rates are highly sensitive to many factors beyond our control, including competition, general economic conditions and monetary and fiscal policies of various governmental and regulatory authorities, including the Federal Reserve. If the rate of interest we pay on our interest bearing deposits, borrowings and other liabilities increases more than the rate of interest we receive on loans, securities and other earning assets increases, our net interest income, and therefore our earnings, would be adversely affected. The Company’s earnings also could be adversely affected if the rates on our loans and other investments fall more quickly than those on our deposits and other liabilities. We have recently experienced increased competition for loans on the basis of interest rates.

In addition, loan volumes are affected by market interest rates on loans. Rising interest rates generally are associated with a lower volume of loan originations while lower interest rates are usually associated with higher loan originations. Conversely, in rising interest rate environments, loan repayment rates will decline and in falling interest rate environments, loan repayment rates will increase. The Company cannot guarantee that it will be able to minimize interest rate risk. In addition, an increase in the general level of interest rates may adversely affect the ability of certain borrowers to pay the interest on and principal of their obligations.

Interest rates also affect how much money the Company can lend. When interest rates rise, the cost of borrowing increases. Accordingly, changes in market interest rates could materially and adversely affect our net interest spread, asset quality, loan origination volume, business, financial condition, results of operations and cash flows.

The Company is exposed to risk of environmental liabilities with respect to properties to which we obtain title

Approximately 65% of the Company’s loan portfolio at December 31, 2012 was secured by real estate. In the course of our business, the Company may foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These costs and claims could adversely affect our business and prospects.

Risks Related to our Common Stock

The price of our common stock may fluctuate significantly, and this may make it difficult for you to resell shares of common stock owned by you at times or at prices you find attractive

The price of our common stock on New York Stock Exchange constantly changes. We expect that the market price of our common stock will continue to fluctuate and there can be no assurances about the market prices for our common stock.

Our stock price may fluctuate as a result of a variety of factors, many of which are beyond our control. These factors include:

•

sales of our equity securities;

•

our financial condition, performance, creditworthiness and prospects;

•

quarterly variations in our operating results or the quality of our assets;

•

operating results that vary from the expectations of management, securities analysts and investors;

•

changes in expectations as to our future financial performance;

•

announcements of strategic developments, acquisitions and other material events by us or our competitors;

•

the operating and securities price performance of other companies that investors believe are comparable to us;

•

the credit, mortgage and housing markets, the markets for securities relating to mortgages or housing, and developments with respect to financial institutions generally;

•

changes in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, stock, commodity or real estate valuations or volatility and other geopolitical, regulatory or judicial events; and

•

our past and future dividend practice.

There may be future sales or other dilution of our equity, which may adversely affect the market price of our common stock

We are not restricted from issuing additional common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. The issuance of any additional shares of common stock or preferred stock or securities convertible into, exchangeable for or that represent the right to receive common stock or the exercise of such securities could be substantially dilutive to shareholders of our common stock. Holders of our shares of common stock have no preemptive rights that entitle holders to purchase their pro rata share of any offering of shares of any class or series. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing the market price of our common stock and diluting their stock holdings in us.

Offerings of debt, which would be senior to our common stock upon liquidation, and/or preferred equity securities which may be senior to our common stock for purposes of dividend distributions or upon liquidation, may adversely affect the market price of our common stock

We may from time to time issue debt securities, borrow money through other means, or issue preferred stock. On August 25, 2010, the Company completed a public offering of $75 million in principal Senior Notes due in 2015. In 2011, we issued preferred stock to the federal government under the SBLF program, and from time to time we have borrowed money from the Federal Reserve, the FHLB, other financial institutions and other lenders. All of these securities or borrowings have priority over the common stock on a liquidation, which could affect the market price of our stock. The SBLF preferred stock also may restrict our ability to pay dividends on our common stock under certain circumstances.

Our Board of Directors is authorized to issue one or more classes or series of preferred stock from time to time without any action on the part of the stockholders. Our Board of Directors also has the power, without stockholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights, and preferences over our common stock with respect to dividends or upon our dissolution, winding-up and liquidation and other terms. If we issue preferred stock in the future that has a preference over our common stock with respect to the payment of dividends or upon our liquidation, dissolution, or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of holders of our common stock or the market price of our common stock could be adversely affected.

Anti-takeover provisions could negatively impact our stockholders

Provisions of Nevada law and provisions of our amended and restated articles of incorporation and amended and restated by-laws could make it more difficult for a third party to acquire control of us or have the effect of discouraging a third party from attempting to acquire control of us. Additionally, our amended and restated articles of incorporation authorize our Board of Directors to issue additional series of preferred stock and such preferred stock could be issued as a defensive measure in response to a takeover proposal. These provisions could make it more difficult for a third party to acquire us even if an acquisition might be in the best interest of our stockholders.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None

ITEM 2.

PROPERTIES

At December 31, 2012, the Company and Western Alliance Bank are headquartered at One E. Washington Street in Phoenix, Arizona. In addition, the Company occupies a leased 7,000 square foot service center in San Diego, California and owns a 36,000 square foot operations facility in Las Vegas, Nevada. The Company also has 6 executive and administrative facilities, 3 of which are owned, located in Las Vegas, Nevada, San Diego, California, Oakland, California, Phoenix, Arizona, Wilmington, Delaware and Reno, Nevada.

At December 31, 2012, the Company operated 40 domestic branch locations, of which 18 are owned and 22 are on leased premises. See Item 1 “Business” for location cities on page 3. For information regarding rental payments, see Note 5, “Premises and Equipment” of the Consolidated Financial Statements.

The Company continually evaluates the suitability and adequacy of its offices. Management believes that the existing facilities are adequate for present and anticipated future use.

ITEM 3.

LEGAL PROCEEDINGS

There are no material pending legal proceedings to which the Company is a party or to which any of our properties are subject. There are no material proceedings known to us to be contemplated by any governmental authority. See “Supervision and Regulation” for additional information. From time to time, we are involved in a variety of litigation matters in the ordinary course of our business and anticipate that we will become involved in new litigation matters in the future.

As previously disclosed, one of the Company’s banking subsidiaries, Bank of Nevada, continues to operate under informal supervisory oversight by banking regulators in the form of a memorandum of understanding. The memorandum requires enhanced management of such matters as asset quality, credit administration, repossessed property, and information technology. The bank is prohibited from paying dividends or making other distributions to the Company without prior regulatory approval and is required to maintain higher levels of Tier 1 capital than otherwise would be required to be considered well-capitalized under federal capital guidelines. In addition, the bank is required to obtain prior regulatory approval of certain severance and similar payments to institution affiliated parties, and to provide regulators with prior notice of certain management and director changes. The Company believes Bank of Nevada is in full compliance with the requirements of the memorandum of understanding.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The Company’s common stock began trading on the New York Stock Exchange under the symbol “WAL” on June 30, 2005. The Company has filed, without qualifications, its 2012 Domestic Company section 303A CEO certification regarding its compliance with the NYSE’s corporate governance listing standards. The following table presents the high and low sales prices of the Company’s common stock for each quarterly period for the last two years as reported by The NASDAQ Global Select Market:


	2012 Quarters								2011 Quarters
	Fourth		Third		Second		First		Fourth		Third		Second		First
Range of stock prices:
High	$	10.99	$	10.43	$	9.40	$	9.20	$	6.87	$	7.60	$	8.33	$	8.45
Low		9.28		8.82		8.00		6.32		4.99		4.44		6.47		6.77

Holders

At December 31, 2012, there were approximately 1,164 stockholders of record. This number excludes an estimate for the number of stockholders whose shares are held in the name of brokerage firms or other financial institutions. The Company is not provided the exact number of or identities of these stockholders. There are no other classes of common equity outstanding.

Dividends

Western Alliance Bancorporation (“Western Alliance”) is a legal entity separate and distinct from the banks and our other non-bank subsidiaries. As a holding company with limited significant assets other than the capital stock of our subsidiaries, Western Alliance’s ability to pay dividends depends primarily upon the receipt of dividends or other capital distributions from our subsidiaries. Our subsidiaries’ ability to pay dividends to Western Alliance is subject to, among other things, their individual earnings, financial condition and need for funds, as well as federal and state governmental policies and regulations applicable to Western Alliance and each of those subsidiaries, which limit the amount that may be paid as dividends without prior approval. See the additional discussion in the “Supervision and Regulation” section of this report for information regarding restrictions on the ability to pay cash dividends. Our Bank of Nevada subsidiary is also presently subject to a Memorandum of Understanding that requires prior regulatory approval of any dividend paid to Western Alliance Bancorporation. In addition, the terms and conditions of other securities we issue may restrict our ability to pay dividends to holders of our common stock. For example if any required payments on outstanding trust preferred securities or our SBLF preferred stock are not made, Western Alliance would be prohibited from paying cash dividends on our common stock. Western Alliance has never paid a cash dividend on its common stock and does not anticipate paying any cash dividends in the foreseeable future.

Sale of Unregistered Securities

None

Share Repurchases

There were no shares repurchased during 2012 or 2011.

Performance Graph

The following graph summarizes a five year comparison of the cumulative total returns for the Company’s common stock, the Standard & Poor’s 500 stock index and the KBW Regional Banking Index, each of which assumes an initial value of $100.00 on December 31, 2007 and reinvestment of dividends.

LOGO

The information under the caption “Equity Compensation Plans” in our definitive proxy statement to be filed with the SEC is incorporated by reference into this Item 5.

ITEM 6.

SELECTED FINANCIAL DATA

The following selected financial data have been derived from the Company’s consolidated financial condition and results of operations, as of and for the years ended December 31, 2012, 2011, 2010, 2009 and 2008, and should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this report:


	Year Ended December 31,
	2012			2011			2010			2009			2008
	(in thousands, except per share data)
Results of Operations:
Interest income	$	318,295		$	296,591		$	281,813		$	276,023		$	295,591
Interest expense		28,032			38,923			49,260			73,734			100,683

Net interest income		290,263			257,668			232,553			202,289			194,908
Provision for credit losses		46,844			46,188			93,211			149,099			68,189

Net interest income after provision for credit losses		243,419			211,480			139,342			53,190			126,719
Non-interest income		44,726			34,457			46,836			4,435			(117,258	)
Non-interest expense		188,860			195,598			196,758			242,977			288,967

Income (loss) from continuing operations before taxes		99,285			50,339			(10,580	)		(185,352	)		(279,506	)
Income tax provision (benefit)		23,961			16,849			(6,410	)		(38,453	)		(49,496	)

Income (loss) from continuing operations		75,324			33,490			(4,170	)		(146,899	)		(230,010	)
Loss from discontinued operations, net of tax benefit		(2,490	)		(1,996	)		(3,025	)		(4,507	)		(6,450	)

Net income (loss)	$	72,834		$	31,494		$	(7,195	)	$	(151,406	)	$	(236,460	)


	Year Ended December 31,
	2012			2011			2010			2009			2008
	(in thousands, except per share data)
Per Share Data:
Income (loss) per share—basic	$	0.84		$	0.19		$	(0.23	)	$	(2.74	)	$	(7.27	)
Income (loss) per share—diluted	$	0.83		$	0.19		$	(0.23	)	$	(2.74	)	$	(7.27	)
Income (loss) per share from continuing operations—basic	$	0.87		$	0.21		$	(0.19	)	$	(2.66	)	$	(7.08	)
Income (loss) per share from continuing operations—diluted	$	0.86		$	0.21		$	(0.19	)	$	(2.66	)	$	(7.08	)
Book value per common share	$	7.15		$	6.02		$	5.77		$	6.18		$	9.59
Shares outstanding at period end		86,465			82,362			81,669			72,504			38,601
Weighted average shares outstanding—basic		82,285			80,909			75,083			58,836			32,652
Weighted average shares outstanding—diluted		82,912			81,183			75,083			58,836			32,652
Selected Balance Sheet Data:
Cash and cash equivalents	$	204,625		$	154,995		$	216,746		$	396,830		$	139,954
Investments and other	$	1,236,648		$	1,490,501		$	1,273,098		$	864,779		$	565,377
Gross loans, including net deferred loan fees	$	5,709,318		$	4,780,069		$	4,240,542		$	4,079,638		$	4,095,711
Allowance for loan losses	$	95,427		$	99,170		$	110,699		$	108,623		$	74,827
Assets	$	7,622,637		$	6,844,541		$	6,193,883		$	5,753,279		$	5,242,761
Deposits	$	6,455,177		$	5,658,512		$	5,338,441		$	4,722,102		$	3,652,266
Other borrowings	$	193,717		$	353,321		$	75,000		$	—		$	—
Junior subordinated and subordinated debt	$	36,218		$	36,985		$	43,034		$	102,438		$	103,038
Stockholders’ equity	$	759,616		$	636,683		$	602,174		$	575,725		$	495,497
Selected Other Balance Sheet Data:
Average assets	$	7,193,425		$	6,486,396		$	6,030,609		$	5,575,025		$	5,198,237
Average earning assets	$	6,685,107		$	5,964,056		$	5,526,521		$	5,125,574		$	4,600,466
Average stockholders’ equity	$	691,004		$	631,361		$	601,412		$	586,171		$	512,872
Selected Financial and Liquidity Ratios:
Return on average assets		1.01	%		0.49	%		(0.12	)%		(2.72	)%		(4.55	)%
Return on average stockholders’ equity		10.54	%		4.99	%		(1.20	)%		(25.83	)%		(46.11	)%
Net interest margin		4.49	%		4.37	%		4.23	%		3.97	%		4.28	%
Loan to deposit ratio		88.45	%		84.48	%		79.43	%		86.39	%		112.14	%
Capital Ratios:
Leverage ratio		10.1	%		9.8	%		9.5	%		9.5	%		8.9	%
Tier 1 risk-based capital ratio		11.3	%		11.3	%		12.0	%		11.8	%		9.8	%
Total risk-based capital ratio		12.6	%		12.6	%		13.2	%		14.4	%		12.3	%
Average equity to average assets		9.6	%		9.7	%		10.0	%		10.5	%		9.9	%
Selected Asset Quality Ratios:
Nonaccrual loans to gross loans		1.83	%		1.89	%		2.76	%		3.77	%		1.44	%
Nonaccrual loans and repossessed assets to total assets		2.39	%		2.62	%		3.63	%		4.12	%		1.40	%
Loans past due 90 days or more and still accruing to total loans		0.02	%		0.05	%		0.03	%		0.14	%		0.30	%
Allowance for credit losses to total loans		1.67	%		2.07	%		2.61	%		2.66	%		1.83	%
Allowance for credit losses to nonaccrual loans		91.13	%		109.71	%		94.62	%		70.67	%		128.34	%
Net charge-offs to average loans		0.99	%		1.32	%		2.22	%		2.86	%		1.10	%

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with “Item 8 – Consolidated Financial Statements and Supplementary Data.” This discussion and analysis contains forward-looking statements that involve risk, uncertainties and assumptions. Certain risks, uncertainties and other factors, including but not limited to those set forth under “Cautionary Note Regarding Forward-Looking Statements,” may cause actual results to differ materially from those projected in the forward-looking statements.

Financial Overview and Highlights

Western Alliance Bancorporation is a multi-bank holding company headquartered in Phoenix, Arizona that provides full service banking, lending and investment advisory services through its subsidiaries.

Financial Result Highlights of 2012

Net income available to common stockholders for the Company of $69.0 million, or $0.83 per diluted share for 2012, compared to $15.3 million, or $0.19 per diluted share for 2011.

The significant factors impacting earnings of the Company during 2012 were:

•

All bank subsidiaries increased net income in 2012 over 2011. Bank of Nevada reported net income of $18.1 million compared to $7.5 million in 2011. Western Alliance Bank reported net income of $36.8 million for 2012 compared to $19.8 million for 2011. The Torrey Pines Bank Segment (which excludes discontinued operation), reported net income of $22.7 million for 2012 compared to $19.5 million for 2011.

•

During 2012, the Company improved its net interest margin to 4.49% from 4.37% and its net interest spread to 4.31% from 4.12%. The increase is attributed to the reduction in the cost of interest bearing liabilities, primarily deposits, at a faster rate than the reduction on earning asset yields from 0.90% to 0.60%. The Company has continued to report consecutive quarters of increases in net interest income.

•

The Company experienced loan growth of $929.2 million to $5.71 billion at December 31, 2012 from $4.78 billion at December 31, 2011.

•

During 2012, the Company increased deposits by $796.7 million to $6.46 billion at December 31, 2012 from $5.66 billion at December 31, 2011.

•

Other assets acquired through foreclosure declined by $11.9 million to $77.2 million at December 31, 2012 from $89.1 million at December 31, 2011.

•

Provision expense for 2012 remained almost flat at $46.8 million compared to $46.2 million for 2011 as net charge-offs also declined by $7.1 million to $50.6 million in 2012 compared to $57.7 million in 2011.

•

Key asset quality ratios improved for 2012 compared to 2011. Nonaccrual loans and repossessed assets to total assets improved to 2.39% from 2.62% in 2011 and nonaccrual loans to gross loans improved to 1.83% at the end of 2012 compared to 1.89% at the end of 2011.

•

On October 17, 2012 the Company completed an acquisition of Western Liberty Bancorp (“WLBC”) and recognized a bargain purchase gain of $17.6 million.

The impact to the Company from these items, and others of both a positive and negative nature, will be discussed in more detail as they pertain to the Company’s overall comparative performance for the year ended December 31, 2012 throughout the analysis sections of this report.

Acquisition of Western Liberty Bancorp

On October 17, 2012, the Company acquired WLBC which included two wholly owned subsidiaries, Service1st Bank of Nevada and Las Vegas Sunset Properties. The Company subsequently merged Service1st Bank of Nevada into its wholly owned subsidiary, Bank of Nevada, effective October 19, 2012.

Under the terms of the merger, the Company exchanged either $4.02 for each Western Liberty share for cash or 0.4341 shares of the Company’s common stock for each Western Liberty share which resulted in payment of $27.5 million and 2,966,322 shares of the Company’s common stock.

The merger was undertaken because the purchase price of Western Liberty was at a significant discount to its tangible book value and was accretive to capital at close. Service1st combined with BON had approximately $3.09 billion of assets and $2.55 billion of deposits immediately following the merger and continues to operate as Bank of Nevada. Western Liberty’s results of operations have been included in the Company’s results beginning October 18, 2012. Acquisition related expenses of $2.4 million for the year ended December 31, 2012 have been included in non-interest expense. The acquisition was accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. The purchased assets and assumed liabilities were recorded at their respective acquisition date fair values, and identifiable intangible assets were recorded at fair value. A bargain purchase gain of $17.6 million resulted from the acquisition and is included as a component of noninterest income on the statement of income. The amount of gain is equal to the amount by which the fair value of net assets purchased exceeded the consideration paid. The statement of net assets acquired and the resulting bargain purchase gain are presented in the following table in thousands:

Recognized amounts of indentifiable assets acquired and liabilites assumed:


Assets:
Cash and cash equivalents	$	76,692
Certificates of deposit		1,988
Investment securities		446
Loans		90,747
Federal Home Loan bank stock		493
Deferred tax assets		17,446
Premises and equipment		19
Other real estate owned		5,094
Identified intangible assets		1,578
Other assets		949

Total assets		195,452

Liabilities:
Deposits		117,191
Other liabilities		1,252

Total liabilities		118,443

Net assets acquired		77,009

Consideration paid		59,447

Bargain purchase gain	$	17,562

Acquisition of Centennial Bank

On January 18, 2013, the Company’s Western Alliance Bank subsidiary executed a definitive agreement to acquire Centennial Bank, located in Fountain Valley, California, for $57.5 million in cash, distribution of specified loans and assumption of Centennial Bank’s transactional expenses up to $1.0 million. On February 12, 2013, the Company received bankruptcy court approval. Subject to regulatory approval, the transaction is expected to close in 2013. The Company expects the acquisition to be accretive to its earnings per share.

A summary of our results of operations and financial condition and select metrics is included in the following table:


	Year Ended December 31,
	2012			2011			2010
	(in thousands, except per share amounts)
Net income (loss) available to common stockholders	$	69,041		$	15,288		$	(17,077	)
Basic earnings (loss) per share		0.84			0.19			(0.23	)
Diluted earnings (loss) per share		0.83			0.19			(0.23	)
Total assets	$	7,622,637		$	6,844,541		$	6,193,883
Gross loans	$	5,709,318		$	4,780,069		$	4,240,542
Total deposits	$	6,455,177		$	5,658,512		$	5,338,441
Net interest margin		4.49	%		4.37	%		4.23	%
Return on average assets		1.01	%		0.49	%		(0.12	)%
Return on average stockholders’ equity		10.54	%		4.99	%		(1.20	)%

As a bank holding company, management focuses on key ratios in evaluating the Company’s financial condition and results of operations. In the current economic environment, key ratios regarding asset credit quality and efficiency are more informative as to the financial condition of the Company than those utilized in a more normal economic period such as return on equity and return on assets.

Asset Quality

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


	Year Ended December 31,
	2012			2011			2010
				(in thousands)
Non-accrual loans	$	104,716		$	90,392		$	116,999
Non-performing assets		267,960			294,568			342,808
Non-accrual loans to gross loans		1.83	%		1.89	%		2.76	%
Net charge-offs to average loans		0.99	%		1.32	%		2.22	%

Asset and Deposit Growth

The ability to originate new loans and attract new deposits is fundamental to the Company’s asset growth. The Company’s assets and liabilities are comprised primarily of loans and deposits. Total assets increased to $7.62 billion at December 31, 2012 from $6.84 billion at December 31, 2011. Total gross loans including net deferred fees and unearned income increased by $929.2 million, or 19.4%, to $5.71 billion as of December 31, 2012 compared to December 31, 2011. Total deposits increased $796.7 million, or 14.1%, to $6.46 billion as of December 31, 2012 from $5.66 billion as of December 31, 2011.

RESULTS OF OPERATONS

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


	Year Ended December 31,						Increase			Year Ended December 31,						Increase
	2012			2011			(Decrease)			2011			2010			(Decrease)
	(in thousands, except per share amounts)
Consolidated Statement of Operations Data:
Interest income	$	318,295		$	296,591		$	21,704		$	296,591		$	281,813		$	14,778
Interest expense		28,032			38,923			(10,891	)		38,923			49,260			(10,337	)

Net interest income		290,263			257,668			32,595			257,668			232,553			25,115
Provision for credit losses		46,844			46,188			656			46,188			93,211			(47,023	)

Net interest income after provision for credit losses		243,419			211,480			31,939			211,480			139,342			72,138
Other non-interest income		44,726			34,457			10,269			34,457			46,836			(12,379	)
Non-interest expense		188,860			195,598			(6,738	)		195,598			196,758			(1,160	)

Net (loss) from continuing operations before income taxes		99,285			50,339			48,946			50,339			(10,580	)		60,919
Income tax provision (benefit)		23,961			16,849			7,112			16,849			(6,410	)		23,259

Income (loss) from continuing operations		75,324			33,490			41,834			33,490			(4,170	)		37,660
Loss from discontinued operations, net of tax benefit		(2,490	)		(1,996	)		(494	)		(1,996	)		(3,025	)		1,029

Net income (loss)	$	72,834		$	31,494		$	41,340		$	31,494		$	(7,195	)	$	38,689

Net income (loss) available to common stockholders	$	69,041		$	15,288		$	53,753		$	15,288		$	(17,077	)	$	32,365

Income (loss) per share—basic	$	0.84		$	0.19		$	0.65		$	0.19		$	(0.23	)	$	0.42

Income (loss) per share—diluted	$	0.83		$	0.19		$	0.64		$	0.19		$	(0.23	)	$	0.42

Net Interest Margin

The net interest margin is reported on a tax equivalent basis (“TEB”). A tax equivalent adjustment is added to reflect interest earned on certain municipal securities and loans that are exempt from Federal income tax. The following tables set forth the average balances and interest income on a fully tax equivalent basis and interest expense for the years indicated:


	Year Ended December 31,
	2012								2011
	(dollars in thousands)
	Average Balance			Interest		Average Yield/ Cost			Average Balance			Interest		Average Yield/ Cost
Interest-Earning Assets
Securities:
Taxable	$	1,092,007		$	23,518		2.15	%	$	1,178,765		$	29,836		2.53	%
Tax-exempt (1)		293,339			13,284		6.97	%		128,336			4,583		5.92	%

Total securities		1,385,346			36,802		3.17	%		1,307,101			34,419		2.86	%
Federal funds sold and other		636			2		0.31	%		897			1		0.11	%
Loans (1) (2) (3)		5,110,247			280,985		5.55	%		4,373,454			261,443		5.98	%
Short term investments		155,811			140		0.09	%		246,963			629		0.25	%
Restricted stock		33,067			366		1.11	%		35,641			99		0.28	%

Total earnings assets		6,685,107			318,295		4.91	%		5,964,056			296,591		5.02	%
Nonearning Assets
Cash and due from banks		116,948								119,499
Allowance for credit losses		(98,878	)							(105,927	)
Bank-owned life insurance		135,969								131,645
Other assets		354,279								377,123

Total assets	$	7,193,425							$	6,486,396

Interest-Bearing Liabilities
Sources of Funds
Interest-bearing deposits:
Interest checking	$	515,322		$	1,220		0.24	%	$	478,345		$	1,759		0.37	%
Savings and money market		2,371,473			8,088		0.34	%		2,105,316			12,858		0.61	%
Time deposits		1,359,538			7,486		0.55	%		1,460,690			13,360		0.91	%

Total interest-bearing deposits		4,246,333			16,794		0.40	%		4,044,351			27,977		0.69	%
Short-term borrowings		295,273			1,365		0.46	%		161,618			714		0.44	%
Long-term debt		73,738			7,945		10.77	%		73,143			7,904		10.81	%
Junior subordinated and subordinated debt		36,784			1,928		5.24	%		41,256			2,328		5.64	%

Total interest-bearing liabilities		4,652,128			28,032		0.60	%		4,320,368			38,923		0.90	%
Noninterest-Bearing Liabilities
Noninterest-bearing demand deposits		1,788,267								1,509,363
Other liabilities		62,026								25,304
Stockholders’ equity		691,004								631,361

Total Liabilities and Stockholders’ Equity	$	7,193,425							$	6,486,396

Net interest income and margin (4)				$	290,263		4.49	%				$	257,668		4.37	%

Net interest spread (5)							4.31	%							4.12	%

(1)	Yields on loans and securities have been adjusted to a tax equivalent basis. Interest income has not been adjusted to a tax equivalent basis. The tax-equivalent adjustments for 2012 and 2011 were $9,738 and $3,014, respectively.

(2)	Net loan fees of $7.6 million and $4.3 million are included in the yield computation for 2012 and 2011, respectively.

(3)	Includes nonaccrual loans.

(4)	Net interest margin is computed by dividing net interest income by total average earning assets.

(5)	Net interest spread represents average yield earned on interest-earning assets less the average rate paid on interest bearing liabilities.


	Year Ended December 31,
	2011								2010
	(dollars in thousands)
	Average Balance			Interest		Average Yield/ Cost			Average Balance			Interest		Average Yield/ Cost
Interest-Earning Assets
Securities:
Taxable	$	1,178,765		$	29,836		2.53	%	$	869,027		$	23,272		2.68	%
Tax-exempt (1)		128,336			4,583		5.92	%		46,171			1,481		5.73	%

Total securities		1,307,101			34,419		2.86	%		915,198			24,753		2.83	%
Federal funds sold and other		897			1		0.11	%		17,328			141		0.81	%
Loans (1) (2) (3)		4,373,454			261,443		5.98	%		4,105,022			255,626		6.23	%
Short term investments		246,963			629		0.25	%		448,815			1,130		0.25	%
Restricted stock		35,641			99		0.28	%		40,158			163		0.41	%

Total earnings assets		5,964,056			296,591		5.02	%		5,526,521			281,813		5.12	%
Nonearning Assets
Cash and due from banks		119,499								116,588
Allowance for credit losses		(105,927	)							(114,074	)
Bank-owned life insurance		131,645								99,435
Other assets		377,123								402,139

Total assets	$	6,486,396							$	6,030,609

Interest-Bearing Liabilities
Sources of Funds
Interest-bearing deposits:
Interest checking	$	478,345		$	1,759		0.37	%	$	581,063		$	2,898		0.50	%
Savings and money market		2,105,316			12,858		0.61	%		1,861,668			16,724		0.90	%
Time deposits		1,460,690			13,360		0.91	%		1,437,234			21,707		1.51	%

Total interest-bearing deposits		4,044,351			27,977		0.69	%		3,879,965			41,329		1.07	%
Short-term borrowings		161,618			714		0.44	%		131,878			1,506		1.14	%
Long-term debt		73,143			7,904		10.81	%		26,558			2,777		10.46	%
Junior subordinated and subordinated debt		41,256			2,328		5.64	%		62,342			3,648		5.85	%

Total interest-bearing liabilities		4,320,368			38,923		0.90	%		4,100,743			49,260		1.20	%
Noninterest-Bearing Liabilities
Noninterest-bearing demand deposits		1,509,363								1,296,634
Other liabilities		25,304								31,820
Stockholders’ equity		631,361								601,412

Total Liabilities and Stockholders’ Equity	$	6,486,396							$	6,030,609

Net interest income and margin (4)				$	257,668		4.37	%				$	232,553		4.23	%

Net interest spread (5)							4.12	%							3.92	%

(1)	Yields on loans and securities have been adjusted to a tax equivalent basis. Interest income has not been adjusted to a tax equivalent basis. The tax-equivalent adjustments for 2011 and 2010 were $3,014 and $1,164, respectively.

(2)	Net loan fees of $4.3 million and $4.2 million are included in the yield computation for 2011 and 2010, respectively.

(3)	Includes nonaccrual loans.

(4)	Net interest margin is computed by dividing net interest income by total average earning assets.

(5)	Net interest spread

The table below sets forth the relative impact on net interest income of changes in the volume of earning assets and interest-bearing liabilities and changes in rates earned and paid by us on such assets and liabilities. For purposes of this table, nonaccrual loans have been included in the average loan balances.


	Year Ended December 31,									Year Ended December 31,
	2012 versus 2011									2011 versus 2010
	Increase (Decrease) Due to Changes in ⁽¹⁾⁽²⁾									Increase (Decrease) Due to Changes in ⁽¹⁾⁽²⁾
	Volume			Rate			Total			Volume			Rate			Total
	(in thousands)									(in thousands)
Interest on investment securities:
Taxable	$	(1,868	)	$	(4,450	)	$	(6,318	)	$	7,840		$	(1,276	)	$	6,564
Tax-exempt		7,472			1,229			8,701			2,934			168			3,102
Federal funds sold and other		(1	)		2			1			(18	)		(122	)		(140	)
Loans		40,512			(20,970	)		19,542			16,047			(10,230	)		5,817
Short term investments		(82	)		(407	)		(489	)		(514	)		13			(501	)
Restricted stock		(28	)		295			267			(13	)		(51	)		(64	)

Total interest income		46,005			(24,301	)		21,704			26,276			(11,498	)		14,778
Interest expense:
Interest checking		88			(627	)		(539	)		(378	)		(761	)		(1,139	)
Savings and money market		908			(5,678	)		(4,770	)		1,488			(5,354	)		(3,866	)
Time deposits		(557	)		(5,317	)		(5,874	)		215			(8,562	)		(8,347	)
Short-term borrowings		618			33			651			131			(923	)		(792	)
Long-term debt		64			(23	)		41			5,034			93			5,127
Junior subordinated debt		(234	)		(166	)		(400	)		(1,190	)		(130	)		(1,320	)

Total interest expense		887			(11,778	)		(10,891	)		5,300			(15,637	)		(10,337	)

Net increase	$	45,118		$	(12,523	)	$	32,595		$	20,976		$	4,139		$	25,115

(1)	Changes due to both volume and rate have been allocated to volume changes.

(2)	Changes due to mark-to-market gains/losses under ASC 825 have been allocated to volume changes.

Comparison of interest income, interest expense and net interest margin

The Company’s primary source of revenue is interest income. Interest income for the year ended December 31, 2012 was $318.3 million, an increase of 7.3% when comparing interest income for the year ended December 31, 2011. This increase was primarily from interest income from loans and investment securities. Interest income from loans increased by $19.5 million for the twelve months ended December 31, 2012 compared to the twelve months ended December 31, 2011. Interest income from investment securities increased by $2.4 million for the twelve month period ended December 31, 2012 compared to December 31, 2011. Federal funds sold and other interest income declined by $0.2 million to $0.5 million from $0.7 million for the comparable twelve month periods. Despite the increased interest income, average yield on interest earning assets dropped 11 basis points for the year ended December 31, 2012 compared to 2011, primarily the result of decreased yields on loans of 43 basis points.

Interest expense for the year ended December 31, 2012 compared to 2011 decreased by 27.9% to $28.0 million from $38.9 million. This decline was primarily due to decreased average cost of deposits, which declined 29 basis points to 0.40% for the year ended December 31, 2012 compared to the same period in 2011. Interest paid on borrowings and other debt increased slightly for the year ended December 31, 2012 compared to 2011.

Net interest income was $290.3 million for the year ended December 31, 2012 compared to 2011, an increase of $32.6 million, or 11.2%. The increase in net interest income reflects a $721.1 million increase in average earning assets, offset by a $331.8 million increase in average interest bearing liabilities. The increased net interest margin of 12 basis points was mostly due to a decrease in our average cost of funds primarily as a result of downward repricing of deposits.

Interest income for the year ended December 31, 2011 was $296.6 million, an increase of 5.2% when comparing interest income for the year ended December 31, 2010. This increase was primarily from interest income from loans and investment securities. Interest income from loans increased by $5.8 million for the twelve months ended December 31, 2011 compared to the twelve months ended December 31, 2010. Interest income from investment securities increased by $9.7 million for the twelve month period ended December 31, 2011 compared to December 31, 2010. Federal funds sold and other interest income declined by $0.5 million to $0.7 million from $1.3 million for the comparable twelve month periods. Despite the increased interest income, average yield on interest earning assets dropped 10 basis points for the year ended December 31, 2011 compared to 2010, primarily the result of decreased yields on loans of 25 basis points.

Interest expense for the year ended December 31, 2011 compared to 2010 decreased by 21.0% to $38.9 million from $49.3 million. This decline was primarily due to decreased average cost of deposits, which declined 38 basis points to 0.69% for the year ended December 31, 2011 compared to the same period in 2010. Interest paid on borrowings and other debt increased by $3.0 million for the year ended December 31, 2011 compared to 2010, primarily due to the higher cost of the senior debt obligations issued in the third quarter of 2010.

Net interest income was $257.7 million for the year ended December 31, 2011 compared to 2010, an increase of $25.1 million, or 10.8%. The increase in net interest income reflects a $437.5 million increase in average earning assets, offset by a $219.6 million increase in average interest bearing liabilities. The increased net interest margin of 14 basis points was due to a decrease in our average cost of funds primarily as a result of downward repricing of deposits and decreased rates on short-term borrowings.

Provision for Credit Losses

The provision for credit losses in each period is reflected as a charge against earnings in that period. The provision is equal to the amount required to maintain the allowance for credit losses at a level that is adequate to absorb probable credit losses inherent in the loan portfolio. The provision for credit losses increased slightly by $0.7 million, to $46.8 million for the year ended December 31, 2012, compared with $46.2 million for the year ended December 31, 2011. The provision increase for the year ended December 31, 2012 compared to 2011, was due to provision for credit losses on commercial and industrial loans and construction and land development loans which were up by $20.5 million and $1.8 million, respectively, while provision for credit losses on commercial real estate, residential real estate loans and consumer loans decreased by $6.1 million, $14.2 million, and $1.3 million, respectively. The Company may establish an additional allowance for credit losses for the purchased credit impaired (“PCI”) loans through a charge to provision for loan losses when impairment is determined as a result of lower than expected cash flows. Since the acquisition of WLBC, the Company has not established an allowance for these PCI loans.

The provision for credit losses was $46.2 million for the year ended December 31, 2011 a decrease of $47.0 million compared with $93.2 million for the year ended December 31, 2010. The provision decreased primarily due to decreased net charge-offs and improvement in asset quality. Provision for credit losses related to commercial real estate, commercial and industrial, and construction and land development loans decreased by $27.6 million, $12.0 million and $8.7 million, respectively, for the twelve months ended December 31, 2011 compared to 2010. Provision for credit losses related to residential real estate and consumer loans increased by $1.1 million and $0.1 million, respectively, for the year ended December 31, 2011 compared to 2010.

Non-interest Income

The Company earned non-interest income primarily through fees related to services provided to loan and deposit customers, bank owned life insurance, investment advisory services, investment securities gains and impairment charges, mark to market gains and other.

The following tables present a summary of non-interest income for the periods presented:


	Year Ended December 31,
	2012			2011			Increase (Decrease)			2011			2010			Increase (Decrease)
	(in thousands)
Gain on sales of investment securities, net	$	3,949		$	4,798		$	(849	)	$	4,798		$	19,757		$	(14,959	)
Securities impairment charges, net		—			(226	)		226			(226	)		(1,186	)		960
Unrealized gain (loss) on assets and liabilities measured at fair value, net		653			5,621			(4,968	)		5,621			(369	)		5,990
Service charges and fees		9,452			9,102			350			9,102			8,969			133
Income from bank owned life insurance		4,439			5,372			(933	)		5,372			3,299			2,073
Other fee revenue		3,564			3,453			111			3,453			3,324			129
Investment advisory fees		2,119			2,537			(418	)		2,537			4,003			(1,466	)
Operating lease income		1,037			1,878			(841	)		1,878			3,793			(1,915	)
Amortization of affordable housing investments		(1,779	)		—			(1,779	)		—			—			—
Gain on extinguishment of debt		—			—			—			—			3,000			(3,000	)
Bargain purchase gain from acquisition		17,562			—			17,562			—			—			—
Derivative losses, net		(196	)		(238	)		42			(238	)		(269	)		31
Other		3,926			2,160			1,766			2,160			2,515			(355	)

Total non-interest income	$	44,726		$	34,457		$	10,269		$	34,457		$	46,836		$	(12,379	)

Total non-interest income for the year ended December 31, 2012 compared to 2011 increased by $10.3 million, or 29.8%, primarily as a result of the $17.6 million bargain purchase gain on the acquisition of WLBC. Other income increased by $1.8 million mostly due to net gains from the sale of both Shine and MRA of $0.9 million and net gains from legal settlements of $0.9 million. Unrealized gain on assets and liabilities measured at fair value, net declined by $5.0 million due to the unrealized gain on the junior subordinated recorded in 2011 when credit spreads widened which did not happen in 2012. During 2012, the Company invested in affordable housing credits which resulted in $1.8 million amortization in 2012. The Company did not have these investments in 2011. During the twelve months ended December 31, 2012, the Company sold $220.9 million of investment securities for a net gain on security sales of $3.9 million compared to $504.1 million of investment securities sales as of December 31, 2011 for net gains on sales of $4.8 million. Income from bank owned life insurance decreased by $0.9 million, or 17.4% due to lower returns.

Total non-interest income for the year ended December 31, 2011 compared to 2010 decreased by $12.4 million, or 26.4%, primarily as a result of the $15.0 million decrease in net gains on sale of investment securities. During the twelve months ended December 31, 2011, the Company sold $504.1 million of investment securities for a net gain on security sales of $4.8 million compared to $496.9 million of investment securities sales as of December 31, 2010 for net gains on sales of $19.8 million. Mark to market gains increased for the twelve months ended December 31, 2011 compared to 2010 due to $6.0 million of unrealized gains recorded on the junior subordinated debt as the result of credit spreads widening. Service charges, other fee revenue and derivative losses remained almost flat for the comparable twelve month periods ended December 31, 2011 and 2010. Income from bank owned life insurance increased by 62.8% due to increased investment in this asset in the fourth quarter of 2010. Partially offsetting these increases was a decrease in trust and advisory fees for the year ended December 31, 2011 compared to 2010 due to the disposition of the Company’s trust unit, Premier Trust, in the third quarter of 2010 which contributed $1.7 million in trust fees in 2010. In addition, operating lease income declined by $1.9 million for the year ended December 31, 2011 compared to 2010 due to the decline in the balance of operating equipment leases. The Company no longer focuses on this product. Other non-interest income declined by $0.4 million for the year ended 2011 compared to 2010 mostly due to a gain from the sale of Premier Trust in the third quarter of 2010. In addition, the Company recognized a one-time gain on extinguishment of the remaining subordinated debt in the second quarter of 2010 of $3.0 million.

Non-interest Expense

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


	Year Ended December 31,
	2012		2011		Increase (Decrease)			2011		2010		Increase (Decrease)
					(in thousands)
Non-interest expense:
Salaries and employee benefits	$	105,044	$	93,140	$	11,904		$	93,140	$	86,586	$	6,554
Occupancy		18,815		19,972		(1,157	)		19,972		19,580		392
Net loss on sales/valuations of repossessed assets and bank premises, net		4,207		24,592		(20,385	)		24,592		28,826		(4,234	)
Insurance		8,511		11,045		(2,534	)		11,045		15,475		(4,430	)
Loan and repossessed asset expense		6,675		8,126		(1,451	)		8,126		8,076		50
Legal, professional and director fees		8,229		7,678		551			7,678		7,591		87
Marketing		5,607		4,676		931			4,676		4,061		615
Data processing		5,749		3,566		2,183			3,566		3,374		192
Intangible amortization		3,256		3,559		(303	)		3,559		3,604		(45	)
Customer service		2,604		3,336		(732	)		3,336		4,256		(920	)
Goodwill and intangible impairment		3,435		—		3,435			—		—		—
Operating lease depreciation		746		1,201		(455	)		1,201		2,506		(1,305	)
Merger/restructure expense		2,819		1,564		1,255			1,564		1,651		(87	)
Other		13,163		13,143		20			13,143		11,172		1,971

Total non-interest expense	$	188,860	$	195,598	$	(6,738	)	$	195,598	$	196,758	$	(1,160	)

Total non-interest expense decreased $6.7 million for the year ended December 31, 2012 compared to the same period in 2011. The decrease in non-interest expense was mostly related to a decrease in net decrease in repossessed assets valuations and sales, insurance, loan and repossessed asset expense and occupancy. For 2012 compared to 2011, other real estate owned (“OREO”) valuation write-downs decreased by $15.0 million, net loss on sales of OREO decreased by $4.6 million and net loss on sale of assets and other repossessed assets decreased by $0.8 million primarily due to stabilization of asset values, a decline in the number of new OREO properties and in the number of OREO and assets sold. Insurance expense declined due to the reduced FDIC insurance premiums for the comparable periods of $2.5 million for 2012. Loan and repossessed assets expense declined for 2012 compared to 2011 mostly due to $1.3 million decrease in repossessed asset expense. Partially offsetting these declines was total salaries and benefits which increased by $11.9 million for the year ended 2012 compared to 2011 due to growth and increased variable performance based compensation as the Company achieved strategic goals in 2012. The Company also recorded goodwill and intangible impairment of $3.4 million related to its divestiture of Shine. Data processing and merger/restructure expense increased by $2.2 million and $1.3 million, respectively, as the Company’s continued growth and changes to product lines drive changes to infrastructure and technology.

Total non-interest expense decreased $1.2 million for the year ended December 31, 2011 compared to the same period in 2010. The decrease in non-interest expense was mostly related to a decrease in insurance expense and a net decrease in repossessed assets valuations and sales. Insurance expense declined due to the reduced FDIC insurance premiums for the comparable periods of $4.4 million, or 33.2% from $13.4 million for 2010 to $8.9 million for 2011. For the twelve months ended December 31, 2011 compared to 2010, other real estate owned (“OREO”) valuation write-downs decreased by $4.8 million, net loss on sales of OREO increased by $0.6 million and net loss on sale of assets and other repossessed assets remained flat at $0.7 million primarily due to a decline in the number of new OREO properties and in the number of OREO and assets sold. Operating lease depreciation continued to decline as the Company no longer focuses on operating equipment leases. Customer service expense declined by $0.9 million primarily due to decreased customer data processing expense which was $2.7 million for the year ended December 31, 2010 compared to $2.3 million in 2011. Total salaries and benefits increased by $6.6 million for the year ended 2011 compared to 2010 due to increased variable performance based compensation from changes to incentive plans based on strategic initiatives which were achieved in 2011. Marketing expenses increased $0.6 million mostly due to increased charitable contributions of $0.4 million and business development costs of $0.3 million for the comparable year 2011 to 2010. Other expense increased by $1.9 million for the year ended December 31, 2011 compared to 2010 mostly due to increased off-balance sheet reserve provision of $0.9 million, travel expense of $0.6 million and accounting and audit fees of $0.4 million. Occupancy expense increased by $0.4 million for 2011 compared to 2010 as a result of increased equipment and building maintenance costs of $0.9 million and increased building rent of $0.4 million partially off-set by decreased depreciation expense of $0.9 million.

Income Taxes

The reconciliation between the statutory federal income tax rate and the Company’s effective tax rate are summarized as follows:


	Year Ended December 31,
	2012			2011			2010
				(in thousands)
Income tax at statutory rate	$	34,750		$	17,619		$	(3,703	)
Increase (decrease) resulting from:
State income taxes, net of federal benefits		1,801			1,411			(739	)
Dividends received deductions		(992	)		(900	)		(476	)
Bank-owned life insurance		(1,553	)		(1,431	)		(1,155	)
Tax-exempt income		(3,844	)		(867	)		(280	)
Nondeductible expenses		334			276			340
Change in rates applied to deferred items		156			—			—
Loss on sale of subsidiaries		(2,523	)		—			—
Deferred tax asset valuation allowance		383			—			(2,033	)
Restricted stock write off		1,133			617			1,259
Bargain purchase option		(5,952	)		—			—
Low income housing tax credits		(2,089	)		—			—
Other, net		2,357			124			377

	$	23,961		$	16,849		$	(6,410	)

The effective tax rate for the year ended December 31, 2012 was 24.1% compared to 33.6% for the year ended December 31, 2011. The reduction in the effective tax rate from 2011 compared to 2012 is primarily due to low income housing tax credits and permanent tax differences which include an increase in tax exempt income from revenue from municipal obligations, and the permanent differences resulting from the purchase of WLBC and the tax loss from the disposition of Shine. For the year ended December 31, 2012, the net deferred tax asset decreased $10.0 million to $51.7 million. This decrease in the net deferred tax asset was primarily the result of the net operating income of the Company for the period and the resulting use of the Company’s historic NOL carryforwards (but significantly offset by the acquisition of substantial NOL carryforwards from the WLBC acquisition and an increase in capital loss carryforwards resulting from the loss on the disposition of Shine), and also due to the tax effect of the change in other comprehensive income.

At December 31, 2012, the $8.0 million deferred tax valuation allowance (compared to $7.6 million at December 31, 2011) relates to net capital losses on ARPS securities sales and capital losses resulting from the disposition of the shares of Shine.

Business Segment Results

Bank of Nevada which includes the operating results of Service1st or the period beginning October 19, 2012 reported net income of $18.1 million for the year ended December 31, 2012 compared to $7.5 million for the year ended December 31, 2011. The increase in net income for the year ended December 31, 2012 compared to 2011 was primarily due to decreased non-interest expense of $13.8 million. Total deposits at Bank of Nevada increased by $191.8 million to $2.57 billion at December 31, 2012 compared to $2.38 billion at December 31, 2011. Total loans increased $324.2 million to $2.18 billion at December 31, 2012 compared to 2011.

Western Alliance Bank, which consists of Alliance Bank of Arizona operating in Arizona and First Independent Bank operating in Northern Nevada, reported a net income of $36.8 million and $19.8 million for the years ended December 31, 2012 and 2011, respectively. The increase in net income for the year ended December 31, 2012 from the year ended December 31, 2011 was mostly due to increased interest income of $15.4 million and decreased provision for credit losses of $7.5 million partially offset by increased tax expense of $5.5 million. During 2012, total loans at Western Alliance Bank grew $392.2 million to $2.04 billion from $1.64 billion at December 31, 2011. In addition, total deposits grew by $346.7 million to $2.22 billion at December 31, 2012.

Torrey Pines Bank segment, which excludes discontinued operations, reported net income of $22.7 million and $19.5 million for the years ended December 31, 2012 and 2011, respectively. The increase in net income for the year ended December 31, 2012 from the year ended December 31, 2011 was the result of increased net interest income of $10.5 million partially offset by increased non-interest expense of $3.3 million, increased provision for credit losses of $2.1 million, decreased non-interest income of $1.2 million and increased income tax expense of $0.7 million. Total loans at Torrey Pines Bank increased by $189.3 million to $1.48 billion at December 31, 2012 from $1.32 billion at December 31, 2011. Total deposits increased by $262.5 million during 2012 to $1.68 billion at December 31, 2012.

The other segment, which includes the holding company, Shine (until October 31, 2012), Western Alliance Equipment Finance, the discontinued operations related to the affinity credit card platform excluding loans held for sale which are included in TPB, Las Vegas Sunset Properties and Premier Trust (through September 1, 2010), reported a net loss of $4.8 million and $15.3 million for the years ended December 31, 2012 and 2011, respectively. The decrease in the net loss for the comparable years is primarily due to the bargain purchase gain on the acquisition of WLBC of $17.6 million.

BALANCE SHEET ANALYSIS

Total assets increased $778.1 million, or 11.4%, to $7.62 billion at December 31, 2012 compared to $6.84 billion at December 31, 2011. The majority of the increase was in loans of $929.2 million, or 19.4%, to $5.71 billion slightly offset by a decrease in investment securities of $247.2 million.

Total liabilities increased $655.2 million, or 10.6% to $6.86 billion at December 31, 2012 from $6.21 billion at December 31, 2011. Total deposits increased by $796.7 million or 14.1% to $6.46 billion at December 31, 2012 from $5.66 billion at December 31, 2011. Non-interest bearing demand deposits increased by $375.0 million, or 24.1%, to $1.93 billion at December 31, 2012 from $1.56 billion at December 31, 2011.

Total stockholders’ equity increased by $122.9 million to $759.6 million at December 31, 2012 from $636.7 million at December 31, 2011 which included $32.0 million of common stock issued as part of the acquisition of WLBC and $72.8 million of net income.

The table below summarizes the distribution of the Company’s loans held for investment at the year-end indicated.


	December 31,
	2012			2011			2010			2009			2008
							(in thousands)
Commercial real estate	$	2,902,397		$	2,553,354		$	2,261,638		$	2,024,624		$	1,763,392
Construction and land development		394,319			381,676			451,470			623,198			820,874
Commercial and industrial		1,947,750			1,336,582			934,627			802,193			860,280
Residential real estate		407,937			443,020			527,302			568,319			589,196
Consumer		31,836			72,504			71,545			80,300			71,148
Net deferred loan fees		(6,045	)		(7,067	)		(6,040	)		(18,995	)		(9,179	)

Gross loans, net of deferred fees		5,678,194			4,780,069			4,240,542			4,079,639			4,095,711
Less: allowance for credit losses		(95,427	)		(99,170	)		(110,699	)		(108,623	)		(74,827	)

Total loans, net	$	5,582,767		$	4,680,899		$	4,129,843		$	3,971,016		$	4,020,884

The following table sets forth the amount of loans outstanding by type of loan as of December 31, 2012 that were contractually due in one year or less, more than one year and less than five years, and more than five years based on remaining scheduled repayments of principal. Lines of credit or other loans having no stated final maturity and no stated schedule of repayments are reported as due in one year or less. The tables also present an analysis of the rate structure for loans including loans held for sale within the same maturity time periods. Actual cash flows from these loans may differ materially from contractual maturities due to prepayment, refinancing or other factors.


	Due in one year or less		Due after one year to five years		Due after five years		Total
			(in thousands)
Commercial real estate — owner occupied
Floating rate	$	25,344	$	148,127	$	515,340	$	688,811
Fixed rate		54,984		296,873		356,129		707,986
Commercial real estate — non-owner occupied
Floating rate		85,635		284,628		346,867		717,130
Fixed rate		103,667		542,032		136,726		782,425
Commercial and industrial
Floating rate		627,989		253,724		173,626		1,055,339
Fixed rate		72,426		277,420		253,818		603,664
Leases
Floating rate		—		1,952		5,471		7,423
Fixed rate		9,571		160,681		111,072		281,324
Construction and land development
Floating rate		174,393		41,298		22,272		237,963
Fixed rate		48,700		100,952		6,704		156,356
Residential real estate
Floating rate		17,936		35,439		269,791		323,166
Fixed rate		18,481		29,234		37,056		84,771
Consumer
Floating rate		49,447		4,581		356		54,384
Fixed rate		3,452		4,842		282		8,576

Total	$	1,292,025	$	2,181,783	$	2,235,510	$	5,709,318

As of December 31, 2012, approximately $2.4 billion or 76.3%, of total variable rate loans were subject to rate floors with a weighted average interest rate of 5.42%. At December 31, 2012, total loans consisted of 54.0% with floating rates and 46.0% with fixed rates.

Concentrations of Lending Activities

The Company’s lending activities are primarily driven by the customers served in the market areas where the Company has branch offices in the States of Nevada, California and Arizona. The Company monitors concentrations within five broad categories: geography, industry, product, call code, and collateral. The Company grants commercial, construction, real estate and consumer loans to customers through branch offices located in the Company’s primary markets. The Company’s business is concentrated in these areas and the loan portfolio includes significant credit exposure to the commercial real estate market of these areas. As of December 31, 2012 and 2011, commercial real estate related loans accounted for approximately 58% and 61% of total loans, respectively, and approximately 3% and 2%, respectively of commercial real estate related loans are secured by undeveloped land. Substantially all of these loans are secured by first liens with an initial loan to value ratio of generally not more than 75%. Approximately 48% and 49% of these commercial real estate loans excluding construction and land loans were owner occupied at December 31, 2012 and 2011, respectively. In addition, approximately 4% of total loans were unsecured as of December 31, 2012 and 2011, respectively.

Interest Reserves

Interest reserves are generally established at the time of the loan origination for construction and land development loans. The Company’s practice is to monitor the construction, sales and/or leasing progress to determine the feasibility of ongoing construction and development projects. , The Company discontinues the use of the interest reserve when a project is determined not to be viable and may take appropriate action to protect its collateral position via renegotiation and/or legal action as deemed appropriate. At December 31, 2012, the Company had 29 loans with an outstanding balance of $46.1 million with available interest reserves of $2.6 million. This is an increase from 18 loans at December 31, 2011 with an outstanding principal balance of $28.0 million and available interest reserve amounts of $0.5 million.

Impaired loans

A loan is identified as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the original loan agreement. Generally, impaired loans are classified as nonaccrual. However, in certain instances, impaired loans may continue on an accrual basis, such as loans classified as impaired due to doubt regarding collectability according to contractual terms, that are both fully secured by collateral and are current in their interest and principal payments. Impaired loans are measured for reserve requirements in accordance with ASC Topic 310, Receivables, based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral less applicable disposition costs if the loan is collateral dependent. The amount of an impairment reserve, if any, and any subsequent changes are charged against the allowance for credit losses. In addition to our own internal loan review process, the Federal Deposit Insurance Corporation (“FDIC”) may from time to time direct the Company to modify loan grades, loan impairment calculations or loan impairment methodology. During the first quarter 2012, in conjunction with an examination, the FDIC directed Management to substitute the collateral dependent impairment method for the net present value impairment method on certain TDRs.

Total nonaccrual loans and loans past due 90 days or more and still accruing increased by $13.1 million, or 14.1%, at December 31, 2012 to $106.1 million from $93.0 million at December 31, 2011.


	December 31,
	2012			2011			2010			2009			2008
	(dollars in thousands)
Total nonaccrual loans	$	104,716		$	90,392		$	116,999		$	153,702		$	58,302
Loans past due 90 days or more on accrual status		1,388			2,589			1,458			5,538			11,515

Total nonperforming loans		106,104			92,981			118,457			159,240			69,817
Troubled debt restructured loans		84,609			112,483			116,696			46,480			15,605
Other impaired loans		30,866			4,027			3,182			27,752			92,981

Total impaired loans	$	221,579		$	209,491		$	238,335		$	233,472		$	178,403

Other assets acquired through foreclosure, net	$	77,247		$	89,104		$	107,655		$	83,347		$	14,545
Nonaccrual loans to gross loans		1.83	%		1.89	%		2.76	%		3.77	%		1.42	%
Loans past due 90 days or more on accrual status to total loans		0.02			0.05			0.03			0.14			0.28
Interest income received on nonaccrual loans	$	191		$	444		$	2,501		$	624		$	488
Interest income that would have been recorded under the original terms of nonaccrual loans	$	5,469		$	6,331		$	6,016		$	8,713		$	1,827

The composite of nonaccrual loans were as follows:


	At December 31, 2012								At December 31, 2011
	Nonaccrual Balance		%			Percent of Total Loans			Nonaccrual Balance		%			Percent of Total Loans
	(dollars in thousands)
Construction and land	$	11,093		10.59	%		0.19	%	$	28,813		31.88	%		0.60	%
Residential real estate		26,722		25.52	%		0.47	%		15,747		17.42	%		0.33	%
Commercial real estate		59,975		57.28	%		1.05	%		38,019		42.05	%		0.80	%
Commercial and industrial		6,722		6.42	%		0.12	%		7,410		8.20	%		0.15	%
Consumer		204		0.19	%		0.00	%		403		0.45	%		0.01	%

Total nonaccrual loans	$	104,716		100.00	%		1.83	%	$	90,392		100.00	%		1.89	%

As of December 31, 2012 and 2011, nonaccrual loans totaled $104.7 million and $90.4 million, respectively. Nonaccrual loans by bank at December 31, 2012 were $73.5 million at Bank of Nevada, $23.6 million at Western Alliance Bank and $7.6 million at Torrey Pines Bank, compared to $69.0 million at Bank of Nevada, $16.2 million at Western Alliance Bank and $5.2 million at Torrey Pines Bank at December 31, 2011. Nonaccrual loans as a percentage of total gross loans were 1.83% and 1.89% at December 31, 2012 and 2011, respectively. Nonaccrual loans as a percentage of each bank’s total gross loans at December 31, 2012 were 3.37% at Bank of Nevada, 1.16% at Western Alliance Bank, and 0.51% at Torrey Pines Bank, compared to 3.71% at Bank of Nevada, 0.98% at Western Alliance Bank and 0.39% at Torrey Pines Bank at December 31, 2011.

Troubled Debt Restructured Loans

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. 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.

As of December 31, 2012 and 2011, the aggregate amount of loans classified as impaired was $198.2 million and $209.5 million, respectively, a net decrease of 5.4%. The total specific allowance for loan losses related to these loans was $12.9 million and $10.4 million for December 31, 2012 and 2011, respectively. As of December 31, 2012 and 2011, the Company had $84.6 million and $112.5 million, respectively, in loans classified as accruing restructured loans. The net decrease in impaired loans is primarily attributable to decreases in impaired construction and land development loans, commercial and industrial loans and consumer loans of $29.4 million, $9.2 million, and $1.5 million, respectively partially offset by increases in impaired commercial real estate and residential real estate impaired loans, of $19.8 million and $9.0 million, respectively. Impaired construction and land development impaired commercial and industrial, and impaired consumer loans decreased by $29.4 million, $9.2 million and $1.5 million, respectively from $61.9 million, $25.7 million and $2.3 million, respectively, at December 31, 2011, to $32.5 million, $16.5 million and $0.8 million, respectively, at December 31, 2012. Impaired loans by bank (excluding purchased credit impaired loans) at December 31, 2012 were $123.4 million at Bank of Nevada, $43.4 million at Western Alliance Bank, and $18.8 million at Torrey Pines Bank compared to $124.7 million at Bank of Nevada, $58.9 million at Western Alliance Bank, and $25.9 million at Torrey Pines Bank at December 31, 2011. Additionally, Western Alliance Bancorporation held a $12.7 million of impaired loans at December 31, 2012.

The following tables present a breakdown of total impaired loans and the related specific reserves for the periods indicated:

At December 31, 2012

Impaired
Balance

Percent

Percent of
Total Loans

Reserve
Balance

Percent

Percent of
Total Allowance

(dollars in thousands)

Construction and land development

32,492

16.40

0.57

284

2.21

0.30

Residential real estate

37,851

19.10

0.66

5,448

42.34

5.71

Commercial real estate

110,538

55.78

1.94

4,417

34.33

4.63

Commercial and industrial

16,510

8.33

0.29

2,552

19.84

2.67

Consumer

764

0.39

0.01

165

1.28

0.17

Total impaired loans

198,155

100.00

3.47

12,866

100.00

13.48

At December 31, 2011

Impaired
Balance

Percent

Percent of
Total Loans

Reserve
Balance

Percent

Percent of
Total
Allowance

(dollars in thousands)

Construction and land development

61,911

29.55

1.30

3,501

33.74

3.53

Residential real estate

28,850

13.77

0.60

2,186

21.07

2.20

Commercial real estate

90,712

43.31

1.90

2,827

27.25

2.85

Commercial and industrial

25,730

12.28

0.54

1,863

17.95

1.88

Consumer

2,288

1.09

0.05

—

0.00

Total impaired loans

209,491

100.00

4.39

10,377

100.00

10.46

The amount of interest income recognized on impaired loans for the years ended December 31, 2012, 2011 and 2010 was approximately $9.0 million, $8.0 million and $7.6 million, respectively.

Allowance for Credit Losses

The following table summarizes the activity in our allowance for credit losses for the period indicated.


	Year Ended December 31,
	2012			2011			2010			2009			2008
	(dollars in thousands)
Allowance for credit losses:
Balance at beginning of period	$	99,170		$	110,699		$	108,623		$	74,827		$	49,305
Provisions charged to operating expenses:
Construction and land development		4,448			2,692			11,405			35,697			25,714
Commercial real estate		15,823			21,959			49,582			20,935			3,850
Residential real estate		2,088			16,256			15,116			36,199			15,151
Commercial and industrial		21,599			1,109			13,117			49,060			19,829
Consumer		2,886			4,172			3,991			7,208			3,645

Total Provision		46,844			46,188			93,211			149,099			68,189
Recoveries of loans previously charged-off:
Construction and land development		2,903			2,154			3,197			1,708			32
Commercial real estate		3,294			2,157			1,003			230			3
Residential real estate		1,078			1,060			2,039			545			43
Commercial and industrial		3,067			3,401			3,000			1,529			533
Consumer		357			174			164			173			37

Total recoveries		10,699			8,946			9,403			4,185			648
Loans charged-off:
Construction and land development		10,992			11,238			23,623			35,807			16,715
Commercial real estate		19,166			22,128			33,821			16,756			2,912
Residential real estate		7,063			19,071			20,663			24,082			6,643
Commercial and industrial		17,341			9,757			17,218			38,573			15,937
Consumer		6,724			4,469			5,213			4,270			1,108

Total charged-off		61,286			66,663			100,538			119,488			43,315
Net charge-offs		50,587			57,717			91,135			115,303			42,667

Balance at end of period	$	95,427		$	99,170		$	110,699		$	108,623		$	74,827

Net charge-offs to average loans outstanding		0.99	%		1.32	%		2.22	%		2.86	%		1.10	%
Allowance for credit losses to gross loans		1.67	%		2.07	%		2.61	%