e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended September 30, 2010 or
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o |
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For
the Transition period from to
Commission File Number: 001-32550
WESTERN ALLIANCE BANCORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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Nevada
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88-0365922 |
(State or Other Jurisdiction
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(I.R.S. Employer I.D. Number) |
of Incorporation or Organization) |
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One E. Washington Street, Phoenix, AZ |
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(Address of Principal Executive Offices)
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85004 (Zip Code) |
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(602) 389-3500 |
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(Registrants telephone number,
including area code) |
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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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, 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 o No o
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 the definitions of large accelerated filer, accelerated
filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act)
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.
Common stock issued and outstanding: 81,515,238 shares as of October 31, 2010.
Part I. Financial
Information
Item 1 Financial Statements
WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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September 30, |
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2010 |
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December 31, |
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(unaudited) |
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2009 |
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(in thousands, except per share |
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amounts) |
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Assets: |
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Cash and due from banks |
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$ |
108,395 |
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$ |
116,841 |
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Federal funds sold and other |
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1,009 |
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3,473 |
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Interest-bearing demand deposits in other financial institutions |
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506,551 |
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276,516 |
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Cash and cash equivalents |
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615,955 |
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396,830 |
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Money market investments |
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1,635 |
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54,029 |
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Investment securities measured, at fair value |
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32,428 |
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58,670 |
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Investment securities available-for-sale, at fair value; amortized cost
of $875,118 at September 30, 2010 and $740,783 at December 31, 2009 |
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871,535 |
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744,598 |
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Investment securities held-to-maturity, at amortized cost; fair value of
$24,629 at September 30, 2010 and $7,482 at December 31, 2009 |
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24,104 |
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7,482 |
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Investments in restricted stock, at cost |
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39,029 |
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41,378 |
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Loans: |
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Held for investment, net of deferred fees |
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4,173,480 |
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4,079,639 |
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Less: allowance for credit losses |
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(108,170 |
) |
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(108,623 |
) |
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Total loans |
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4,065,310 |
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3,971,016 |
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Premises and equipment, net |
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116,547 |
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125,883 |
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Goodwill and other intangible assets |
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40,180 |
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43,121 |
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Other assets acquired through foreclosure, net |
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110,096 |
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83,347 |
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Bank owned life insurance |
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94,780 |
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92,510 |
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Deferred tax assets, net |
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70,083 |
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68,957 |
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Prepaid expenses |
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28,237 |
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35,323 |
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Other assets |
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69,125 |
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30,135 |
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Discontinued operations, assets held for sale |
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102 |
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Total assets |
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$ |
6,179,146 |
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$ |
5,753,279 |
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Liabilities: |
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Deposits: |
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Non-interest-bearing demand |
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$ |
1,421,710 |
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$ |
1,157,013 |
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Interest-bearing |
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3,906,818 |
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3,565,089 |
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Total deposits |
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5,328,528 |
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4,722,102 |
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Customer repurchase agreements |
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86,835 |
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223,269 |
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Other borrowings |
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72,888 |
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29,352 |
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Junior subordinated debt, at fair value |
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36,323 |
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42,438 |
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Subordinated debt |
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60,000 |
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Other liabilities |
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34,808 |
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100,393 |
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Total liabilities |
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5,559,382 |
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5,177,554 |
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Commitments and contingencies (Note 9) |
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Stockholders equity: |
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Preferred stock par value $.0001 and liquidation value per share
of $1,000; 20,000,000 authorized; 140,000 issued and outstanding |
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130,094 |
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127,945 |
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Common stock par value $.0001; 200,000,000 authorized;
81,502,898 shares issued and outstanding at September 30,
2010 and 72,503,902 at December 31, 2009 |
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8 |
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7 |
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Surplus |
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737,762 |
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684,092 |
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Retained deficit |
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(245,502 |
) |
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(241,724 |
) |
Accumulated other comprehensive income (loss) |
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(2,598 |
) |
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5,405 |
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Total stockholders equity |
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619,764 |
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575,725 |
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Total liabilities and stockholders equity |
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$ |
6,179,146 |
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$ |
5,753,279 |
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See the accompanying notes.
3
WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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(in thousands, except per share amounts) |
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Interest income: |
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Loans, including fees |
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$ |
64,273 |
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$ |
61,380 |
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$ |
190,641 |
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$ |
187,901 |
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Investment securities taxable |
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5,527 |
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5,730 |
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16,639 |
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17,939 |
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Investment securities non-taxable |
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20 |
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55 |
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102 |
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350 |
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Dividends taxable |
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167 |
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32 |
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303 |
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335 |
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Dividends non-taxable |
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390 |
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74 |
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691 |
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796 |
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Other |
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328 |
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475 |
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1,063 |
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889 |
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Total interest income |
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70,705 |
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67,746 |
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209,439 |
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208,210 |
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Interest expense: |
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Deposits |
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9,531 |
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16,067 |
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32,677 |
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48,130 |
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Customer repurchase agreements |
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74 |
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867 |
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|
471 |
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3,163 |
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Borrowings |
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896 |
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585 |
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1,714 |
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2,697 |
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Junior subordinated and subordinated debt |
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|
736 |
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1,257 |
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2,934 |
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3,719 |
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Total interest expense |
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11,237 |
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18,776 |
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37,796 |
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57,709 |
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Net interest income |
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59,468 |
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48,970 |
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171,643 |
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150,501 |
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Provision for credit losses |
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22,965 |
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50,750 |
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74,827 |
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108,307 |
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Net interest income after provision for credit losses |
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36,503 |
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(1,780 |
) |
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96,816 |
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42,194 |
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Non-interest income: |
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Mark to market gains (losses), net |
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(210 |
) |
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1,987 |
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6,341 |
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5,609 |
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Gain on sales of securities, net |
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|
5,460 |
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4,146 |
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19,757 |
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|
15,933 |
|
Securities impairment charges |
|
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|
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(1,044 |
) |
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(1,174 |
) |
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(44,083 |
) |
Portion of impairment charges recognized in other comprehensive loss (before tax) |
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2,047 |
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Net securities impairment charges recognized in earnings |
|
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(1,044 |
) |
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(1,174 |
) |
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(42,036 |
) |
Gain on extinguishment of debt |
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3,000 |
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|
Gain on sale of subsidiary |
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|
568 |
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|
568 |
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Trust and investment advisory fees |
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1,001 |
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2,369 |
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3,395 |
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|
6,967 |
|
Service charges and fees |
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2,276 |
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|
2,212 |
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|
6,791 |
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|
5,874 |
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Operating lease income |
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|
998 |
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1,079 |
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2,928 |
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|
2,976 |
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Income from bank owned life insurance |
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|
773 |
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|
574 |
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|
2,271 |
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|
1,523 |
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Derivative (losses), net |
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(66 |
) |
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(70 |
) |
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(202 |
) |
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(200 |
) |
Other |
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1,367 |
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1,294 |
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|
3,881 |
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3,520 |
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|
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|
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Total non-interest income (loss) |
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|
12,167 |
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|
|
12,547 |
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|
47,556 |
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|
166 |
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|
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Non-interest expenses: |
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Salaries and employee benefits |
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21,860 |
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|
23,694 |
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65,461 |
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70,697 |
|
Occupancy expenses, net |
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4,890 |
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|
5,346 |
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|
14,505 |
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|
15,762 |
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Insurance |
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|
4,115 |
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|
|
2,326 |
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|
|
11,366 |
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|
|
9,034 |
|
Net loss on sales/valuations of repossessed assets
and bank premises, net |
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|
4,855 |
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|
7,283 |
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|
15,836 |
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|
16,193 |
|
Repossessed asset and loan expenses |
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1,918 |
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|
|
1,430 |
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|
5,847 |
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|
|
4,585 |
|
Legal, professional and director fees |
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1,546 |
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|
|
1,810 |
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|
|
5,553 |
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|
|
4,995 |
|
Marketing |
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|
878 |
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|
543 |
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|
3,079 |
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|
3,122 |
|
Customer service |
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|
987 |
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|
1,001 |
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|
3,205 |
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|
|
3,145 |
|
Intangible amortization |
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|
901 |
|
|
|
945 |
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|
2,714 |
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|
|
2,835 |
|
Data processing |
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|
842 |
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|
|
951 |
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|
|
2,427 |
|
|
|
3,303 |
|
Operating lease depreciation |
|
|
627 |
|
|
|
722 |
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|
|
1,963 |
|
|
|
2,479 |
|
Goodwill impairment |
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|
|
|
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|
576 |
|
|
|
|
|
|
|
45,576 |
|
Other |
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|
2,690 |
|
|
|
3,821 |
|
|
|
8,257 |
|
|
|
9,931 |
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|
|
|
|
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|
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|
|
|
|
|
Total non-interest expenses |
|
|
46,109 |
|
|
|
50,448 |
|
|
|
140,213 |
|
|
|
191,657 |
|
|
|
|
|
|
|
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|
|
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|
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|
Income (loss) from continuing operations before income taxes |
|
|
2,561 |
|
|
|
(39,681 |
) |
|
|
4,159 |
|
|
|
(149,297 |
) |
Benefit for income taxes |
|
|
(79 |
) |
|
|
(16,724 |
) |
|
|
(1,830 |
) |
|
|
(28,195 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
2,640 |
|
|
|
(22,957 |
) |
|
|
5,989 |
|
|
|
(121,102 |
) |
Loss from discontinued operations, net of tax benefit |
|
|
(631 |
) |
|
|
(958 |
) |
|
|
(2,368 |
) |
|
|
(3,392 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
2,009 |
|
|
|
(23,915 |
) |
|
|
3,621 |
|
|
|
(124,494 |
) |
Dividends and accretion on preferred stock |
|
|
2,466 |
|
|
|
2,439 |
|
|
|
7,399 |
|
|
|
7,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common shareholders |
|
$ |
(457 |
) |
|
$ |
(26,354 |
) |
|
$ |
(3,778 |
) |
|
$ |
(131,789 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.00 |
|
|
$ |
(0.35 |
) |
|
$ |
(0.02 |
) |
|
$ |
(2.36 |
) |
Discontinued |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.01 |
) |
|
$ |
(0.37 |
) |
|
$ |
(0.05 |
) |
|
$ |
(2.42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares basic |
|
|
75,554 |
|
|
|
71,697 |
|
|
|
73,240 |
|
|
|
54,471 |
|
Average number of common shares diluted |
|
|
75,554 |
|
|
|
71,697 |
|
|
|
73,240 |
|
|
|
54,471 |
|
See the accompanying notes.
4
WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Net income/(loss) |
|
$ |
2,009 |
|
|
$ |
(23,915 |
) |
|
$ |
3,621 |
|
|
$ |
(124,494 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss)/ income, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain/(loss) on securities AFS, net |
|
|
(2,363 |
) |
|
|
7,103 |
|
|
|
3,967 |
|
|
|
9,886 |
|
Impairment loss on securities, net |
|
|
|
|
|
|
630 |
|
|
|
728 |
|
|
|
39,201 |
|
Realized (gain) on sale of securities AFS included in income, net |
|
|
(3,493 |
) |
|
|
(2,646 |
) |
|
|
(12,698 |
) |
|
|
(9,714 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive (loss)/ income |
|
|
(5,856 |
) |
|
|
5,087 |
|
|
|
(8,003 |
) |
|
|
39,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss)/ income |
|
$ |
(3,847 |
) |
|
$ |
(18,828 |
) |
|
$ |
(4,382 |
) |
|
$ |
(85,121 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
There was no impairment loss recognized for the three months ended September 30, 2010. Amount
of impairment losses reclassified out of accumulated other comprehensive income into earnings for
the nine months ended September 30, 2010 and the three and nine months ended September 30, 2009
were $1.2 million, and $1.0 million and $41.1 million, respectively. The income tax benefit
related to these losses was $1.3 million for the three months ended September 30, 2009. For the
nine months ended September 30, 2010 and 2009, the income tax benefit related to these losses was
$1.2 million and $2.8 million, respectively.
See the accompanying notes.
5
WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Retained |
|
|
Total |
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
|
|
|
|
Comprehensive |
|
|
Earnings |
|
|
Stockholders |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Surplus |
|
|
Income (Loss) |
|
|
(Deficit) |
|
|
Equity |
|
|
|
(in thousands) |
|
Balance, December 31, 2009 |
|
|
140 |
|
|
$ |
127,945 |
|
|
|
72,504 |
|
|
$ |
7 |
|
|
$ |
684,092 |
|
|
$ |
5,405 |
|
|
$ |
(241,724 |
) |
|
$ |
575,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,621 |
|
|
|
3,621 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
218 |
|
|
|
|
|
|
|
2,742 |
|
|
|
|
|
|
|
|
|
|
|
2,742 |
|
Restricted stock grants, net |
|
|
|
|
|
|
|
|
|
|
554 |
|
|
|
|
|
|
|
3,082 |
|
|
|
|
|
|
|
|
|
|
|
3,082 |
|
Stock options exercised |
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
78 |
|
Stock warrants exercised |
|
|
|
|
|
|
|
|
|
|
162 |
|
|
|
|
|
|
|
195 |
|
|
|
|
|
|
|
|
|
|
|
195 |
|
Issuance of common stock, net (1) |
|
|
|
|
|
|
|
|
|
|
8,050 |
|
|
|
1 |
|
|
|
47,573 |
|
|
|
|
|
|
|
|
|
|
|
47,574 |
|
Dividends on preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,250 |
) |
|
|
(5,250 |
) |
Accretion on preferred stock
discount |
|
|
|
|
|
|
2,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,149 |
) |
|
|
|
|
Other comprehensive income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,003 |
) |
|
|
|
|
|
|
(8,003 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2010 |
|
|
140 |
|
|
$ |
130,094 |
|
|
|
81,503 |
|
|
$ |
8 |
|
|
$ |
737,762 |
|
|
$ |
(2,598 |
) |
|
$ |
(245,502 |
) |
|
$ |
619,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of offering costs of $474 |
See the accompanying notes.
6
WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income/ (loss) |
|
$ |
3,621 |
|
|
$ |
(124,494 |
) |
Adjustments to reconcile net income/ (loss)
to cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
74,827 |
|
|
|
108,307 |
|
Depreciation and amortization |
|
|
10,660 |
|
|
|
8,865 |
|
Stock-based compensation |
|
|
5,824 |
|
|
|
6,701 |
|
Deferred income taxes and income taxes receivable |
|
|
3,183 |
|
|
|
(40,173 |
) |
Net amortization of discounts and premiums for investment securities |
|
|
4,482 |
|
|
|
1,845 |
|
Goodwill impairment |
|
|
|
|
|
|
45,576 |
|
Securities impairment |
|
|
1,174 |
|
|
|
42,036 |
|
(Gains)/Losses on: |
|
|
|
|
|
|
|
|
Sales of securities, AFS |
|
|
(19,757 |
) |
|
|
(15,933 |
) |
Derivatives |
|
|
202 |
|
|
|
200 |
|
Sales of repossessed assets and premises, net |
|
|
15,836 |
|
|
|
16,193 |
|
Sale of loans, net |
|
|
(16 |
) |
|
|
|
|
Extinguishment of debt |
|
|
(3,000 |
) |
|
|
|
|
Changes in: |
|
|
|
|
|
|
|
|
Other assets |
|
|
(104,511 |
) |
|
|
54,217 |
|
Other liabilities |
|
|
(65,585 |
) |
|
|
(3,111 |
) |
Fair value of assets and liabilities measured at fair value |
|
|
(6,341 |
) |
|
|
(5,409 |
) |
Servicing rights, net |
|
|
26 |
|
|
|
28 |
|
Other, net |
|
|
|
|
|
|
(3,508 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(79,375 |
) |
|
|
91,340 |
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Proceeds from sale of securities measured at fair value |
|
|
12,735 |
|
|
|
33,678 |
|
Principal pay downs and maturities of securities measured at fair value |
|
|
13,599 |
|
|
|
17,436 |
|
Purchases of securities measured at fair value |
|
|
|
|
|
|
(5,224 |
) |
Proceeds from sale of available-for-sale securities |
|
|
488,918 |
|
|
|
113,109 |
|
Principal pay downs and maturities of available-for-sale securities |
|
|
706,207 |
|
|
|
86,410 |
|
Purchase of available-for-sale securities |
|
|
(1,314,053 |
) |
|
|
(314,853 |
) |
Purchase of short-term investments |
|
|
|
|
|
|
(51,674 |
) |
Purchase of securities held-to-maturity |
|
|
(20,000 |
) |
|
|
|
|
Principal pay downs and maturities of securities held-to-maturity |
|
|
2,746 |
|
|
|
795 |
|
Loan originations and principal collections, net |
|
|
(169,105 |
) |
|
|
(25,648 |
) |
Investment in money market |
|
|
52,394 |
|
|
|
|
|
Liquidation of restricted stock, net |
|
|
2,349 |
|
|
|
2 |
|
Sale and purchase of premises and equipment, net |
|
|
1,330 |
|
|
|
2,054 |
|
Sale of other real estate owned, net |
|
|
24,448 |
|
|
|
(986 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(198,432 |
) |
|
|
(144,901 |
) |
|
|
|
|
|
|
|
7
WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(continued)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
606,426 |
|
|
|
968,249 |
|
Deposits assumed from the FDIC |
|
|
|
|
|
|
131,720 |
|
Net decrease in borrowings |
|
|
(149,942 |
) |
|
|
(614,593 |
) |
Proceeds from issuance of common stock options and stock warrants |
|
|
274 |
|
|
|
78 |
|
Proceeds from issuance stock, net |
|
|
47,573 |
|
|
|
191,268 |
|
Accretion of discount on preferred stock |
|
|
(2,149 |
) |
|
|
|
|
Cash dividends paid on preferred stock |
|
|
(5,250 |
) |
|
|
(5,250 |
) |
|
|
|
|
|
|
|
Net cash provided
by financing activities |
|
|
496,932 |
|
|
|
671,472 |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
219,125 |
|
|
|
617,911 |
|
Cash and cash equivalents at beginning of year |
|
|
396,830 |
|
|
|
139,954 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
615,955 |
|
|
$ |
757,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
37,432 |
|
|
$ |
56,731 |
|
Income taxes, net |
|
|
|
|
|
|
|
|
Non-cash investing and financing activity: |
|
|
|
|
|
|
|
|
Transfers to other assets acquired through foreclosure, net |
|
|
66,973 |
|
|
|
73,457 |
|
Assets transferred to held for sale |
|
|
102 |
|
|
|
|
|
See the accompanying notes.
8
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operation
Western Alliance Bancorporation (WAL or the Company), incorporated in the state of Nevada, is a
bank holding company providing full service banking and related services to locally owned
businesses, professional firms, real estate developers and investors, local non-profit
organizations, high net worth individuals and other consumers through its five wholly owned
subsidiary banks; Bank of Nevada and First Independent Bank of Nevada, operating in Nevada,
Alliance Bank of Arizona, operating in Arizona; and Torrey Pines Bank and Alta Alliance Bank,
operating in California. In addition, its non-bank subsidiaries, Shine Investment Advisory
Services, Inc. and Western Alliance Equipment Finance offer a broad array of financial products and
services aimed at satisfying the needs of small to mid-sized businesses and their proprietors,
including financial planning, custody and investments, and equipment leasing nationwide. These
entities are collectively referred to herein as the Company. The Company divested its wholly owned
subsidiary Premier Trust, Inc as of September 1, 2010.
Basis of Presentation
The accounting and reporting policies of the Company are in accordance with accounting principles
generally accepted in the United States (GAAP) and conform to practices within the financial
services industry. The accounts of the Company and its consolidated subsidiaries are included in
these Consolidated Financial Statements. All significant intercompany balances and transactions
have been eliminated.
In June 2009, the Financial Accounting Standards Board (FASB) established the FASB Accounting
Standards Codification (FASB ASC), as the source of authoritative GAAP recognized by the FASB to
be applied by nongovernmental entities in the preparation of financial statements. Rules and
releases of the United States Securities and Exchange Commission (SEC) under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. The FASB ASC became
effective for the Company on September 30, 2009 and supersedes all then-existing non-SEC accounting
and reporting standards. All other non-grandfathered non-SEC accounting literature not included in
the FASB ASC became non-authoritative. The FASB ASC does not change or alter GAAP and, therefore,
the adoption of the FASB ASC did not impact the Companys Consolidated Financial Statements.
Use of estimates in the preparation of financial statements
The preparation of financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant changes in the near term relate to the
determination of the allowance for credit losses; fair value of other real estate owned;
determination of the valuation allowance related to deferred tax assets; impairment of goodwill and
other intangible assets and other than temporary impairment on securities. Although Management
believes these estimates to be reasonably accurate, actual amounts may differ. In the opinion of
Management, all adjustments considered necessary have been reflected in the financial statements
during their preparation.
Principles of consolidation
WAL has 12 wholly-owned subsidiaries; Bank of Nevada (BON), Alliance Bank of Arizona (ABA),
Torrey Pines Bank (TPB), Alta Alliance Bank (AAB), First Independent Bank of Nevada (FIBN),
which are all banking subsidiaries; Western Alliance Equipment Finance, Inc. (WAEF), which
provides equipment leasing; and six unconsolidated subsidiaries used as business trusts in
connection with issuance of trust-preferred securities. In addition, WAL maintains an 80 percent
interest in Shine Investment Advisory Services Inc. (Shine), a registered investment advisor.
WAL divested formerly wholly-owned subsidiary Premier Trust, Inc. as of September 1, 2010.
BON has a wholly-owned Real Estate Investment Trust (REIT) that is used to hold certain
commercial real estate loans, residential real estate loans and other loans in a real estate
investment trust. The Company does not have any other entities that should be considered for
consolidation. All significant intercompany balances and transactions have been eliminated in
consolidation.
Reclassifications
Certain amounts in the consolidated financial statements as of December 31, 2009 and for the three
and nine months ended September 30, 2009 have been reclassified to conform to the current
presentation. The reclassifications have no effect on net income or stockholders equity as
previously reported.
9
Interim financial information
The accompanying unaudited consolidated financial statements as of September 30, 2010 and 2009 have
been prepared in condensed format, and therefore do not include all of the information and
footnotes required by generally accepted accounting principles for complete financial statements.
These statements have been prepared on a basis that is substantially consistent with the accounting
principles applied to our consolidated financial statements included in our Annual Report on Form
10-K for the year ended December 31, 2009.
The information furnished in these interim statements reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of the results for each respective period
presented. Such adjustments are of a normal recurring nature. The results of operations in the
interim statements are not necessarily indicative of the results that may be expected for any other
quarter or for the full year. The interim financial information should be read in conjunction with
the Companys audited financial statements.
Investment securities
Investment securities may be classified as held-to-maturity (HTM), available-for-sale (AFS) or
trading. The appropriate classification is initially decided at the time of purchase. Securities
classified as held-to-maturity are those debt securities the Company has both the intent and
ability to hold to maturity regardless of changes in market conditions, liquidity needs or general
economic conditions. These securities are carried at amortized cost. The sale of a security
within three months of its maturity date, or after at least 85 percent of the principal outstanding
has been collected, is considered a maturity for purposes of classification and disclosure.
Securities classified as AFS or trading are reported as an asset on the Consolidated Balance Sheets
at their estimated fair value. As the fair value of AFS securities changes, the changes are
reported net of income tax as an element of other comprehensive income (OCI), except for impaired
securities. When AFS securities are sold, the unrealized gain or loss is reclassified from OCI to
non-interest income. The changes in the fair values of trading securities are reported in
non-interest income. Securities classified as AFS are both equity and debt securities the Company
intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to
sell a security classified as AFS would be based on various factors, including significant
movements in interest rates, changes in the maturity mix of the Companys assets and liabilities,
liquidity needs, and regulatory capital considerations.
Interest income is recognized based on the coupon rate and increased by accretion of discounts
earned or decreased by the amortization of premiums paid over the contractual life of the security
using the interest method. For mortgage-backed securities, estimates of prepayments are considered
in the constant yield calculations.
In estimating whether there are any other than temporary impairment losses, management considers 1)
the length of time and the extent to which the fair value has been less than amortized cost, 2) the
financial condition and near term prospects of the issuer, 3) the impact of changes in market
interest rates and 4) the intent and ability of the Company to retain its investment for a period
of time sufficient to allow for any anticipated recovery in fair value.
Declines in the fair value of individual debt securities available for sale that are deemed to be
other than temporary are reflected in earnings when identified. The fair value of the debt
security then becomes the new cost basis. For individual debt securities where the Company does
not intend to sell the security and it is not more likely than not that the Company will be
required to sell the security before recovery of its amortized cost basis, the other than temporary
decline in fair value of the debt security related to 1) credit loss is recognized in earnings and
2) market or other factors is recognized in other comprehensive income or loss. Credit loss is
recorded if the present value of cash flows is less than amortized cost. For individual debt
securities where the Company intends to sell the security or more likely than not will not recover
all of its amortized cost, the other than temporary impairment is recognized in earnings equal to
the entire difference between the securities cost basis and its fair value at the balance sheet
date. For individual debt securities for which a credit loss has been recognized in earnings,
interest accruals and amortization and accretion of premiums and discounts are suspended when the
credit loss is recognized. Interest received after accruals have been suspended is recognized on a
cash basis.
Securities measured at fair value are equity and debt securities for which the Company elected
early adoption of FASB ASC 825 Financial Instruments (ASC 825), effective January 1, 2007.
Securities for which the fair value measurement classification was made generally were fixed rate
with a relatively long duration and low coupon rates. Securities measured at fair value are
reported at fair value with unrealized gains and losses included in current period earnings.
Allowance for credit losses
Credit risk is inherent in the business of extending loans and leases to borrowers. Like other
financial institutions, the Company must maintain an adequate allowance for credit losses. The
allowance for credit losses is established through
10
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 other factors. The Company
formally re-evaluates and establishes the appropriate level of the allowance for credit losses on a
quarterly basis.
Our allowance for credit loss methodology incorporates several quantitative and qualitative risk
factors used to establish the appropriate allowance for credit losses at each reporting date.
Quantitative factors include our historical loss experience, delinquency and charge-off trends,
collateral values, changes in the level of nonperforming loans and other factors. Qualitative
factors include the economic condition of our operating markets and the state of certain
industries. Specific changes in the risk factors are based on perceived risk of similar groups of
loans classified by collateral type, purpose and terms. An internal one-year and three-year loss
history are also incorporated into the allowance calculation model. Due to the credit
concentration of our loan portfolio in real estate secured loans, the value of collateral is
heavily dependent on real estate values in Nevada, Arizona and California, which have declined
significantly in recent periods. While management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary if there are significant changes
in economic or other conditions. In addition, the FDIC, and state banking regulatory agencies, as
an integral part of their examination processes, periodically review our subsidiary banks
allowances for credit losses, and may require us to make additions to our allowance based on their
judgment about information available to them at the time of their examinations. Management
regularly reviews the assumptions and formulae used in determining the allowance and makes
adjustments if required to reflect the current risk profile of the portfolio.
The allowance consists of specific and general components. The specific allowance relates to
impaired loans. In general, impaired loans include those where interest recognition has been
suspended, loans that are more than 90 days delinquent but because of adequate collateral coverage
income continues to be recognized, and other criticized and classified loans not paying
substantially according to the original contract terms. For such loans, an allowance is
established when the discounted cash flows, collateral value or observable market price of the
impaired loan are lower than the carrying value of that loan, pursuant to FASB ASC 310 Receivables
(ASC 310). Loans not collateral dependent are evaluated based on the expected future cash flows
discounted at the current contractual interest rate. The amount to which the present value falls
short of the current loan obligation will be set up as a reserve for that account or charged-off.
The Company uses an appraised value method to determine the need for a reserve on impaired,
collateral dependent loans and further discounts the appraisal for disposition costs. Due to the
rapidly changing economic and market conditions of the regions within which we operate, the Company
obtains independent collateral valuation analysis on a regular basis for each loan, typically every
six months.
The general allowance covers all non-impaired loans and is based on historical loss experience
adjusted for the various qualitative and quantitative factors listed above. The change in the
allowance from one reporting period to the next may not directly correlate to the rate of change of
the nonperforming loans for the following reasons:
1. A loan moving from impaired performing to impaired nonperforming does not mandate an increased
reserve. The individual account is evaluated for a specific reserve requirement when the loan
moves to impaired status, not when it moves to nonperforming status, and is reevaluated at each
subsequent reporting period. Because our nonperforming loans are predominately collateral
dependent, reserves are primarily based on collateral value, which is not affected by borrower
performance but rather by market conditions.
2. Not all impaired accounts require a specific reserve. The payment performance of the borrower
may require an impaired classification, but the collateral evaluation may support adequate
collateral coverage. For a number of impaired accounts in which borrower performance has ceased,
the collateral coverage is now sufficient because a partial charge off of the account has been
taken. In those instances, neither a general reserve nor a specific reserve is assessed.
Other assets acquired through foreclosure
Other assets acquired through foreclosure consist primarily of properties acquired as a result of,
or in-lieu-of, foreclosure. Properties or other assets (primarily repossessed assets formerly
leased) are classified as other real estate owned and other repossessed property and are initially
reported at fair value of the asset less selling costs. Subsequent valuation adjustments are based
on the lower of carrying value or fair value, less estimated costs to sell the property. Costs
relating to the development or improvement of the assets are capitalized and costs relating to
holding the assets are charged to
non-interest expense. Property is evaluated regularly (typically every six months) to ensure the
recorded amount is supported by its current fair value and valuation allowances.
11
Goodwill
The Company recorded as goodwill the excess of the purchase price over the fair value of the
identifiable net assets acquired in accordance with applicable guidance. As per this guidance, a
two-step process is outlined for impairment testing of goodwill. Impairment testing is generally
performed annually, as well as when an event triggering impairment may have occurred. The first
step tests for impairment, while the second step, if necessary, measures the impairment. The
resulting impairment amount if any is charged to current period earnings as non-interest expense.
Income taxes
Western Alliance Bancorporation and its subsidiaries, other than BW Real Estate, Inc., file a
consolidated federal tax return. Due to tax regulations, several items of income and expense are
recognized in different periods for tax return purposes than for financial reporting purposes.
These items represent temporary differences. Deferred taxes are provided on an asset and
liability method whereby deferred tax assets are recognized for deductible temporary differences
and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of
changes in tax laws and rates on the date of enactment.
Although realization is not assured, the Company believes that the realization of the recognized
net deferred tax asset of $70.1 million at September 30, 2010 is more likely than not based on
expectations as to future taxable income and based on available tax planning strategies as defined
in FASB ASC 740 Income Taxes (ASC 740) that could be implemented if necessary to prevent a
carryforward from expiring.
The most significant source of these timing differences is the credit loss reserve build which
accounts for $39.9 million of the $70.1 million net deferred tax asset. In general, the Company
will need to generate approximately $195 million of taxable income during the respective
carryforward periods to fully realize its deferred tax assets.
As a result of the recent losses, the Company is in a three-year cumulative pretax loss position at
September 30, 2010. A cumulative loss position is considered significant negative evidence in
assessing the realizability of a deferred tax asset. The Company has concluded that there is
sufficient positive evidence to overcome this negative evidence. This positive evidence includes
Company forecasts, exclusive of tax planning strategies that show realization of deferred tax
assets by December 31, 2013 based on current projections, or by December 31, 2014 under stressed
conditions. In addition, the Company has evaluated tax planning strategies, including potential
sales of businesses and assets in which it could realize the excess of appreciated value over the
tax basis of its assets. The amount of deferred tax assets considered realizable, however, could
be significantly reduced in the near term if estimates of future taxable income during the
carryforward period are significantly lower than forecasted due to deterioration in market
conditions.
Based on the above discussion, the net operating loss carryforward of 20 years provides sufficient
time to utilize deferred federal and state tax assets pertaining to the existing net operating loss
carryforwards and any net operating loss (NOL) that would be created by the reversal of the
future net deductions that have not yet been taken on a tax return.
Fair values of financial instruments
The Company uses fair value measurements to record fair value adjustments to certain assets and
liabilities. FASB ASC 820 Fair Value Measurements and Disclosures (ASC 820) establishes a
framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of
fair value measurement and enhances disclosure requirements for fair value measurements. The
valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The Company uses various valuation approaches, including
market, income and/or cost approaches. ASC 820 establishes a hierarchy for inputs used in
measuring fair value that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by requiring that observable inputs be used when available. Observable inputs
are inputs that market participants would use in pricing the asset or liability developed based on
market data obtained from sources independent of the Company. Unobservable inputs are inputs that
reflect the Companys assumptions about the assumptions market participants would use in pricing
the asset or liability developed based on the best information available in the circumstances. The
hierarchy is broken down into three levels based on the reliability of inputs, as follows:
|
|
|
Level 1 Observable quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities. |
|
|
|
|
Level 2 Observable quoted prices for similar instruments in active markets, quoted
prices for identical or similar
instruments in markets that are not active, or model-based valuation techniques where all
significant assumptions are observable, either directly or indirectly in the market. |
12
|
|
|
Level 3 Model-based techniques where all significant assumptions are not observable,
either directly or indirectly, in the market. These unobservable assumptions reflect our
own estimates of assumptions that market participants would use in pricing the asset or
liability. Valuation techniques may include use of matrix pricing, discounted cash flow
models and similar techniques. |
The availability of observable inputs varies based on the nature of the specific financial
instrument. To the extent that valuation is based on models or inputs that are less observable or
unobservable in the market, the determination of fair value requires more judgment. Accordingly,
the degree of judgment exercised by the Company in determining fair value is greatest for
instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may
fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes the
level in the fair value hierarchy within which the fair value measurement in its entirety falls is
determined based on the lowest level input that is significant to the fair value measurement in its
entirety.
Fair value is a market-based measure considered from the perspective of a market participant who
holds the asset or owes the liability rather than an entity-specific measure. When market
assumptions are available, ASC 820 requires the Company to make assumptions regarding the
assumptions that market participants would use to estimate the fair value of the financial
instrument at the measurement date.
FASB ASC 825, Financial Instruments (ASC 825) requires disclosure of fair value information about
financial instruments, whether or not recognized in the balance sheet, for which it is practicable
to estimate that value.
Management uses its best judgment in estimating the fair value of the Companys financial
instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for
substantially all financial instruments, the fair value estimates presented herein are not
necessarily indicative of the amounts the Company could have realized in a sales transaction at
September 30, 2010 or 2009. The estimated fair value amounts for 2010 and 2009 have been measured
as of period-end, and have not been re-evaluated or updated for purposes of these consolidated
financial statements subsequent to those dates. As such, the estimated fair values of these
financial instruments subsequent to the reporting date may be different than the amounts reported
at the period-end.
The information in Note 11, Fair Value of Financial Instruments, should not be interpreted as an
estimate of the fair value of the entire Company since a fair value calculation is only required
for a limited portion of the Companys assets and liabilities.
Due to the wide range of valuation techniques and the degree of subjectivity used in making the
estimate, comparisons between the Companys disclosures and those of other companies or banks may
not be meaningful.
The following methods and assumptions were used by the Company in estimating the fair value of its
financial instruments:
Cash and cash equivalents
The carrying amounts reported in the consolidated balance sheets for cash and due from banks and
federal funds sold and other approximates their fair value.
Securities
The fair values of U.S. Treasuries corporate bonds, and exchange-listed preferred stock are based
on quoted market prices and are categorized as Level 1 of the fair value hierarchy.
The fair value of other investment securities were determined based on matrix pricing. Matrix
pricing is a mathematical technique that utilizes observable market inputs including, for example,
yield curves, credit ratings and prepayment speeds. Fair values determined using matrix pricing
are generally categorized as Level 2 in the fair value hierarchy.
The Company owns certain collateralized debt obligations (CDOs) and structured notes for which
quoted prices are not available. Quoted prices for similar assets are also not available for these
investment securities. In order to determine the fair value of these securities, the Company uses
a third party which has estimated the future cash flows and discount rate using observable market
inputs adjusted based on assumptions regarding the adjustments a market participant would assume
necessary for each specific security. As a result, the resulting fair values have been categorized
as Level 3 in the fair value hierarchy.
Restricted stock
The Companys subsidiary banks are members of the Federal Home Loan Bank (FHLB) system and
maintain an investment in capital stock of the FHLB. Alta Alliance Bank is a member of the Federal
Reserve Bank (FRB) system and maintains an investment in capital stock of the FRB. The Companys
subsidiary banks also maintain an investment in their primary correspondent bank. These
investments are carried at cost since no ready market exists for them, and they
13
have no quoted
market value. The Company conducts a periodic review and evaluation of our FHLB stock to determine
if any impairment exists.
Loans
For variable rate loans that reprice frequently and that have experienced no significant change in
credit risk, fair values are based on carrying values. Variable rate loans comprised approximately
64.8% and 66.8% of the loan portfolio at September 30, 2010 and December 31, 2009, respectively.
Fair value for all other loans is estimated based on discounted cash flows using interest rates
currently being offered for loans with similar terms to borrowers with similar credit quality with
adjustments that the Company believes a market participant would consider in determining fair
value. As a result, the fair value for loans disclosed in Note 11, Fair Value of Financial
Instruments, is categorized as Level 3 in the fair value hierarchy.
Accrued interest receivable and payable
The carrying amounts reported in the consolidated balance sheets for accrued interest receivable
and payable approximate their fair value. Accrued interest receivable and payable fair value
measurements disclosed in Note 11 Fair Value of Financial Instruments, are classified as Level 3
in the fair value hierarchy.
Derivative financial instruments
All derivatives are recognized on the balance sheet at their fair value. The fair value for
derivatives is determined based on market prices, broker-dealer quotations on similar product or
other related input parameters. As a result, the fair values have been categorized as Level 2 in
the fair value hierarchy.
Deposit liabilities
The fair value disclosed for demand and savings deposits is by definition equal to the amount
payable on demand at their reporting date (that is, their carrying amount) which the Company
believes a market participant would consider in determining fair value. The carrying amount for
variable-rate deposit accounts approximates their fair value. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of aggregated expected monthly
maturities on these deposits. The fair value measurement of the deposit liabilities disclosed in
Note 11, Fair Value of Instruments, is categorized as Level 3 in the fair value hierarchy.
Federal Home Loan Bank and Federal Reserve advances and other borrowings
The fair values of the Companys borrowings are estimated using discounted cash flow analyses,
based on the market rates for similar types of borrowing arrangements. The FHLB and FRB advances
and other borrowings have been categorized as Level 3 in the fair value hierarchy.
Junior subordinated and subordinated debt
Junior subordinated debt and subordinated debt are valued by comparing interest rates and spreads
to benchmark indices offered to institutions with similar credit profiles to our own and
discounting the contractual cash flows on our debt using these market rates. The junior
subordinated debt and subordinated debt have been categorized as Level 3 in the fair value
hierarchy.
Off-balance sheet instruments
Fair values for the Companys off-balance sheet instruments (lending commitments and standby
letters of credit) are based on quoted fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the counterparties credit standing.
Derivative financial instruments
All derivatives are recognized on the balance sheet at their fair value, with changes in fair value
reported in current-period earnings. These instruments consist primarily of interest rate swaps.
Certain derivative transactions that meet specified criteria qualify for hedge accounting. The
Company occasionally purchases a financial instrument or originates a loan that contains an
embedded derivative instrument. Upon purchasing the instrument or originating the loan, the
Company assesses whether the economic characteristics of the embedded derivative are clearly and
closely related to the economic characteristics of the remaining component of the financial
instrument (i.e., the host contract) and whether a separate instrument with the same terms as the
embedded instrument would meet the definition of a derivative instrument. When it is determined
that (1) the embedded derivative possesses
economic characteristics that are not clearly and closely related to the economic characteristics
of the host contract, and (2) a separate instrument with the same terms would qualify as a
derivative instrument, the embedded derivative is separated from the host contract and carried at
fair value. However, in cases where (1) the host contract is measured at fair value, with changes
in fair value reported in current earnings or (2) the Company is unable to reliably identify and
14
measure an embedded derivative for separation from its host contract, the entire contract is
carried on the balance sheet at fair value and is not designated as a hedging instrument.
Recent Accounting Pronouncements
FASB ASC 810, Consolidation (ASC 810). Effective January 1 2010, further new authoritative
accounting guidance under ASC Topic 810 amends prior guidance to change how a company determines
when an entity that is insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. The determination of whether a company is required to consolidate
an entity is based on, among other things, an entitys purpose and design and a companys ability
to direct the activities of the entity that most significantly impact the entitys economic
performance. The new authoritative accounting guidance requires additional disclosures about the
reporting entitys involvement with variable-interest entities and any significant changes in risk
exposure due to that involvement as well as its affect on the entitys financial statements. The
new authoritative accounting guidance under ASC Topic 810 was effective January 1, 2010 and did not
have a significant impact on the Companys consolidated financial statements.
FASB ASC Topic 860 Transfers and Servicing (ASC 860) was amended to enhance reporting about
transfers of financial assets including securitizations, and where companies have continuing
exposure to the risks related to transferred financial assets. The new authoritative accounting
guidance eliminates the concept of a qualifying special-purpose entity and changes the
requirements for derecognizing financial assets. The new authoritative guidance also requires
additional disclosures about all continuing involvements with transferred financial assets
including information about gains and losses resulting from transfers during the period. The new
authoritative accounting guidance under ASC 860 was effective January 1, 2010 and did not have a
significant impact on the Companys consolidated financial statements.
Issued October 2009, ASU 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of
Convertible Debt Issuance or Other Financing amends FASB ASC Topic 470, Debt (ASC 470), and
provides guidance for accounting and reporting for own-share lending arrangements issued in
contemplation of a convertible debt issuance. At the date of issuance, a share-lending arrangement
entered into on an entitys own shares should be measured at fair value in accordance with ASC 820
and recognized as an issuance cost, with an offset to additional paid-in capital. Loaned shares
are excluded from basic and diluted earnings per share unless default of the share-lending
arrangement occurs. The amendments also require several disclosures including a description and
the terms of the arrangement and the reason for entering into the arrangement. The effective dates
of the amendments are dependent upon the date the share-lending arrangement was entered into and
include retrospective application for arrangements outstanding as of the beginning of fiscal years
beginning on or after December 15, 2009. The Company has no plans to issue convertible debt and,
therefore, does not expect the update to have an impact on its consolidated financial statements.
In January 2010 the FASB issued ASU 2010-06 Fair Value Measurements and Disclosures Topic 820 which
provides guidance requiring enhanced fair value disclosures about (1) the different classes of
assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3)
the activity in level 3 fair value measurements and (4) the transfers between levels 1, 2, and 3.
The increased disclosure requirements further set forth in the update that in the reconciliation
for fair value measurements using significant unobservable inputs (level 3), a reporting entity
should present separately information about purchases, sales, issuances and settlements (that is,
gross amounts shall be disclosed as opposed to a single net figure). Increased disclosures
regarding the level 3 fair value reconciliation are required for fiscal years beginning after
December 15, 2010.
In April 2010 the FASB issued ASU 2010-18 Loan Modifications Topic 310 which provides guidance that
loans accounted for within a pool need not be removed from the pool when loan modifications are
made, even if the modifications would otherwise be considered trouble debt restructurings. Under
this guidance an entity will continue to evaluate the pool of loans when performing its impairment
analysis. The effective date of the amendments in this update is in the first interim period
ending on or after July 15, 2010. The amendments are to be applied prospectively. The Company
does not expect the adoption to have a significant impact on its consolidated financial statements.
In July 2010 the FASB issued ASU 2010-20 Receivables Topic 310 which amends Topic 310 to improve
the disclosures that an entity provides about the credit quality of its financing receivables and
related allowance for credit losses. An entity is required to disaggregate by portfolio segment or
class certain existing disclosures and provide certain new
disclosures about its financing receivables and related allowance for credit losses. The Company
does not expect the adoption to have a significant impact on its consolidated financial statements.
15
2. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
In the first quarter of 2010, the Company decided to sell its credit card segment, PartnersFirst,
and has presented certain activities as discontinued operations. During the first quarter of 2010,
the Company transferred certain assets with balances at September 30, 2010 of $0.1 million to
held-for-sale and reported a portion of its operations as discontinued. At September 30, 2010, the
Company had $46.1 million of outstanding credit card loans which will have continuing cash flows
related to the collection of these loans. These credit card loans are included in loans held for
investment as of September 30, 2010 and December 31, 2009.
The following table summarizes the operating results of the discontinued operations for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Affinity card revenue |
|
$ |
444 |
|
|
$ |
614 |
|
|
$ |
1,394 |
|
|
$ |
1,307 |
|
Non-interest expenses |
|
|
(1,532 |
) |
|
|
(2,263 |
) |
|
|
(5,477 |
) |
|
|
(7,076 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(1,088 |
) |
|
|
(1,649 |
) |
|
|
(4,083 |
) |
|
|
(5,769 |
) |
Income tax benefit |
|
|
(457 |
) |
|
|
(691 |
) |
|
|
(1,715 |
) |
|
|
(2,377 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(631 |
) |
|
$ |
(958 |
) |
|
$ |
(2,368 |
) |
|
$ |
(3,392 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
3. EARNINGS PER SHARE
Diluted earnings per share is based on the weighted average outstanding common shares during each
period, including common stock equivalents. Basic earnings (loss) per share is based on the
weighted average outstanding common shares during the period.
Basic and diluted (loss) per share, based on the weighted average outstanding shares, are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands, except per share amounts) |
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders |
|
$ |
(457 |
) |
|
$ |
(26,354 |
) |
|
$ |
(3,778 |
) |
|
$ |
(131,789 |
) |
Average common shares outstanding |
|
|
75,554 |
|
|
|
71,697 |
|
|
|
73,240 |
|
|
|
54,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share |
|
$ |
(0.01 |
) |
|
$ |
(0.37 |
) |
|
$ |
(0.05 |
) |
|
$ |
(2.42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders |
|
$ |
(457 |
) |
|
$ |
(26,354 |
) |
|
$ |
(3,778 |
) |
|
$ |
(131,789 |
) |
Average common shares outstanding |
|
|
75,554 |
|
|
|
71,697 |
|
|
|
73,240 |
|
|
|
54,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share |
|
$ |
(0.01 |
) |
|
$ |
(0.37 |
) |
|
$ |
(0.05 |
) |
|
$ |
(2.42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010 and 2009, all stock options and restricted stock were considered
anti-dilutive and excluded for purposes of calculating diluted loss per share.
4. INVESTMENT SECURITIES
Carrying amounts and fair values of investment securities at September 30, 2010 and December 31,
2009 are summarized as follows:
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
OTTI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Other |
|
|
Net |
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Comprehensive |
|
|
Carrying |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Loss |
|
|
Amount |
|
|
Gains |
|
|
(Losses) |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations |
|
$ |
288 |
|
|
$ |
|
|
|
$ |
288 |
|
|
$ |
535 |
|
|
$ |
(7 |
) |
|
$ |
816 |
|
Corporate bonds |
|
|
20,000 |
|
|
|
|
|
|
|
20,000 |
|
|
$ |
119 |
|
|
$ |
(154 |
) |
|
|
19,965 |
|
Municipal obligations |
|
|
2,316 |
|
|
|
|
|
|
|
2,316 |
|
|
|
32 |
|
|
|
|
|
|
|
2,348 |
|
Other |
|
|
1,500 |
|
|
|
|
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24,104 |
|
|
$ |
|
|
|
$ |
24,104 |
|
|
$ |
686 |
|
|
$ |
(161 |
) |
|
$ |
24,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTTI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Other |
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Comprehensive |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Loss |
|
|
Gains |
|
|
(Losses) |
|
|
Value |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government-sponsored
agency securities |
|
$ |
275,460 |
|
|
$ |
|
|
|
$ |
1,745 |
|
|
$ |
(56 |
) |
|
$ |
277,149 |
|
Municipal obligations |
|
|
318 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
322 |
|
Adjustable-rate preferred stock |
|
|
39,885 |
|
|
|
|
|
|
|
561 |
|
|
|
(429 |
) |
|
|
40,017 |
|
Direct obligation and GSE
residential mortgage backed |
|
|
490,004 |
|
|
|
|
|
|
|
5,494 |
|
|
|
(1,566 |
) |
|
|
493,932 |
|
Private label residential
mortgage-backed securities |
|
|
10,250 |
|
|
|
(1,811 |
) |
|
|
1,170 |
|
|
|
(253 |
) |
|
|
9,356 |
|
Trust preferred securities |
|
|
32,067 |
|
|
|
|
|
|
|
|
|
|
|
(9,054 |
) |
|
|
23,013 |
|
Corporate bonds |
|
|
5,000 |
|
|
|
|
|
|
|
119 |
|
|
|
|
|
|
|
5,119 |
|
Other |
|
|
22,134 |
|
|
|
|
|
|
|
493 |
|
|
|
|
|
|
|
22,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
875,118 |
|
|
$ |
(1,811 |
) |
|
$ |
9,586 |
|
|
$ |
(11,358 |
) |
|
$ |
871,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities measured at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government-sponsored agency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,535 |
|
Direct obligation and GSE residential
mortgage backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
32,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
OTTI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Other |
|
|
Net |
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Comprehensive |
|
|
Carrying |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Loss |
|
|
Amount |
|
|
Gains |
|
|
(Losses) |
|
|
Value |
|
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations |
|
$ |
1,462 |
|
|
$ |
(544 |
) |
|
$ |
918 |
|
|
$ |
340 |
|
|
$ |
(340 |
) |
|
$ |
918 |
|
Municipal obligations |
|
|
5,064 |
|
|
|
|
|
|
|
5,064 |
|
|
|
|
|
|
|
|
|
|
|
5,064 |
|
Other |
|
|
1,500 |
|
|
|
|
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,026 |
|
|
$ |
(544 |
) |
|
$ |
7,482 |
|
|
$ |
340 |
|
|
$ |
(340 |
) |
|
$ |
7,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTTI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Other |
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Comprehensive |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Loss |
|
|
Gains |
|
|
(Losses) |
|
|
Value |
|
|
|
(in thousands) |
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal obligations |
|
$ |
324 |
|
|
$ |
|
|
|
$ |
2 |
|
|
$ |
(10 |
) |
|
$ |
316 |
|
Adjustable-rate preferred stock |
|
|
7,825 |
|
|
|
|
|
|
|
10,471 |
|
|
|
|
|
|
|
18,296 |
|
Direct obligation and GSE residential mortgage-backed securities |
|
|
600,307 |
|
|
|
|
|
|
|
9,699 |
|
|
|
(4,250 |
) |
|
|
605,756 |
|
Private label residential mortgage-backed securities |
|
|
12,829 |
|
|
|
(1,811 |
) |
|
|
1,045 |
|
|
|
(762 |
) |
|
|
11,301 |
|
Trust preferred securities |
|
|
32,098 |
|
|
|
|
|
|
|
|
|
|
|
(10,048 |
) |
|
|
22,050 |
|
FDIC guarantee corporate bonds |
|
|
71,680 |
|
|
|
|
|
|
|
104 |
|
|
|
(594 |
) |
|
|
71,190 |
|
Other |
|
|
15,720 |
|
|
|
|
|
|
|
21 |
|
|
|
(52 |
) |
|
|
15,689 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
740,783 |
|
|
$ |
(1,811 |
) |
|
$ |
21,342 |
|
|
$ |
(15,716 |
) |
|
$ |
744,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities measured at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government-sponsored agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,479 |
|
Direct obligation and GSE residential mortgage-backed securities |
|
|
49,317 |
|
Private label residential mortgage-backed securities |
|
|
6,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
58,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized gains on the adjustable rate preferred stock (ARPS) securities are
considered after-tax amounts as the previous impairment losses on these securities were also not
tax-effected. This was due to a deferred tax valuation allowance that was originally booked on the
ARPS impairment losses. Sales of these ARPS at current values would generate after-tax gains to
the Company.
The Company conducts an other-than-temporary impairment (OTTI) analysis on a quarterly basis.
The initial indication of OTTI for both debt and equity securities is a decline in the market value
below the amount recorded for an investment, and the severity and duration of the decline. In
determining whether an impairment is OTTI, the Company considers the length of time and the extent
to which the market value has been below cost, recent events specific to the issuer, including
investment downgrades by rating agencies and economic conditions of its industry, and the Companys
ability and intent to hold the investment for a period of time sufficient to allow for any
anticipated recovery. For marketable equity securities, the Company also considers the issuers
financial condition, capital strength, and near-term prospects.
For debt securities and for ARPS that are treated as debt securities for the purpose of OTTI
analysis, the Company also considers the cause of the price decline (general level of interest
rates and industry and issuer-specific factors), the issuers financial condition, near-term
prospects and current ability to make future payments in a timely manner, the issuers ability to
service debt, and any change in agencies ratings at evaluation date from acquisition date and any
likely imminent action. For ARPS with a fair value below cost that is not attributable to the
credit deterioration of the issuer, such as a decline in cash flows from the security or a
downgrade in the securitys rating below investment grade, the Company may avoid recognizing an
OTTI charge by asserting that it has the intent and ability to retain its investment for a period
of time sufficient to allow for any anticipated recovery in fair value.
Gross unrealized losses at September 30, 2010 are primarily caused by interest rate fluctuations,
credit spread widening and reduced liquidity in applicable markets. The Company has reviewed
securities on which there is an unrealized loss in accordance with its accounting policy for OTTI
described above and recorded no impairment charges and $1 million for the three months ended
September 30, 2010 and 2009, and $1.2 million and $42 million for the nine months ended September
30, 2010 and 2009, respectively. The impairment charge for 2010 is attributed to the Companys
CDOs. For the first nine months of 2009, the impairment charges included $36.4 million related to
impairment losses in the Companys ARPS, $1.8 million related to impairment losses in the Companys
CDO portfolio and $3.8 million related to the Companys collateralized mortgage obligation (CMO)
portfolio.
18
The Company does not consider any other securities to be other-than-temporarily impaired as of
September 30, 2010 and December 31, 2009. However, without recovery in the near term such that
liquidity returns to the applicable markets and spreads return to levels that reflect underlying
credit characteristics, additional OTTI may occur in future periods.
Information pertaining to securities with gross unrealized losses at September 30, 2010 and
December 31, 2009, aggregated by investment category and length of time that individual securities
have been in a continuous loss position follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
Less Than Twelve Months |
|
|
Over Twelve Months |
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations |
|
$ |
7 |
|
|
$ |
113 |
|
|
$ |
|
|
|
$ |
|
|
Corporate bonds |
|
|
154 |
|
|
|
14,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
161 |
|
|
$ |
14,959 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
Less Than Twelve Months |
|
|
Over Twelve Months |
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S Government-sponsered agency |
|
$ |
56 |
|
|
$ |
19,939 |
|
|
$ |
|
|
|
$ |
|
|
Municipal obligations |
|
|
|
|
|
|
100 |
|
|
|
|
|
|
|
|
|
Direct
obligation and GSE residential mortgage-backed securities |
|
|
1,498 |
|
|
|
125,060 |
|
|
|
68 |
|
|
|
9,268 |
|
Private
label residential mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
2,064 |
|
|
|
6,901 |
|
Adjustable-rate preferred stock |
|
|
429 |
|
|
|
24,452 |
|
|
|
|
|
|
|
|
|
Trust preferred securities |
|
|
|
|
|
|
|
|
|
|
9,054 |
|
|
|
23,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,983 |
|
|
$ |
169,551 |
|
|
$ |
11,186 |
|
|
$ |
39,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Less Than Twelve Months |
|
|
Over Twelve Months |
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations |
|
$ |
663 |
|
|
$ |
724 |
|
|
$ |
221 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
663 |
|
|
$ |
724 |
|
|
$ |
221 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Less Than Twelve Months |
|
|
Over Twelve Months |
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct obligation and GSE residential
mortgage-backed securities |
|
$ |
3,946 |
|
|
$ |
285,044 |
|
|
$ |
303 |
|
|
$ |
23,847 |
|
Municipal obligations |
|
|
10 |
|
|
|
207 |
|
|
|
|
|
|
|
|
|
Private label residential mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
2,573 |
|
|
|
11,301 |
|
Trust preferred securities |
|
|
594 |
|
|
|
51,110 |
|
|
|
10,048 |
|
|
|
22,050 |
|
Other |
|
|
53 |
|
|
|
13,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,603 |
|
|
$ |
349,558 |
|
|
$ |
12,924 |
|
|
$ |
57,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010 and December 31, 2009, 35 and 64 debt securities (excluding adjustable rate
preferred stock, debt obligations and other structured securities), respectively, have unrealized
losses with aggregate depreciation of approximately 2.3% and 2.1%, respectively, from the Companys
amortized cost basis. These unrealized losses relate primarily to fluctuations in the current
interest rate environment. In analyzing an issuers financial condition, management considers
whether the securities are issued by the federal government or its agencies, whether downgrades by
bond rating agencies have occurred, and industry analysis reports. Since material downgrades have
not occurred and management does not have the intent to sell the debt securities for the
foreseeable future, none of the securities described in the above table or in this paragraph were
deemed to be other than temporarily impaired.
At September 30, 2010 and December 31, 2009, two investments in trust preferred securities have
unrealized losses with aggregate depreciation of approximately 39.3% and 31.3%, respectively, from
the Companys amortized cost basis. At September 30, 2010 the combined net unrealized loss on
trust preferred securities classified as available-for sale (AFS) was $9.1 million, compared with
$10.0 million at December 31, 2009. The Company is actively monitoring its debt and other
structured securities portfolios classified as AFS for declines in fair value. These unrealized
losses relate primarily to fluctuations in the current interest rate environment, and specifically
to the widening of credit spreads on virtually all corporate and structured debt, which began in
2007. The Company has the intent and ability to hold trust preferred securities for the
foreseeable future; none were deemed to be OTTI.
The amortized cost and fair value of securities as of September 30, 2010 and December 31, 2009, by
contractual maturities, are shown below. The actual maturities of the mortgage-backed securities
may differ from their contractual maturities because the loans underlying the securities may be
repaid without any penalties. Therefore, these securities are listed separately in the maturity
summary. Expected maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment penalties.
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Amortized |
|
|
Estimated |
|
|
Amortized |
|
|
Estimated |
|
|
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
940 |
|
|
$ |
940 |
|
|
$ |
2,029 |
|
|
$ |
2,029 |
|
Due after one year through five years |
|
|
1,001 |
|
|
|
1,022 |
|
|
|
648 |
|
|
|
648 |
|
Due after five years through ten years |
|
|
15,375 |
|
|
|
15,232 |
|
|
|
1,387 |
|
|
|
1,387 |
|
Due after ten years |
|
|
5,288 |
|
|
|
5,935 |
|
|
|
2,462 |
|
|
|
1,918 |
|
Other |
|
|
1,500 |
|
|
|
1,500 |
|
|
|
1,500 |
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24,104 |
|
|
$ |
24,629 |
|
|
$ |
8,026 |
|
|
$ |
7,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
6,669 |
|
|
$ |
6,631 |
|
|
$ |
|
|
|
$ |
|
|
Due after one year through five years |
|
|
1,633 |
|
|
|
1,674 |
|
|
|
71,695 |
|
|
|
71,206 |
|
Due after five years through ten years |
|
|
292,231 |
|
|
|
294,094 |
|
|
|
56 |
|
|
|
57 |
|
Due after ten years |
|
|
62,447 |
|
|
|
52,577 |
|
|
|
40,176 |
|
|
|
40,589 |
|
Mortgage backed securities |
|
|
490,004 |
|
|
|
493,932 |
|
|
|
613,136 |
|
|
|
617,057 |
|
Other |
|
|
22,134 |
|
|
|
22,627 |
|
|
|
15,720 |
|
|
|
15,689 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
875,118 |
|
|
$ |
871,535 |
|
|
$ |
740,783 |
|
|
$ |
744,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the Companys investment ratings position as of September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010 |
|
|
|
|
|
|
|
Investment-grade (1) |
|
|
|
|
|
|
Noninvestment-grade (1) |
|
|
|
AAA |
|
|
AA+ to AA- |
|
|
A+ to A- |
|
|
BBB+ to BBB- |
|
|
BB+ and below |
|
|
Totals |
|
Municipal obligations |
|
$ |
1,054 |
|
|
$ |
643 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,697 |
|
Direct & GSE residential
mortgage-backed securities |
|
|
523,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
523,826 |
|
Private label residential
mortgage-backed securities |
|
|
6,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,558 |
|
|
|
9,356 |
|
U.S Government-sponsered agency |
|
|
279,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
279,684 |
|
Adjustable-rate preferred stock |
|
|
|
|
|
|
|
|
|
|
35,144 |
|
|
|
4,872 |
|
|
|
|
|
|
|
40,016 |
|
Collateralized debt obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
288 |
|
|
|
288 |
|
Trust preferred securities |
|
|
|
|
|
|
|
|
|
|
21,593 |
|
|
|
1,420 |
|
|
|
|
|
|
|
23,013 |
|
Corporate bonds |
|
|
|
|
|
|
5,000 |
|
|
|
20,119 |
|
|
|
|
|
|
|
|
|
|
|
25,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (2) |
|
$ |
811,362 |
|
|
$ |
5,643 |
|
|
$ |
76,856 |
|
|
$ |
6,292 |
|
|
$ |
2,846 |
|
|
$ |
902,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company used the average credit rating of the combination of S&P, Moodys and Fitch in
the above table where ratings differed. |
|
(2) |
|
Securities values are shown at carrying value as of September 30, 2010. Unrated securities
consist of CRA investments with a carrying value of $22.6 million, municipals of $0.9 million,
and an other investment of $1.5 million. |
The following table summarizes the Companys investment ratings position as of December 31, 2009.
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities ratings profile |
|
|
|
As of December 31, 2009 |
|
|
|
| |
|
|
Investment-grade (1) |
|
|
|
|
|
|
Noninvestment-grade (1) |
|
|
|
AAA |
|
|
AA+ to AA- |
|
|
A+ to A- |
|
|
BBB+ to BBB- |
|
|
BB+ and below |
|
|
Totals |
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
Municipal obligations |
|
$ |
1,047 |
|
|
$ |
2,392 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,439 |
|
Direct & GSE residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgage-backed securities |
|
|
657,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
657,552 |
|
Private label residential
mortgage-backed securities |
|
|
10,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,820 |
|
|
|
18,175 |
|
Adjustable-rate preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,296 |
|
|
|
18,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDOs & trust preferred securities |
|
|
|
|
|
|
|
|
|
|
20,700 |
|
|
|
1,350 |
|
|
|
919 |
|
|
|
22,969 |
|
FDIC guaranteed corporate bonds |
|
|
71,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,190 |
|
Total (2) |
|
$ |
740,144 |
|
|
$ |
2,392 |
|
|
$ |
20,700 |
|
|
$ |
1,350 |
|
|
$ |
27,035 |
|
|
$ |
791,621 |
|
|
|
|
(1) |
|
The Company used the average credit rating of the combination of
S&P, Moodys and Fitch in the above table where ratings differed. |
|
(2) |
|
Securities values are shown at carrying value as of December 31, 2009. Unrated
securities consist of CRA investments with a carrying value of $15.7 million, municipals of
$1.9 million and an other investment of $1.5 million. |
Securities with carrying amounts of approximately $352.4 million and $491.9 million at
September 30, 2010 and December 31, 2009 were pledged for various purposes as required or permitted
by law.
5. LOANS, LEASES AND ALLOWANCE FOR CREDIT LOSSES
The composition of the Companys loans held for investment portfolio as of September 30, 2010 and
December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Construction and land development |
|
$ |
488,343 |
|
|
$ |
623,198 |
|
Commercial real estate owner occupied |
|
|
1,227,704 |
|
|
|
1,091,363 |
|
Commercial real estate non-owner occupied |
|
|
981,374 |
|
|
|
933,261 |
|
Residential real estate |
|
|
533,598 |
|
|
|
568,319 |
|
Commercial and industrial |
|
|
695,375 |
|
|
|
685,089 |
|
Commercial leases |
|
|
181,437 |
|
|
|
117,104 |
|
Consumer |
|
|
71,379 |
|
|
|
80,300 |
|
Deferred fees and unearned income, net |
|
|
(5,730 |
) |
|
|
(18,995 |
) |
|
|
|
|
|
|
|
|
|
|
4,173,480 |
|
|
|
4,079,639 |
|
Allowance for credit losses |
|
|
(108,170 |
) |
|
|
(108,623 |
) |
|
|
|
|
|
|
|
Total loans, net |
|
$ |
4,065,310 |
|
|
$ |
3,971,016 |
|
|
|
|
|
|
|
|
The table below reflects recorded investment in loans classified as impaired:
22
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Impaired loans with a specific valuation allowance under ASC 310 |
|
$ |
42,235 |
|
|
$ |
51,718 |
|
Impaired loans without a specific valuation allowance under ASC 310 |
|
|
203,519 |
|
|
|
181,754 |
|
|
|
|
|
|
|
|
Total impaired loans |
|
$ |
245,754 |
|
|
$ |
233,472 |
|
|
|
|
|
|
|
|
Valuation allowance related to impaired loans |
|
$ |
(9,904 |
) |
|
$ |
(13,383 |
) |
|
|
|
|
|
|
|
Total impaired loans were $245.8 million at September 30, 2010, a net increase of $12.3 million
from December 31, 2009. The increase in impaired loans was mostly attributed to increased impaired
commercial real estate loans, residential real estate and consumer/credit card loans which were
$124.4 million, $44.0 million and $1.0 million, respectively, at September 30, 2010 compared to
$85.4 million, $39.6 million and $0.2 million at December 31, 2009, respectively. This increase
was partially offset by decreased impaired construction and land and commercial and industrial
loans of $25.4 million and $6.3 million, respectively, to $63.8 million and $12.5 million
respectively at September 30, 2010 from December 31, 2009.
A valuation allowance is established for an impaired loan when the fair value of the loan is less
than the recorded investment. In certain cases, portions of impaired loans have been charged-off
to realizable value instead of establishing a valuation allowance and are included, when
applicable, in the table above as Impaired loans without specific valuation allowance under ASC
310. The valuation allowance disclosed above is included in the allowance for credit losses
reported in the consolidated balance sheets as of September 30, 2010 and December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Average investment in impaired loans for the period |
|
$ |
228,298 |
|
|
$ |
219,598 |
|
|
$ |
224,889 |
|
|
$ |
204,300 |
|
Interest recognized during the period for impaired loans |
|
$ |
1,307 |
|
|
$ |
852 |
|
|
$ |
3,445 |
|
|
$ |
4,553 |
|
The Company is not committed to lend significant additional funds on these impaired loans.
The following table summarizes nonperforming assets:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Nonaccrual loans |
|
$ |
130,905 |
|
|
$ |
153,702 |
|
Loans past due 90 days or more on accrual status |
|
|
5,667 |
|
|
|
5,538 |
|
Troubled debt restructured loans (accruing) |
|
|
101,540 |
|
|
|
46,480 |
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
|
238,112 |
|
|
|
205,719 |
|
Foreclosed collateral |
|
|
110,096 |
|
|
|
83,347 |
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
348,208 |
|
|
$ |
289,066 |
|
|
|
|
|
|
|
|
Allowance for Credit Losses
The following table summarizes the changes in the allowance for credit losses:
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Balance, beginning |
|
$ |
110,013 |
|
|
$ |
84,143 |
|
|
$ |
108,623 |
|
|
$ |
74,827 |
|
Provision for credit losses |
|
|
22,965 |
|
|
|
50,750 |
|
|
|
74,827 |
|
|
|
108,307 |
|
Recoveries of amounts charged off |
|
|
2,019 |
|
|
|
1,206 |
|
|
|
7,477 |
|
|
|
2,608 |
|
Charge-offs |
|
|
(26,827 |
) |
|
|
(31,918 |
) |
|
|
(82,757 |
) |
|
|
(81,561 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, ending |
|
$ |
108,170 |
|
|
$ |
104,181 |
|
|
$ |
108,170 |
|
|
$ |
104,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. OTHER ASSETS ACQUIRED THROUGH FORECLOSURE
The following table presents the changes in other assets acquired through foreclosure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
104,365 |
|
|
$ |
42,147 |
|
|
$ |
83,347 |
|
|
$ |
14,545 |
|
Additions |
|
|
25,499 |
|
|
|
36,991 |
|
|
|
73,801 |
|
|
|
78,236 |
|
Dispositions |
|
|
(15,768 |
) |
|
|
(1,714 |
) |
|
|
(29,978 |
) |
|
|
(6,861 |
) |
Valuation adjustments in the period, net |
|
|
(4,000 |
) |
|
|
(4,617 |
) |
|
|
(17,074 |
) |
|
|
(13,113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
110,096 |
|
|
$ |
72,807 |
|
|
$ |
110,096 |
|
|
$ |
72,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010 and 2009, the majority of the Companys repossessed assets were
properties located in Nevada.
7. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill is created when a company acquires a business. When a business is acquired, the purchased
assets and liabilities are recorded at fair value and intangible assets are identified. Excess
consideration paid to acquire a business over the fair value of the net assets is recorded as
goodwill. The Companys annual goodwill impairment testing date is October 1.
The Company determined that there was no triggering event or other factor to indicate an interim
test of goodwill impairment was necessary for the first, second and third quarters of 2010. During
the third quarter 2009, the Company determined that it was necessary to perform an interim test for
goodwill impairment on its former subsidiary Miller/Russell and Associates. As a result of the
goodwill impairment test, the Company determined that the Miller/Russell reporting unit was
impaired by $0.6 million.
During the first quarter 2009, as a result of the significant decline in the Companys stock price
and depressed economic conditions among financial institutions in general, the Company determined
that it was necessary to perform an interim test for goodwill impairment. As a result of the March
31, 2009 goodwill impairment test, the Company determined that the Bank of Nevada reporting unit
was impaired by $45.0 million.
The goodwill impairment charges had no effect on the Companys cash balances or liquidity. In
addition, because goodwill is not included in the calculation of regulatory capital, the Companys
regulatory ratios were not affected by this non-cash expense. No assurance can be given that
goodwill will not be further impaired in future periods.
8. INCOME TAXES
The reconciliation between the statutory federal income tax rate and the Companys effective tax
rate are summarized as follows:
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Income tax at statutory rate |
|
$ |
896 |
|
|
$ |
(14,466 |
) |
|
$ |
1,456 |
|
|
$ |
(54,247 |
) |
Increase (decrease) resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefits |
|
|
(528 |
) |
|
|
(301 |
) |
|
|
(954 |
) |
|
|
(924 |
) |
Dividends received deductions |
|
|
(137 |
) |
|
|
|
|
|
|
(242 |
) |
|
|
(279 |
) |
Bank-owned life insurance |
|
|
(269 |
) |
|
|
(190 |
) |
|
|
(794 |
) |
|
|
(522 |
) |
Tax-exempt income |
|
|
(63 |
) |
|
|
(64 |
) |
|
|
(213 |
) |
|
|
(259 |
) |
Nondeductible expenses |
|
|
86 |
|
|
|
95 |
|
|
|
270 |
|
|
|
281 |
|
Nondeductible goodwill impairment |
|
|
|
|
|
|
201 |
|
|
|
|
|
|
|
15,951 |
|
Deferred tax asset valuation allowance |
|
|
|
|
|
|
(490 |
) |
|
|
(2,033 |
) |
|
|
9,681 |
|
Restricted stock write off |
|
|
|
|
|
|
(2,200 |
) |
|
|
565 |
|
|
|
(254 |
) |
Other, net |
|
|
(64 |
) |
|
|
691 |
|
|
|
115 |
|
|
|
2,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(79 |
) |
|
$ |
(16,724 |
) |
|
$ |
(1,830 |
) |
|
$ |
(28,195 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the deferred tax assets or liabilities
are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income taxes.
For the nine months ended September 30, 2010, the net deferred tax assets increased $1.1 million to
$70.1 million. This increase in the net deferred tax asset was primarily the result of the
reversal of a portion of the deferred tax asset valuation allowance on ARPS impaired securities,
offset by the write off of a portion of the deferred tax asset related to restricted stock.
9. COMMITMENTS AND CONTINGENCIES
Unfunded Commitments and Letters of Credit
The Company is party to financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit. They involve, to varying degrees,
elements of credit risk in excess of amounts recognized in the consolidated balance sheets.
Lines of credit are obligations to lend money to a borrower. Credit risk arises when the
borrowers current financial condition may indicate less ability to pay than when the commitment
was originally made. In the case of standby letters of credit, the risk arises from the
possibility of the failure of the customer to perform according to the terms of a contract. In
such a situation, the third party might draw on the standby letter of credit to pay for completion
of the contract the Company would look to its customer to repay these funds with interest. To
minimize the risk, the Company uses the same credit policies in making commitments and conditional
obligations as it would for a loan to that customer.
Standby letters of credit and financial guarantees are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party in borrowing arrangements. The
Company generally has recourse to recover from the customer any amounts paid under the guarantees.
Typically letters of credit issued have expiration dates within one year.
A summary of the contractual amounts for unfunded commitments and letters of credit are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Commitments to extend credit, including unsecured loan
commitments of $126,532 at September 30, 2010 and
$110,491 at December 31, 2009 |
|
$ |
670,602 |
|
|
$ |
682,870 |
|
Credit card commitments and financial guarantees |
|
|
324,004 |
|
|
|
305,903 |
|
Standby letters of credit, including unsecured
letters of credit of $3,121 at September 30, 2010 and
$3,826 at December 31, 2009 |
|
|
30,099 |
|
|
|
38,891 |
|
|
|
|
|
|
|
|
|
|
$ |
1,024,705 |
|
|
$ |
1,027,664 |
|
|
|
|
|
|
|
|
25
Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The Company evaluates
each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on managements credit
evaluation of the party. The commitments are collateralized by the same types of assets used as
loan collateral.
The Company has exposure to credit losses from unfunded commitments and letters of credit. As
funds have not been disbursed on these commitments, they are not reported as loans outstanding.
Credit losses related to these commitments are not included in the allowance for credit losses
reported in Note 5, Loans, Leases and Allowance for Credit Losses of these Consolidated Financial
Statements and are accounted for as a separate loss contingency as a liability. This loss
contingency for unfunded loan commitments and letters of credit was $0.3 million as of September
30, 2010 and December 31, 2009, respectively. Changes to this liability are adjusted through other
non-interest expense.
Concentrations of Lending Activities
The Companys 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 Companys primary markets. The Companys 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 September 30, 2010 and December 31, 2009,
commercial real estate related loans which include construction and land accounted for
approximately 64% and 65% of total loans, and approximately 3% and 5% of commercial real estate
loans, respectively, 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
46% and 54% of total commercial real estate loans were owner occupied at September 30, 2010 and
December 31, 2009, respectively. In addition, approximately 3% and 4% of total loans were
unsecured as of September 30, 2010 and December 31, 2009, respectively.
Contingencies
The Company is involved in various lawsuits of a routine nature that are being handled and defended
in the ordinary course of the Companys business. Expenses are being incurred in connection with
defending the Company, but in the opinion of Management, based in part on consultation with legal
counsel, the resolution of these lawsuits will not have a material impact on the Companys
financial position, results of operations, or cash flows.
Lease Commitments
The Company leases the majority of its office locations and many of these leases contain multiple
renewal options and provisions for increased rents. Total rent expense of $1.4 million is included
in occupancy expenses for the three month periods ended September 30, 2010 and 2009, and $3.9
million and $4.1 million for the nine month periods ended September 30, 2010 and 2009,
respectively.
10. FAIR VALUE ACCOUNTING
The Company adopted SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities
(SFAS 159), effective January 1, 2007. This standard was subsequently codified under FASB ASC
825, Financial Instruments (ASC 825). At the time of adoption, the Company elected to apply this
fair value option (FVO) treatment to the following instruments:
|
|
|
Junior subordinated debt; |
|
|
|
All investment securities previously classified as held to maturity, with the exception
of tax-advantaged municipal bonds; and |
|
|
|
All fixed-rate securities previously classified as available for sale. |
The Company continues to account for these items under the fair value option. There were no
financial instruments purchased by the Company in 2010 and 2009 which met the ASC 825 fair value
election criteria, and therefore, no additional instruments have been added under the fair value
option election.
All securities for which the fair value measurement option had been elected are included in a
separate line item on the balance sheet entitled securities measured at fair value.
26
ASC 825 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used
to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three
levels of the fair value hierarchy under ASC 825 are described below:
Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date
for identical, unrestricted assets or liabilities;
Level 2 Quoted prices for similar instruments in active markets, quoted prices for identical or
similar instruments in markets that are not active, or model-based valuation techniques where all
significant assumptions are observable, either directly or indirectly, in the market;
Level 3 Valuation is generated from model-based techniques where all significant assumptions are
not observable, either directly or indirectly, in the market. These unobservable assumptions
reflect our own estimates of assumptions that market participants would use in pricing the asset or
liability. Valuation techniques may include use of matrix pricing, discounted cash flow models and
similar techniques.
In general, fair value is based upon quoted market prices, where available. If such quoted market
prices are not available, fair value is based upon internally developed models that primarily use,
as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that
financial instruments are recorded at fair value. These adjustments may include amounts to reflect
counterparty credit quality and the Companys creditworthiness, among other things, as well as
unobservable parameters. Any such valuation adjustments are applied consistently over time. The
Companys valuation methodologies may produce a fair value calculation that may not be indicative
of net realizable value or reflective of future fair values. While management believes the
Companys valuation methodologies are appropriate and consistent with other market participants,
the use of different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different estimate of fair value at the reporting date. Furthermore,
the reported fair value amounts have not been comprehensively revalued since the presentation
dates, and therefore, estimates of fair value after the balance sheet date may differ significantly
from the amounts presented herein.
For the three and nine months ended September 30, 2010 and 2009, gains and losses from fair value
changes included in the Consolidated Statement of Operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Fair Values for Items Measured at Fair |
|
|
|
Value Pursuant to Election of the Fair Value Option |
|
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Gain (Loss) on |
|
|
|
|
|
|
Interest |
|
|
Changes |
|
|
|
Assets and |
|
|
|
|
|
|
Expense on |
|
|
Included in |
|
|
|
Liabilities |
|
|
Interest |
|
|
Junior |
|
|
Current- |
|
|
|
Measured at |
|
|
Income on |
|
|
Subordinated |
|
|
Period |
|
Description |
|
Fair Value, Net |
|
|
Securities |
|
|
Debt |
|
|
Earnings |
|
|
|
(in thousands) |
|
Three Months Ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities measured at fair value |
|
$ |
(210 |
) |
|
$ |
71 |
|
|
$ |
|
|
|
$ |
(139 |
) |
Junior subordinated debt |
|
|
|
|
|
|
|
|
|
|
288 |
|
|
|
(288 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(210 |
) |
|
$ |
71 |
|
|
$ |
288 |
|
|
$ |
(427 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities measured at fair value |
|
$ |
226 |
|
|
$ |
337 |
|
|
$ |
|
|
|
$ |
563 |
|
Junior subordinated debt |
|
|
6,115 |
|
|
|
|
|
|
|
821 |
|
|
|
5,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,341 |
|
|
$ |
337 |
|
|
$ |
821 |
|
|
$ |
5,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Fair Values for Items Measured at Fair |
|
|
|
Value Pursuant to Election of the Fair Value Option |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Changes in |
|
|
|
Gain (Loss) on |
|
|
|
|
|
|
Interest |
|
|
Fair Values |
|
|
|
Assets and |
|
|
|
|
|
|
Expense on |
|
|
Included in |
|
|
|
Liabilities |
|
|
Interest |
|
|
Junior |
|
|
Current- |
|
|
|
Measured at |
|
|
Income on |
|
|
Subordinated |
|
|
Period |
|
Description |
|
Fair Value, Net |
|
|
Securities |
|
|
Debt |
|
|
Earnings |
|
|
|
(in thousands) |
|
Three months ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities measured at fair value |
|
$ |
1,498 |
|
|
$ |
403 |
|
|
$ |
|
|
|
$ |
1,901 |
|
Junior subordinated debt |
|
|
489 |
|
|
|
|
|
|
|
234 |
|
|
|
723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,987 |
|
|
$ |
403 |
|
|
$ |
234 |
|
|
$ |
2,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities measured at fair value |
|
$ |
4,893 |
|
|
$ |
641 |
|
|
$ |
|
|
|
$ |
5,534 |
|
Junior subordinated debt |
|
|
716 |
|
|
|
|
|
|
|
697 |
|
|
|
1,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,609 |
|
|
$ |
641 |
|
|
$ |
697 |
|
|
$ |
6,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The difference between the aggregate fair value of junior subordinated debt ($36.3 million)
and the aggregate unpaid principal balance thereof ($66.5 million) was $30.2 million at September
30, 2010.
Interest income on securities measured at fair value is accounted for similarly to those classified
as available-for-sale and held-to-maturity. As of January 1, 2007, a discount or premium was
calculated for each security based upon the difference between the par value and the fair value at
that date. These premiums and discounts are recognized in interest income over the term of the
securities. For mortgage-backed securities, estimates of prepayments are considered in the constant
yield calculations. Interest expense on junior subordinated debt is also determined under a
constant yield calculation.
Fair value on a recurring basis
Financial assets and financial liabilities measured at fair value on a recurring basis include the
following:
AFS Securities: Adjustable-rate preferred securities are reported at fair value utilizing Level 1
inputs. Other securities classified as AFS are reported at fair value utilizing Level 2 inputs.
For these securities, the Company obtains fair value measurements from an independent pricing
service. The fair value measurements consider observable data that may include dealer quotes,
market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution
data, market consensus prepayment speeds, credit information and the bonds terms and conditions,
among other things.
Securities measured at fair value: All of the Companys securities measured at fair value, the
majority of which is mortgage-backed securities, are reported at fair value utilizing Level 2
inputs in the same manner as described above for securities available for sale.
Interest rate swap: Interest rate swaps are reported at fair value utilizing Level 2 inputs. The
Company obtains dealer quotations to value its interest rate swaps.
Junior subordinated debt: The Company estimates the fair value of its junior subordinated debt
using a discounted cash flow model which incorporates the effect of the Companys own credit risk
in the fair value of the liabilities (Level 3). The Companys cash flow assumptions were based on
the contractual cash flows based as the Company anticipates that it will pay the debt according to
its contractual terms. The Company evaluated priced offerings on individual issuances of trust
preferred securities and estimated the discount rate based, in part, on that information. The
Company estimated the discount rate at 6.98%, which is a 669 basis point spread over 3 month LIBOR
(0.29% as of September 30, 2010).
The fair value of these assets and liabilities were determined using the following inputs at September 30, 2010 and December 31, 2009:
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using: |
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
Significant |
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
Fair |
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Value |
|
As of September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities measured at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government-sponsored agency securities |
|
$ |
|
|
|
$ |
2,535 |
|
|
$ |
|
|
|
$ |
2,535 |
|
Direct obligation & GSE residential mortgage-backed |
|
|
|
|
|
|
29,893 |
|
|
|
|
|
|
|
29,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
32,428 |
|
|
$ |
|
|
|
$ |
32,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government-sponsored agency securities |
|
$ |
|
|
|
$ |
277,149 |
|
|
$ |
|
|
|
$ |
277,149 |
|
Municipal Obligations |
|
|
|
|
|
|
322 |
|
|
|
|
|
|
|
322 |
|
Corporate bonds |
|
|
5,119 |
|
|
|
|
|
|
|
|
|
|
|
5,119 |
|
Direct obligation & GSE residential mortgage-backed |
|
|
|
|
|
|
493,932 |
|
|
|
|
|
|
|
493,932 |
|
Private label residential mortgage-backed securities |
|
|
|
|
|
|
9,356 |
|
|
|
|
|
|
|
9,356 |
|
Adjustable-rate preferred stock |
|
|
40,017 |
|
|
|
|
|
|
|
|
|
|
|
40,017 |
|
Trust preferred |
|
|
23,013 |
|
|
|
|
|
|
|
|
|
|
|
23,013 |
|
Other |
|
|
22,627 |
|
|
|
|
|
|
|
|
|
|
|
22,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
90,776 |
|
|
$ |
780,759 |
|
|
$ |
|
|
|
$ |
871,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
|
|
|
$ |
1,860 |
|
|
$ |
|
|
|
$ |
1,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Fair Value |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior subordinated debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
36,323 |
|
|
$ |
36,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
|
|
|
$ |
1,860 |
|
|
$ |
|
|
|
$ |
1,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using: |
|
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
Active |
|
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Markets for |
|
|
|
|
|
|
As of |
|
|
Identical |
|
|
Similar |
|
|
Unobservable |
|
|
|
December 31, |
|
|
Assets |
|
|
Assets |
|
|
Inputs |
|
Description |
|
2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
$ |
744,598 |
|
|
$ |
111,536 |
|
|
$ |
633,062 |
|
|
$ |
|
|
Securities measured at fair value |
|
|
58,670 |
|
|
|
|
|
|
|
58,670 |
|
|
|
|
|
Interest rate swaps |
|
|
1,139 |
|
|
|
|
|
|
|
1,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
804,407 |
|
|
$ |
111,536 |
|
|
$ |
692,871 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior subordinated debt |
|
$ |
42,438 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
42,438 |
|
Interest rate swaps |
|
|
1,139 |
|
|
|
|
|
|
|
1,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
43,577 |
|
|
$ |
|
|
|
$ |
1,139 |
|
|
$ |
42,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
Junior |
|
|
|
|
|
|
Securities |
|
|
Measured |
|
|
Subordinated |
|
|
Fixed-Rate |
|
|
|
AFS |
|
|
at Fair Value |
|
|
Debt |
|
|
Term Borrowings |
|
|
|
(in thousands) |
|
Beginning balance January 1, 2010 |
|
$ |
|
|
|
$ |
|
|
|
$ |
(42,438 |
) |
|
$ |
|
|
Total gains (losses) (realized/unrealized) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
|
|
|
|
|
|
|
|
6,115 |
|
|
|
|
|
Included in other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, issuances, and settlements, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers to held-to-maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers in and/or out of Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance September 30, 2010 |
|
$ |
|
|
|
$ |
|
|
|
$ |
(36,323 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of total 2010 gains (losses)
for the period included in earnings
attributable to the change in unrealized
gains (losses) relating to assets and
liabilities still held at the reporting
date |
|
$ |
|
|
|
$ |
|
|
|
$ |
6,115 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of total 2009 gains (losses)
for the period included in earnings
attributable to the change in unrealized
gains (losses) relating to assets and
liabilities still held at the reporting
date |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,179 |
|
|
$ |
1,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value on a nonrecurring basis
Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not
measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of impairment). The following table presents
such assets carried on the balance sheet by caption and by level within the ASC 825 hierarchy as of
September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
in Active |
|
Active |
|
|
|
|
|
|
|
|
Markets for |
|
Markets for |
|
Unobservable |
|
|
|
|
|
|
Identical Assets |
|
Similar Assets |
|
Inputs |
|
|
Total |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
|
(in thousands) |
As of September 30, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with a specific valuation allowance |
|
$ |
32,331 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
32,331 |
|
Impaired loans without specific valuation allowance |
|
|
113,209 |
|
|
|
|
|
|
|
|
|
|
|
113,209 |
|
Goodwill valuation of reporting units |
|
|
25,925 |
|
|
|
|
|
|
|
|
|
|
|
25,925 |
|
Other assets acquired through foreclosure |
|
|
110,096 |
|
|
|
|
|
|
|
|
|
|
|
110,096 |
|
Collateralized debt obligations |
|
|
816 |
|
|
|
|
|
|
|
|
|
|
|
816 |
|
The following table presents such assets carried on the balance sheet by caption and by level
within the ASC 825 hierarchy as of December 31, 2009:
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
in Active |
|
Active |
|
|
|
|
|
|
|
|
Markets for |
|
Markets for |
|
Unobservable |
|
|
|
|
|
|
Identical Assets |
|
Similar Assets |
|
Inputs |
|
|
Total |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
|
(in thousands) |
As of December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with specific valuation allowance |
|
$ |
38,335 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
38,335 |
|
Impaired loans without specific valuation allowance |
|
|
80,594 |
|
|
|
|
|
|
|
|
|
|
|
80,594 |
|
Goodwill valuation of reporting units |
|
|
25,925 |
|
|
|
|
|
|
|
|
|
|
|
25,925 |
|
Other assets acquired through foreclosure |
|
|
83,347 |
|
|
|
|
|
|
|
|
|
|
|
83,347 |
|
Collateralized debt obligations |
|
|
918 |
|
|
|
|
|
|
|
|
|
|
|
918 |
|
Impaired loans: The specific reserves for collateral dependent impaired loans are based on
the fair value of the collateral. The fair value of collateral is determined based on third-party
appraisals. In some cases, adjustments are made to the appraised values due to various factors,
including age of the appraisal which are generally obtained every six months, age of comparables
included in the appraisal, and known changes in the market and in the collateral. When significant
adjustments are based on unobservable inputs, such as when a current appraised value is not
available or management determines the fair value of the collateral is further impaired below
appraised value and there is no observable market price, the resulting fair value measurement has
been categorized as a Level 3 measurement. These Level 3 impaired loans had an aggregate carrying
amount of $42.2 million and specific reserves in the allowance for loan losses of $9.9 million as
September 30, 2010.
Goodwill: In accordance with FASB ASC 350, Intangibles Goodwill and Other (ASC 350), goodwill
has been written down to its implied fair value of $25.9 million by charges to earnings in prior
periods. Some of the inputs used to determine the implied fair value of the Company and the
corresponding amount of the impairment included the quoted market price of our common stock, market
prices of common stocks of other banking organizations, common stock trading multiples, discounted
cash flows, and inputs from comparable transactions. The Companys adjustments were primarily
based on the Companys assumptions, therefore the resulting fair value measurement was determined
to be level 3.
Other assets acquired through foreclosure: Other assets acquired through foreclosure consist of
properties acquired as a result of, or in-lieu-of, foreclosure. Properties or other assets
(primarily repossessed assets formerly leased) are classified as other assets acquired through
foreclosure and other repossessed property and are initially reported at the fair value using
appraised value, less cost to sell, such properties are generally re-appraised every six months.
There is risk for subsequent volatility. Costs relating to the development or improvement of the assets are capitalized and costs relating
to holding the assets are charged to expense. The Company had $110.1 million of such assets at
September 30, 2010. When significant adjustments were based on unobservable inputs, such as when a
current appraised value is not available or management determines the fair value of the collateral
is further impaired below appraised value and there is no observable market price, the resulting
fair value measurement has been categorized as a Level 3 measurement.
Collateralized debt obligations: The Company previously wrote down its trust-preferred CDO
portfolio to $0.3 million when it determined these CDOs were other-than-temporarily impaired under
generally accepted accounting principles due to the continued expected weakness of the U.S.
economy, the decline in the market value of these CDOs, credit rating downgrades and the increase
in deferrals and defaults by the issuers of the underlying CDOs. These CDOs represent interests in
various trusts, each of which is collateralized with trust preferred debt issued by other financial
institutions.
Credit vs. non-credit losses
The Company has elected to apply provisions of ASC 320 as of January 1, 2009 to its AFS and HTM
investment securities portfolios. The OTTI is separated into (a) the amount of total impairment
related to the credit loss and (b) the amount of the total impairment related to all other factors.
The amount of the total OTTI related to the credit loss is recognized in earnings. The amount of
the total impairment related to all other factors is recognized in other comprehensive income. The
OTTI is presented in the statement of operations with an offset for the amount of the total OTTI
that is recognized in other comprehensive income.
As part of this adoption, the Company applied the criteria of ASC 320 in the determination of the
amount of credit and other losses applicable to debt instruments held in its available-for-sale and
held-to-maturity investment portfolios. The Company utilized a valuation specialist to evaluate
and assist the Company in the determination of the amount and class of losses in its collateralized
mortgage and collateralized debt obligation portfolios. In connection with this valuation, the
31
Company evaluated significant inputs such as default rates, delinquency rates, collateral value
ratios, subordination levels, vintage, geographic concentration and credit ratings of the
securities in question.
If the Company does not intend to sell and it is not more likely than not that the Company will be
required to sell the impaired securities before recovery of the amortized cost basis, the Company
recognizes the cumulative effect of initially applying this FSP as an adjustment to the opening
balance of retained earnings with a corresponding adjustment to accumulated other comprehensive
income, including related tax effects. The Company elected to early adopt ASC 320 on its impaired
securities portfolio since it provides more transparency in the consolidated financial statements
related to the bifurcation of the credit and non-credit losses.
The following table provides the impact of adoption of ASC 320 on the Companys balance sheet as of
January 1, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
Non-Credit |
|
|
Cumulative |
|
|
Non-Credit |
|
|
|
Losses Prior to |
|
|
Effect |
|
|
Losses After |
|
|
|
Adoption |
|
|
Adjustment |
|
|
Adoption |
|
|
|
(in thousands) |
|
Unrealized non-credit impairment losses on held-to-maturity securities |
|
$ |
|
|
|
$ |
4,705 |
|
|
$ |
4,705 |
|
Unrealized non-credit impairment losses on available-for-sale securities |
|
|
|
|
|
|
2,831 |
|
|
|
2,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax cumulative effect adjustment |
|
|
|
|
|
|
7,536 |
|
|
|
|
|
Reversal of tax effect |
|
|
|
|
|
|
(2,688 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect adjustment, net |
|
|
|
|
|
$ |
4,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2010, the Company determined that certain
collateralized mortgage debt securities contained credit losses. The impairment credit loss
related to these debt securities for the nine months ended September 30, 2010 was $1.2 million.
The following table presents a rollforward of the amount related to impairment credit losses
recognized in earnings for the nine months ended September 30, 2010 and 2009:
Debt Security Credit Loses
Recognized in Other Comprehensive Income/Earnings
For the Nine Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
Debt Obligations and |
|
|
Private Label Mortgage- |
|
|
|
Structured Securities |
|
|
Backed Securities |
|
|
|
(in thousands) |
|
Beginning balance of impairment losses held in
other comprehensive income |
|
$ |
(544 |
) |
|
$ |
(1,811 |
) |
Current period other-than temporary impairment
credit recognized through earnings |
|
|
544 |
|
|
|
|
|
Reductions for securities sold during the period |
|
|
|
|
|
|
|
|
Additions or reductions in credit losses due to
change of intent to sell |
|
|
|
|
|
|
|
|
Reductions for increases in cash flows to be
collected on impaired securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance of net unrealized gains and
(losses) held in other comprehensive income |
|
$ |
|
|
|
$ |
(1,811 |
) |
|
|
|
|
|
|
|
32
Debt Security Credit Loses
Recognized in Other Comprehensive Income/Earnings
For the Nine Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
Debt Obligations and |
|
|
Private Label Mortgage- |
|
|
|
Structured Securities |
|
|
Backed Securities |
|
|
|
(in thousands) |
|
Beginning balance of impairment losses held in
other comprehensive income |
|
$ |
(4,705 |
) |
|
$ |
(2,831 |
) |
Current period other-than temporary impairment
credit losses recognized through earnings |
|
|
2,643 |
|
|
|
988 |
|
Reductions for securities sold during the period |
|
|
|
|
|
|
|
|
Additions or reductions in credit losses due to
change of intent to sell |
|
|
|
|
|
|
|
|
Reductions for increases in cash flows to be
collected on impaired securities |
|
|
|
|
|
|
(1,379 |
) |
|
|
|
|
|
|
|
Ending balance of net unrealized gains and
(losses) held in other comprehensive income |
|
$ |
(2,062 |
) |
|
$ |
(3,222 |
) |
|
|
|
|
|
|
|
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Companys financial instruments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
December 31, 2009 |
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
|
Amount |
|
Value |
|
Amount |
|
Value |
|
|
(in thousands) |
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
108,395 |
|
|
$ |
108,395 |
|
|
$ |
116,841 |
|
|
$ |
116,841 |
|
Federal funds sold |
|
|
1,009 |
|
|
|
1,009 |
|
|
|
3,473 |
|
|
|
3,473 |
|
Money market investments |
|
|
1,635 |
|
|
|
1,635 |
|
|
|
54,029 |
|
|
|
54,029 |
|
Investment securities-measured at fair value |
|
|
32,428 |
|
|
|
32,428 |
|
|
|
58,670 |
|
|
|
58,670 |
|
Investment securities-available-for-sale |
|
|
871,535 |
|
|
|
871,535 |
|
|
|
744,598 |
|
|
|
744,598 |
|
Investment securities held-to-maturity |
|
|
24,104 |
|
|
|
24,629 |
|
|
|
7,482 |
|
|
|
7,482 |
|
Derivatives |
|
|
1,860 |
|
|
|
1,860 |
|
|
|
1,139 |
|
|
|
1,139 |
|
Restricted stock |
|
|
39,029 |
|
|
|
39,029 |
|
|
|
41,378 |
|
|
|
41,378 |
|
Loans, net |
|
|
4,065,310 |
|
|
|
3,931,939 |
|
|
|
3,971,016 |
|
|
|
3,654,227 |
|
Accrued interest receivable |
|
|
18,742 |
|
|
|
18,742 |
|
|
|
18,742 |
|
|
|
18,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
5,328,528 |
|
|
|
5,332,528 |
|
|
|
4,722,102 |
|
|
|
4,731,827 |
|
Accrued interest payable |
|
|
4,543 |
|
|
|
4,543 |
|
|
|
4,179 |
|
|
|
4,179 |
|
Customer repurchases |
|
|
86,835 |
|
|
|
86,835 |
|
|
|
223,269 |
|
|
|
223,269 |
|
Other borrowed funds |
|
|
72,888 |
|
|
|
72,888 |
|
|
|
29,352 |
|
|
|
29,352 |
|
Junior subordinated debt |
|
|
36,323 |
|
|
|
36,323 |
|
|
|
42,438 |
|
|
|
42,438 |
|
Subordinated debt |
|
|
|
|
|
|
|
|
|
|
60,000 |
|
|
|
60,000 |
|
Derivatives |
|
|
1,860 |
|
|
|
1,860 |
|
|
|
1,139 |
|
|
|
1,139 |
|
Interest rate risk
The Company assumes interest rate risk (the risk to the Companys earnings and capital from changes
in interest rate levels) as a result of its normal operations. As a result, the fair values of the
Companys financial instruments, as well as
33
its future net interest income, will change when
interest rate levels change and that change may be either favorable or unfavorable to the Company.
Interest rate risk exposure is measured using interest rate sensitivity analysis to determine our
change in net portfolio value and net interest income resulting from hypothetical changes in
interest rates. If potential changes to net portfolio value and net interest income resulting from
hypothetical interest rate changes are not within the limits established by the Board of Directors,
the Board of Directors may direct management to adjust the asset and liability mix to bring
interest rate risk within board-approved limits.
Each of the Companys subsidiary banks have an Asset Liability Management Committee (ALCO)
charged with managing interest rate risk within Board approved limits. Such limits may vary by
bank based on local strategy and other considerations, but in all cases, are structured to prohibit
an interest rate risk profile that is significantly asset or liability sensitive.
Fair value of commitments
The estimated fair value of the standby letters of credit at September 30, 2010 and December 31,
2009 is insignificant. Loan commitments on which the committed interest rate is less than the
current market rate are also insignificant at September 30, 2010 and December 31, 2009.
12. SEGMENTS
The Company is segmented as Nevada (Bank of Nevada and First Independent Bank of Nevada),
Arizona (Alliance Bank of Arizona), California (Torrey Pines Bank and Alta Alliance Bank),
Asset Management (Premier Trust, which was divested on September 1, 2010, and Shine), and Other
(Western Alliance Bancorporation holding company, Western Alliance Equipment Finance and
miscellaneous).
The accounting policies of the reported segments are the same as those of the Company as described
in Note 1, Summary of Significant Accounting Policies in the Companys 2009 Annual Report on Form
10-K. Transactions
between segments consist primarily of borrowed funds, loan participations and shared services
expense. Federal funds purchased and sold and other borrowed funding transactions that resulted in
inter-segment profits were eliminated for reporting consolidated results of operations. Loan
participations were 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.
The following is a summary of selected operating segment information as of and for the periods
ended September 30, 2010, and 2009:
34
Western Alliance Bancorporation and Subsidiaries
Operating Segment Results
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inter- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
segment |
|
Consoli- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset |
|
|
|
|
|
Elimi- |
|
dated |
|
|
Nevada |
|
California |
|
Arizona |
|
Management |
|
Other |
|
nations |
|
Company |
|
|
(in millions) |
At September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
3,334.2 |
|
|
$ |
1,404.1 |
|
|
$ |
1,403.3 |
|
|
$ |
3.9 |
|
|
$ |
732.0 |
|
|
$ |
(698.4 |
) |
|
$ |
6,179.1 |
|
Gross loans and deferred fees, net |
|
|
2,315.1 |
|
|
|
1,009.9 |
|
|
|
891.2 |
|
|
|
|
|
|
|
|
|
|
|
(42.7 |
) |
|
|
4,173.5 |
|
Less: Allowance for credit losses |
|
|
(75.9 |
) |
|
|
(16.6 |
) |
|
|
(15.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108.2 |
) |
|
|
|
Net loans |
|
|
2,239.2 |
|
|
|
993.3 |
|
|
|
875.5 |
|
|
|
|
|
|
|
|
|
|
|
(42.7 |
) |
|
|
4,065.3 |
|
|
|
|
Goodwill |
|
|
23.2 |
|
|
|
|
|
|
|
|
|
|
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
25.9 |
|
Deposits |
|
|
2,894.0 |
|
|
|
1,232.6 |
|
|
|
1,244.1 |
|
|
|
|
|
|
|
|
|
|
|
(42.2 |
) |
|
|
5,328.5 |
|
Stockholders equity |
|
|
365.2 |
|
|
|
134.6 |
|
|
|
110.4 |
|
|
|
3.5 |
|
|
|
622.1 |
|
|
|
(616.0 |
) |
|
|
619.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of branches |
|
|
19 |
|
|
|
11 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
No. of FTE |
|
|
506 |
|
|
|
201 |
|
|
|
143 |
|
|
|
7 |
|
|
|
50 |
|
|
|
|
|
|
|
907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
Three Months Ended September 30, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
32,025 |
|
|
$ |
15,830 |
|
|
$ |
12,716 |
|
|
$ |
2 |
|
|
$ |
(1,105 |
) |
|
$ |
|
|
|
$ |
59,468 |
|
Provision for credit losses |
|
|
19,349 |
|
|
|
2,166 |
|
|
|
1,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,965 |
|
|
|
|
Net interest income (loss) after
provision for credit losses |
|
|
12,676 |
|
|
|
13,664 |
|
|
|
11,266 |
|
|
|
2 |
|
|
|
(1,105 |
) |
|
|
|
|
|
|
36,503 |
|
Non-interest income |
|
|
4,355 |
|
|
|
1,150 |
|
|
|
2,462 |
|
|
|
1,001 |
|
|
|
2,809 |
|
|
|
390 |
|
|
|
12,167 |
|
Non-interest expense |
|
|
(26,386 |
) |
|
|
(7,882 |
) |
|
|
(8,475 |
) |
|
|
(807 |
) |
|
|
(3,655 |
) |
|
|
1,096 |
|
|
|
(46,109 |
) |
|
|
|
Income (loss)from continuing
operations before income taxes |
|
|
(9,355 |
) |
|
|
6,932 |
|
|
|
5,253 |
|
|
|
196 |
|
|
|
(1,951 |
) |
|
|
1,486 |
|
|
|
2,561 |
|
Income tax expense (benefit) |
|
|
(3,568 |
) |
|
|
2,906 |
|
|
|
2,021 |
|
|
|
91 |
|
|
|
(1,529 |
) |
|
|
|
|
|
|
(79 |
) |
|
|
|
Income(loss) from continuing operations |
|
|
(5,787 |
) |
|
|
4,026 |
|
|
|
3,232 |
|
|
|
105 |
|
|
|
(422 |
) |
|
|
1,486 |
|
|
|
2,640 |
|
Loss from discontinued operations, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(631 |
) |
|
|
|
|
|
|
(631 |
) |
|
|
|
Net income (loss) |
|
$ |
(5,787 |
) |
|
$ |
4,026 |
|
|
$ |
3,232 |
|
|
$ |
105 |
|
|
$ |
(1,053 |
) |
|
$ |
1,486 |
|
|
$ |
2,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
Nine Months Ended September 30, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
94,373 |
|
|
$ |
45,401 |
|
|
$ |
33,533 |
|
|
$ |
6 |
|
|
$ |
(1,670 |
) |
|
$ |
|
|
|
$ |
171,643 |
|
Provision for credit losses |
|
|
62,626 |
|
|
|
7,718 |
|
|
|
4,483 |
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
74,827 |
|
|
|
|
Net interest income (loss) after
provision for credit losses |
|
|
31,747 |
|
|
|
37,683 |
|
|
|
29,050 |
|
|
|
6 |
|
|
|
(1,670 |
) |
|
|
|
|
|
|
96,816 |
|
Non-interest income |
|
|
19,078 |
|
|
|
3,449 |
|
|
|
6,079 |
|
|
|
3,399 |
|
|
|
14,342 |
|
|
|
1,209 |
|
|
|
47,556 |
|
Non-interest expense |
|
|
(79,400 |
) |
|
|
(28,672 |
) |
|
|
(23,954 |
) |
|
|
(2,752 |
) |
|
|
(9,957 |
) |
|
|
4,522 |
|
|
|
(140,213 |
) |
|
|
|
Income (loss) from continuing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations before income taxes |
|
|
(28,575 |
) |
|
|
12,460 |
|
|
|
11,175 |
|
|
|
653 |
|
|
|
2,715 |
|
|
|
5,731 |
|
|
|
4,159 |
|
Income tax expense (benefit) |
|
|
(10,464 |
) |
|
|
5,377 |
|
|
|
4,444 |
|
|
|
300 |
|
|
|
(1,487 |
) |
|
|
|
|
|
|
(1,830 |
) |
|
|
|
Income(loss) from continuing
operations |
|
|
(18,111 |
) |
|
|
7,083 |
|
|
|
6,731 |
|
|
|
353 |
|
|
|
4,202 |
|
|
|
5,731 |
|
|
|
5,989 |
|
Loss from discontinued operations,
net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,368 |
) |
|
|
|
|
|
|
(2,368 |
) |
|
|
|
Net income (loss) |
|
$ |
(18,111 |
) |
|
$ |
7,083 |
|
|
$ |
6,731 |
|
|
$ |
353 |
|
|
$ |
1,834 |
|
|
$ |
5,731 |
|
|
$ |
3,621 |
|
|
|
|
35
Western Alliance Bancorporation and Subsidiaries
Operating Segment Results
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inter- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
segment |
|
Consoli- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset |
|
|
|
|
|
Elimi- |
|
dated |
|
|
Nevada |
|
California |
|
Arizona |
|
Management |
|
Other |
|
nations |
|
Company |
|
|
(in millions) |
At September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
3,457.1 |
|
|
$ |
1,264.9 |
|
|
$ |
1,024.9 |
|
|
$ |
19.4 |
|
|
$ |
118.6 |
|
|
$ |
(53.6 |
) |
|
$ |
5,831.3 |
|
Gross loans and deferred fees |
|
|
2,488.8 |
|
|
|
814.6 |
|
|
|
707.6 |
|
|
|
|
|
|
|
|
|
|
|
(43.0 |
) |
|
|
3,968.0 |
|
Less: Allowance for credit losses |
|
|
(74.9 |
) |
|
|
(12.7 |
) |
|
|
(16.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(104.2 |
) |
|
|
|
Net loans |
|
|
2,413.9 |
|
|
|
801.9 |
|
|
|
691.0 |
|
|
|
|
|
|
|
|
|
|
|
(43.0 |
) |
|
|
3,863.8 |
|
|
|
|
Goodwill |
|
|
23.2 |
|
|
|
|
|
|
|
|
|
|
|
10.7 |
|
|
|
|
|
|
|
|
|
|
|
33.9 |
|
Deposits |
|
|
2,792.9 |
|
|
|
1,089.5 |
|
|
|
877.4 |
|
|
|
|
|
|
|
|
|
|
|
(7.6 |
) |
|
|
4,752.2 |
|
Stockholders equity |
|
|
315.7 |
|
|
|
120.6 |
|
|
|
73.6 |
|
|
|
17.0 |
|
|
|
81.5 |
|
|
|
(5.4 |
) |
|
|
603.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of branches |
|
|
21 |
|
|
|
9 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 |
|
No. of FTE |
|
|
583 |
|
|
|
211 |
|
|
|
145 |
|
|
|
43 |
|
|
|
41 |
|
|
|
|
|
|
|
1,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended September 30,2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
29,918 |
|
|
$ |
10,895 |
|
|
$ |
8,160 |
|
|
$ |
12 |
|
|
$ |
(15 |
) |
|
$ |
|
|
|
$ |
48,970 |
|
Provision for credit losses |
|
|
41,931 |
|
|
|
3,953 |
|
|
|
4,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,750 |
|
|
|
|
Net interest income after provision
for credit losses |
|
|
(12,013 |
) |
|
|
6,942 |
|
|
|
3,294 |
|
|
|
12 |
|
|
|
(15 |
) |
|
|
|
|
|
|
(1,780 |
) |
Non-interest income |
|
|
4,201 |
|
|
|
1,073 |
|
|
|
1,676 |
|
|
|
2,452 |
|
|
|
2,206 |
|
|
|
939 |
|
|
|
12,547 |
|
Non-interest expense |
|
|
(29,790 |
) |
|
|
(9,203 |
) |
|
|
(6,944 |
) |
|
|
(2,640 |
) |
|
|
(3,072 |
) |
|
|
1,201 |
|
|
|
(50,448 |
) |
|
|
|
Loss from continuing operations before
income taxes |
|
|
(37,602 |
) |
|
|
(1,188 |
) |
|
|
(1,974 |
) |
|
|
(176 |
) |
|
|
(881 |
) |
|
|
2,140 |
|
|
|
(39,681 |
) |
Income tax expense (benefit) |
|
|
(13,784 |
) |
|
|
(623 |
) |
|
|
(849 |
) |
|
|
217 |
|
|
|
(287 |
) |
|
|
(1,398 |
) |
|
|
(16,724 |
) |
|
|
|
Income(loss) from continuing operations |
|
|
(23,818 |
) |
|
|
(565 |
) |
|
|
(1,125 |
) |
|
|
(393 |
) |
|
|
(594 |
) |
|
|
3,538 |
|
|
|
(22,957 |
) |
Loss from discontinued operations, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(958 |
) |
|
|
|
|
|
|
(958 |
) |
|
|
|
Net income (loss) |
|
$ |
(23,818 |
) |
|
$ |
(565 |
) |
|
$ |
(1,125 |
) |
|
$ |
(393 |
) |
|
$ |
(1,552 |
) |
|
$ |
3,538 |
|
|
$ |
(23,915 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Nine Months Ended September 30,2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
94,186 |
|
|
$ |
33,240 |
|
|
$ |
24,525 |
|
|
$ |
43 |
|
|
$ |
(1,493 |
) |
|
$ |
|
|
|
$ |
150,501 |
|
Provision for credit losses |
|
|
86,580 |
|
|
|
8,646 |
|
|
|
13,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,307 |
|
|
|
|
Net interest income after provision
for credit losses |
|
|
7,606 |
|
|
|
24,594 |
|
|
|
11,444 |
|
|
|
43 |
|
|
|
(1,493 |
) |
|
|
|
|
|
|
42,194 |
|
Non-interest income |
|
|
3,864 |
|
|
|
3,468 |
|
|
|
4,426 |
|
|
|
7,066 |
|
|
|
1,923 |
|
|
|
(20,581 |
) |
|
|
166 |
|
Goodwill impairment charge |
|
|
(45,000 |
) |
|
|
|
|
|
|
|
|
|
|
(576 |
) |
|
|
|
|
|
|
|
|
|
|
(45,576 |
) |
Non-interest expense |
|
|
(82,560 |
) |
|
|
(30,414 |
) |
|
|
(25,114 |
) |
|
|
(6,377 |
) |
|
|
(6,918 |
) |
|
|
5,302 |
|
|
|
(146,081 |
) |
|
|
|
Loss from continuing operations
before income taxes |
|
|
(116,090 |
) |
|
|
(2,352 |
) |
|
|
(9,244 |
) |
|
|
156 |
|
|
|
(6,488 |
) |
|
|
(15,279 |
) |
|
|
(149,297 |
) |
Income tax expense (benefit) |
|
|
(25,165 |
) |
|
|
(687 |
) |
|
|
(3,577 |
) |
|
|
459 |
|
|
|
(2,426 |
) |
|
|
3,201 |
|
|
|
(28,195 |
) |
|
|
|
Income(loss) from continuing operations |
|
|
(90,925 |
) |
|
|
(1,665 |
) |
|
|
(5,667 |
) |
|
|
(303 |
) |
|
|
(4,062 |
) |
|
|
(18,480 |
) |
|
|
(121,102 |
) |
Loss from discontinued operations, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,392 |
) |
|
|
|
|
|
|
(3,392 |
) |
|
|
|
Net income (loss) |
|
$ |
(90,925 |
) |
|
$ |
(1,665 |
) |
|
$ |
(5,667 |
) |
|
$ |
(303 |
) |
|
$ |
(7,454 |
) |
|
$ |
(18,480 |
) |
|
$ |
(124,494 |
) |
|
|
|
36
13. STOCKHOLDERS EQUITY
On August 24, 2010, the Company completed a public offering of 8,050,000 shares of common stock,
including 1,050,000 shares pursuant to the underwriters over-allotment option, at a public
offering price of $6.25 per share, for an aggregate offering price of $50.3 million. The net
proceeds of the offering were approximately $47.6 million.
Stock-based Compensation
For the nine months ended September 30, 2010, 111,000 stock options with a weighted average
exercise price of $5.21 per share were granted to certain key employees and directors. The Company
estimates the fair value of each option award on the date of grant using a Black-Scholes valuation
model. The weighted average grant date fair value of these options was $3.12 per share. These
stock options generally have a vesting period of 4 years and a contractual life of 7 years.
As of September 30, 2010, there were 2.8 million options outstanding, compared with 2.9 million at
September 30, 2009.
For the three and nine months ended September 30, 2010, the Company recognized stock-based
compensation expense related to stock option grants of $0.4 million and $1.4 million, respectively
compared to $0.6 million and $1.8 million for the three and nine months ended September 30, 2009,
respectively.
For the three and nine months ended September 30, 2010, 62,800 and 622,963 shares of restricted
stock were granted, respectively. The Company estimates the compensation cost for restricted stock
grants based upon the grant date fair value. Generally, these restricted stock grants have a three
year vesting period. The aggregate grant date fair value for the restricted stock issued in the
three and nine month periods ended September 30, 2010 was $0.5 million and $3.4 million,
respectively.
There were approximately 1,099,134 and 754,000 restricted shares outstanding at September 30, 2010
and 2009, respectively. For the three and nine months ended September 30, 2010, the Company
recognized stock-based compensation related to restricted stock grants of $1.0 million and $3.2
million, respectively, compared to $1.4 million and $4.6 million, respectively, for the three and
nine months ended September 30, 2009 related to the Companys restricted stock plan.
14. BORROWED FUNDS
On August 25, 2010, the Company completed a public offering of $75 million in principal Senior
Notes due in 2015 bearing interest of 10%. The net proceeds of the offering were $72.8 million.
The Company also has lines of credit available from the FHLB and FRB. The borrowing capacity is
determined based on collateral pledged, generally consisting of securities and loans, at the time
of borrowing. A summary of the Companys borrowings as of September 30, 2010 and December 31, 2009
follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Short Term |
|
|
|
|
|
|
|
|
Other short term debt (weighted average rate in 2010: 0.00% and 2009: 4.60%)
Due in one year or less |
|
$ |
|
|
|
$ |
20,000 |
|
|
|
|
|
|
|
|
Long Term |
|
|
|
|
|
|
|
|
Other long
term debt (weighted average rate in 2010: 9.89% and 2009: 8.79%)
Due in over one year |
|
$ |
75,000 |
|
|
$ |
9,352 |
|
|
|
|
|
|
|
|
15. SUBSEQUENT EVENTS
On October 20, 2010, the Company published notices of the filing of applications to merge its Alta
Alliance Bank subsidiary into its Torrey Pines Bank subsidiary, and its First Independent Bank of
Nevada subsidiary into its Alliance Bank of Arizona subsidiary. The Company believes that reducing
the number of banking charters will mitigate its risk profile while improving its operating
efficiency. Subject to regulatory approval, these mergers are expected to be completed by year end.
37
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion is designed to provide insight into Managements assessment of significant trends
related to the Companys consolidated financial condition, results of operations, liquidity,
capital resources and interest rate sensitivity. This Form 10-Q should be read in conjunction with
the Companys Annual Report on Form 10-K for the year ended December 31, 2009 and unaudited interim
consolidated financial statements and notes hereto and financial information appearing elsewhere in
this report. Unless the context requires otherwise, the terms Company, us, we, and our
refer to Western Alliance Bancorporation and its wholly-owned subsidiaries on a consolidated basis.
Forward-Looking Information
This report contains certain forward-looking statements, within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act of 1934, which are intended to be
covered by the safe harbor for forward-looking statements provided by the Private Securities
Litigation Reform Act of 1995. These statements may include statements that expressly or
implicitly predict future results, performance or events. Statements other than statements of
historical fact are forward-looking statements. In addition, the words anticipates, expects,
believes, estimates and intends or the negative of these terms or other comparable
terminology constitute forward-looking statements. Forward-looking statements relate to
expectations, beliefs, projections, future plans and strategies, anticipated events or trends and
similar expressions concerning matters that are not historical facts. Except as required by law,
we disclaim any obligation to update any such forward-looking statements or to publicly announce
the results of any revisions to any of the forward-looking statements contained herein to reflect
future events or developments.
Forward-looking statements contained in this Quarterly Report on Form 10-Q involve substantial
risks and uncertainties, many of which are difficult to predict and are generally beyond the
control of the Company and may cause our actual results to differ significantly from historical
results and those expressed in any forward-looking statement. 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:
|
|
|
the decline in economic conditions and disruptions to the financial markets and economic
conditions generally; |
|
|
|
|
recent legislative and regulatory initiatives and the rules and regulations that might be
promulgated thereunder; |
|
|
|
|
the soundness of other financial institutions with which we do business; |
|
|
|
|
our ability to raise capital, attract deposits and our ability to borrow from the FHLB
and the Federal Reserve; |
|
|
|
|
the effect of fair value accounting on the financial instruments that we hold; |
|
|
|
|
the possibility of asset, including goodwill, write-downs; |
|
|
|
|
defaults on our loan portfolio; |
|
|
|
|
changes in managements estimate of the adequacy of the allowance for credit losses; |
|
|
|
|
our ability to recruit and retain qualified employees, especially seasoned relationship
bankers; |
|
|
|
|
inflation, interest rate, market and monetary fluctuations; |
|
|
|
|
changes in gaming or tourism in Las Vegas, Nevada, our primary market area; |
|
|
|
|
risks associated with the execution of our business strategy and related costs; |
|
|
|
|
increased lending risks associated with our concentration of commercial real estate,
construction and land development and commercial and industrial loans; |
|
|
|
|
supervisory actions by regulatory agencies which limit our ability to pursue certain
growth opportunities; |
|
|
|
|
competitive pressures among financial institutions and businesses offering similar
products and services; |
|
|
|
|
the effects of interest rates and interest rate policy; and |
|
|
|
|
other factors affecting the financial services industry generally or the banking industry
in particular. |
For additional information regarding risks that may cause our actual results to differ materially
from any forward-looking statements, see Risk Factors in our Annual Report on Form 10-K for the
year ended December 31, 2009 and Item 1A of Part II of this Quarterly Report on Form 10-Q.
Financial Overview and Highlights
Western Alliance Bancorporation is a multi-bank holding company headquartered in Phoenix, Arizona
that provides full service banking, financial planning and investment advisory services and lending
through its subsidiaries.
Net loss for the Company of $0.5 million or ($0.01) loss per diluted share for the quarter ended
September 30, 2010 compared to a net loss of $26.4 million or ($0.37) loss per diluted share for
the third quarter of 2009.
The significant factors impacting earnings of the Company during the third quarter of 2010 were:
38
|
|
|
Record net interest income of $59.5 million for the third quarter 2010, up 21.4% from
$49.0 million for the third quarter 2009 |
|
|
|
|
Net interest margin increased to 4.32% for the third quarter 2010 compared to 3.69% for
third quarter 2009 |
|
|
|
|
The provision for credit losses declined to $23.0 million for the third quarter 2010
compared to $50.8 million for the third quarter 2009 |
|
|
|
|
A $93.9 million increase in loans to $4.17 billion from $4.08 billion at December 31,
2009 and a $205.5 million increase from $3.97 billion at September 30, 2009 |
|
|
|
|
A continued decrease in nonaccrual loans to $130.9 million at September 30, 2010 from
$153.7 million at December 31, 2009 |
|
|
|
|
Net increase in repossessed assets to $110.1 million at September 30, 2010 from $83.3
million at December 31, 2009 |
|
|
|
|
Net charge-offs decreased to $24.8 million for the third quarter 2010 compared to $30.7
million for the third quarter of 2009 |
|
|
|
|
Completion of debt offering contributing $72.8 million in liquidity to the Company |
|
|
|
|
Completion of equity offering contributing $47.6 million to capital to the Company |
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 Companys overall comparative performance for
the three and nine months ended September 30, 2010 throughout the analysis sections of this report.
A summary of our results of operations and financial condition and select metrics is included in
the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
2010 |
|
2009 |
|
Change % |
|
|
(dollars in millions) |
Selected Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
6,179.1 |
|
|
$ |
5,831.3 |
|
|
|
6.0 |
% |
Loans, net of deferred fees |
|
|
4,173.5 |
|
|
|
3,968.0 |
|
|
|
5.2 |
|
Securities and money market investments |
|
|
929.7 |
|
|
|
727.8 |
|
|
|
27.7 |
|
Federal funds sold and other |
|
|
1.0 |
|
|
|
5.0 |
|
|
|
(80.0 |
) |
Customer deposits |
|
|
5,328.5 |
|
|
|
4,752.2 |
|
|
|
12.1 |
|
Borrowings |
|
|
72.9 |
|
|
|
79.4 |
|
|
|
(8.2 |
) |
Junior subordinated and subordinated debt |
|
|
36.3 |
|
|
|
101.9 |
|
|
|
(64.4 |
) |
Stockholders equity |
|
|
619.8 |
|
|
|
603.0 |
|
|
|
2.8 |
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Three Months |
|
|
For the Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
Change % |
|
|
2010 |
|
|
2009 |
|
|
Change % |
|
|
|
(in thousands, except per share data) |
|
Selected Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
70,705 |
|
|
$ |
67,746 |
|
|
|
4.4 |
% |
|
$ |
209,439 |
|
|
$ |
208,210 |
|
|
|
0.6 |
% |
Interest expense |
|
|
11,237 |
|
|
|
18,776 |
|
|
|
(40.2 |
) |
|
|
37,796 |
|
|
|
57,709 |
|
|
|
(34.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
59,468 |
|
|
|
48,970 |
|
|
|
21.4 |
|
|
|
171,643 |
|
|
|
150,501 |
|
|
|
14.0 |
|
Provision for loan losses |
|
|
22,965 |
|
|
|
50,750 |
|
|
|
(54.7 |
) |
|
|
74,827 |
|
|
|
108,307 |
|
|
|
(30.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for credit losses |
|
|
36,503 |
|
|
|
(1,780 |
) |
|
|
(2,150.7 |
) |
|
|
96,816 |
|
|
|
42,194 |
|
|
|
129.5 |
|
Non-interest income |
|
|
12,167 |
|
|
|
12,547 |
|
|
|
(3.0 |
) |
|
|
47,556 |
|
|
|
166 |
|
|
|
28,548.2 |
|
Non-interest expense |
|
|
46,109 |
|
|
|
50,448 |
|
|
|
(8.6 |
) |
|
|
140,213 |
|
|
|
191,657 |
|
|
|
(26.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes |
|
|
2,561 |
|
|
|
(39,681 |
) |
|
|
(106.5 |
) |
|
|
4,159 |
|
|
|
(149,297 |
) |
|
|
(102.8 |
) |
Income tax benefit |
|
|
(79 |
) |
|
|
(16,724 |
) |
|
|
(99.5 |
) |
|
|
(1,830 |
) |
|
|
(28,195 |
) |
|
|
(93.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
2,640 |
|
|
|
(22,957 |
) |
|
|
(111.5 |
) |
|
|
5,989 |
|
|
|
(121,102 |
) |
|
|
(104.9 |
)% |
Loss on discontinued operations, net |
|
|
(631 |
) |
|
|
(958 |
) |
|
|
(34.1 |
) |
|
|
(2,368 |
) |
|
|
(3,392 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,009 |
|
|
$ |
(23,915 |
) |
|
|
(108.4 |
)% |
|
$ |
3,621 |
|
|
$ |
(124,494 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset amortization, net of tax |
|
$ |
586 |
|
|
$ |
614 |
|
|
|
(4.7 |
)% |
|
$ |
1,764 |
|
|
$ |
1,843 |
|
|
|
(4.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss from continuing operations |
|
$ |
0.00 |
|
|
$ |
(0.35 |
) |
|
|
|
|
|
$ |
(0.02 |
) |
|
$ |
(2.36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss from discontinued operations, net |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
$ |
(0.03 |
) |
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per common share |
|
$ |
(0.01 |
) |
|
$ |
(0.37 |
) |
|
|
(97.3 |
)% |
|
$ |
(0.05 |
) |
|
$ |
(2.42 |
) |
|
|
(97.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the Three Months |
|
For the Nine Months |
|
|
Ended September 30, |
|
Ended September 30, |
|
|
2010 |
|
2009 |
|
Change % |
|
2010 |
|
2009 |
|
Change % |
Common Share Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share |
|
$ |
(0.01 |
) |
|
$ |
(0.37 |
) |
|
|
(97.3 |
)% |
|
$ |
(0.05 |
) |
|
$ |
(2.42 |
) |
|
|
(97.9 |
)% |
Diluted net income (loss) per share |
|
|
(0.01 |
) |
|
|
(0.37 |
) |
|
|
(97.3 |
) |
|
|
(0.05 |
) |
|
|
(2.42 |
) |
|
|
(97.9 |
) |
Book value per common share |
|
|
6.01 |
|
|
|
6.56 |
|
|
|
(8.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding (in
thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
75,554 |
|
|
|
71,697 |
|
|
|
5.4 |
|
|
|
73,240 |
|
|
|
54,471 |
|
|
|
34.5 |
|
Diluted |
|
|
75,554 |
|
|
|
71,697 |
|
|
|
5.4 |
|
|
|
73,240 |
|
|
|
54,471 |
|
|
|
34.5 |
|
Common shares outstanding |
|
|
81,503 |
|
|
|
72,489 |
|
|
|
12.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Performance Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
0.13 |
% |
|
|
(1.63 |
)% |
|
|
(108.0 |
)% |
|
|
0.08 |
% |
|
|
(3.03 |
)% |
|
|
(102.7 |
)% |
Return on average stockholders equity |
|
|
1.31 |
|
|
|
(14.78 |
) |
|
|
(108.9 |
) |
|
|
0.82 |
|
|
|
(30.16 |
) |
|
|
(102.7 |
) |
Average equity to average assets |
|
|
10.11 |
|
|
|
11.00 |
|
|
|
(8.1 |
) |
|
|
10.05 |
|
|
|
10.05 |
|
|
|
0.0 |
|
Net interest margin (1) |
|
|
4.32 |
|
|
|
3.69 |
|
|
|
17.1 |
|
|
|
4.22 |
|
|
|
4.07 |
|
|
|
3.7 |
|
Net interest spread |
|
|
4.03 |
|
|
|
3.26 |
|
|
|
23.6 |
|
|
|
3.90 |
|
|
|
3.63 |
|
|
|
7.4 |
|
Loan to deposit ratio |
|
|
78.32 |
|
|
|
83.50 |
|
|
|
(6.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the Three Months |
|
For the Nine Months |
|
|
Ended September 30, |
|
Ended September 30, |
|
|
2010 |
|
2009 |
|
Change % |
|
2010 |
|
2009 |
|
Change % |
Selected Capital Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Leverage ratio |
|
|
10.0 |
|
|
|
9.6 |
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Risk Based Capital |
|
|
12.4 |
|
|
|
12.1 |
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk Based Capital |
|
|
13.7 |
|
|
|
14.7 |
|
|
|
(7.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Asset Quality Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs to average loans outstanding (annualized) |
|
|
2.41 |
% |
|
|
3.05 |
% |
|
|
(21.0 |
)% |
|
|
2.47 |
% |
|
|
2.60 |
% |
|
|
(4.8) |
% |
Nonaccrual loans to gross loans |
|
|
3.14 |
|
|
|
4.19 |
|
|
|
(25.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans and repossessed assets to total assets |
|
|
3.90 |
|
|
|
4.10 |
|
|
|
(4.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Loans past due 90 days and still accruing to total loans |
|
|
0.14 |
|
|
|
0.06 |
|
|
|
133.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses to gross loans |
|
|
2.59 |
|
|
|
2.63 |
|
|
|
(1.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses to nonaccrual loans |
|
|
82.63 |
|
|
|
62.65 |
|
|
|
31.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net interest margin represents net interest income as a percentage of average interest-earning assets. |
As a bank holding company, the Companys Management focuses on key ratios in evaluating the
Companys financial condition and results of operations. In the current economic environment, key
ratios regarding asset 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 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. As of September 30, 2010,
impaired loans, including nonaccrual loans, were $245.8 million compared to $232.0 million at
September 30, 2009. Nonaccrual loans as a percentage of gross loans as of September 30, 2010 were
3.14% compared to 4.19% as of September 30, 2009. At September 30, 2010 and 2009, nonperforming
assets were $348.2 million and $285.8 million, respectively, and were comprised of nonaccrual
loans, loans past due 90 days or more and still accruing interest, restructured and impaired loans
and foreclosed collateral. For the three and nine months ended September 30, 2010, annualized net
charge-offs as a percentage of average loans were 2.41% and 2.47%, respectively, compared to 3.05%
and 2.60% for the three and nine months ended September 30, 2009, respectively.
Asset and Deposit Growth. The ability to originate loans and attract deposits is fundamental to
our asset growth. Our assets and liabilities are comprised primarily of loans and deposits,
respectively. Total assets at September 30, 2010 increased $347.8 million or 6.0%, to $6.18
billion from $5.83 billion at September 30, 2009. Gross loans increased by $205.5 million or 5.2%
as of September 30, 2010 from September 30, 2009. Total deposits increased $576.3 million or
12.1%, to $5.33 billion at September 30, 2010 from $4.75 billion at September 30, 2009.
Critical Accounting Policies
Critical accounting policies are defined as those that are reflective of significant judgments and
uncertainties, and could potentially result in materially different results under different
assumptions and conditions. The critical accounting policies upon which our financial condition
and results of operation depend, and which involve the most complex subjective decisions or
assessments, are included in the discussion entitled Critical Accounting Policies in Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations, in the
Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2009, and all
amendments thereto, as filed with the Securities and Exchange Commission. There were no material
changes to the critical accounting policies disclosed in the Annual Report on Form 10-K.
41
Results of Operations
The following table sets forth a summary financial overview for the three and nine months ended
September 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Increase |
|
|
September 30, |
|
|
Increase |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
|
|
|
|
|
(in thousands, except per share amounts) |
|
|
|
|
|
Consolidated Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
70,705 |
|
|
$ |
67,746 |
|
|
$ |
2,959 |
|
|
$ |
209,439 |
|
|
$ |
208,210 |
|
|
$ |
1,229 |
|
Interest expense |
|
|
11,237 |
|
|
|
18,776 |
|
|
|
(7,539 |
) |
|
|
37,796 |
|
|
|
57,709 |
|
|
|
(19,913 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
59,468 |
|
|
|
48,970 |
|
|
|
10,498 |
|
|
|
171,643 |
|
|
|
150,501 |
|
|
|
21,142 |
|
Provision for credit losses |
|
|
22,965 |
|
|
|
50,750 |
|
|
|
(27,785 |
) |
|
|
74,827 |
|
|
|
108,307 |
|
|
|
(33,480 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for credit losses |
|
|
36,503 |
|
|
|
(1,780 |
) |
|
|
38,283 |
|
|
|
96,816 |
|
|
|
42,194 |
|
|
|
54,622 |
|
Non-interest income |
|
|
12,167 |
|
|
|
12,547 |
|
|
|
(380 |
) |
|
|
47,556 |
|
|
|
166 |
|
|
|
47,390 |
|
Non-interest expense |
|
|
46,109 |
|
|
|
50,448 |
|
|
|
(4,339 |
) |
|
|
140,213 |
|
|
|
191,657 |
|
|
|
(51,444 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
from continuing operations before income taxes |
|
|
2,561 |
|
|
|
(39,681 |
) |
|
|
(42,242 |
) |
|
|
4,159 |
|
|
|
(149,297 |
) |
|
|
153,456 |
|
Income tax benefit |
|
|
(79 |
) |
|
|
(16,724 |
) |
|
|
16,645 |
|
|
|
(1,830 |
) |
|
|
(28,195 |
) |
|
|
26,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operatons |
|
|
2,640 |
|
|
|
(22,957 |
) |
|
|
25,597 |
|
|
|
5,989 |
|
|
|
(121,102 |
) |
|
|
127,091 |
|
Loss from discontinued operations |
|
|
(631 |
) |
|
|
(958 |
) |
|
|
327 |
|
|
|
(2,368 |
) |
|
|
(3,392 |
) |
|
|
1,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,009 |
|
|
$ |
(23,915 |
) |
|
$ |
25,924 |
|
|
$ |
3,621 |
|
|
$ |
(124,494 |
) |
|
$ |
128,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders |
|
$ |
(457 |
) |
|
$ |
(26,354 |
) |
|
$ |
25,897 |
|
|
$ |
(3,778 |
) |
|
$ |
(131,789 |
) |
|
$ |
128,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share basic |
|
$ |
(0.01 |
) |
|
$ |
(0.37 |
) |
|
$ |
0.36 |
|
|
$ |
(0.05 |
) |
|
$ |
(2.42 |
) |
|
$ |
2.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share diluted |
|
$ |
(0.01 |
) |
|
$ |
(0.37 |
) |
|
$ |
0.36 |
|
|
$ |
(0.05 |
) |
|
$ |
(2.42 |
) |
|
$ |
2.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys primary source of income is net interest income. Net interest income for the
three and nine months ended September 30, 2010 increased by 21.4% and 14.0%, respectively, compared
to the three and nine months ended September 30, 2009. The increase in net interest income was
mostly from declined funding costs primarily decreased interest expense on deposits of $6.5 million
for the comparable third quarters and $15.5 million for the nine months ended September 30, 2010
compared to 2009.
Net Interest Margin
The net interest margin is reported on a fully tax equivalent (FTE) basis. 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 table sets forth the average balances and interest
income on a fully tax equivalent basis and tax expense for the periods indicated:
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
Average |
|
|
|
|
|
|
Yield/Cost |
|
|
Average |
|
|
|
|
|
|
Yield/Cost |
|
|
|
Balance |
|
|
Interest |
|
|
(6) |
|
|
Balance |
|
|
Interest |
|
|
(6) |
|
Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
870,677 |
|
|
$ |
5,665 |
|
|
|
2.58 |
% |
|
$ |
570,413 |
|
|
$ |
5,652 |
|
|
|
3.93 |
% |
Tax-exempt (1) |
|
|
32,626 |
|
|
|
410 |
|
|
|
8.72 |
% |
|
|
30,443 |
|
|
|
129 |
|
|
|
3.52 |
% |
|
|
|
|
|
Total securities |
|
|
903,303 |
|
|
|
6,075 |
|
|
|
2.80 |
% |
|
|
600,856 |
|
|
|
5,781 |
|
|
|
3.91 |
% |
Federal funds sold & other |
|
|
11,164 |
|
|
|
29 |
|
|
|
1.03 |
% |
|
|
35,573 |
|
|
|
141 |
|
|
|
1.57 |
% |
Loans (1) (2) (3) |
|
|
4,115,894 |
|
|
|
64,273 |
|
|
|
6.20 |
% |
|
|
4,027,005 |
|
|
|
61,380 |
|
|
|
6.05 |
% |
Short term investments |
|
|
421,189 |
|
|
|
299 |
|
|
|
0.28 |
% |
|
|
570,345 |
|
|
|
334 |
|
|
|
0.23 |
% |
Investment in restricted stock |
|
|
39,765 |
|
|
|
29 |
|
|
|
0.29 |
% |
|
|
41,034 |
|
|
|
110 |
|
|
|
1.06 |
% |
|
|
|
|
|
Total earnings assets |
|
|
5,491,315 |
|
|
|
70,705 |
|
|
|
5.13 |
% |
|
|
5,274,813 |
|
|
|
67,746 |
|
|
|
5.11 |
% |
Non-Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
121,308 |
|
|
|
|
|
|
|
|
|
|
|
219,952 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(111,912 |
) |
|
|
|
|
|
|
|
|
|
|
(89,457 |
) |
|
|
|
|
|
|
|
|
Bank owned life insurance |
|
|
94,284 |
|
|
|
|
|
|
|
|
|
|
|
91,447 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
402,202 |
|
|
|
|
|
|
|
|
|
|
|
336,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,997,197 |
|
|
|
|
|
|
|
|
|
|
$ |
5,833,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources of Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking |
|
|
659,334 |
|
|
|
708 |
|
|
|
0.43 |
% |
|
|
326,902 |
|
|
|
928 |
|
|
|
1.13 |
% |
Savings and money market |
|
|
1,890,032 |
|
|
|
4,032 |
|
|
|
0.85 |
% |
|
|
1,777,410 |
|
|
|
6,700 |
|
|
|
1.50 |
% |
Time deposits |
|
|
1,341,579 |
|
|
|
4,791 |
|
|
|
1.42 |
% |
|
|
1,382,890 |
|
|
|
8,439 |
|
|
|
2.42 |
% |
|
|
|
|
|
Total interest-bearing deposits |
|
|
3,890,945 |
|
|
|
9,531 |
|
|
|
0.97 |
% |
|
|
3,487,202 |
|
|
|
16,067 |
|
|
|
1.83 |
% |
Short-term borrowings |
|
|
89,464 |
|
|
|
155 |
|
|
|
0.69 |
% |
|
|
419,044 |
|
|
|
1,241 |
|
|
|
1.17 |
% |
Long-term debt |
|
|
29,299 |
|
|
|
815 |
|
|
|
11.04 |
% |
|
|
9,396 |
|
|
|
211 |
|
|
|
8.91 |
% |
Junior sub. & subordinated debt |
|
|
36,323 |
|
|
|
736 |
|
|
|
8.04 |
% |
|
|
102,343 |
|
|
|
1,257 |
|
|
|
4.87 |
% |
|
|
|
|
|
Total interest-bearing liabilities |
|
|
4,046,031 |
|
|
|
11,237 |
|
|
|
1.10 |
% |
|
|
4,017,985 |
|
|
|
18,776 |
|
|
|
1.85 |
% |
Non interest-Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits |
|
|
1,317,216 |
|
|
|
|
|
|
|
|
|
|
|
1,141,275 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
27,571 |
|
|
|
|
|
|
|
|
|
|
|
32,369 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
606,379 |
|
|
|
|
|
|
|
|
|
|
|
641,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholders equity |
|
$ |
5,997,197 |
|
|
|
|
|
|
|
|
|
|
$ |
5,833,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and margin (4) |
|
|
|
|
|
$ |
59,468 |
|
|
|
4.32 |
% |
|
|
|
|
|
$ |
48,970 |
|
|
|
3.69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread (5) |
|
|
|
|
|
|
|
|
|
|
4.03 |
% |
|
|
|
|
|
|
|
|
|
|
3.26 |
% |
|
|
|
(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 the three months
ended September 30, 2010 and 2009 were $307 and $141, respectively. |
|
(2) |
|
Net loan fees of $0.9 million and $0.8 million are included in the yield computation for the
three months ended September 30, 2010 and 2009, 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. |
|
(6) |
|
Annualized. |
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
Average |
|
|
|
|
|
|
Yield/Cost |
|
|
Average |
|
|
|
|
|
|
Yield/Cost |
|
|
|
Balance |
|
|
Interest |
|
|
(6) |
|
|
Balance |
|
|
Interest |
|
|
(6) |
|
Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
812,192 |
|
|
$ |
16,886 |
|
|
|
2.78 |
% |
|
$ |
537,225 |
|
|
$ |
18,148 |
|
|
|
4.52 |
% |
Tax-exempt (1) |
|
|
33,042 |
|
|
|
793 |
|
|
|
6.04 |
% |
|
|
49,402 |
|
|
|
1,146 |
|
|
|
5.35 |
% |
|
|
|
|
|
Total securities |
|
|
845,234 |
|
|
|
17,679 |
|
|
|
2.91 |
% |
|
|
586,627 |
|
|
|
19,294 |
|
|
|
4.59 |
% |
Federal funds sold & other |
|
|
22,167 |
|
|
|
151 |
|
|
|
0.91 |
% |
|
|
22,843 |
|
|
|
370 |
|
|
|
2.17 |
% |
Loans (1) (2) (3) |
|
|
4,083,368 |
|
|
|
190,641 |
|
|
|
6.24 |
% |
|
|
4,066,109 |
|
|
|
187,901 |
|
|
|
6.18 |
% |
Short term investments |
|
|
473,117 |
|
|
|
862 |
|
|
|
0.24 |
% |
|
|
252,167 |
|
|
|
519 |
|
|
|
0.28 |
% |
Investment in restricted stock |
|
|
40,714 |
|
|
|
106 |
|
|
|
0.35 |
% |
|
|
41,044 |
|
|
|
126 |
|
|
|
0.41 |
% |
|
|
|
|
|
Total earnings assets |
|
|
5,464,600 |
|
|
|
209,439 |
|
|
|
5.14 |
% |
|
|
4,968,790 |
|
|
|
208,210 |
|
|
|
5.62 |
% |
Non-Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
109,739 |
|
|
|
|
|
|
|
|
|
|
|
174,997 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(114,962 |
) |
|
|
|
|
|
|
|
|
|
|
(81,468 |
) |
|
|
|
|
|
|
|
|
Bank owned life insurance |
|
|
93,520 |
|
|
|
|
|
|
|
|
|
|
|
91,067 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
400,904 |
|
|
|
|
|
|
|
|
|
|
|
339,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,953,801 |
|
|
|
|
|
|
|
|
|
|
$ |
5,493,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources of Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking |
|
|
563,731 |
|
|
|
2,223 |
|
|
|
0.53 |
% |
|
|
288,271 |
|
|
|
2,463 |
|
|
|
1.14 |
% |
Savings and money market |
|
|
1,837,727 |
|
|
|
12,894 |
|
|
|
0.94 |
% |
|
|
1,622,265 |
|
|
|
20,961 |
|
|
|
1.73 |
% |
Time deposits |
|
|
1,446,976 |
|
|
|
17,560 |
|
|
|
1.62 |
% |
|
|
1,238,372 |
|
|
|
24,706 |
|
|
|
2.67 |
% |
|
|
|
|
|
Total interest-bearing deposits |
|
|
3,848,434 |
|
|
|
32,677 |
|
|
|
1.14 |
% |
|
|
3,148,908 |
|
|
|
48,130 |
|
|
|
2.04 |
% |
Short-term borrowings |
|
|
147,905 |
|
|
|
1,370 |
|
|
|
1.24 |
% |
|
|
600,070 |
|
|
|
4,461 |
|
|
|
0.99 |
% |
Long-term debt |
|
|
9,874 |
|
|
|
815 |
|
|
|
11.04 |
% |
|
|
22,092 |
|
|
|
1,399 |
|
|
|
8.47 |
% |
Junior sub. & subordinated debt |
|
|
71,085 |
|
|
|
2,934 |
|
|
|
5.52 |
% |
|
|
104,122 |
|
|
|
3,719 |
|
|
|
4.78 |
% |
|
|
|
|
|
Total interest-bearing liabilities |
|
|
4,077,298 |
|
|
|
37,796 |
|
|
|
1.24 |
% |
|
|
3,875,192 |
|
|
|
57,709 |
|
|
|
1.99 |
% |
Noninterest-Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits |
|
|
1,249,398 |
|
|
|
|
|
|
|
|
|
|
|
1,037,218 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
34,441 |
|
|
|
|
|
|
|
|
|
|
|
28,874 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
592,664 |
|
|
|
|
|
|
|
|
|
|
|
551,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholdersequity |
|
$ |
5,953,801 |
|
|
|
|
|
|
|
|
|
|
$ |
5,493,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and margin (4) |
|
|
|
|
|
$ |
171,643 |
|
|
|
4.22 |
% |
|
|
|
|
|
$ |
150,501 |
|
|
|
4.07 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread (5) |
|
|
|
|
|
|
|
|
|
|
3.90 |
% |
|
|
|
|
|
|
|
|
|
|
3.63 |
% |
|
|
|
(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 the nine months ended
September 30, 2010 and 2009 were $700 and $830, respectively. |
|
(2) |
|
Net loan fees of $3.2 million and $3.3 million are included in the yield computation for the
nine months ended September 30, 2010 and 2009, 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. |
|
(6) |
|
Annualized |
44
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 the Company
on such assets and liabilities. For purposes of this table, nonaccrual loans have been included in
the average loan balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2010 compared to 2009 |
|
|
2010 compared to 2009 |
|
|
|
Increase (Decrease) |
|
|
Increase (Decrease) |
|
|
|
Due to Changes in (1)(2) |
|
|
Due to Changes in (1)(2) |
|
|
|
Volume |
|
|
Rate |
|
|
Total |
|
|
Volume |
|
|
Rate |
|
|
Total |
|
|
|
(in thousands) |
|
Interest on securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
1,953 |
|
|
$ |
(1,940 |
) |
|
$ |
13 |
|
|
$ |
5,717 |
|
|
$ |
(6,979 |
) |
|
$ |
(1,262 |
) |
Tax-exempt |
|
|
27 |
|
|
|
254 |
|
|
|
281 |
|
|
|
(393 |
) |
|
|
40 |
|
|
|
(353 |
) |
Federal funds sold |
|
|
(63 |
) |
|
|
(49 |
) |
|
|
(112 |
) |
|
|
(5 |
) |
|
|
(214 |
) |
|
|
(219 |
) |
Loans |
|
|
1,389 |
|
|
|
1,504 |
|
|
|
2,893 |
|
|
|
806 |
|
|
|
1,934 |
|
|
|
2,740 |
|
Short term investments |
|
|
(105 |
) |
|
|
70 |
|
|
|
(35 |
) |
|
|
403 |
|
|
|
(60 |
) |
|
|
343 |
|
Restricted stock |
|
|
(1 |
) |
|
|
(80 |
) |
|
|
(81 |
) |
|
|
(1 |
) |
|
|
(19 |
) |
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
3,200 |
|
|
|
(241 |
) |
|
|
2,959 |
|
|
|
6,527 |
|
|
|
(5,298 |
) |
|
|
1,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking |
|
|
356 |
|
|
|
(576 |
) |
|
|
(220 |
) |
|
|
1,086 |
|
|
|
(1,326 |
) |
|
|
(240 |
) |
Savings and money market |
|
|
239 |
|
|
|
(2,907 |
) |
|
|
(2,668 |
) |
|
|
1,512 |
|
|
|
(9,579 |
) |
|
|
(8,067 |
) |
Time deposits |
|
|
(146 |
) |
|
|
(3,502 |
) |
|
|
(3,648 |
) |
|
|
2,532 |
|
|
|
(9,678 |
) |
|
|
(7,146 |
) |
Short-term borrowings |
|
|
(567 |
) |
|
|
(519 |
) |
|
|
(1,086 |
) |
|
|
(4,188 |
) |
|
|
1,097 |
|
|
|
(3,091 |
) |
Long-term debt |
|
|
548 |
|
|
|
56 |
|
|
|
604 |
|
|
|
(1,008 |
) |
|
|
424 |
|
|
|
(584 |
) |
Junior subordinated debt |
|
|
(1,323 |
) |
|
|
802 |
|
|
|
(521 |
) |
|
|
(1,364 |
) |
|
|
579 |
|
|
|
(785 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
(893 |
) |
|
|
(6,646 |
) |
|
|
(7,539 |
) |
|
|
(1,430 |
) |
|
|
(18,483 |
) |
|
|
(19,913 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) |
|
$ |
4,093 |
|
|
$ |
6,405 |
|
|
$ |
10,498 |
|
|
$ |
7,957 |
|
|
$ |
13,185 |
|
|
$ |
21,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
The increase in net interest income for the three and nine months ended September 30, 2010 compared
to 2009, was primarily due to decreased interest expense driven by declines in rates paid on
interest bearing deposits. The cost of our average interest-bearing liabilities decreased to 1.10%
from 1.85% for the three months ended September 30, 2010 compared to the same period in 2009. For
the nine months ended September 30, 2010 compared to 2009, average cost of interest-bearing
liabilities decreased to 1.24% compared to 1.99%.
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 was $23.0 million and $74.8 million for the three and nine months ended
September 30, 2010, respectively compared to $50.8 million and $108.3 million for the same periods
in 2009. Factors that impact the provision for credit losses are net charge-offs or recoveries,
changes in the size and mix of the loan portfolio, the recognition of changes in current risk
factors and specific reserves on impaired loans.
45
Non-interest Income (Loss)
The Company earned non-interest income (loss) primarily though fees related to trust and advisory
services, services provided to loan and deposit customers, bank owned life insurance, investment
securities gains and impairment charges, mark to market gains and other.
The following table presents a summary of non-interest income (loss) for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Increase |
|
|
September 30, |
|
|
Increase |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
Net gain on sale of investment securities |
|
$ |
5,460 |
|
|
$ |
4,146 |
|
|
$ |
1,314 |
|
|
$ |
19,757 |
|
|
$ |
15,933 |
|
|
$ |
3,824 |
|
Securities impairment charges |
|
|
|
|
|
|
(1,044 |
) |
|
|
1,044 |
|
|
|
(1,174 |
) |
|
|
(44,083 |
) |
|
|
42,909 |
|
Portion of impairment charges recognized in other comprehensive loss (before
taxes) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,047 |
|
|
|
(2,047 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net securities impairment charges recognized in earnings |
|
|
|
|
|
|
(1,044 |
) |
|
|
1,044 |
|
|
|
(1,174 |
) |
|
|
(42,036 |
) |
|
|
40,862 |
|
Unrealized gain (loss) on assets and liabilities measured at fair value, net |
|
|
(210 |
) |
|
|
1,987 |
|
|
|
(2,197 |
) |
|
|
6,341 |
|
|
|
5,609 |
|
|
|
732 |
|
Gain on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
|
|
|
|
|
|
3,000 |
|
Service charges |
|
|
2,276 |
|
|
|
2,212 |
|
|
|
64 |
|
|
|
6,791 |
|
|
|
5,874 |
|
|
|
917 |
|
Trust and advisory fees |
|
|
1,001 |
|
|
|
2,369 |
|
|
|
(1,368 |
) |
|
|
3,395 |
|
|
|
6,967 |
|
|
|
(3,572 |
) |
Operating lease income |
|
|
998 |
|
|
|
1,079 |
|
|
|
(81 |
) |
|
|
2,928 |
|
|
|
2,976 |
|
|
|
(48 |
) |
Income from bank owned life insurance |
|
|
773 |
|
|
|
574 |
|
|
|
199 |
|
|
|
2,271 |
|
|
|
1,523 |
|
|
|
748 |
|
Derivative gains (losses) |
|
|
(66 |
) |
|
|
(70 |
) |
|
|
4 |
|
|
|
(202 |
) |
|
|
(200 |
) |
|
|
(2 |
) |
Other |
|
|
1,935 |
|
|
|
1,294 |
|
|
|
641 |
|
|
|
4,449 |
|
|
|
3,520 |
|
|
|
929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income (loss) |
|
$ |
12,167 |
|
|
$ |
12,547 |
|
|
$ |
(380 |
) |
|
$ |
47,556 |
|
|
$ |
166 |
|
|
$ |
47,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income declined slightly for the three month period ended September 30,
2010 compared to 2009. During the third quarter 2010, the Company sold its Premier Trust
subsidiary and recorded a $0.6 million gain on sale which is included in other non-interest income.
Total trust and advisory fees declined $1.4 million for the comparable quarters mostly due to the
Miller/Russell divestiture at year end 2009. The Company recorded no securities impairment charges
in the third quarter 2010 compared to $1.0 million in the third quarter 2009. Mark to market gains
declined for the comparable periods by $2.2 million due to interest rate fluctuations. Net gain on
sale of investment securities increased $1.3 million for the three months ended September 30, 2010
compared to 2009 mostly due to the sales of the remaining impaired ARPS securities for net gains of
$3.6 million.
Total non-interest income for the nine months ended September 30, 2010 compared to 2009 increased
by $47.4 million primarily the result of the $40.9 million decrease in securities impairment
charges. All other non-interest income categories improved with the exception of trust and
advisory fees which declined by $3.6 million for the comparable periods mostly due to the
divestitures of the majority interest in Miller/Russell and Associates, Inc at the end of last year
and Premier Trust as of September 1, 2010 which contributed $5.5 million in trust and advisory fees
during this period in 2009.
46
Non-interest Expense
The following table presents a summary of non-interest expenses for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Increase |
|
|
September 30, |
|
|
Increase |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
|
(in thousands) |
|
Salaries and employee benefits |
|
$ |
21,860 |
|
|
$ |
23,694 |
|
|
$ |
(1,834 |
) |
|
$ |
65,461 |
|
|
$ |
70,697 |
|
|
$ |
(5,236 |
) |
Occupancy |
|
|
4,890 |
|
|
|
5,346 |
|
|
|
(456 |
) |
|
|
14,505 |
|
|
|
15,762 |
|
|
|
(1,257 |
) |
Losses on sales/valuations of repossessed
assets and bank premises, net |
|
|
4,855 |
|
|
|
7,283 |
|
|
|
(2,428 |
) |
|
|
15,836 |
|
|
|
16,193 |
|
|
|
(357 |
) |
Insurance |
|
|
4,115 |
|
|
|
2,326 |
|
|
|
1,789 |
|
|
|
11,366 |
|
|
|
9,034 |
|
|
|
2,332 |
|
Legal, professional and director fees |
|
|
1,546 |
|
|
|
1,810 |
|
|
|
(264 |
) |
|
|
5,553 |
|
|
|
4,995 |
|
|
|
558 |
|
Repossessed assets and loan expenses |
|
|
1,918 |
|
|
|
1,430 |
|
|
|
488 |
|
|
|
5,847 |
|
|
|
4,585 |
|
|
|
1,262 |
|
Customer service |
|
|
987 |
|
|
|
1,001 |
|
|
|
(14 |
) |
|
|
3,205 |
|
|
|
3,145 |
|
|
|
60 |
|
Marketing |
|
|
878 |
|
|
|
543 |
|
|
|
335 |
|
|
|
3,079 |
|
|
|
3,122 |
|
|
|
(43 |
) |
Intangible amortization |
|
|
901 |
|
|
|
945 |
|
|
|
(44 |
) |
|
|
2,714 |
|
|
|
2,835 |
|
|
|
(121 |
) |
Data processing |
|
|
842 |
|
|
|
951 |
|
|
|
(109 |
) |
|
|
2,427 |
|
|
|
3,303 |
|
|
|
(876 |
) |
Operating lease depreciation |
|
|
627 |
|
|
|
722 |
|
|
|
(95 |
) |
|
|
1,963 |
|
|
|
2,479 |
|
|
|
(516 |
) |
Telephone |
|
|
455 |
|
|
|
484 |
|
|
|
(29 |
) |
|
|
1,356 |
|
|
|
1,410 |
|
|
|
(54 |
) |
Travel and automobile |
|
|
459 |
|
|
|
464 |
|
|
|
(5 |
) |
|
|
1,025 |
|
|
|
1,122 |
|
|
|
(97 |
) |
Audits and exams |
|
|
309 |
|
|
|
397 |
|
|
|
(88 |
) |
|
|
1,233 |
|
|
|
1,368 |
|
|
|
(135 |
) |
Correspondent banking and wire transfer costs |
|
|
279 |
|
|
|
363 |
|
|
|
(84 |
) |
|
|
904 |
|
|
|
1,065 |
|
|
|
(161 |
) |
Supplies |
|
|
293 |
|
|
|
320 |
|
|
|
(27 |
) |
|
|
880 |
|
|
|
1,187 |
|
|
|
(307 |
) |
Goodwill impairment charge |
|
|
|
|
|
|
576 |
|
|
|
(576 |
) |
|
|
|
|
|
|
45,576 |
|
|
|
(45,576 |
) |
Other |
|
|
895 |
|
|
|
1,793 |
|
|
|
(898 |
) |
|
|
2,859 |
|
|
|
3,779 |
|
|
|
(920 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
46,109 |
|
|
$ |
50,448 |
|
|
$ |
(4,339 |
) |
|
$ |
140,213 |
|
|
$ |
191,657 |
|
|
$ |
(51,444 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense decreased $4.3 million for the three months ended September 30, 2010
compared to the same period in 2009. The decrease is the result of the Companys cost reduction
program which has reduced expenses in almost all categories with the exception of FDIC insurance
which has increased $1.2 million which is mostly due to increased deposits. In addition, expenses
from repossessed assets and loans increased by $0.5 million for the comparable quarters due to the
increased volume of these assets. Marketing expenses also increased slightly by $0.3 million for
the comparable quarters as the Company continues to pursue new customers and quality lending
opportunities.
Total non-interest expense for the year to date 2010 compared to 2009 decreased $51.4 million
mostly due to a non-cash goodwill impairment charges taken in the first and third quarters of 2009
of $45.6 million. In addition, the Company implemented a cost reduction program which has resulted
in an additional $5.9 million net decline in expenses.
Income Taxes
The increase in the tax benefit recognized in the current quarter was primarily due to permanent
differences related to bank-owned life insurance, tax-exempt income, dividends received deductions
and state tax accruals. For the nine months ended September 30, 2010, the decrease in the
effective tax rate was primarily due to the above mentioned items as well as the reversal of a
portion of the deferred tax asset valuation allowance on ARPS impaired securities.
Discontinued Operations
In the first quarter of 2010, the Company decided to sell its credit card segment, PartnersFirst,
and has presented certain activities as discontinued operations. During the first quarter of 2010,
the Company transferred certain assets with balances at September 30, 2010 of $0.1 million to
held-for-sale and reported a portion of its operations as discontinued. At September 30, 2010, the
Company had $46.1 million of outstanding credit card loans which will have continuing cash flows
related to the collection of these loans. These credit card loans are included in loans held for
investment as of September 30, 2010 and December 31, 2009.
The following table summarizes the operating results of the discontinued operations for the periods
indicated:
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Affinity card revenue |
|
$ |
444 |
|
|
$ |
614 |
|
|
$ |
1,394 |
|
|
$ |
1,307 |
|
Non-interest expenses |
|
|
(1,532 |
) |
|
|
(2,263 |
) |
|
|
(5,477 |
) |
|
|
(7,076 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(1,088 |
) |
|
|
(1,649 |
) |
|
|
(4,083 |
) |
|
|
(5,769 |
) |
Income tax benefit |
|
|
(457 |
) |
|
|
(691 |
) |
|
|
(1,715 |
) |
|
|
(2,377 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(631 |
) |
|
$ |
(958 |
) |
|
$ |
(2,368 |
) |
|
$ |
(3,392 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Segment Results
Our Nevada banking segment, which is comprised of Bank of Nevada and First Independent Bank of
Nevada, reported that loans declined $40 million during the third quarter of 2010 and declined
$137.2 million since December 31, 2009 to $2.32 billion at September 30, 2010. Deposits increased
$234.8 million to $2.89 billion since December 31, 2009. Net loss for the Nevada banks was $5.8
million during the third quarter 2010, compared with a net loss of $23.8 million during the third
quarter 2009. For the year to date 2010, the Nevada banks had a net loss of $18.1 million compared
to a net loss of $90.9 million for the same period in 2009 which included a $45.0 million goodwill
impairment charge.
Our California banking segment, which is comprised of Torrey Pines Bank and Alta Alliance Bank,
reported that loans increased $29 million during the second quarter 2010 and $135.3 million since
December 31, 2009 to $1.01 billion at September 30, 2010. Deposits increased $140.2 million to
$1.23 billion for the third quarter of 2010. Net income for the California banks was $4.0 million
during the third quarter 2010 compared with net loss of $0.6 million for the third quarter 2009.
For the nine months ended September 30, 2010, the California banking segment had net income of $7.1
compared to a net loss of $1.7 million for the comparable period of 2009.
Our Arizona banking segment includes Alliance Bank of Arizona, which reported loan growth of $54.1
million during the third quarter 2010 to $891.2 million. Total deposits increased to $1.24 billion
from $0.98 billion at December 31, 2009. Net income for the Arizona segment was $3.2 million
during the third quarter 2010 compared with a net loss of $1.1 million during the third quarter
2009. For the nine months ended September 30, 2010, Arizona had net income of $6.7 million
compared to a net loss of $5.7 million for the comparable period of 2009.
Our Asset Management business line, which includes Shine Investments Advisory Services and Premier
Trust (until divestiture on September 1, 2010), had assets under management of $341 million at
September 30, 2010, compared to $865 million at December 31, 2009, excluding Miller/Russell and
Associates, which was divested on December 31, 2009. Net income for the Asset Management segment
for the third quarter and nine months ended September 30, 2010 was $0.1 million and $0.3 million,
respectively compared with net loss of $0.4 million and $0.3 million during the third quarter and
year to date 2009, respectively. The income for 2009 included Miller/Russell and Associates which
was divested at the end of 2009. The net income from Premier Trust is not significant.
Balance Sheet Analysis
Total Assets
Total assets increased to $6.18 billion or 7.4% at September 30, 2010 from December 31, 2009. The
majority of this increase was in cash and liquid assets of $166.7 million, investment securities of
$117.3 million, net loans of $94.3 million and other repossessed assets of $26.7 million. The
increased liquidity is mostly due to the completion of a debt offering during the third quarter
contributing $72.8 million.
Loans
Total loans increased $93.8 million to $4.17 billion at September 30, 2010. The majority of the
increase was in the commercial real estate portfolio of $184.5 million, commercial leases of $64.3,
commercial and industrial of $10.3 million and other of $4.3 million which were partially offset by
declined loan balances in construction and land of $134.9 million and residential real estate of
$34.7 million. The Company is focused on pursuing quality lending opportunities and other loan
portfolio strategies.
48
The following table shows the amounts of loans outstanding by type of loan at the end of each of
the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Construction and land development |
|
$ |
488,343 |
|
|
$ |
623,198 |
|
Commercial real estate owner occupied |
|
|
1,227,704 |
|
|
|
1,091,363 |
|
Commercial real estate non-owner occupied |
|
|
981,374 |
|
|
|
933,261 |
|
Residential real estate |
|
|
533,598 |
|
|
|
568,319 |
|
Commercial and industrial |
|
|
695,375 |
|
|
|
685,089 |
|
Commercial leases |
|
|
181,437 |
|
|
|
117,104 |
|
Consumer |
|
|
71,379 |
|
|
|
80,300 |
|
Deferred fees and unearned income net |
|
|
(5,730 |
) |
|
|
(18,995 |
) |
|
|
|
|
|
|
|
|
|
|
4,173,480 |
|
|
|
4,079,639 |
|
Allowance for credit losses |
|
|
(108,170 |
) |
|
|
(108,623 |
) |
|
|
|
|
|
|
|
Total loans, net |
|
$ |
4,065,310 |
|
|
$ |
3,971,016 |
|
|
|
|
|
|
|
|
Concentrations of Lending Activities
The Companys 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 Companys primary markets. The Companys 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 September 30, 2010 and December 31, 2009,
commercial real estate related loans which include construction and land accounted for
approximately 64% and 65% of total loans, and approximately 3% and 5% of commercial real estate
loans, respectively, 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
46% and 54% of total commercial real estate loans were owner occupied at September 30, 2010 and
December 31, 2009, respectively. In addition, approximately 3% and 4% of total loans were
unsecured as of September 30, 2010 and December 31, 2009, respectively.
Nonperforming Assets
Nonperforming assets include loans past due 90 days or more and still accruing interest, nonaccrual
loans, restructured loans, and foreclosed collateral. Loans are generally placed on nonaccrual
status when it is determined that recognition of interest is doubtful due to the borrowers
financial condition and collection efforts. Restructured loans have modified terms to reduce
either principal or interest due to deterioration in the borrowers financial condition.
Foreclosed collateral or other repossessed assets result from loans where we have received physical
possession of the borrowers assets.
The following table summarizes nonperforming assets:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Nonaccrual loans |
|
$ |
130,905 |
|
|
$ |
153,702 |
|
Loans past due 90 days or more on accrual status |
|
|
5,667 |
|
|
|
5,538 |
|
Troubled debt restructured loans (accruing) |
|
|
101,540 |
|
|
|
46,480 |
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
|
238,112 |
|
|
|
205,719 |
|
Foreclosed collateral |
|
|
110,096 |
|
|
|
83,347 |
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
348,208 |
|
|
$ |
289,066 |
|
|
|
|
|
|
|
|
The following table summarizes the loans for which the accrual of interest has been discontinued,
loans past due 90 days or more and still accruing interest, restructured loans, and other impaired
loans:
49
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(dollars in thousands) |
|
Total nonaccrual loans |
|
$ |
130,905 |
|
|
$ |
153,702 |
|
Loans past due 90 days or more and still accruing |
|
|
5,667 |
|
|
|
5,538 |
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
|
136,572 |
|
|
|
159,240 |
|
Restructured loans |
|
|
101,540 |
|
|
|
46,480 |
|
Other impaired loans |
|
|
7,642 |
|
|
|
27,752 |
|
|
|
|
|
|
|
|
Total impaired loans |
|
$ |
245,754 |
|
|
$ |
233,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other repossessed assets |
|
$ |
110,096 |
|
|
$ |
83,347 |
|
Nonaccrual loans to gross loans |
|
|
3.14 |
% |
|
|
3.77 |
% |
Loans past due 90 days or more and still accruing to total loans |
|
|
0.14 |
|
|
|
0.14 |
|
For the three and nine months ended September 30, 2010, interest income recognized on nonaccrual
loans totaled $0.3 million and $1.7 million. Interest income that would have been recorded under
the original terms of the nonaccrual loans during the period was $2.5 million and $5.2 million for
the three and nine months ended September 30, 2010 and $0.8 million and $3.5 million for the three
and nine months ended September 30, 2009.
The composite of nonaccrual loans were as follows as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010 |
|
|
At December 31, 2009 |
|
|
|
Nonaccrual |
|
|
|
|
|
|
Percent of |
|
|
Nonaccrual |
|
|
|
|
|
|
Percent of |
|
|
|
Balance |
|
|
% |
|
|
Total Loans |
|
|
Balance |
|
|
% |
|
|
Total Loans |
|
|
|
(dollars in thousands) |
|
Construction and land development |
|
$ |
42,440 |
|
|
|
32.42 |
% |
|
|
1.02 |
% |
|
$ |
64,079 |
|
|
|
41.69 |
% |
|
|
1.57 |
% |
Residential real estate |
|
|
34,782 |
|
|
|
26.57 |
% |
|
|
0.83 |
% |
|
|
30,000 |
|
|
|
19.52 |
% |
|
|
0.73 |
% |
Commercial real estate |
|
|
46,366 |
|
|
|
35.42 |
% |
|
|
1.11 |
% |
|
|
42,253 |
|
|
|
27.49 |
% |
|
|
1.04 |
% |
Commercial and industrial |
|
|
6,723 |
|
|
|
5.14 |
% |
|
|
0.16 |
% |
|
|
17,134 |
|
|
|
11.15 |
% |
|
|
0.42 |
% |
Consumer |
|
|
594 |
|
|
|
0.45 |
% |
|
|
0.02 |
% |
|
|
236 |
|
|
|
0.15 |
% |
|
|
0.01 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans |
|
$ |
130,905 |
|
|
|
100.00 |
% |
|
|
3.14 |
% |
|
$ |
153,702 |
|
|
|
100.00 |
% |
|
|
3.77 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010 and December 31, 2009, nonaccrual loans totaled $130.9 million and $153.7
million, respectively. Nonaccrual loans at September 30, 2010 consisted of 218 loans with the
highest single customer loan balance of $10.1 million. The decrease in total nonaccrual loans is
primarily due to charge-offs.
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 loan agreement. Most impaired loans are
classified as nonaccrual. However, there are some loans that are termed impaired due to doubt
regarding collectability according to contractual terms, but are both fully secured by collateral
and are current in their interest and principal payments. These impaired loans are not classified
as nonaccrual. A valuation allowance is established for an impaired loan when the fair value of
the loan is less than the recorded investment. Impaired loans are measured in accordance with FASB
ASC 310, Receivables (ASC 310), utilizing the fair value of the collateral for collateral
dependent loans or an analysis of the discounted cash flows.
At September 30, 2010 and December 31, 2009 the aggregate total amount of loans classified as
impaired was $245.8 million and $233.5 million, respectively. The total specific allowance for
credit losses related to these loans was $9.9 million and $13.4 million as of September 30, 2010
and December 31, 2009, respectively. The increase in impaired loans was mostly attributed to
increased impaired commercial real estate loans, residential real estate and consumer/credit card
loans which were $124.4 million, $44.0 million and $1.0 million, respectively at September 30, 2010
compared to $85.4 million, $39.6 million and $0.2 million at December 31, 2009, respectively. This
increase was partially offset by decreased impaired construction and land and commercial and
industrial loans of $25.4 million and $6.3 million, respectively to $63.8 million and $12.5 million
respectively at September 30, 2010 from December 31, 2009.
50
At September 30, 2010 and December 31, 2009, loans classified as restructured loans as defined by
ASC 310 totaled $101.5 million and $46.5 million, respectively. At September 30, 2010,
restructured loans consisted of 66.6% commercial real estate, 20.2% construction and land, 7.8%
residential real estate, 4.9% commercial and industrial and 0.4% consumer.
The following table includes the breakdown of total impaired loans and the related specific
reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010 |
|
|
|
Impaired |
|
|
|
|
|
|
Percent of |
|
|
Reserve |
|
|
|
|
|
|
Percent of |
|
|
|
Balance |
|
|
Percent |
|
|
Total Loans |
|
|
Balance |
|
|
Percent |
|
|
Total Allowance |
|
Construction and land development |
|
$ |
63,839 |
|
|
|
25.98 |
% |
|
|
1.53 |
% |
|
$ |
2,765 |
|
|
|
27.92 |
% |
|
|
2.56 |
% |
Residential real estate |
|
|
43,987 |
|
|
|
17.90 |
% |
|
|
1.05 |
% |
|
|
2,267 |
|
|
|
22.89 |
% |
|
|
2.10 |
% |
Commercial real estate |
|
|
124,404 |
|
|
|
50.62 |
% |
|
|
2.98 |
% |
|
|
3,305 |
|
|
|
33.37 |
% |
|
|
3.06 |
% |
Commercial and industrial |
|
|
12,509 |
|
|
|
5.09 |
% |
|
|
0.30 |
% |
|
|
1,440 |
|
|
|
14.54 |
% |
|
|
1.33 |
% |
Consumer |
|
|
1,015 |
|
|
|
0.41 |
% |
|
|
0.02 |
% |
|
|
127 |
|
|
|
1.28 |
% |
|
|
0.12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans |
|
$ |
245,754 |
|
|
|
100.00 |
% |
|
|
5.88 |
% |
|
$ |
9,904 |
|
|
|
100.00 |
% |
|
|
9.17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses
Credit risk is inherent in the business of extending loans and leases to borrowers. Like other
financial institutions, the Company must maintain an adequate allowance for credit losses. The
allowance for credit losses is established through a provision for credit losses charged to
expense. Loans are charged against the allowance for credit losses when Management believes that
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 other factors. The Company
formally re-evaluates and establishes the appropriate level of the allowance for credit losses on a
quarterly basis.
Our allowance for credit loss methodology incorporates several quantitative and qualitative risk
factors used to establish the appropriate allowance for credit losses at each reporting date.
Quantitative factors include our historical loss experience, delinquency and charge-off trends,
collateral values, changes in the level of nonperforming loans and other factors. Qualitative
factors include the economic condition of our operating markets and the state of certain
industries. Specific changes in the risk factors are based on perceived risk of similar groups of
loans classified by collateral type, purpose and terms. An internal one-year and three-year loss
history are also incorporated into the allowance calculation model. Due to the credit
concentration of our loan portfolio in real estate secured loans, the value of collateral is
heavily dependent on real estate values in Nevada, Arizona and California, which have declined
significantly in recent periods. While management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary if there are significant changes
in economic or other conditions. In addition, the FDIC and state banking regulatory agencies, as
an integral part of their examination processes, periodically review our subsidiary banks
allowances for credit losses, and may require us to make additions to our allowance based on their
judgment about information available to them at the time of their examinations. Management
regularly reviews the assumptions and formulae used in determining the allowance and makes
adjustments if required to reflect the current risk profile of the portfolio.
The allowance consists of specific and general components. The specific allowance relates to
impaired loans. In general, impaired loans include those where interest recognition has been
suspended, loans that are more than 90 days delinquent but because of adequate collateral coverage
income continues to be recognized, and other criticized and classified loans not paying
substantially according to the original contract terms. For such loans, an allowance is
established when the discounted cash flows, collateral value or observable market price of the
impaired loan are lower than the carrying value of that loan, pursuant to FASB ASC 310 Receivables
(ASC 310). Loans not collateral dependent are evaluated based on the expected future cash flows
discounted at the current contractual interest rate. The amount to which the present value falls
short of the current loan obligation will be set up as a reserve for that account or charged-off.
The Company uses an appraised value method to determine the need for a reserve on impaired,
collateral dependent loans and further discounts the appraisal for disposition costs. Due to the
rapidly changing economic and market conditions of the regions within which we operate, the Company
obtains independent collateral valuation analysis on a regular basis for each loan, typically every
six months.
51
The general allowance covers all non-impaired loans and is based on historical loss experience
adjusted for the various qualitative and quantitative factors listed above. The change in the
allowance from one reporting period to the next may not directly correlate to the rate of change of
the nonperforming loans for the following reasons:
1. A loan moving from impaired performing to impaired nonperforming does not mandate an increased
reserve. The individual account is evaluated for a specific reserve requirement when the loan
moves to impaired status, not when it moves to nonperforming status, and is reevaluated at each
subsequent reporting period. Because our nonperforming loans are predominately collateral
dependent, reserves are primarily based on collateral value, which is not affected by borrower
performance but rather by market conditions.
2. Not all impaired accounts require a specific reserve. The payment performance of the borrower
may require an impaired classification, but the collateral evaluation may support adequate
collateral coverage. For a number of impaired
accounts in which borrower performance has ceased, the collateral coverage is now sufficient
because a partial charge off of the account has been taken. In those instances, neither a general
reserve nor a specific reserve is assessed.
The following table summarizes the activity in our allowance for credit losses for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(dollars in thousands) |
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
110,013 |
|
|
$ |
84,143 |
|
|
$ |
108,623 |
|
|
$ |
74,827 |
|
Provisions charged to operating expenses |
|
|
22,965 |
|
|
|
50,750 |
|
|
|
74,827 |
|
|
|
108,307 |
|
Recoveries of loans previously charged-off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development |
|
|
214 |
|
|
|
608 |
|
|
|
2,424 |
|
|
|
820 |
|
Commercial real estate |
|
|
160 |
|
|
|
139 |
|
|
|
990 |
|
|
|
139 |
|
Residential real estate |
|
|
1,209 |
|
|
|
11 |
|
|
|
1,735 |
|
|
|
205 |
|
Commercial and industrial |
|
|
389 |
|
|
|
442 |
|
|
|
2,200 |
|
|
|
1,313 |
|
Consumer |
|
|
47 |
|
|
|
6 |
|
|
|
128 |
|
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
2,019 |
|
|
|
1,206 |
|
|
|
7,477 |
|
|
|
2,608 |
|
Loans charged-off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development |
|
|
3,843 |
|
|
|
13,717 |
|
|
|
20,402 |
|
|
|
25,948 |
|
Commercial real estate |
|
|
12,813 |
|
|
|
3,125 |
|
|
|
26,524 |
|
|
|
10,552 |
|
Residential real estate |
|
|
3,695 |
|
|
|
5,619 |
|
|
|
17,385 |
|
|
|
18,173 |
|
Commercial and industrial |
|
|
5,036 |
|
|
|
8,329 |
|
|
|
14,395 |
|
|
|
23,649 |
|
Consumer |
|
|
1,440 |
|
|
|
1,128 |
|
|
|
4,051 |
|
|
|
3,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charged-off |
|
|
26,827 |
|
|
|
31,918 |
|
|
|
82,757 |
|
|
|
81,561 |
|
Net charge-offs |
|
|
24,808 |
|
|
|
30,712 |
|
|
|
75,280 |
|
|
|
78,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
108,170 |
|
|
$ |
104,181 |
|
|
$ |
108,170 |
|
|
$ |
104,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs to average loans (annualized) |
|
|
2.41 |
% |
|
|
3.05 |
% |
|
|
2.47 |
% |
|
|
2.60 |
% |
Allowance for credit losses to gross loans |
|
|
2.59 |
% |
|
|
2.62 |
% |
|
|
|
|
|
|
|
|
Net charge-offs totaled $24.8 million and $30.7 million for the three months ended September 30,
2010 and 2009, respectively. Year to date 2010 net charges off totaled $75.3 million compared to
$79.0 million for 2009. The provision for credit losses was $23.0 million for the third quarter of
2010 compared to $50.8 million for the same periods in 2009. For the nine month period ended
September 30, 2010 and 2009, the provision for credit losses was $74.8 and $108.3 million,
respectively. The increase in the allowance for credit losses is driven by loan growth, decreased
net loan charge-offs, changes in the mix of loans and the addition of investment grade lease loans
which have low historical loss rates due to the high quality of the borrowers and totaled $52.3
million at September 30, 2010. The increase in commercial real estate charge-offs for the three
months ended September 30, 2010 compared to 2009 primarily relates to five large properties in
Nevada comprising $9.4 million of the increase.
The following table summarizes the allocation of the allowance for credit losses by loan type. The
allocation is made for analytical purposes and it is not necessarily indicative of the categories
in which future credit losses may occur. The total allowance is available to absorb losses from
any segment of loans. The allocations in the table below were determined by a combination of the
following factors: specific allocations made on loans considered impaired as determined by
52
management and the loan review committee, a general allocation on certain other impaired loans, and
historical losses in each loan type category combined with a weighting of the current loan
composition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Credit Losses at September 30, 2010 |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
% of Total |
|
|
% of Loans in |
|
|
|
|
|
|
|
Allowance For |
|
|
Each Category |
|
|
|
Amount |
|
|
Loan Losses |
|
|
to Gross Loans |
|
Construction and land development |
|
$ |
24,021 |
|
|
|
22.21 |
% |
|
|
11.69 |
% |
Commercial real estate |
|
|
26,864 |
|
|
|
24.83 |
% |
|
|
52.85 |
% |
Residential real estate |
|
|
22,128 |
|
|
|
20.46 |
% |
|
|
12.77 |
% |
Commercial and industrial |
|
|
30,036 |
|
|
|
27.77 |
% |
|
|
20.98 |
% |
Consumer |
|
|
5,121 |
|
|
|
4.73 |
% |
|
|
1.71 |
% |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
108,170 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
Potential Problem Loans
The Company classifies loans consistent with federal banking regulations using a nine category
grading system. These loan grades are described in further detail in the Companys Annual Report
on Form 10-K for 2009, Item 1 Business. The following table presents information regarding
potential problem loans, consisting of loans graded watch, substandard and doubtful, but still
performing and not impaired as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010 |
|
|
|
# of |
|
|
Loan |
|
|
|
|
|
|
Percent of |
|
|
|
Loans |
|
|
Balance |
|
|
Percent |
|
|
Total Loans |
|
|
|
(dollars in thousands) |
|
Construction and land development |
|
|
51 |
|
|
$ |
46,197 |
|
|
|
17.18 |
% |
|
|
1.11 |
% |
Commercial real estate |
|
|
133 |
|
|
|
148,192 |
|
|
|
55.13 |
% |
|
|
3.55 |
% |
Residential real estate |
|
|
70 |
|
|
|
24,640 |
|
|
|
9.17 |
% |
|
|
0.59 |
% |
Commercial and industrial |
|
|
253 |
|
|
|
48,718 |
|
|
|
18.12 |
% |
|
|
1.17 |
% |
Consumer |
|
|
24 |
|
|
|
1,086 |
|
|
|
0.40 |
% |
|
|
0.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total potential problem loans |
|
|
531 |
|
|
$ |
268,833 |
|
|
|
100.00 |
% |
|
|
6.44 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Our potential problem loans consisted of 531 loans and totaled approximately $268.8 million at
September 30, 2010. These loans are primarily secured by real estate.
Investment Securities
Investment securities are classified as either held-to-maturity, available-for-sale, or measured at
fair value based upon various factors, including asset/liability management strategies, liquidity
and profitability objectives, and regulatory requirements. Held-to-maturity securities are carried
at amortized cost, adjusted for amortization of premiums or accretion of discounts.
Available-for-sale securities are securities that may be sold prior to maturity based upon
asset/liability management decisions. Investment securities identified as available-for-sale are
carried at fair value. Unrealized gains or losses on available-for-sale securities are recorded as
accumulated other comprehensive income in stockholders equity. Amortization of premiums or
accretion of discounts on mortgage-backed securities is periodically adjusted for estimated
prepayments. Investment securities measured at fair value are reported at fair value, with
unrealized gains and losses included in current period earnings.
The carrying value of investment securities at September 30, 2010 and December 31, 2009 was as
follows:
53
|
|
|
|
|
|
|
|
|
|
|
At September 30, |
|
|
At December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Direct obligation and GSE residential mortgage-backed securities |
|
$ |
523,825 |
|
|
$ |
655,073 |
|
U.S. Government-sponsored agency debt securities |
|
|
279,684 |
|
|
|
2,479 |
|
Adjustable rate preferred stock |
|
|
40,017 |
|
|
|
18,296 |
|
Trust preferred securities |
|
|
23,013 |
|
|
|
22,050 |
|
Corporate bonds |
|
|
25,119 |
|
|
|
71,190 |
|
Private label residential mortgage-backed securities |
|
|
9,356 |
|
|
|
18,175 |
|
Municipal obligations |
|
|
2,638 |
|
|
|
5,380 |
|
Collateralized debt obligations |
|
|
288 |
|
|
|
918 |
|
Other |
|
|
24,127 |
|
|
|
17,189 |
|
|
|
|
|
|
|
|
Total investment securities |
|
$ |
928,067 |
|
|
$ |
810,750 |
|
|
|
|
|
|
|
|
Gross unrealized losses on investment securities at September 30, 2010 are primarily caused by
interest rate fluctuations, credit spread widening and reduced liquidity in applicable markets.
The Company has reviewed securities on which there is an unrealized loss in accordance with its
accounting policy for other than temporary impairment
(OTTI) as described in Note 4, Investment
Securities, and recorded impairment charges totaling $1.2 million for the nine months ended
September 30, 2010. This impairment related to the collateralized debt obligations (CDO). There
was no additional impairment determined for the third quarter 2010. For the three and nine months
ended September 30, 2009, the Company recorded securities impairment of $1.0 million and $42.0
million, respectively. For the nine months ended September 30, 2009, the impairment charges
included $36.4 million related to adjustable rate preferred stock (ARPS), $3.0 million related to
the Companys collateralized mortgage obligation (CMO) portfolio and $2.6 million additional
impairment of CDOs.
The Company does not consider any other securities to be other-than-temporarily impaired as of
September 30, 2010 and December 31, 2009. However, without recovery in the near term such that
liquidity returns to the applicable markets and spreads return to levels that reflect underlying
credit characteristics, additional OTTI may occur in future periods.
Goodwill
Goodwill is created when a company acquires a business. When a business is acquired, the purchased
assets and liabilities are recorded at fair value and intangible assets are identified. Excess
consideration paid to acquire a business over the fair value of the net assets is recorded as
goodwill. The Companys annual goodwill impairment testing is October 1.
The Company determined that there was no triggering event or other factor to indicate an interim
test of goodwill impairment was necessary for the first, second and third quarters of 2010. During
the third quarter 2009, the Company determined that it was necessary to perform an interim test for
goodwill impairment on its former subsidiary Miller/Russell and Associates. As a result of the
goodwill impairment test, the Company determined that the Miller/Russell reporting unit was
impaired by $0.6 million.
During the first quarter 2009, as a result of the significant decline in the Companys stock price
and depressed economic conditions among financial institutions in general, the Company determined
that it was necessary to perform an interim test for goodwill impairment. As a result of the March
31, 2009 goodwill impairment test, the Company determined that the Bank of Nevada reporting unit
was impaired by $45.0 million.
The goodwill impairment charges had no effect on the Companys cash balances or liquidity. In
addition, because goodwill is not included in the calculation of regulatory capital, the Companys
regulatory ratios were not affected by this non-cash expense. No assurance can be given that
goodwill will not be further impaired in future periods.
Deferred Tax Asset
Western Alliance Bancorporation and its subsidiaries, other than BW Real Estate, Inc., file a
consolidated federal tax return. Due to tax regulations, several items of income and expense are
recognized in different periods for tax return purposes than for financial reporting purposes.
These items represent temporary differences. Deferred taxes are provided on an asset and
liability method whereby deferred tax assets are recognized for deductible temporary differences
and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary
differences.
54
Temporary differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of
changes in tax laws and rates on the date of enactment.
Although realization is not assured, the Company believes that the realization of the recognized
net deferred tax asset of $70.1 million at September 30, 2010 is more likely than not based on
expectations as to future taxable income and based on available tax planning strategies as defined
in ASC 740 that could be implemented if necessary to prevent a carryforward from expiring.
The most significant source of these timing differences is the credit loss reserve build which
accounts for $39.9 million of the net deferred tax asset. In general, the Company will need to
generate approximately $195 million of taxable income during the respective carryforward periods to
fully realize its deferred tax assets.
As a result of the recent losses, the Company is in a three-year cumulative pretax loss position at
September 30, 2010. A cumulative loss position is considered significant negative evidence in
assessing the realizability of a deferred tax asset. The Company has concluded that there is
sufficient positive evidence to overcome this negative evidence. This positive evidence includes
Company forecasts, exclusive of tax planning strategies that show realization of deferred tax
assets by December 31, 2013 based on current projections, or by December 31, 2014 under stressed
conditions. In addition, the Company has evaluated tax planning strategies, including potential
sales of businesses and assets in which it could realize the excess of appreciated value over the
tax basis of its assets. The amount of deferred tax assets considered realizable, however, could
be significantly reduced in the near term if estimates of future taxable income during the
carryforward period are significantly lower than forecasted due to deterioration in market
conditions.
Based on the above discussion, the net operating loss carryforward of 20 years provides sufficient
time to utilize deferred federal and state tax assets pertaining to the existing net operating loss
carryforwards and any NOL that would be created by the reversal of the future net deductions that
have not yet been taken on a tax return.
Deposits
Deposits have been the primary source for funding the Companys asset growth. At September 30,
2010, total deposits were $5.33 billion, compared to $4.72 billion at December 31, 2009. The
deposit growth of $606.4 million or 12.8% was primarily driven by increased non-interest bearing
deposits of $264.7 million and growth in total interest-bearing deposits of $341.7 million. The
growth in interest bearing deposits is from increased interest bearing demand deposits of $282.7
million, increased savings and money market deposits of $139.7 million partially offset by declined
certificate of deposits of $80.7 million.
The Company continues to pursue financially sound borrowers, whose financing sources are unable to
service their current needs as a result of liquidity or other concerns, seeking both their lending
and deposits business. Although there can be no assurance that the Companys efforts will be
successful, we are seeking to take advantage of the current disruption in our markets to continue
to grow market share, assets and deposits in a prudent fashion, subject to applicable regulatory
limitations.
The following table provides the average balances and weighted average rates paid on deposits for
the three and nine months ended September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2010 |
|
|
|
Average |
|
|
Average |
|
|
|
Balance/Rate |
|
|
Balance/Rate |
|
|
|
(dollars in thousands) |
|
Interest checking (NOW) |
|
$ |
659,334 |
|
|
|
0.43 |
% |
|
$ |
563,731 |
|
|
|
0.53 |
% |
Savings and money market |
|
|
1,890,032 |
|
|
|
0.85 |
|
|
|
1,837,727 |
|
|
|
0.94 |
|
Time |
|
|
1,341,579 |
|
|
|
1.42 |
|
|
|
1,446,976 |
|
|
|
1.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
3,890,945 |
|
|
|
0.97 |
|
|
|
3,848,434 |
|
|
|
1.14 |
|
Non-interest bearing demand deposits |
|
|
1,317,216 |
|
|
|
|
|
|
|
1,249,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
5,208,161 |
|
|
|
0.73 |
% |
|
$ |
5,097,832 |
|
|
|
1.29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer repurchase agreements declined $136.4 million from December 31, 2009 to September 30, 2010
due primarily to the transfer of customer funds to other products offered by our banks.
55
Other Assets Acquired Through Foreclosure
The following table presents the changes in other assets acquired through foreclosure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
104,365 |
|
|
$ |
42,147 |
|
|
$ |
83,347 |
|
|
$ |
14,545 |
|
Additions |
|
|
25,499 |
|
|
|
36,991 |
|
|
|
73,801 |
|
|
|
78,236 |
|
Dispositions |
|
|
(15,768 |
) |
|
|
(1,714 |
) |
|
|
(29,978 |
) |
|
|
(6,861 |
) |
Valuation adjustments in the period, net |
|
|
(4,000 |
) |
|
|
(4,617 |
) |
|
|
(17,074 |
) |
|
|
(13,113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
110,096 |
|
|
$ |
72,807 |
|
|
$ |
110,096 |
|
|
$ |
72,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets acquired through foreclosure consist primarily of properties acquired as a result of,
or in-lieu-of, foreclosure. Properties or other assets (primarily repossessed assets formerly
leased) are classified as other real estate owned and other repossessed property and are reported
at the lower of carrying value or fair value, less estimated costs to
sell, such properties are generally re-appraised every six months.
There is risk for subsequent volatility. Costs
relating to the development or improvement of the assets are capitalized and costs relating to
holding the assets are charged to expense. For the three and nine months ended September 30, 2010,
the Company recorded a net loss on repossessed asset sales and valuation adjustments of $4.9
million and $15.8 million, respectively compared to a net loss of $7.3 million and $16.2 million
for the comparable periods 2009. The net loss for the three months ended September 30 2010,
primarily relates to $3.3 million net loss on sales of other repossessed assets and $1.6 million
net loss from both positive and negative valuation adjustments on OREO and other repossessed
assets. The net loss for the nine month period ended September 30, 2010 mostly relates to $3.1
million of net loss on sales of other repossessed assets and fixed assets, $0.6 million operating
lease valuation adjustment and $12.1 million net loss from both positive and negative valuation
adjustments on OREO and other repossessed assets. When significant adjustments were based on
unobservable inputs, such as when a current appraised value is not available or management
determines the fair value of the collateral is further impaired below appraised value and there is
no observable market price, the resulting fair value measurement has been categorized as a Level 3
measurement. At September 30, 2010, approximately 73%, 16% and 11% of the total amount of OREO
properties were located in Nevada, California and Arizona, respectively.
Junior Subordinated Debt
The Company measures the balance of the junior subordinated debt at fair value which was $36.3
million and $42.4 million at September 30, 2010 and December 31, 2009, respectively. The
difference between the aggregate fair value of junior subordinated debt of $36.3 million and the
aggregate unpaid principal balance of $66.5 million was $30.2 million at September 30, 2010.
Other Borrowed Funds
On August 25, 2010, the Company completed a public offering of $75 million in principal Senior
Notes due in 2015 bearing interest of 10%. The net proceeds of the offering were $72.8 million.
The Company also has lines of credit available from the FHLB and FRB. The borrowing capacity is
determined based on collateral pledged, generally consisting of securities and loans, at the time
of borrowing. At September 30, 2009, the Companys other borrowed funds consisted of $29.4 million
which was fully repaid in 2010.
Stockholders Equity
On August 24, 2010, the Company completed a public offering of 8,050,000 shares of common stock,
including 1,050,000 shares pursuant to the underwriters over-allotment option, at a public
offering price of $6.25 per share, for an aggregate offering price of $50.3 million. The net
proceeds of the offering were approximately $47.6 million. |
Liquidity
The Companys ability to have readily available funds sufficient to repay fully maturing
liabilities is of primary importance to depositors, creditors and regulators. Our liquidity,
represented by cash and amounts due from banks, federal funds
56
sold, and available-for-sale
securities, is a result of operating, investing and financing activities and the related cash
flows. In order to ensure funds are available when necessary, on at least a quarterly basis, we
project the amount of funds that will be required over the subsequent 180 days, and we strive to
maintain relationships with a diversified customer base. As of September 30, 2010, the Companys
cash and cash equivalents balance was $616.0 million and unencumbered investment securities balance
was $520.7 million, all representing 18.4% of total assets.
Liquidity requirements can also be met through short-term borrowings. As of September 30, 2010, we
had unused borrowing lines at correspondent banks totaling $59.0 million, $48.0 million on an
unsecured basis and $11.0 million secured. In addition, loans and available-for-sale securities
pledged to the FHLB provided for $719.1 million in secured borrowing capacity of which only $50.1
million was being utilized as of September 30, 2010. Loans and securities
pledged to the FRB discount window provided for $500.9 million in borrowing capacity with no
outstanding borrowings from the FRB as of September 30, 2010. Overall, as of September 30, 2010, we
had total secured remaining borrowing capacity of $1.18 billion.
Core deposits may increase our need for liquidity as certificates of deposit mature or are
withdrawn before maturity and as non-maturity deposits, such as checking and savings account
balances, are withdrawn. Additionally, we are exposed to the risk that customers with large
deposit balances will withdraw all or a portion of such deposits, due in part to the FDIC
limitations on the amount of insurance coverage provided to depositors. To mitigate the uninsured
deposit risk, we utilize the Certificate of Deposit Account Registry Service (CDARS) program,
which allows customers to invest up to $50 million in certificates of deposit through one
participating financial institution, with the entire amount being covered by FDIC insurance. As of
September 30, 2010, we had $308.7 million of CDARS deposits.
As of September 30, 2010, we had $34.5 million of wholesale brokered deposits outstanding.
Brokered deposits are generally considered to be deposits that have been received from a registered
broker that is acting on behalf of that brokers customer. We do not anticipate using brokered
deposits as a significant liquidity source in the near future.
Capital Resources
The Company and the Banks are subject to various regulatory capital requirements administered by
the Federal banking agencies. Failure to meet minimum capital requirements could trigger certain
mandatory or discretionary actions that, if undertaken, could have a direct material effect on the
Companys business and financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Banks must meet specific capital
guidelines that involve qualitative measures of their assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and
the Banks to maintain minimum amounts and ratios of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of September 30, 2010, that the Company and the Banks
meet all capital adequacy requirements to which they are subject.
As of September 30, 2010, the Company and each of its banking subsidiaries exceeded the minimum
capital ratios necessary to be considered well-capitalized under applicable federal capital
guidelines. To be categorized as well-capitalized, the Banks must maintain minimum total
risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table below. In
addition to the minimum capital ratios noted below, as described in Part II Other Information,
Item 1 Legal Proceedings, certain of the Companys banking subsidiaries are required to maintain
higher levels of Tier 1 capital than otherwise would be required to be considered well-capitalized.
The actual capital amounts and ratios for the Company are presented in the following table:
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adequately- |
|
|
Minimum For |
|
|
|
|
|
|
|
|
|
|
|
Capitalized |
|
|
Well-Capitalized |
|
|
|
Actual |
|
|
Requirements |
|
|
Requirements |
|
As of September 30, 2010 |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
|
(dollars in thousands) |
|
Total Capital (to Risk Weighted Assets) |
|
|
652,197 |
|
|
|
13.7 |
% |
|
|
381,846 |
|
|
|
8.0 |
% |
|
|
477,308 |
|
|
|
10.0 |
% |
Tier I Capital (to Risk Weighted Assets) |
|
|
591,932 |
|
|
|
12.4 |
|
|
|
190,923 |
|
|
|
4.0 |
|
|
|
286,385 |
|
|
|
6.0 |
|
Leverage ratio (to Average Assets) |
|
|
591,932 |
|
|
|
10.0 |
|
|
|
237,298 |
|
|
|
4.0 |
|
|
|
296,622 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adequately- |
|
|
Minimum For |
|
|
|
|
|
|
|
|
|
|
|
Capitalized |
|
|
Well-Capitalized |
|
|
|
Actual |
|
|
Requirements |
|
|
Requirements |
|
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
As
of December 31, 2009 |
|
(dollars in thousands) |
|
Total Capital (to Risk Weighted Assets) |
|
|
666,287 |
|
|
|
14.4 |
% |
|
|
370.159 |
|
|
|
8.0 |
% |
|
|
462,699 |
|
|
|
10.0 |
% |
Tier I Capital (to Risk Weighted Assets) |
|
|
547,746 |
|
|
|
11.8 |
|
|
|
185,677 |
|
|
|
4.0 |
|
|
|
278,515 |
|
|
|
6.0 |
|
Leverage ratio (to Average Assets) |
|
|
547,746 |
|
|
|
9.5 |
|
|
|
229,944 |
|
|
|
4.0 |
|
|
|
287,431 |
|
|
|
5.0 |
|
58
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss in a financial instrument arising from adverse changes in market
prices and rates, foreign currency exchange rates, commodity prices and equity prices. Our market
risk arises primarily from interest rate risk inherent in our lending, investing and deposit taking
activities. To that end, management actively monitors and manages our interest rate risk exposure.
We generally manage our interest rate sensitivity by matching re-pricing opportunities on our
earning assets to those on our funding liabilities.
Management uses various asset/liability strategies to manage the re-pricing characteristics of our
assets and liabilities, all of which are designed to ensure that exposure to interest rate
fluctuations is limited to within our guidelines of acceptable levels of risk-taking. Hedging
strategies, including the terms and pricing of loans and deposits and management of the deployment
of our securities, are used to reduce mismatches in interest rate re-pricing opportunities of
portfolio assets and their funding sources.
Interest rate risk is addressed by each Banks respective ALCO (or its equivalent), which includes
members of executive management, senior finance and operations. ALCO monitors interest rate risk
by analyzing the potential impact on the net economic value of equity and net interest income from
potential changes in interest rates, and considers the impact of alternative strategies or changes
in balance sheet structure. We manage our balance sheet in part to maintain the potential impact
on economic value of equity and net interest income within acceptable ranges despite changes in
interest rates.
Our exposure to interest rate risk is reviewed on at least a quarterly basis by the ALCO. Interest
rate risk exposure is measured using interest rate sensitivity analysis to determine our change in
economic value of equity in the event of hypothetical changes in interest rates. If potential
changes to net economic value of equity and net interest income resulting from hypothetical
interest rate changes are not within the limits established by each Banks Board of Directors, the
respective Board of Directors may direct management to adjust the asset and liability mix to bring
interest rate risk within board-approved limits.
Economic Value of Equity. We measure the impact of market interest rate changes on the net present
value of estimated cash flows from our assets, liabilities and off-balance sheet items, defined as
economic value of equity, using a simulation model. This simulation model assesses the changes in
the market value of interest rate sensitive financial instruments that would occur in response to
an instantaneous and sustained increase or decrease (shock) in market interest rates.
The following table shows our projected change in economic value of equity for this set of rate
shocks at September 30, 2010.
Economic Value of Equity
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|
Interest Rate Scenario (change in basis points) |
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|
Down 200 |
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Down 100 |
|
Base |
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UP 100 |
|
UP 200 |
|
Up 300 |
Present Value (000s) |
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Assets |
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$ |
6,358,976 |
|
|
$ |
6,280,169 |
|
|
$ |
6,179,451 |
|
|
$ |
6,066,233 |
|
|
$ |
5,952,557 |
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|
$ |
5,847,099 |
|
Liabilities |
|
$ |
5,559,863 |
|
|
$ |
5,525,495 |
|
|
$ |
5,424,061 |
|
|
$ |
5,309,867 |
|
|
$ |
5,203,257 |
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$ |
5,104,483 |
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Net Present Value |
|
$ |
799,113 |
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$ |
754,674 |
|
|
$ |
755,390 |
|
|
$ |
756,366 |
|
|
$ |
749,300 |
|
|
$ |
742,616 |
|
% Change |
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5.8 |
% |
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-0.1 |
% |
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0.1 |
% |
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-0.8 |
% |
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-1.7 |
% |
The computation of prospective effects of hypothetical interest rate changes are based on numerous
assumptions, including relative levels of market interest rates, asset prepayments and deposit
decay, and should not be relied upon as indicative of actual results. Further, the computations do
not contemplate any actions we may undertake in response to changes in interest rates. Actual
amounts may differ from the projections set forth above should market conditions vary from the
underlying assumptions.
Net Interest Income Simulation. In order to measure interest rate risk at September 30, 2010, we
used a simulation model to project changes in net interest income that result from forecasted
changes in interest rates. This analysis calculates the difference between twelve months of net
interest income forecasted using an immediate increase and decrease in
59
interest rates and a twelve month net interest income forecast using a flat market interest rate
environment derived from spot yield curves typically used to price our assets and liabilities. The
income simulation model includes various assumptions regarding the re-pricing relationships for
each of our products. Many of our assets are floating rate loans, which are assumed to re-price
immediately, and proportional to the change in market rates, depending on their contracted index.
Some loans and investments include the opportunity of prepayment (embedded options), and
accordingly the simulation model uses estimated market speeds to derive prepayments and reinvests
proceeds at modeled yields. Our non-term deposit products re-price more slowly, usually changing
less than the change in market rates and at our discretion.
This analysis indicates the impact of changes in net interest income for the given set of rate
changes and assumptions. It assumes the balance sheet remains static and that its structure does
not change over the course of the year. It does not account for all factors that could impact our
results, including changes by management to mitigate interest rate changes or secondary factors
such as changes to our credit risk profile as interest rates change.
Furthermore, loan prepayment rate estimates and spread relationships change regularly. Interest
rate changes create changes in actual loan prepayment speeds that will differ from the market
estimates incorporated in this analysis. Changes that vary significantly from the modeled
assumptions may have significant effects on our actual net interest income.
This simulation model assesses the changes in net interest income that would occur in response to
an instantaneous and sustained increase or decrease (shock) in market interest rates of + or
100, 200, or 300 basis points. At September 30, 2010, our net interest margin exposure related to
these hypothetical changes in market interest rates was within the current guidelines established
by the Company.
Sensitivity of Net Interest Income
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Interest Rate Scenario (change in basis points) |
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Down 200 |
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Down 100 |
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Flat |
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UP 100 |
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UP 200 |
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Up 300 |
(in 000s) |
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Interest Income |
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$ |
271,608 |
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$ |
277,211 |
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|
$ |
286,169 |
|
|
$ |
299,505 |
|
|
$ |
314,888 |
|
|
$ |
333,287 |
|
Interest Expense |
|
$ |
20,268 |
|
|
$ |
26,244 |
|
|
$ |
40,043 |
|
|
$ |
58,638 |
|
|
$ |
78,604 |
|
|
$ |
99,187 |
|
Net Interest Income |
|
$ |
251,340 |
|
|
$ |
250,967 |
|
|
$ |
246,126 |
|
|
$ |
240,867 |
|
|
$ |
236,284 |
|
|
$ |
234,100 |
|
% Change |
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|
2.1 |
% |
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2.0 |
% |
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|
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|
|
-2.1 |
% |
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|
-4.0 |
% |
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|
-4.9 |
% |
60
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form
10-Q, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act
of 1934) are effective to ensure that information required to be disclosed by us in reports that we
file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission (SEC) rules and
forms. Additionally, our disclosure controls and procedures were also effective in ensuring that
information required to be disclosed by us in the reports we file or subject under the Securities
Exchange Act of 1934 is accumulated and communicated to our management, including the Chief
Executive Officer and Chief Financial Officer, to allow timely decisions regarding required
disclosures.
Changes in Internal Control over Financial Reporting
There have not been any changes in the Companys internal control over financial reporting during
the quarter ended September 30, 2010, which have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
There are no material pending legal proceedings, other than ordinary routine litigation incidental
to its business, to which the Company or any of its subsidiaries is a party or of which any of
their property is the subject. See Item 1. Business Supervision and Regulation in our Annual
Report on Form 10-K for the year ended December 31, 2009 for additional information. From time to
time, the Company is involved in a variety of litigation matters in the ordinary course of business
and anticipates that it will become involved in new litigation matters in the future.
As previously disclosed in our Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the
quarter ended June 30, 2010, certain of the Companys banking subsidiaries, including Bank of
Nevada, have been placed under informal supervisory oversight by banking regulators in the form of
memoranda of understanding. The oversight requires enhanced supervision by the Board of Directors
of each affected bank, and the submission of written plans addressing such matters as asset
quality, credit underwriting and administration, and loan concentrations, as well as the
formulation and adoption of comprehensive strategic plans. In certain cases, including Bank of
Nevada the affected bank may be prohibited from paying dividends to the Company without prior
regulatory approval and/or 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 affected banks are 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. In July 2010, Bank of
Nevada executed a new memorandum of understanding with the FDIC and the Nevada Financial
Institutions Division, pursuant to which, among other things, the bank agreed to: increase its Tier
1 leverage capital ratio above current levels by September 30, 2010; obtain the prior written
consent from the FDIC and the Nevada FID before declaring or paying dividends; give prior notice of
certain management and director changes; develop plans to maintain its Tier 1 leverage capital
ratio; reduce its level of adversely classified assets and loan concentration risks; control
overhead and other expenses; and establish and maintain an adequate allowance for loan and lease
losses. The Company believes each affected bank is in full compliance with the requirements of the
applicable memorandum of understanding.
On October 21, 2010, the Company received notification from the FDIC that the previously disclosed
Consent Order with respect to Torrey Pines Bank, dated November 16, 2009, was terminated as of
October 20, 2010.
Item 1A. Risk Factors
There have not been any material changes to the risk factors previously disclosed in the Companys
Annual Report on Form 10-K for the year ended December 31, 2009, other than as set forth below.
61
The Company is subject to a U.S. federal income tax audit in respect of the claim of certain
deductions arising from the impairment of our collateralized debt obligations, which resulted in an
approximately $40 million tax
refund for the 2006 and 2007 taxable periods.
The Company is subject to a U.S. federal income tax audit in respect of the claim of certain
deductions arising from the impairment of our collateralized debt obligations, or CDOs, which
resulted in an approximately $37 million tax refund for the 2006 and 2007 taxable periods. To
date, the Internal Revenue Service has not asserted any proposed adjustments or assessments with
respect to the audit. Although we believe that the CDO related deductions will be respected for
U.S. federal income tax purposes, there can be no assurance that the Internal Revenue Service would
not successfully challenge some or all of such deductions. If the Internal Revenue Service were to
successfully challenge some or all of such deductions, the Company may be subject to a tax
liability in the amount of the $37 million refund, or portion thereof (excluding penalties or
interest). The Company has not accrued a reserve for this potential exposure.
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 Managements Discussion and Analysis Supervision and
Regulation included in our Annual Report on Form 10-K for the year ended December 31, 2009.
Intended to protect customers, depositors and deposit insurance funds, 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
institutions can pay to our holding company, restrict the ability of institutions to guarantee our
parent companys 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
additional compliance costs. Further, the Companys failure to comply with these laws and
regulations, even if the failure follows good faith effort or reflects a difference in
interpretation, could subject the Company to additional restrictions on its business activities,
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 will have a broad impact on the financial
services industry, including significant regulatory and compliance changes. Many of the
requirements called for in the Dodd-Frank Act will be implemented over time and most will be
subject to implementing regulations over the course of several years. 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, include, among others:
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a reduction in our ability to generate or originate revenue-producing assets as a result
of compliance with heightened capital standards; |
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increased cost of operations due to greater regulatory oversight, supervision and
examination of banks and bank holding companies, and higher deposit insurance premiums; |
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the limitation on our ability to raise capital through the use of trust preferred
securities as these securities may no longer be included as Tier 1 capital going forward;
and |
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the limitation on our ability to expand consumer product and service offerings due to
anticipated stricter consumer protection laws and regulations. |
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. 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.
62
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 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 FRB 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
FRB may take a number of different remedial actions as it deems appropriate. 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 banks capital, to restrict the banks growth, to
assess civil monetary penalties against the banks 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 banks deposit insurance. Under Nevada,
Arizona and California law, the respective state banking supervisory authority has many of the same
remedial powers with respect to its state-chartered banks.
Although we believe that we are currently in compliance with the terms of the of the memoranda of
understanding described in Item 1 of Part II of this Quarterly Report on Form 10-Q, if we were
unable to comply with these terms 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. 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 and operating flexibility and financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) There were no unregistered sales of equity securities during the period covered by this report.
(b) None
(c) None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Removed and Reserved
Item 5. Other Information
None
Item 6. Exhibits
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3.1
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Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to
Amendment No. 1 to Western Alliance Bancorporations Registration Statement on Form S-1 filed
with the Securities and Exchange Commission on June 7, 2005). |
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3.2
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Amended and Restated By-Laws (incorporated by reference to Exhibit 3.1 to Western Alliance
Bancorporations Form 8-K filed with the Securities and Exchange Commission on January 25,
2008). |
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3.3
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Certificate of Designations for the Fixed Rate Cumulative Perpetual Preferred Stock, Series
A, of Western Alliance Bancorporation (incorporated by reference to Exhibit 3.1 to Western
Alliance Bancorporations Form 8-K filed with the Securities and Exchange Commission on
November 25, 2008). |
63
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3.4
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Certificate of Amendment to Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to Western Alliance Bancorporations Form 8-K filed with the
Securities and Exchange Commission on May 3, 2010). |
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3.5
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Amendment to Amended and Restated By-Laws (incorporated by reference to exhibit 3.1 to
Western Alliance Bancorporations Form 8-K filed with the Securities and Exchange Commission
on September 20, 2010). |
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4.1
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Specimen common stock certificate of Western Alliance Bancorporation (incorporated by
reference to Exhibit 4.1 of Western Alliance Bancorporations Registration Statement on Form
S-1, File No. 333-124406, filed with the Securities and Exchange Commission on June 27, 2005,
as amended). |
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4.2
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Form of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, stock certificate
(incorporated by reference to Exhibit 4.1 to Western Alliance Bancorporations Form 8-K filed
with the Securities and Exchange Commission on November 25, 2008). |
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