XNYS:WAL Western Alliance Bancorp Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

XNYS:WAL Fair Value Estimate
Premium
XNYS:WAL Consider Buying
Premium
XNYS:WAL Consider Selling
Premium
XNYS:WAL Fair Value Uncertainty
Premium
XNYS:WAL Economic Moat
Premium
XNYS:WAL Stewardship
Premium
 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

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

For the Quarterly Period Ended March 31, 2012 or

 

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

For the transition period from                    to                    

Commission File Number: 001-32550

WESTERN ALLIANCE BANCORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Nevada   88-0365922

(State or Other Jurisdiction

of Incorporation or Organization)

 

(I.R.S. Employer

I.D. Number)

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

(602) 389-3500

(Registrant’s telephone number, including area code)

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

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

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

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

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

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

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

 

 

 


Table of Contents

 

         Page  

Index

    

Part I. Financial Information

  
  Item 1 – Financial Statements   
 

Consolidated Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011

     3   
 

Consolidated Income Statements for the three months ended March 31, 2012 and 2011 (unaudited)

     4   
 

Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2012 and 2011 (unaudited)

     6   
 

Consolidated Statement of Stockholders’ Equity (unaudited)

     7   
 

Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011 (unaudited)

     8   
 

Notes to Unaudited Consolidated Financial Statements

     10   
  Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations      45   
  Item 3 – Quantitative and Qualitative Disclosures About Market Risk      63   
  Item 4 – Controls and Procedures      65   

Part II. Other Information

  
 

Item 1 – Legal Proceedings

Item 1A – Risk Factors

    

 

65

65

  

  

  Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds      65   
  Item 3 – Defaults Upon Senior Securities      65   
  Item 4 – Mine Safety Disclosures      65   
  Item 5 – Other Information      65   
  Item 6 – Exhibits      65   

Signatures

     67   

Exhibit Index

     68   

 

2


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

     March 31,     December 31,  
     2012     2011  
     (unaudited)        
     (in thousands, except per share
amounts)
 

Assets:

    

Cash and due from banks

   $ 108,555      $ 116,866   

Interest-bearing demand deposits in other financial institutions

     71,198        38,129   
  

 

 

   

 

 

 

Cash and cash equivalents

     179,753        154,995   

Money market investments

     4,854        7,343   

Investment securities—measured, at fair value

     6,174        6,515   

Investment securities—available-for-sale, at fair value; amortized cost of $1,124,892 at March 31, 2012 and $1,198,185 at December 31, 2011

     1,126,637        1,190,385   

Investment securities—held-to-maturity, at amortized cost; fair value of $284,971 at March 31, 2012 and $290,035 at December 31, 2011

     285,577        286,258   

Investments in restricted stock, at cost

     32,586        33,520   

Loans:

    

Held for investment, net of deferred fees

     4,926,223        4,780,069   

Less: allowance for credit losses

     98,122        99,170   
  

 

 

   

 

 

 

Total loans

     4,828,101        4,680,899   

Premises and equipment, net

     105,055        105,546   

Goodwill

     25,925        25,925   

Other intangible assets, net

     8,918        9,807   

Other assets acquired through foreclosure, net

     81,445        89,104   

Bank owned life insurance

     135,021        133,898   

Deferred tax assets, net

     55,296        61,724   

Prepaid expenses

     14,708        16,470   

Other assets

     35,190        42,093   

Discontinued operations, assets held for sale

     52        59   
  

 

 

   

 

 

 

Total assets

   $ 6,925,292      $ 6,844,541   
  

 

 

   

 

 

 

Liabilities:

    

Deposits:

    

Non-interest-bearing demand

   $ 1,757,693      $ 1,558,211   

Interest-bearing

     4,141,361        4,100,301   
  

 

 

   

 

 

 

Total deposits

     5,899,054        5,658,512   

Customer repurchase agreements

     114,352        123,626   

Other borrowings

     193,416        353,321   

Junior subordinated debt, at fair value

     37,275        36,985   

Other liabilities

     27,150        35,414   
  

 

 

   

 

 

 

Total liabilities

     6,271,247        6,207,858   
  

 

 

   

 

 

 

Commitments and contingencies (Note 8)

    

Stockholders’ equity:

    

Preferred stock — par value $.0001 and liquidation value per share of $1,000; 20,000,000 authorized;141,000 issued and outstanding at March 31, 2012 and December 31, 2011

     141,000        141,000   

Common stock — par value $.0001; 200,000,000 authorized; 83,144,156 shares issued and outstanding at March 31, 2012 and 82,361,655 at December 31, 2011

     8        8   

Additional paid in capital

     746,143        743,780   

Accumulated deficit

     (233,974     (243,512

Accumulated other comprehensive income (loss)

     868        (4,593
  

 

 

   

 

 

 

Total stockholders’ equity

     654,045        636,683   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 6,925,292      $ 6,844,541   
  

 

 

   

 

 

 

See the accompanying notes.

 

3


WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS (unaudited)

 

     Three Months Ended March 31,  
     2012     2011  
     (in thousands except per share amounts)  

Interest income:

    

Loans, including fees

   $ 67,760      $ 63,882   

Investment securities—taxable

     6,412        6,897   

Investment securities—non-taxable

     2,240        20   

Dividends—taxable

     280        308   

Dividends—non-taxable

     653        705   

Other

     92        154   
  

 

 

   

 

 

 

Total interest income

     77,437        71,966   
  

 

 

   

 

 

 

Interest expense:

    

Deposits

     4,762        7,898   

Customer repurchase agreements

     63        86   

Other borrowings

     2,071        2,182   

Junior subordinated debt

     484        702   
  

 

 

   

 

 

 

Total interest expense

     7,380        10,868   
  

 

 

   

 

 

 

Net interest income

     70,057        61,098   

Provision for credit losses

     13,081        10,041   
  

 

 

   

 

 

 

Net interest income after provision for credit losses

     56,976        51,057   
  

 

 

   

 

 

 

Non-interest income:

    

Gain on sales of securities, net

     361        1,379   

Mark to market gains (losses), net

     (333     (509

Service charges and fees

     2,285        2,284   

Investment advisory fees

     619        636   

Other fee revenue

     1,000        760   

Income from bank owned life insurance

     1,123        1,184   

Operating lease income

     273        671   

Other

     556        425   
  

 

 

   

 

 

 

Total non-interest income

     5,884        6,830   
  

 

 

   

 

 

 

Non-interest expense:

    

Salaries and employee benefits

     26,664        22,840   

Occupancy expense, net

     4,722        4,854   

Net loss on sales/valuations of repossessed assets and bank premises, net

     2,651        6,129   

Insurance

     2,050        3,863   

Loan and repossessed asset expense

     1,684        2,122   

Legal, professional and director fees

     1,572        1,366   

Marketing

     1,371        1,157   

Data processing

     995        848   

Intangible amortization

     890        890   

Customer service

     591        892   

Merger/restructure expenses

     —          217   

Operating lease depreciation

     208        421   

Other

     3,499        2,547   
  

 

 

   

 

 

 

Total non-interest expense

     46,897        48,146   
  

 

 

   

 

 

 

Income from continuing operations before provision income taxes

     15,963        9,741   

Income tax provision

     4,441        4,029   
  

 

 

   

 

 

 

Income from continuing operations

     11,522        5,712   

Loss from discontinued operations, net of tax benefit

     (222     (559
  

 

 

   

 

 

 

Net income

     11,300        5,153   

Dividends and accretion on preferred stock

     1,763        2,503   
  

 

 

   

 

 

 

Net income available to common shareholders

   $ 9,537      $ 2,650   
  

 

 

   

 

 

 

 

4


WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS (unaudited)

(continued)

 

     Three Months Ended March 31,  
     2012     2011  

Income (loss) per share—basic and diluted

    

Continuing operations

   $ 0.12      $ 0.04   

Discontinued

     (0.00     (0.01
  

 

 

   

 

 

 
   $ 0.12      $ 0.03   

Average number of common shares—basic

     81,359        80,794   

Average number of common shares—diluted

     82,227        81,013   

Dividends declared per common share

   $ —        $ —     

See the accompanying notes.

 

5


WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

 

     Three Months Ended  
     March 31,  
     2012     2011  
     (in thousands)  

Net income

   $ 11,300      $ 5,153   
  

 

 

   

 

 

 

Other comprehensive income (loss), net:

    

Unrealized gain (loss) on securities available-for-sale (AFS), net

     6,205        (4,486

Realized gain on cash flow hedge, net

     (519     —     

Realized gain on sale of securities AFS included in income, net

     (225     (833
  

 

 

   

 

 

 

Net other comprehensive income (loss)

     5,461        (5,319
  

 

 

   

 

 

 

Comprehensive income (loss)

   $ 16,761      $ (166
  

 

 

   

 

 

 

See the accompanying notes.

 

6


WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

 

                                        Accumulated              
                                 Additional      Other           Total  
     Preferred Stock      Common Stock      Paid In      Comprehensive     Accumulated     Stockholders’  
     Shares      Amount      Shares      Amount      Capital      Income (Loss)     Deficit     Equity  
                                 (in thousands)                     

Balance, December 31, 2011:

     141       $ 141,000         82,362       $ 8       $ 743,780       $ (4,593   $ (243,512   $ 636,683   

Net income

     —           —           —           —           —           —          11,300        11,300   

Exercise of stock options

     —           —           79         —           552         —          —          552   

Stock-based compensation

     —           —           74         —           697         —          —          697   

Restricted stock grants, net

     —           —           630         —           1,114         —          —          1,114   

Dividends on preferred stock

     —           —           —           —           —           —          (1,763     (1,763

Other comprehensive income (loss),

     —           —           —           —           —           5,461        —          5,461   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance, March 31, 2012

     141       $ 141,000         83,145       $ 8       $ 746,143       $ 868      $ (233,974   $ 654,045   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

See the accompanying notes.

 

7


WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 

     Three Months Ended March 31,  
     2012     2011  
     (in thousands)  

Cash flows from operating activities:

    

Net income

   $ 11,300      $ 5,153   

Adjustments to reconcile net income to cash provided by operating activities:

    

Provision for credit losses

     13,081        10,041   

Depreciation and amortization

     3,228        2,705   

Stock-based compensation

     1,811        1,005   

Deferred income taxes and income taxes receivable

     3,487        2,972   

Net amortization of discounts and premiums for investment securities

     2,656        2,696   

(Gains)/Losses on:

    

Sales of securities, AFS

     (361     (1,379

Derivatives

     49        69   

Sale of repossessed assets, net

     2,587        5,829   

Sale of premises and equipment, net

     64        300   

Sale of loans, net

     6        —     

Changes in:

    

Other assets

     6,354        10,723   

Other liabilities

     (8,169     (1,601

Fair value of assets and liabilities measured at fair value

     333        509   

Servicing rights, net

     2        161   
  

 

 

   

 

 

 

Net cash provided by operating activities

     36,428        39,183   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Proceeds from loan sales

     3,445        —     

Principal pay downs and maturities of securities measured at fair value

     303        3,606   

Proceeds from sale of available-for-sale securities

     15,224        72,996   

Principal pay downs and maturities of available-for-sale securities

     163,449        33,512   

Purchase of available-for-sale securities

     (106,995     (174,320

Purchases of securities held-to-maturity

     (3     —     

Loan originations and principal collections, net

     (168,648     (63,247

Investment in money market

     2,489        7,786   

Liquidation (purchase) of restricted stock

     934        1,452   

Sale and purchase of premises and equipment, net

     (1,911     229   

Proceeds from sale of other real estate owned and repossessed assets, net

     9,986        13,815   
  

 

 

   

 

 

 

Net cash (used) in investing activities

     (81,727     (104,171
  

 

 

   

 

 

 

 

8


WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(continued)

 

     Three Months Ended March 31,  
     2012     2011  
     (in thousands)  

Cash flows from financing activities:

    

Net increase in deposits

     240,542        159,023   

Net increase/ (decrease) in borrowings

     (169,274     53,995   

Exercise of stock options

     552        312   

Cash dividends paid on preferred stock

     (1,763     (1,750
  

 

 

   

 

 

 

Net cash provided by financing activities

     70,057        211,580   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     24,758        146,592   

Cash and cash equivalents at beginning of year

     154,995        216,746   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 179,753      $ 363,338   
  

 

 

   

 

 

 

Supplemental disclosure:

    

Cash paid during the period for:

    

Interest

   $ 9,526      $ 13,018   

Income taxes

     1,040        —     

Non-cash investing and financing activity:

    

Transfers to other assets acquired through foreclosure, net

     4,914        11,175   

See the accompanying notes.

 

9


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operation

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

Basis of Presentation

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

Use of estimates in the preparation of financial statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for credit losses; fair value of other real estate owned; determination of the valuation allowance related to deferred tax assets; impairment of goodwill and other intangible assets and other than temporary impairment on securities. Although Management believes these estimates to be reasonably accurate, actual amounts may differ. In the opinion of Management, all adjustments considered necessary have been reflected in the financial statements during their preparation.

Principles of consolidation

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

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

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

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

Reclassifications

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

Interim financial information

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

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

 

10


Investment securities

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

Securities classified as AFS or trading are reported as an asset on the Consolidated Balance Sheets at their estimated fair value. As the fair value of AFS securities changes, the changes are reported net of income tax as an element of other comprehensive income (“OCI”), except for impaired securities. When AFS securities are sold, the unrealized gain or loss is reclassified from OCI to non-interest income. The changes in the fair values of trading securities are reported in non-interest income. Securities classified as AFS are both equity and debt securities the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as AFS would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, decline in credit quality, and regulatory capital considerations.

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

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

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

Derivative financial instruments

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

Certain derivative transactions that meet specified criteria qualify for hedge accounting. The Company occasionally purchases a financial instrument or originates a loan that contains an embedded derivative instrument. Upon purchasing the instrument or originating the loan, the Company assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the financial instrument (i.e., the host contract) and whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and (2) a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract and carried at fair value. However, in cases where (1) the host contract is measured at fair value, with changes in fair value reported in current earnings, or (2) the Company is unable to reliably identify and measure an embedded derivative for separation from its host contract, the entire contract is carried on the balance sheet at fair value and is not designated as a hedging instrument.

Allowance for credit losses

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

 

11


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

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

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

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

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

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

Other assets acquired through foreclosure

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

 

12


Income taxes

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

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

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

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

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

Fair values of financial instruments

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

 

   

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

 

   

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

 

   

Level 3— Model-based techniques where all significant assumptions are not observable, either directly or indirectly, in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques may include use of discounted cash flow models and similar techniques.

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

 

13


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

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

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent limitations in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at March 31, 2012 or December 31, 2011. The estimated fair value amounts for March 31, 2012 and December 31, 2011 have been measured as of period-end, and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those dates. As such, the estimated fair values of these financial instruments subsequent to the reporting date may be different than the amounts reported at the period-end.

The information in Note 10, “Fair Value of Financial Instruments,” should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Company’s assets and liabilities.

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

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

Cash and cash equivalents

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

Securities

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

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

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

Restricted stock

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

Loans

Fair value for loans is estimated based on discounted cash flows using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality with adjustments that the Company believes a market participant would consider in determining fair value based on a third party independent valuation. As a result, the fair value for loans disclosed in Note 10, “Fair Value of Financial Instruments,” is categorized as Level 3 in the fair value hierarchy.

Accrued interest receivable and payable

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

 

14


Derivative financial instruments

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

Deposit liabilities

The fair value disclosed for demand and savings deposits is by definition equal to the amount payable on demand at their reporting date (that is, their carrying amount) which the Company believes a market participant would consider in determining fair value. The carrying amount for variable-rate deposit accounts approximates their fair value. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on these deposits. The fair value measurement of the deposit liabilities disclosed in Note 10, “Fair Value of Instruments,” is categorized as Level 3 in the fair value hierarchy.

Federal Home Loan Bank and Federal Reserve advances and other borrowings

The fair values of the Company’s borrowings are estimated using discounted cash flow analyses, based on the market rates for similar types of borrowing arrangements. The FHLB and FRB advances and other borrowings have been categorized as Level 3 in the fair value hierarchy.

Junior subordinated debt

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

Off-balance sheet instruments

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

Recent Accounting Pronouncements

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

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

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

 

15


2. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

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

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

 

     Three Months Ended  
     March 31,  
     2012     2011  
     (in thousands)  

Affinity card revenue

   $ 295      $ 371   

Non-interest expenses

     (678     (1,335
  

 

 

   

 

 

 

Loss before income taxes

     (383     (964

Income tax benefit

     (161     (405
  

 

 

   

 

 

 

Net loss

   $ (222   $ (559
  

 

 

   

 

 

 

3. EARNINGS PER SHARE

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

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

 

     Three Months Ended  
     March 31,  
     2012      2011  
     (in thousands, except per share amounts)  

Weighted average shares—Basic

     81,359         80,794   

Dilutive effect of options

     868         219   
  

 

 

    

 

 

 

Weighted average shares—Diluted

     82,227         81,013   
  

 

 

    

 

 

 

Net income available to common stockholders

   $ 9,537       $ 2,650   

Earnings per share—Basic

     0.12         0.03   

Earnings per share—Diluted

     0.12         0.03   

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

4. INVESTMENT SECURITIES

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

 

     March 31, 2012  
            Gross      Gross        
     Amortized      Unrealized      Unrealized     Fair  
     Cost      Gains      (Losses)     Value  
Securities held-to-maturity           (in thousands)        

Collateralized debt obligations

   $ 50       $ 970       $ —        $ 1,020   

Corporate bonds

     102,784         325         (4,673     98,436   

Municipal obligations (1)

     181,240         2,849         (77     184,012   

CRA investments

     1,503         —           —          1,503   
  

 

 

    

 

 

    

 

 

   

 

 

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

 

 

    

 

 

    

 

 

   

 

 

 

 

16


            OTTI                     
            Recognized                     
            in Other     Gross      Gross        
     Amortized      Comprehensive     Unrealized      Unrealized     Fair  
     Cost      Loss     Gains      (Losses)     Value  
Securities available-for-sale    (in thousands)  

U.S. Government-sponsored agency securities

   $ 40,046       $ —        $ 65       $ (144   $ 39,967   

Municipal obligations (1)

     26,580         —          160         (66     26,674   

Adjustable-rate preferred stock

     60,336         —          1,894         (1,512     60,718   

Mutual funds (2)

     28,978         —          476         —          29,454   

Corporate securities

     5,000         —          —           (100     4,900   

Direct U.S. obligations and GSE residential mortgage-backed securities (3)

     878,717         —          10,196         (472     888,441   

Private label residential mortgage-backed securities

     24,840         (1,811     1,815         (1,126     23,718   

Private label commercial mortgage-backed securities

     5,438         —          86         —          5,524   

Trust preferred securities

     32,005         —          —           (8,380     23,625   

CRA investments

     22,952         —          664         —          23,616   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

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

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Securities measured at fair value

            

Direct U.S. obligations and GSE residential mortgage-backed securities (3)

             $ 6,174   
            

 

 

 

 

(1) These consist of revenue obligations.
(2) These are investment grade corporate bonds.
(3) These are primarily agency collateralized mortgage obligations.

 

     December 31, 2011  
     (in thousands)  
            Gross      Gross        
     Amortized      Unrealized      Unrealized     Fair  
     Cost      Gains      (Losses)     Value  
Securities held-to-maturity           (in thousands)        

Collateralized debt obligations

   $ 50       $ 972       $ —        $ 1,022   

Corporate bonds

     102,785         171         (2,029     100,927   

Municipal obligations (1)

     181,923         4,695         (32     186,586   

CRA investments

     1,500         —           —          1,500   
  

 

 

    

 

 

    

 

 

   

 

 

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

 

 

    

 

 

    

 

 

   

 

 

 

 

17


            OTTI                     
            Recognized                     
            in Other     Gross      Gross        
     Amortized      Comprehensive     Unrealized      Unrealized     Fair  
     Cost      Loss     Gains      (Losses)     Value  
Securities available-for-sale    (in thousands)  

U.S. Government-sponsored agency securities

   $ 155,898       $ —        $ 368       $ (55   $ 156,211   

Municipal obligations (1)

     5,555         —          47         (16     5,586   

Adjustable-rate preferred stock

     59,661         —          1,157         (6,142     54,676   

Mutual funds (2)

     28,978         —          65         (179     28,864   

Corporate securities

     5,000         —          —           (425     4,575   

Direct U.S. obligations and GSE residential mortgage-backed securities (3)

     855,828         —          9,095         (339     864,584   

Private label residential mortgage-backed securities

     26,953         (1,811     1,815         (1,173     25,784   

Private label commercial mortgage-backed securities

     5,461         —          —           (30     5,431   

Trust preferred securities

     32,016         —          —           (10,857     21,159   

CRA investments

     22,835         —          680         —          23,515   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

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

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Securities measured at fair value

            

Direct U.S. obligations and GSE residential mortgage-backed securities (3)

             $ 6,515   
            

 

 

 

 

(1) These consist of revenue obligations.
(2) These are investment grade corporate bonds.
(3) These are primarily agency collateralized mortgage obligations.

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

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

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

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

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

 

18


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

 

     March 31, 2012  
     Less Than Twelve Months      Over Twelve Months  
     Gross             Gross         
     Unrealized      Fair      Unrealized      Fair  
     Losses      Value      Losses      Value  
Securities held-to-maturity    (in thousands)  

Corporate bonds

   $ 4,673       $ 90,288       $ —         $ —     

Municipal obligations

     77         10,649         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 4,750       $ 100,937       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     March 31, 2012  
     Less Than Twelve Months      Over Twelve Months  
     Gross             Gross         
     Unrealized      Fair      Unrealized      Fair  
     Losses      Value      Losses      Value  
Securities available-for-sale    (in thousands)  

U.S. Government-sponsored agency securities

   $ 144       $ 19,856       $ —         $ —     

Adjustable-rate preferred stock

     1,512         22,861         —           —     

Mutual funds

     —           —           —           —     

Corporate securities

     100         4,900         —           —     

Direct U.S obligations and GSE residential mortgage-backed securities

     320         70,794         152         8,189   

Municipal obligations

     66         10,752         —           —     

Private label residential mortgage-backed securities

     478         18,069         648         4,949   

Private label commercial mortgage-backed securities

     —           —           —           —     

Trust preferred securities

     —           —           8,380         23,625   
  

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2011  
     Less Than Twelve Months      Over Twelve Months  
     Gross             Gross         
     Unrealized      Fair      Unrealized      Fair  
     Losses      Value      Losses      Value  
Securities held-to-maturity    (in thousands)  

Corporate bonds

   $ 2,029       $ 77,931       $ —         $ —     

Municipal obligations

     32         7,774         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 2,061       $ 85,705       $ —         $  —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

19


     December 31, 2011  
     Less Than Twelve Months      Over Twelve Months  
     Gross             Gross         
     Unrealized      Fair      Unrealized      Fair  
     Losses      Value      Losses      Value  
Securities available-for-sale    (in thousands)  

U.S. Government-sponsored agency securities

   $ 55       $ 9,944       $ —         $ —     

Adjustable-rate preferred stock

     6,142         26,335         —           —     

Mutual funds

     179         15,879         —           —     

Corporate securities

     425         4,575         —           —     

Direct U.S obligations and GSE residential mortgage-backed securities

     222         54,668         117         15,239   

Municipal obligations

     16         2,640         —           —     

Private label residential mortgage-backed securities

     465         20,045         708         5,034   

Private label commercial mortgage-backed securities

     30         5,431         —           —     

Trust preferred securities

     —           —           10,857         21,159   
  

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

 

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

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

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

 

     March 31, 2012      December 31, 2011  
     Amortized      Estimated      Amortized      Estimated  
     Cost      Fair Value      Cost      Fair Value  
     (in thousands)  

Securities held-to-maturity

           

Due in one year or less

   $ 1,503       $ 1,503       $ 1,500       $ 1,500   

After one year through five years

     8,392         8,402         8,389         8,093   

After five years through ten years

     114,632         110,593         114,748         114,098   

After ten years

     161,050         164,473         161,621         166,344   
  

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

 

Securities available-for-sale

           

Due in one year or less

   $ 56,764       $ 57,983       $ 52,815       $ 53,399   

After one year through five years

     6,767         6,898         20,445         20,635   

After five years through ten years

     44,568         45,134         134,935         135,420   

After ten years

     138,076         128,181         134,162         116,347   

Mortgage backed securities

     878,717         888,441         855,828         864,584   
  

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

 

 

20


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

 

     As of March 31, 2012  
          Split-rated                                     
   AAA      AAA/AA+      AA+ to AA-      A+ to A-      BBB+ to BBB-      BB+ and below      Totals  
     (in thousands)  

Municipal obligations

   $ 8,235       $ —         $ 117,272       $ 74,494       $ 7,639       $ 274       $ 207,914   

Direct U.S. obligations & GSE residential mortgage-backed securities

     —           894,615         —           —           —           —           894,615   

Private label residential mortgage-backed securities

     12,157         —           3,830         5,880         —           1,851         23,718   

Private label commercial mortgage-backed securities

     5,524         —           —           —           —           —           5,524   

Mutual funds (3)

     —           —           —           —           29,454         —           29,454   

U.S. Government-sponsored agency securities

     —           39,967         —           —           —           —           39,967   

Adjustable-rate preferred stock

     —           —           —           —           51,327         8,375         59,702   

Trust preferred securities

     —           —           —           —           23,625         —           23,625   

Collateralized debt obligations

     —           —           —           —           —           50         50   

Corporate bonds

     —           —           7,822         84,862         15,000         —           107,684   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total (1) (2)

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The Company used the average credit rating of the combination of S&P, Moody’s and Fitch in the above table where ratings differed.
(2) Securities values are shown at carrying value as of March 31, 2012. Unrated securities consist of CRA investments with a carrying value of $23.6 million, one ARPS with a carrying value of $1.0 million and an other investment of $1.5 million.
(3) At least 80% of mutual funds are investment grade corporate bonds.

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

 

     As of March 31, 2011  
          Split-rated                                     
   AAA      AAA/AA+      AA+ to AA-      A+ to A-      BBB+ to BBB-      BB+ and below      Totals  
     (in thousands)  

Municipal obligations

   $ 8,273       $ —         $ 109,159       $ 60,949       $ 8,855       $ 273       $ 187,509   

Direct U.S. obligations & GSE residential mortgage-backed securities

     —           871,099         —           —           —           —           871,099   

Private label residential mortgage-backed securities

     13,349         —           4,104         6,438         —           1,893         25,784   

Private label commercial mortgage-backed securities

     5,431         —           —           —           —           —           5,431   

Mutual funds (3)

     —           —           —           —           28,864         —           28,864   

U.S. Government-sponsored agency securities

     —           156,211         —           —           —           —           156,211   

Adjustable-rate preferred stock

     —           —           —           —           46,530         7,126         53,656   

Trust preferred securities

     —           —           —           —           21,159         —           21,159   

Collateralized debt obligations

     —           —           —           —           —           50         50   

Corporate bonds

     2,695         —           15,130         64,535         15,000         —           97,360   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total (1) (2)

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The Company used the average credit rating of the combination of S&P, Moody’s and Fitch in the above table where ratings differed.
(2) Securities values are shown at carrying value as of December 31, 2011. Unrated securities consist of CRA investments with a carrying value of $23.5 million, an HTM Corporate security with a carrying value of $10.0 million, one ARPS with a carrying value of $1.0 million and an other investment of $1.5 million.
(3) At least 80% of mutual funds are investment grade corporate bonds.

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

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

 

21


5. LOANS, LEASES AND ALLOWANCE FOR CREDIT LOSSES

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

 

     March 31,     December 31,  
     2012     2011  
     (in thousands)  

Commercial real estate—owner occupied

   $ 1,289,968      $ 1,252,182   

Commercial real estate—non-owner occupied

     1,365,680        1,301,172   

Commercial and industrial

     1,137,430        1,120,107   

Residential real estate

     434,465        443,020   

Construction and land development

     347,660        381,676   

Commercial leases

     299,034        216,475   

Consumer

     58,718        72,504   

Deferred fees and unearned income, net

     (6,732     (7,067
  

 

 

   

 

 

 
     4,926,223        4,780,069   

Allowance for credit losses

     (98,122     (99,170
  

 

 

   

 

 

 

Total

   $ 4,828,101      $ 4,680,899   
  

 

 

   

 

 

 

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

 

     March 31, 2012  
          30-59 Days      60-89 Days      Over 90 days      Total         
   Current      Past Due      Past Due      Past Due      Past Due      Total  
     (in thousands)  

Commercial real estate

                 

Owner occupied

   $ 1,275,038       $ 1,281       $ 736       $ 12,913       $ 14,930       $ 1,289,968   

Non-owner occupied

     1,215,370         3,540         —           3,341         6,881         1,222,251   

Multi-family

     142,953         193         —           283         476         143,429   

Commercial and industrial

                 

Commercial

     1,130,842         2,749         3,178         661         6,588         1,137,430   

Leases

     298,536         498         —           —           498         299,034   

Construction and land development

                 

Construction

     181,354         —           —           —           —           181,354   

Land

     152,997         4,668         378         8,263         13,309         166,306   

Residential real estate

     415,426         4,875         224         13,940         19,039         434,465   

Consumer

     56,959         716         428         615         1,759         58,718   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2011  
            30-59 Days      60-89 Days      Over 90 days      Total         
     Current      Past Due      Past Due      Past Due      Past Due      Total  
     (in thousands)  

Commercial real estate

                 

Owner occupied

   $ 1,235,707       $ 3,150       $ 2,488       $ 10,837       $ 16,475       $ 1,252,182   

Non-owner occupied

     1,168,616         —           2,365         5,051         7,416         1,176,032   

Multi-family

     124,855         —           —           285         285         125,140   

Commercial and industrial

                 

Commercial

     1,114,881         683         1,146         3,397         5,226         1,120,107   

Leases

     216,475         —           —           —           —           216,475   

Construction and land development

                 

Construction

     210,843         —           —           3,434         3,434         214,277   

Land

     151,618         6,217         375         9,189         15,781         167,399   

Residential real estate

     424,086         2,349         4,030         12,555         18,934         443,020   

Consumer

     70,759         376         602         767         1,745         72,504   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

22


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

 

     March 31, 2012      December 31, 2011  
          Loans past             Loans past  
          due 90 days             due 90 days  
          or more and             or more and  
   Non-accrual      still accruing      Non-accrual      still accruing  
            (in thousands)         

Commercial real estate

           

Owner occupied

   $ 30,005       $ —         $ 21,153       $ 439   

Non-owner occupied

     14,582         —           16,250         —     

Multi-family

     1,216         —           616         —     

Commercial and industrial

           

Commercial

     15,998         131         6,818         523   

Leases

     612         —           592         —     

Construction and land development

           

Construction

     9,250         —           14,446         —     

Land

     13,783         170         14,367         860   

Residential real estate

     17,377         95         15,747         —     

Consumer

     663         615         403         767   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

 

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

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

 

     March 31, 2012  
   Pass      Watch      Substandard      Doubtful      Loss      Total  
     (in thousands)  

Commercial real estate

                 

Owner occupied

   $ 1,171,549       $ 63,494       $ 54,925       $ —         $ —         $ 1,289,968   

Non-owner occupied

     1,155,969         26,410         39,872         —           —           1,222,251   

Multi-family

     142,213         —           1,216         —           —           143,429   

Commercial and industrial

                 

Commercial

     1,084,717         23,714         28,999         —           —           1,137,430   

Leases

     298,236         186         612         —           —           299,034   

Construction and land development

                 

Construction

     171,902         202         9,250         —           —           181,354   

Land

     123,393         7,411         35,502         —           —           166,306   

Residential real estate

     395,672         10,359         28,434         —           —           434,465   

Consumer

     55,954         1,053         1,711         —           —           58,718   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

23


     March 31, 2012  
     Pass      Watch      Substandard      Doubtful      Loss      Total  
     (in thousands)  

Current

   $ 4,593,661       $ 129,856       $ 145,958       $ —         $ —         $ 4,869,475   

Past due 30—59 days

     5,487         1,788         11,245         —           —           18,520   

Past due 60—89 days

     323         1,054         3,567         —           —           4,944   

Past due 90 days or more

     134         131         39,751         —           —           40,016   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2011  
     Pass      Watch      Substandard      Doubtful      Loss      Total  
     (in thousands)  

Commercial real estate

                 

Owner occupied

   $ 1,139,776       $ 67,220       $ 45,186       $ —         $ —         $ 1,252,182   

Non-owner occupied

     1,103,593         33,470         38,969         —           —           1,176,032   

Multi-family

     123,917         414         809         —           —           125,140   

Commercial and industrial

                 

Commercial

     1,067,602         20,657         31,648         200         —           1,120,107   

Leases

     215,778         105         592         —           —           216,475   

Construction and land development

                 

Construction

     193,248         3,087         17,942         —           —           214,277   

Land

     120,858         8,551         37,990         —           —           167,399   

Residential real estate

     405,398         12,637         24,985         —           —           443,020   

Consumer

     68,546         971         2,987         —           —           72,504   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2011  
     Pass      Watch      Substandard      Doubtful      Loss      Total  
     (in thousands)  

Current

   $ 4,429,291       $ 143,908       $ 144,641       $ —         $ —         $ 4,717,840   

Past due 30—59 days

     6,475         661         5,639         —           —           12,775   

Past due 60—89 days

     2,950         2,104         5,952         —           —           11,006   

Past due 90 days or more

     —           439         44,876         200         —           45,515   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     March 31,     December 31,  
     2012     2011  
     (in thousands)  

Impaired loans with a specific valuation allowance under ASC 310

   $ 46,827      $ 28,631   

Impaired loans without a specific valuation allowance under ASC 310

     166,011        180,860   
  

 

 

   

 

 

 

Total impaired loans

   $ 212,838      $ 209,491   
  

 

 

   

 

 

 

Valuation allowance related to impaired loans

   $ (17,404   $ (10,377
  

 

 

   

 

 

 

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

 

24


The following table presents the impaired loans by class:

 

     March 31,      December 31,  
     2012      2011  
     (in thousands)  

Commercial real estate

     

Owner occupied

   $ 56,126       $ 46,780   

Non-owner occupied

     44,684         43,123   

Multi-family

     1,216         809   

Commercial and industrial

     

Commercial

     29,826         25,138   

Leases

     611         592   

Construction and land development

     

Construction

     9,250         20,827   

Land

     38,928         41,084   

Residential real estate

     30,986         28,850   

Consumer

     1,211         2,288   
  

 

 

    

 

 

 

Total

   $ 212,838       $ 209,491   
  

 

 

    

 

 

 

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

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

 

     Three Months Ended  
     March 31,  
     2012      2011  
     (in thousands)  

Commercial real estate

     

Owner occupied

   $ 48,385       $ 56,956   

Non-owner occupied

     45,490         58,215   

Multi-family

     943         2,972   

Commercial and industrial

     

Commercial

     26,957         9,933   

Leases

     595         3,704   

Construction and land development

     

Construction

     14,339         28,012   

Land

     39,293         24,317   

Residential real estate

     31,067         39,215   

Consumer

     1,929         629   
  

 

 

    

 

 

 

Total

   $ 208,998       $ 223,953   
  

 

 

    

 

 

 

 

25


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

 

     Three Months Ended  
     March 31,  
     2012      2011  
     (in thousands)  

Commercial real estate

     

Owner occupied

   $ 414       $ 351   

Non-owner occupied

     459         576   

Multi-family

     —           4   

Commercial and industrial

     

Commercial

     255         58   

Leases

     —           —     

Construction and land development

     

Construction

     —           135   

Land

     352         236   

Residential real estate

     58         56   

Consumer

     11         4   
  

 

 

    

 

 

 

Total

   $ 1,549       $ 1,420   
  

 

 

    

 

 

 

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

The following table summarizes nonperforming assets:

 

     March 31,      December 31,  
     2012      2011  
     (in thousands)  

Nonaccrual loans

   $ 103,486       $ 90,392   

Loans past due 90 days or more on accrual status

     1,011         2,589   

Troubled debt restructured loans

     104,009         112,483   
  

 

 

    

 

 

 

Total nonperforming loans

     208,506         205,464   

Foreclosed collateral

     81,445         89,104   
  

 

 

    

 

 

 

Total nonperforming assets

   $ 289,951       $ 294,568   
  

 

 

    

 

 

 

Allowance for Credit Losses

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

 

     For the Three Months Ended March 31,  
     Construction and      Commercial      Residential      Commercial               
     Land Development      Real Estate      Real Estate      and Industrial     Consumer      Total  
     (in thousands)  

2012

                

Beginning Balance

   $ 14,195       $ 35,031       $ 19,134       $ 25,535      $ 5,275       $ 99,170   

Charge-offs

     5,087         4,912         1,420         3,654        2,002         17,075   

Recoveries

     86         1,703         338         777        42         2,946   

Provision

     3,559         3,296         680         4,243        1,303         13,081   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Ending balance

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

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

2011

                

Beginning Balance

   $ 20,587       $ 33,043       $ 20,889       $ 30,782      $ 5,398       $ 110,699   

Charge-offs

     4,198         6,114         3,282         1,407        1,616         16,617   

Recoveries

     416         471         269         829        25         2,010   

Provision

     838         6,689         3,662         (2,603     1,455         10,041   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Ending balance

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

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

26


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

 

     March 31, 2012  
     Unpaid                    Allowance  
     Principal      Recorded      Partial      for Credit  
     Balance      Investment      Charge-offs      Losses Allocated  
            (in thousands)         

With no related allowance recorded:

           

Commercial real estate

           

Owner occupied

   $ 55,003       $ 50,791       $ 4,212       $ —     

Non-owner occupied

     45,303         40,535         4,768         —     

Multi-family

     —           —           —           —     

Commercial and industrial

           

Commercial

     18,929         17,701         1,228         —     

Leases

     612         612         —           —     

Construction and land development

           

Construction

     —           —           —           —     

Land

     37,523         32,760         4,763         —     

Residential real estate

     30,530         22,776         7,754         —     

Consumer

     876         836         40         —     

With an allowance recorded:

           

Commercial real estate

           

Owner occupied

     6,677         5,334         1,343         2,495   

Non-owner occupied

     4,204         4,149         55         2,154   

Multi-family

     1,249         1,216         33         535   

Commercial and industrial

           

Commercial

     12,140         12,125         15         5,149   

Leases

     —           —           —           —     

Construction and land development

           

Construction

     12,101         9,250         2,851         450   

Land

     6,449         6,168         281         2,645   

Residential real estate

     8,707         8,210         497         3,601   

Consumer

     750         375         375         375   

With an allowance recorded:

           
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

 

 

27


     December 31, 2011  
     Unpaid                    Allowance  
     Principal      Recorded      Partial      for Credit  
     Balance      Investment      Charge-offs      Losses Allocated  
     (in thousands)  

With no related allowance recorded:

           

Commercial real estate

           

Owner occupied

   $ 47,792       $ 41,338       $ 6,454       $ —     

Non-owner occupied

     41,500         36,806         4,694         —     

Multi-family

     213         194         19         —     

Commercial and industrial

           

Commercial

     24,769         22,804         1,965         —     

Leases

     592         592         —           —     

Construction and land development

           

Construction

     21,774         18,821         2,953         —     

Land

     39,177         34,067         5,110         —     

Residential real estate

     32,577         23,950         8,627         —     

Consumer

     2,328         2,288         40         —     

With an allowance recorded:

           

Commercial real estate

           

Owner occupied

     5,572         5,442         130         1,333   

Non-owner occupied

     7,865         6,316         1,549         1,276   

Multi-family

     630         616         14         218   

Commercial and industrial

           

Commercial

     2,516         2,334         182         1,863   

Leases

     —           —           —           —     

Construction and land development

           

Construction

     5,018         2,006         3,012         499   

Land

     7,298         7,017         281         3,002   

Residential real estate

     5,059         4,900         159         2,186   

Consumer

     —           —           —           —     

With an allowance recorded:

           
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     March 31, 2012  
     Commercial      Commercial                                            
     Real Estate -      Real Estate -      Commercial      Residential      Construction                       
     Owner      Non-Owner      and      Real      and Land      Commercial                
     Occupied      Occupied      Industrial      Estate      Development      Leases      Consumer      Total  
     (in thousands)  

Allowance for credit losses:

                       

Ending balance attributable to loans individually evaluated for impairment

   $ 2,495       $ 2,689       $ 5,149       $ 3,601       $ 3,095       $ —         $ 375       $ 17,404   

Collectively evaluated for impairment

     15,591         14,343         19,618         15,131         9,658         2,134         4,243         80,718   

Acquired with deteriorated credit quality

     —           —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending allowance

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

28


     December 31, 2011  
     Commercial      Commercial                                            
     Real Estate -      Real Estate -      Commercial      Residential      Construction                       
     Owner      Non-Owner      and      Real      and Land      Commercial                
     Occupied      Occupied      Industrial      Estate      Development      Leases      Consumer      Total  
     (in thousands)  

Allowance for credit losses:

                       

Ending balance attributable to loans individually evaluated for impairment

   $ 1,333       $ 1,494       $ 1,863       $ 2,186       $ 3,501       $ —         $ —         $ 10,377   

Collectively evaluated for impairment

     16,434         15,770         21,605         16,948         10,694         2,067         5,275         88,793   

Acquired with deteriorated credit quality

     —           —           —           —           —           —