e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|
|
|
þ |
|
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2006
|
|
|
o |
|
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) |
|
|
|
2700 W. Sahara Avenue, Las Vegas, NV
|
|
89102 |
|
|
|
(Address of Principal Executive Offices)
|
|
(Zip Code) |
(702) 248-4200
Registrants telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Common Stock, $0.0001 Par Value
(Title of Class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No þ
Note Checking the box above will not relieve any registrant required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The aggregate market value of the registrants voting stock held by non-affiliates is approximately
$546,859,000 based on the June 30, 2006 closing price of said stock on the New York Stock Exchange
($34.78 per share).
As of
February 16, 2007, 27,345,310 shares of the registrants common stock were outstanding.
Portions of the registrants definitive Proxy Statement for its 2007 Annual Meeting of Stockholders
are incorporated by reference into Part III of this report.
PART I
ITEM 1. BUSINESS
WHERE YOU CAN FIND MORE INFORMATION
Under the Securities Exchange Act of 1934 Sections 13 and 15(d), periodic and current reports
must be filed with the SEC. We electronically file the following reports with the SEC: Form 10-K
(Annual Report), Form 10-Q (Quarterly Report), Form 8-K (Current Report), and Form DEF 14A (Proxy
Statement). We may file additional forms. The SEC maintains an Internet site, www.sec.gov,
in which all forms filed electronically may be accessed. Additionally, all forms filed with the SEC
and additional shareholder information is available free of charge on our website:
www.westernalliancebancorp.com. We post these reports to our website as soon as reasonably
practicable after filing them with the SEC. None of the information on or hyperlinked from our
website is incorporated into this Report.
Western Alliance Bancorporation
We are a bank holding company headquartered in Las Vegas, Nevada. We provide a full range of
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 our subsidiary banks and financial services companies located in Nevada, Arizona
and California. On a consolidated basis, as of December 31, 2006, we had approximately $4.2 billion
in assets, $3.0 billion in total loans, $3.4 billion in deposits and $408.6 million in
stockholders equity. We have focused our lending activities primarily on commercial loans, which
comprised 86.3% of our total loan portfolio at December 31, 2006. In addition to traditional
lending and deposit gathering capabilities, we also offer a broad array of financial products and
services aimed at satisfying the needs of small to mid-sized businesses and their proprietors,
including cash management, trust administration and estate planning, custody and investments and
equipment leasing.
Bank of Nevada (formerly BankWest of Nevada) was founded in 1994 by a group of individuals
with extensive community banking experience in the Las Vegas market. We believe our success has
been built on the strength of our management team, our conservative credit culture, the attractive
growth characteristics of the markets in which we operate and our ability to expand our franchise
by attracting seasoned bankers with long-standing relationships in their communities.
In 2003, with the support of local banking veterans, we opened Alliance Bank of Arizona in
Phoenix, Arizona and Torrey Pines Bank in San Diego, California. Over the past three and a half
years we have successfully leveraged the expertise and strengths of Western Alliance and Bank of
Nevada to build and expand these new banks in a rapid and efficient manner.
In 2006, we opened Alta Alliance Bank in Oakland, California.
Through our wholly owned, non-bank subsidiaries, Miller/Russell & Associates, Inc. and Premier
Trust, Inc., we provide investment advisory and wealth management services, including trust
administration and estate planning. We acquired Miller/Russell and Premier Trust in May 2004 and
December 2003, respectively. As of December 31, 2006, Miller/Russell had $1.40 billion in assets
under management, and Premier Trust had $256 million in assets under management and $430 million in
total trust assets.
We have achieved significant growth. Specifically, from December 31, 2000 to December 31,
2006, we increased:
|
|
|
total assets from $443.7 million to $4.2 billion; |
|
|
|
|
total net loans from $319.6 million to $3.0 billion; |
|
|
|
|
total deposits from $410.2 million to $3.4 billion; and |
2
|
|
|
core deposits (all deposits other than certificates of
deposit greater than $100,000) from $355.8 million to $2.9
billion. |
The Company provides a full range of banking services, as well as trust and investment
advisory services through its six consolidated subsidiaries. The company manages its business with
a primary focus on each subsidiary. Thus, the Company has identified six operating segments.
However, the trust and investment advisory segments do not meet the quantitative thresholds for
disclosure and have therefore been included in the other column. Parent company information is
also included in the other category because it represents an overhead function rather than an
operating segment. The Company has not aggregated any operating segments.
The Company reported three segments in the financial statements issued prior to December 31,
2006. In October 2006, the Company opened a new bank subsidiary, Alta Alliance Bank, which is
located in Northern California. Although Alta Alliance Bank does not meet the quantitative
thresholds for disclosure at December 31, 2006, this segment is reported because it is expected to
meet the quantitative thresholds for disclosure in the future.
The four reported segments derive a majority of their revenues from interest income and the
chief executive officer relies primarily on net interest income to assess the
performance of the segments and make decisions about resources to be allocated to the segments.
The accounting policies of the reported segments are the same as those of the Company as described
in Note 1 to the Consolidated Financial Statements. Transactions between segments consist
primarily of borrowings and loan participations. Federal funds purchases and sales and other
borrowed funds transactions result in profits that are eliminated for reporting consolidated
results of operations. Loan participations are recorded at par value with no resulting gain or
loss. The Company allocates centrally provided services to the operating segments based upon
estimated usage of those services.
Recent Developments
Acquisition of First Independent Capital of Nevada and First Independent Bank of Nevada. On
December 20, 2006, the Company and First Independent Capital of Nevada (First Independent) signed a
definitive agreement under which First Independent will merge into Western Alliance Bancorporation.
Privately held First Independent owns First Independent Bank of Nevada (headquartered in Reno,
Nevada), which had assets of $428 million, deposits of $386 million, loans of $288 million and
equity capital of $32 million at December 31, 2006. Under the terms of the agreement,
First Independent stockholders may elect to receive either $93.60 in cash or Western Alliance
common stock of comparable value (subject to certain collar provisions) as determined by a pricing
period prior to close. The agreement contains proration and allocation procedures to ensure that
80% of the First Independent shares are exchanged for shares of Western Alliance. First Independent
shareholders may be eligible for additional cash payments of up to $2.38 per share depending upon
the performance of certain credits in the First Independent Bank loan portfolio during the two-year
period after the merger has been completed. The transaction is valued at approximately $115 million
and is expected to close late in the first quarter of 2007.
Our Strategy
Since 1994, we believe that we have been successful in building and developing our operations
by adhering to a business strategy focused on understanding and serving the needs of our local
clients and pursuing growth markets and opportunities while emphasizing a strong credit culture.
Our objective is to provide our shareholders with superior returns. The critical components of our
strategy include:
|
|
|
Leveraging our knowledge and expertise. Over the past decade we have assembled an
experienced management team and built a culture committed to credit quality and operational
efficiency. We have also successfully centralized a significant portion of our operations,
processing, compliance, Community Reinvestment Act administration and specialty functions.
We intend to grow our franchise and improve our operating efficiencies by continuing to
leverage our managerial expertise and the functions we have centralized at Western
Alliance. |
|
|
|
Maintaining a strong credit culture. We adhere to a specific set of credit standards
across our bank subsidiaries that ensure the proper management of credit risk. Western
Alliances management team plays an active role in monitoring compliance with our Banks
credit standards. Western Alliance |
3
|
|
|
also continually monitors each of our subsidiary banks loan portfolios, which enables us to
identify and take prompt corrective action on potentially problematic loans. |
|
|
|
|
Attracting seasoned relationship bankers and leveraging our local market knowledge. We
believe our success has been the result, in part, of our ability to attract and retain
experienced relationship bankers that have strong relationships in their communities. These
professionals bring with them valuable customer relationships, and have been an integral
part of our ability to expand rapidly in our market areas. These professionals allow us to
be responsive to the needs of our customers and provide a high level of service to local
businesses. We intend to continue to hire experienced relationship bankers as we expand our
franchise. |
|
|
|
Offering a broader array of personal financial products and services. Part of our
growth strategy is to offer a broader array of personal financial products and services to
high net worth individuals and to senior managers at commercial enterprises with which we
have established relationships. To this end, we acquired Miller/Russell & Associates, Inc.
in May 2004, and Premier Trust, Inc. in December 2003. |
|
|
|
Focusing on markets with attractive growth prospects. We operate in what we believe to
be highly attractive markets with superior growth prospects. Our metropolitan areas have a
high per capita income and are expected to experience some of the fastest population growth
in the country. We continuously evaluate new markets in the Western United States with
similar growth characteristics as targets for expansion. Our long term strategy is to
operate in six to twelve high growth markets. We intend to implement this strategy through
the formation of additional de novo banks or acquiring other commercial banks in new market
areas with attractive growth prospects. As of December 31, 2006, we maintained 31 bank
branch offices located throughout our market areas. To accommodate our growth and enhance
efficiency, we opened a service center facility in Las Vegas, Nevada that provides
centralized back-office services and call center support for all our banking subsidiaries.
We intend to expand over the next 12 months to an aggregate of 40 offices. |
|
|
|
Attracting low cost deposits. We believe we have been able to attract a stable base of
low-cost deposits from customers who are attracted to our personalized level of service and
local knowledge. As of December 31, 2006, our deposit base was comprised of 33.9%
non-interest bearing deposits, of which 27.2% consisted of title company deposits, 67.3%
consisted of other business deposits and 5.5% consisted of consumer deposits. |
Our Market Areas
We believe that there is a significant market segment of small to mid-sized businesses that
are looking for a locally based commercial bank capable of providing a high degree of flexibility
and responsiveness, in addition to offering a broad range of financial products and services. We
believe that the local community banks that compete in our markets do not offer the same breadth of
products and services that our customers require to meet their growing needs, while the large,
national banks lack the flexibility and personalized service that our customers desire in their
banking relationships. By offering flexibility and responsiveness to our customers and providing a
full range of financial products and services, we believe that we can better serve our markets.
Through our banking and non-banking subsidiaries, we serve customers in Nevada, Arizona and
California.
Nevada. In Nevada, we operate in the cities of Las Vegas, Henderson, Mesquite and North Las
Vegas, all of which are in the Las Vegas metropolitan area, and Reno, which is located in the Reno
metropolitan area. The economy of the Las Vegas metropolitan area is primarily driven by services
and industries related to gaming, entertainment and tourism, and is experiencing growth in the
residential and commercial construction and light manufacturing sectors. Based on June 30, 2006
FDIC data (which is the most recent date for which public data is available), we ranked 4th out of
29 institutions in deposit market share with $2.3 billion in deposits in the Las Vegas metropolitan
area.
Arizona. In Arizona, we operate in Phoenix and Scottsdale, which are located in the Phoenix
metropolitan area, Tucson, which is located in the Tucson metropolitan area, and Sedona, which is
located in the Flagstaff metropolitan area. These metropolitan areas contain companies in the
following industries:
4
aerospace, high-tech manufacturing, construction, energy, transportation, minerals and mining
and financial services.
California. In California, we operate in the cities of San Diego and La Mesa, both of which
are in the San Diego metropolitan area, and Oakland, which is in the Bay Area metropolitan area.
The business communities in the San Diego and Bay Area metropolitan areas include numerous small to
medium-sized businesses and service and professional firms that operate in a diverse number of
industries, including the entertainment, defense and aerospace, construction, health care and
pharmaceutical, technology and computer, financial and telecommunications industries.
We currently operate in what we believe to be several of the most attractive markets in the
Western United States. These markets have high per capita income and are expected to experience
some of the fastest population growth in the country. Claritas, Inc., a leading provider of
demographic data, projects significant population growth in our metropolitan areas between 2006 and
2011.
We believe that the rapid population growth and attractive economic factors of our markets
will provide us with significant opportunities in the future. The growth in the Las Vegas
metropolitan area, our primary market, has been driven by a variety of factors, including a service
economy associated with the hospitality and gaming industries, affordable housing, no state income
taxation, and a growth base of senior or retirement communities. Increased economic activity by
individuals and accelerated infrastructure investments by businesses should generate additional
demand for our products and services. For example, economic growth should produce additional
commercial and residential development, providing us with greater lending opportunities. In
addition, as per capita income continues to rise, there should be greater opportunities to provide
financial products and services, such as checking accounts and wealth and asset management
services.
Operations
Our operations are conducted through the following wholly owned subsidiaries:
|
|
|
Bank of Nevada. Bank of Nevada is a Nevada-chartered commercial bank headquartered in
Las Vegas, Nevada. As of December 31, 2006, the bank had $2.9 billion in assets, $2.1
billion in loans and $2.3 billion in deposits. Bank of Nevada has fourteen full-service
offices in the Las Vegas metropolitan area and one in Reno. |
|
|
|
Alliance Bank of Arizona. Alliance Bank of Arizona is an Arizona-chartered commercial
bank headquartered in Phoenix, Arizona. As of December 31, 2006, the bank had $643.3
million in assets, $506.7 million in loans and $552.9 million in deposits. Alliance Bank
has four full-service offices in Phoenix, three in Tucson, one in Scottsdale and one in
Sedona. |
|
|
|
Torrey Pines Bank. Torrey Pines Bank is a California-chartered commercial bank
headquartered in San Diego, California. As of December 31, 2006, the bank had $581.6
million in assets, $414.4 million in loans and $491.6 million in deposits. Torrey Pines has
five full-service offices in San Diego and one in La Mesa. |
|
|
|
Alta Alliance Bank. Alta Alliance Bank opened in October 2006 and is a
California-chartered commercial bank headquartered in Oakland, California. As of December
31, 2006, the bank had $56.2 million in assets, $7.7 million in loans and $31.3 million in
deposits. Alta Alliance has one full-service office in Oakland and one loan production
office in Walnut Creek. |
|
|
|
Miller/Russell & Associates, Inc. Miller/Russell offers investment advisory services
to businesses, individuals and non-profit entities. As of December 31, 2006, Miller/Russell
had $1.40 billion in assets under management. Miller/Russell has offices in Phoenix,
Tucson, San Diego and Las Vegas. |
|
|
|
Premier Trust, Inc. Premier Trust offers clients wealth management services, including
trust administration of personal and retirement accounts, estate and financial planning,
custody services and investments. As of December 31, 2006, Premier Trust had $430 million
in total trust assets and $256 million in assets under management. Premier Trust has
offices in Las Vegas and Phoenix. |
5
Lending Activities
We provide a variety of loans to our customers, including commercial and residential real
estate loans, construction and land development loans, commercial loans, and to a lesser extent,
consumer loans. Our lending efforts have focused on meeting the needs of our business customers,
who have typically required funding for commercial and commercial real estate enterprises.
Commercial loans comprised 86.3% of our total loan portfolio at December 31, 2006.
Commercial Real Estate Loans. The majority of our lending activity consists of loans to
finance the purchase of commercial real estate and loans to finance inventory and working capital
that are secured by commercial real estate. We have a commercial real estate portfolio comprised of
loans on apartment buildings, professional offices, industrial facilities, retail centers and other
commercial properties. As of December 31, 2006, 61.3% of our commercial real estate and
construction loans were owner occupied.
Construction and Land Development Loans. The principal types of our construction loans
include industrial/warehouse properties, office buildings, retail centers, medical facilities,
restaurants and single-family homes. Construction and land development loans are primarily made
only to experienced local developers with whom we have a sufficient lending history. An analysis of
each construction project is performed as part of the underwriting process to determine whether the
type of property, location, construction costs and contingency funds are appropriate and adequate.
We extend raw commercial land loans primarily to borrowers who plan to initiate active development
of the property within two years.
Commercial and Industrial Loans. In addition to real estate related loan products, we also
originate commercial and industrial loans, including working capital lines of credit, inventory and
accounts receivable lines, equipment loans and other commercial loans. We focus on making
commercial loans to small and medium-sized businesses in a wide variety of industries. We also are
a Preferred Lender in Arizona with the SBA. We intend to increase our commitment to this product
line in the future.
Residential Loans. We originate residential mortgage loans secured by one- to four-family
properties, most of which serve as the primary residence of the owner. Most of our loan
originations result from relationships with existing or past customers, members of our local
community, and referrals from realtors, attorneys and builders.
Consumer Loans. We offer a variety of consumer loans to meet customer demand and to increase
the yield on our loan portfolio. Consumer loans are generally offered at a higher rate and shorter
term than residential mortgages. Examples of our consumer loans include:
|
|
|
home equity loans and lines of credit; |
|
|
|
home improvement loans; |
|
|
|
new and used automobile loans; and |
|
|
|
personal lines of credit. |
As of December 31, 2006 our loan portfolio totaled $3.0 billion, or approximately 72.0% of our
total assets. The following tables set forth the composition of our loan portfolio as of December
31, 2006.
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
Loan Type |
|
Amount |
|
|
Percent |
|
|
|
($ in millions) |
|
Commercial Real Estate |
|
$ |
1,232.2 |
|
|
|
41.0 |
% |
Construction and Land Development |
|
|
715.5 |
|
|
|
23.8 |
|
Commercial and Industrial |
|
|
645.5 |
|
|
|
21.5 |
|
Residential Real Estate |
|
|
384.1 |
|
|
|
12.8 |
|
Consumer |
|
|
29.6 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
Total Gross Loans |
|
$ |
3,006.9 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
Net Deferred Loan Fees |
|
|
(3.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loans, net of deferred loan fees |
|
$ |
3,003.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
6
Credit Policies and Administration
General
We adhere to a specific set of credit standards across our bank subsidiaries that ensure the
proper management of credit risk. Furthermore, our holding companys management team plays an
active role in monitoring compliance with such standards by our banks.
Loan originations are subject to a process that includes the credit evaluation of borrowers,
established lending limits, analysis of collateral, and procedures for continual monitoring and
identification of credit deterioration. Loan officers actively monitor their individual credit
relationships in order to report suspected risks and potential downgrades as early as possible. The
respective boards of directors of each of our banking subsidiaries establish their own loan
policies, as well as loan limit authorizations. Except for variances to reflect unique aspects of
state law and local market conditions, our lending policies generally incorporate consistent
underwriting standards. We monitor all changes to each respective banks loan policy to promote
this philosophy. Our credit culture has helped us to identify troubled credits early, allowing us
to take corrective action when necessary.
Loan Approval Procedures and Authority
Our loan approval procedures are executed through a tiered loan limit authorization process
which is structured as follows:
|
|
|
Individual Authorities. The board of directors of each subsidiary bank sets the
authorization levels for individual loan officers on a case-by-case basis. Generally, the
more experienced a loan officer, the higher the authorization level. The maximum approval
authority for a loan officer is $1.5 million for secured loans and $750,000 for unsecured
loans. |
|
|
|
Management Loan Committees. Credits in excess of individual loan limits are submitted
to the appropriate banks Management Loan Committee. The Management Loan Committees consist
of members of the senior management team of that bank and are chaired by that banks chief
credit officer. The Management Loan Committees have approval authority up to $6.0 million
at Bank of Nevada, $7.5 million at Alliance Bank of Arizona, $5.0 million at Torrey Pines
Bank and $5.5 million at Alta Alliance Bank. |
|
|
|
Credit Administration. Credits in excess of the Management Loan Committee authority
are submitted by the bank subsidiary to Western Alliances Credit Administration. Credit
Administration consists of the chief credit officers of Western Alliance and Bank of
Nevada. Credit Administration has approval authority up to $18.0 million. |
|
|
|
Board of Director Oversight. The CEO of Bank of Nevada acting with the Chairman of the
Board of Directors of Bank of Nevada has approval authority up to Bank of Nevadas legal
lending limit of $66.4 million. |
Our credit administration department works independent of loan production.
Loans to One Borrower. In addition to the limits set forth above, state banking law generally
limits the amount of funds that a bank may lend to a single borrower. Under Nevada law, the total
amount of outstanding loans that a bank may make to a single borrower generally may not exceed 25%
of stockholders tangible equity. Under Arizona law, the obligations of one borrower to a bank may
not exceed 15% of the banks capital. Under California law, the obligations of any one borrower to
a bank generally may not exceed 25% of the sum of the banks shareholders equity, allowance for
loan losses, capital notes and debentures.
Notwithstanding the above limits, because of our business model, our affiliate banks are able
to leverage their relationships with one another to participate in loans collectively which they
otherwise would not be able to accommodate on an individual basis. As of December 31, 2006, the
aggregate lending limit of our subsidiary banks was approximately $96.2 million.
Concentrations of Credit Risk. Our lending policies also establish customer and product
concentration limits to control single customer and product exposures. As these policies are
directional and not absolute, at any particular point in time the ratios may be higher or lower
because of funding on outstanding
7
commitments. Set forth below are our lending policies and the segmentation of our loan
portfolio by loan type as of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Total Capital |
|
Percent of Total Loans |
|
|
Policy Limit |
|
Actual |
|
Policy Limit |
|
Actual |
Commercial Real Estate Term |
|
|
400 |
% |
|
|
373 |
% |
|
|
65 |
% |
|
|
41 |
% |
Construction |
|
|
250 |
|
|
|
216 |
|
|
|
30 |
|
|
|
24 |
|
Commercial and Industrial |
|
|
200 |
|
|
|
193 |
|
|
|
30 |
|
|
|
21 |
|
Residential Real Estate |
|
|
225 |
|
|
|
116 |
|
|
|
65 |
|
|
|
13 |
|
Consumer |
|
|
50 |
|
|
|
9 |
|
|
|
15 |
|
|
|
1 |
|
Asset Quality
General
One of our key strategies is to maintain high asset quality. We have instituted a loan grading
system consisting of nine different categories. The first five are considered satisfactory. The
other four grades range from a watch category to a loss category and are consistent with the
grading systems used by the FDIC. All loans are assigned a credit risk grade at the time they are
made, and each originating loan officer reviews the credit with his or her immediate supervisor on
a quarterly basis to determine whether a change in the credit risk grade is warranted. In addition,
the grading of our loan portfolio is reviewed annually by an external, independent loan review
firm.
Collection Procedure
If a borrower fails to make a scheduled payment on a loan, we attempt to remedy the deficiency
by contacting the borrower and seeking payment. Contacts generally are made within 15 business days
after the payment becomes past due. Our Special Assets Department reviews all delinquencies on a
monthly basis. Each banks chief credit officer can approve charge-offs up to $5,000. Amounts in
excess of $5,000 require the approval of each banks respective board of directors. Loans deemed
uncollectible are proposed for charge-off on a monthly basis at each respective banks monthly
board meeting.
Non-performing Loans
Our policies require that the chief credit officer of each bank continuously monitor the
status of that banks loan portfolio and prepare and present to the board of directors a monthly
report listing all credits 30 days or more past due. All relationships graded substandard or
worse typically are transferred to the Special Assets Department for corrective action. In
addition, we prepare detailed status reports for all relationships rated watch or lower on a
quarterly basis. These reports are provided to management and the board of directors of the
applicable bank and Western Alliance.
Our policy is to classify all loans 90 days or more past due and all loans on a non-accrual
status as substandard or worse, unless extraordinary circumstances suggest otherwise.
We generally stop accruing income on loans when interest or principal payments are in arrears
for 90 days, or earlier if the banks management deems appropriate. We designate loans on which we
stop accruing income as non-accrual loans and we reverse outstanding interest that we previously
accrued. We recognize income in the period in which we collect it, when the ultimate collectibility
of principal is no longer in doubt. We return non-accrual loans to accrual status when factors
indicating doubtful collection no longer exist and the loan has been brought current.
Criticized Assets
Federal regulations require that each insured bank classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, examiners have authority to
identify problem assets, and, if appropriate, classify them. We use grades six through nine of our
loan grading system to identify potential problem assets.
The following describes grades six through nine of our loan grading system:
8
|
|
|
Watch List/Special Mention. Generally these are assets that require more than normal
management attention. These loans may involve borrowers with adverse financial trends,
higher debt/equity ratios, or weaker liquidity positions, but not to the degree of being
considered a problem loan where risk of loss may be apparent. Loans in this category are
usually performing as agreed, although there may be some minor non-compliance with
financial covenants. |
|
|
|
Substandard. These assets contain well-defined credit weaknesses and are
characterized by the distinct possibility that the bank will sustain some loss if such
weakness or deficiency is not corrected. These loans generally are adequately secured and
in the event of a foreclosure action or liquidation, the bank should be protected from
loss. All loans 90 days or more past due and all loans on non-accrual are considered at
least substandard, unless extraordinary circumstances would suggest otherwise. |
|
|
|
Doubtful. These assets have an extremely high probability of loss, but because of
certain known factors which may work to the advantage and strengthening of the asset (for
example, capital injection, perfecting liens on additional collateral and refinancing
plans), classification as an estimated loss is deferred until a more precise status may be
determined. |
|
|
|
Loss. These assets are considered uncollectible, and of such little value that their
continuance as bankable assets is not warranted. This classification does not mean that the
loan has absolutely no recovery or salvage value, but rather that it is not practicable or
desirable to defer writing off the asset, even though partial recovery may be achieved in
the future. |
Allowance for Loan Losses
The allowance for loan losses reflects our evaluation of the probable losses in our loan
portfolio. Although management at each of our banking subsidiaries establishes its own allowance
for loan losses, each bank utilizes consistent evaluation procedures. The allowance for loan losses
is maintained at a level that represents each banks managements best estimate of losses in the
loan portfolio at the balance sheet date that are both probable and reasonably estimable. We
maintain the allowance through provisions for loan losses that we charge to income. We charge
losses on loans against the allowance for loan losses when we believe the collection of loan
principal is unlikely. Recoveries on loans charged-off are restored to the allowance for loan
losses.
Our evaluation of the adequacy of the allowance for loan losses includes the review of all
loans for which the collectibility of principal may not be reasonably assured. For commercial real
estate and commercial loans, review of financial performance, payment history and collateral values
is conducted on a quarterly basis by the lending staff, and the results of that review are then
reviewed by Credit Administration. For residential mortgage and consumer loans, this review
primarily considers delinquencies and collateral values.
The criteria that we consider in connection with determining the overall allowance for loan
losses include:
|
|
|
results of the quarterly credit quality review; |
|
|
|
historical loss experience in each segment of the loan portfolio; |
|
|
|
general economic and business conditions affecting our key lending areas; |
|
|
|
credit quality trends (including trends in non-performing loans expected to result from
existing conditions); |
|
|
|
loan volumes and concentrations; |
|
|
|
age of the loan portfolio; |
|
|
|
specific industry conditions within portfolio segments; |
9
|
|
|
duration of the current business cycle; |
|
|
|
bank regulatory examination results; and |
|
|
|
external loan review results. |
Additions to the allowance for loan losses may be made when management has identified
significant adverse conditions or circumstances related to a specific loan. Management continuously
reviews the entire loan portfolio to determine the extent to which additional loan loss provisions
might be deemed necessary. However, there can be no assurance that the allowance for loan losses
will be adequate to cover all losses that may in fact be realized in the future or that additional
provisions for loan losses will not be required.
Various regulatory agencies, as well as our outsourced loan review function, as an integral
part of their review process, periodically review our loan portfolios and the related allowance for
loan losses. Regulatory agencies may require us to increase the allowance for loan losses based on
their review of information available to them at the time of their examination.
As of December 31, 2006, our allowance for loan losses was $33.6 million or 1.12% of total
loans.
Investment Activities
Each of our banking subsidiaries has its own investment policy, which is established by our
board of directors and is approved by each respective banks board of directors. These policies
dictate that investment decisions will be made based on the safety of the investment, liquidity
requirements, potential returns, cash flow targets, and consistency with our interest rate risk
management. Each banks chief financial officer is responsible for making securities portfolio
decisions in accordance with established policies. The chief financial officer has the authority to
purchase and sell securities within specified guidelines established by the investment policy. All
transactions for a specific bank are reviewed by that banks board of directors.
Our banks investment policies generally limit securities investments to U.S. Government,
agency and sponsored entity securities and municipal bonds, as well as investments in preferred and
common stock of government sponsored entities, such as Fannie Mae, Freddie Mac, and the Federal
Home Loan Bank. The policies also permit investments in mortgage-backed securities, including
pass-through securities issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae, as well as
collateralized mortgage obligations (CMOs) issued or backed by securities issued by these
government agencies and privately issued investment grade CMOs. Privately issued CMOs typically
offer higher rates than those paid on government agency CMOs, but lack the guaranty of such
agencies and typically there is less market liquidity than agency bonds. The policies also permit
investments in securities issued or backed by the SBA and investment grade asset-backed securities
and adjustable rate preferred stock. Our current investment strategy uses a risk management
approach of diversified investing in fixed-rate securities with short to intermediate-term
maturities and floating-rate securities with long-term maturities. The emphasis of this approach is
to increase overall securities yields while managing interest rate risk. To accomplish these
objectives, we focus on investments in mortgage-backed securities and CMOs with a secondary focus
on higher yielding investment grade asset-backed securities and adjustable rate preferred stock.
All of our investment securities are classified as available for sale or held to maturity
pursuant to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities.
Available for sale securities are reported at fair value, with unrealized gains and losses excluded
from earnings and instead reported as a separate component of stockholders equity. Held to
maturity securities are those securities that we have both the intent and the ability to hold to
maturity. These securities are carried at cost adjusted for amortization of premium and accretion
of discount.
As of December 31, 2006, we had an investment securities portfolio of $542.3 million,
representing approximately 13.0% of our total assets, with the majority of the portfolio invested
in AAA-rated securities. The average duration of our investment securities is 3.0 years as of
December 31, 2006. The following table summarizes our investment securities portfolio as of
December 31, 2006.
10
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
|
|
Amount |
|
|
Percent |
|
|
|
($ in millions) |
|
Mortgage-backed Securities |
|
$ |
379.5 |
|
|
|
70.0 |
% |
U.S. Government Sponsored Agencies |
|
|
27.7 |
|
|
|
5.1 |
|
Asset-backed Securities |
|
|
48.0 |
|
|
|
8.9 |
|
Adjustable Rate Preferred Stock |
|
|
49.1 |
|
|
|
9.1 |
|
Municipal Bonds, U.S. Treasuries & Other |
|
|
38.0 |
|
|
|
6.9 |
|
|
|
|
|
|
|
|
Total Investment Securities |
|
$ |
542.3 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
As of December 31, 2006 and December 31, 2005, we had an investment in bank-owned life
insurance (BOLI) of $82.1 million and $51.8 million, respectively. We purchased the BOLI to help
offset employee benefit costs.
Deposit Products and Other Funding Sources
We offer a variety of deposit products to our customers, including checking accounts, savings
accounts, money market accounts and other deposit accounts, including fixed-rate, fixed maturity
retail certificates of deposit ranging in terms from 30 days to five years, individual retirement
accounts, and non-retail certificates of deposit consisting of jumbo certificates greater than or
equal to $100,000. We have historically focused on attracting low cost core deposits. As of
December 31, 2006, our deposit portfolio was comprised of 33.9% non-interest bearing deposits,
compared to 17.4% time deposits.
Our non-interest bearing deposits consist of non-interest bearing checking accounts, which, as
of December 31, 2006, were comprised of 27.2% title company deposits, which consist primarily of
deposits held in escrow pending the closing of commercial and residential real estate transactions,
and, to a lesser extent, operating accounts for title companies; 67.3% other business deposits,
which consist primarily of operating accounts for businesses; and 5.5% consumer deposits. We
consider these deposits to be core deposits. We believe these deposits are generally not interest
rate sensitive since these accounts are not created for investment purposes. The competition for
these deposits in our markets is strong. We believe our success in attracting and retaining these
deposits is based on several factors, including (1) the high level of service we provide to our
customers; (2) our ability to attract and retain experienced relationship bankers who have strong
relationships in their communities; (3) our broad array of cash management services; and (4) our
competitive pricing on earnings credits paid on these deposits. We intend to continue our efforts
to attract deposits from our business lending relationships in order to maintain our low cost of
funds and improve our net interest margin. However, the loss of a significant part of our low-cost
deposit base would negatively impact our profitability.
Deposit flows are significantly influenced by general and local economic conditions, changes
in prevailing interest rates, internal pricing decisions and competition. Our deposits are
primarily obtained from areas surrounding our branch offices. In order to attract and retain
deposits, we rely on providing quality service and introducing new products and services that meet
our customers needs.
Each subsidiary banks asset and liability committee sets its own deposit rates. Our banks
consider a number of factors when determining their individual deposit rates, including:
|
|
|
Information on current and projected national and local economic conditions and the outlook
for interest rates; |
|
|
|
The competitive environment in the markets it operates in; |
|
|
|
Loan and deposit positions and forecasts, including any concentrations in either; and |
|
|
|
FHLB advance rates and rates charged on other sources of funds. |
As of December 31, 2006, we had approximately $3.4 billion in total deposits. The following
table shows our deposit composition as of December 31, 2006:
11
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
|
|
Amount |
|
|
Percent |
|
|
|
($ in millions) |
|
Non-interest Bearing Demand |
|
$ |
1,154.2 |
|
|
|
33.9 |
% |
Savings & Money Market |
|
|
1,407.9 |
|
|
|
41.4 |
|
Time, $100k and over |
|
|
524.9 |
|
|
|
15.4 |
|
Interest Bearing Demand |
|
|
246.4 |
|
|
|
7.3 |
|
Other Time |
|
|
67.0 |
|
|
|
2.0 |
|
|
|
|
|
|
|
|
Total Deposits |
|
$ |
3,400.4 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
In addition to our deposit base, we have access to other sources of funding, including FHLB
advances, repurchase agreements and unsecured lines of credit with other financial institutions.
Additionally, in the past, we have accessed the capital markets through trust preferred offerings.
Financial Products & Services
In addition to traditional commercial banking activities, we provide other financial services
to our customers, including:
|
|
|
Electronic bill payment; |
|
|
|
Cash management services (including account reconciliation, collections and sweep accounts). |
We have a service center facility which became operational in the fourth quarter of 2006. We
expect that this facility will increase our capacity to provide courier, cash management and other
business services.
Through Miller/Russell, we provide customers with asset allocation and investment advisory
services. In addition, we provide wealth management services including trust administration of
personal and retirement accounts, estate and financial planning, custody services and investments
through Premier Trust.
Customer, Product and Geographic Concentrations
Approximately 64.9% of our loan portfolio as of December 31, 2006 consisted of commercial real
estate secured loans, including commercial real estate loans and construction and land development
loans. Moreover, our business activities are currently focused in the Las Vegas, San Diego, Tucson,
Phoenix and Oakland metropolitan areas. Consequently, our business is dependent on the trends of
these regional economies. In addition, approximately 9.2% of our deposits as of December 31, 2006
consisted of noninterest bearing title company deposits. No individual or single group of related
accounts is considered material in relation to our assets or deposits or in relation to our overall
business.
Competition
The banking and financial services business in our market areas is highly competitive. This
increasingly competitive environment is a result primarily of growth in community banks, changes in
regulation, changes in technology and product delivery systems, and the accelerating pace of
consolidation among financial services providers. We compete for loans, deposits and customers with
other commercial banks, local community banks, savings and loan associations, securities and
brokerage companies, mortgage companies, insurance companies, finance companies, money market
funds, credit unions, and other non-bank financial services providers. Many of these competitors
are much larger in total assets and capitalization, have greater access to capital markets and
offer a broader range of financial services than we can offer.
12
Competition for deposit and loan products remains strong from both banking and non-banking
firms, and this competition directly affects the rates of those products and the terms on which
they are offered to consumers. Technological innovation continues to contribute to greater
competition in domestic and international financial services markets. Many customers now expect a
choice of several delivery systems and channels, including telephone, mail, home computer and ATMs.
Mergers between financial institutions have placed additional pressure on banks to consolidate
their operations, reduce expenses and increase revenues to remain competitive. In addition,
competition has intensified due to federal and state interstate banking laws, which permit banking
organizations to expand geographically with fewer restrictions than in the past. These laws allow
banks to merge with other banks across state lines, thereby enabling banks to establish or expand
banking operations in our market. The competitive environment is also significantly impacted by
federal and state legislation that makes it easier for non-bank financial institutions to compete
with us.
Employees
As of December 31, 2006, we had 785 full-time equivalent employees.
Legal Proceedings
There are no material pending legal proceedings to which Western Alliance is a party or to
which any of our properties are subject. There are no material proceedings known to us to be
contemplated by any governmental authority. From time to time, we are involved in a variety of
litigation matters in the ordinary course of our business and anticipate that we will become
involved in new litigation matters in the future.
Financial Information Regarding Segment Reporting
We currently operate our business in six operating segments: Bank of Nevada, Alliance Bank of
Arizona, Torrey Pines Bank, Alta Alliance Bank, Premier Trust, Inc. and Miller/Russell &
Associates, Inc. Please refer to Note 18 Segment Information to our Consolidated Financial
Statements for financial information regarding segment reporting.
SUPERVISION AND REGULATION
The following discussion is only intended to summarize some of the significant statutes and
regulations that affect the banking industry and therefore is not a comprehensive survey of the
field. These summaries are qualified in their entirety by reference to the particular statute or
regulation that is referenced or described. Changes in applicable laws or regulations or in the
policies of banking supervisory agencies, or the adoption of new laws or regulations, may have a
material effect on Western Alliances business and prospects. Changes in fiscal or monetary
policies also may affect Western Alliance. The probability, timing, nature or extent of such
changes or their effect on Western Alliance cannot be predicted.
Bank Holding Company Regulation
General. Western Alliance Bancorporation is a bank holding company and is registered with the
Board of Governors of the Federal Reserve System (Federal Reserve) under the Bank Holding Company
Act of 1956 (the BHC Act). As such, the Federal Reserve is Western Alliances primary federal
regulator, and Western is subject to extensive regulation, supervision and examination by the
Federal Reserve. Western Alliance must file reports with the Federal Reserve and provide it with
such additional information as it may require.
Under Federal Reserve regulations, a bank holding company is required to serve as a source of
financial and managerial strength for its subsidiary banks and may not conduct its operations in an
unsafe or unsound manner. In addition, it is the Federal Reserves policy that, in serving as a
source of strength to its subsidiary banks, a bank holding company should stand ready to use its
available resources to provide adequate capital to its subsidiary banks during period of financial
stress or adversity and should maintain the financial flexibility and capital-raising capacity to
obtain additional resources for assisting its subsidiary banks. A bank holding companys failure to
meet these obligations will generally be considered by the Federal Reserve to be an unsafe and
unsound banking practice or a violation of Federal Reserve regulations, or both.
13
Among its powers, the Federal Reserve may require a bank holding company to terminate an
activity or terminate control of, divest or liquidate subsidiaries or affiliates that the Federal
Reserve determines constitute a significant risk to the financial safety or soundness of the bank
holding company or any of its bank subsidiaries. Subject to certain exceptions, bank holding
companies also are required to give written notice to and receive approval from the Federal Reserve
before purchasing or redeeming their common stock or other equity securities. The Federal Reserve
also may regulate provisions of a bank holding companys debt, including by imposing interest rate
ceilings and reserve requirements. In addition, the Federal Reserve requires all bank holding
companies to maintain capital at or above certain prescribed levels.
Holding Company Bank Ownership. The BHC Act requires every bank holding company to obtain the
approval of the Federal Reserve before it may acquire, directly or indirectly, ownership or control
of any voting shares of another bank or bank holding company if, after such acquisition, it would
own or control more than 5% of any class of the outstanding voting shares of such other bank or
bank holding company, acquire all or substantially all the assets of another bank or bank holding
company or merge or consolidate with another bank holding company.
Holding Company Nonbank Ownership. With certain exceptions, the BHC Act prohibits a bank
holding company from acquiring or retaining, directly or indirectly, ownership or control of more
than 5% of the outstanding voting shares of any company that is not a bank or bank holding company,
or from engaging, directly or indirectly, in activities other than those of banking, managing or
controlling banks, or providing services for its subsidiaries. The principal exceptions to these
prohibitions involve certain nonbank activities that have been identified, by statute or by Federal
Reserve regulation or order as activities so closely related to the business of banking or of
managing or controlling banks as to be a proper incident thereto. Business activities that have
been determined to be so related to banking include securities brokerage services, investment
advisory services, fiduciary services and certain management advisory and data processing services,
among others. A bank holding company that qualifies as a financial holding company also may
engage in a broader range of activities that are financial in nature (and complementary to such
activities), as discussed below.
In addition, bank holding companies that qualify and elect to become financial holding
companies may engage in nonbank activities that have been identified by the Gramm-Leach-Bliley Act
of 1999 (GLB Act) or by Federal Reserve and Treasury Department Regulation as financial in nature
or incidental or complementary to a financial activity. Activities that are defined as financial in
nature include securities underwriting, dealing and market making, sponsoring mutual funds and
investment companies, engaging in insurance underwriting and agency activities, and making merchant
banking investments in nonfinancial companies. In order to become or remain a financial holding
company, a bank holding company must be well-capitalized, well-managed, and, except in limited
circumstances, have at least satisfactory CRA ratings. Failure by a financial holding company to
maintain compliance with these requirements or correct non-compliance within a fixed time period
could lead to divestiture of all subsidiary banks or a requirement to conform all nonbanking
activities to those permissible for a bank holding company that has not elected financial holding
company status.
Change in Control. In the event that the BHC Act is not applicable to a person or entity, the
Change in Bank Control Act of 1978 (CIBC Act) requires, that such person or entity give notice to
the Federal Reserve and the Federal Reserve not disapprove such notice before such person or entity
may acquire control of a bank or bank holding company. A limited number of exemptions apply to
such transactions. Control is conclusively presumed to exist if a person or entity acquires 25% or
more of the outstanding shares of any class of voting stock of the bank holding company or insured
depository institution. Control is rebuttably presumed to exist if a person or entity acquires 10%
or more but less than 25% of such voting stock and either the issuer has a class of registered
securities under Section 12 of the Securities Exchange Act of 1934, as amended (the 1934 Act), or
no other person or entity will own, control or hold the power to vote a greater percentage of such
voting stock immediately after the transaction.
State Law Restrictions. As a Nevada corporation, Western Alliance is subject to certain
limitations and restrictions under applicable Nevada corporate law. For example, Nevada law imposes
restrictions relating to indemnification of directors, maintenance of books, records and minutes
and observance of certain corporate formalities. Western Alliance also is a bank holding company
within the meaning of state law in the states where its subsidiary banks are located. As such, it
is subject to examination by and may be required to file reports with the Nevada Financial
Institutions Division (Nevada FID) under sections 666.095 and 666.105 of the Nevada Revised
Statutes. Western Alliance must obtain the approval of the
14
Nevada Commissioner of Financial Institutions (Nevada Commissioner) before it may acquire
another bank. Any transfer of control of a Nevada bank holding company must be approved in advance
by the Nevada Commissioner.
Under section 6-142 of the Arizona Revised Statutes, no person may acquire control of a
company that controls an Arizona bank without the prior approval of the Arizona Superintendent of
Financial Institutions (Arizona Superintendent). A person who has the power to vote 15% or more
of the voting stock of a controlling company is presumed to control the company.
Western Alliance also is subject to examination and reporting requirements of the California
Department of Financial Institutions (California DFI) under sections 3703 and 3704 of the
California Financial Code. Any transfer of control of a corporation that controls a California bank
requires the prior approval of the California Commissioner of Financial Institutions (California
Commissioner).
Bank Regulation
General. Western Alliance controls four subsidiary banks. Bank of Nevada, located in Las
Vegas, Nevada, is chartered by the State of Nevada and is subject to primary regulation,
supervision and examination by the Nevada FID. Alliance Bank, located in Phoenix, Arizona, is
chartered by the State of Arizona and is subject to primary regulation, supervision and examination
by the Arizona State Banking Department (Arizona SBD). Torrey Pines Bank, located in San Diego,
California, is chartered by the State of California and is subject to primary regulation,
supervision and examination by the California DFI. Bank of Nevada, Alliance Bank of Arizona and
Torrey Pines Bank also are subject to regulation by the Federal Deposit Insurance Corporation
(FDIC), which is their primary federal banking agency. Alta Alliance Bank is chartered by the
State of California and is subject to primary regulation, supervision and examination by the
California DFI. Alta Alliance Bank is also a member of the Federal Reserve System and is subject to
supervision and regulation by the Federal Reserve, which is its primary federal banking agency.
Federal and state banking laws and the implementing regulations promulgated by the federal and
state banking regulatory agencies cover most aspects of the banks operations, including capital
requirements, reserve requirements against deposits and for possible loan losses and other
contingencies, dividends and other distributions to shareholders, customers interests in deposit
accounts, payment of interest on certain deposits, permissible activities and investments,
securities that a bank may issue and borrowings that a bank may incur, rate of growth, number and
location of branch offices and acquisition and merger activity with other financial institutions.
Deposits in the banks are insured by the FDIC to applicable limits through the Deposit
Insurance Fund. All of Western Alliances subsidiary banks are required to pay deposit insurance
premiums, which are assessed semiannually and paid quarterly. The premium amount is based upon a
risk classification system established by the FDIC. Banks with higher levels of capital and a low
degree of supervisory concern are assessed lower premiums than banks with lower levels of capital
or a higher degree of supervisory concern. The Federal Deposit Insurance Reform Act of 2005 (the
Reform Act) merged the Bank Insurance Fund and the Savings Association Fund into a single Deposit
Insurance Fund, increased the maximum amount of the insurance coverage for certain retirement
accounts and possible inflation adjustments in the maximum amount of coverage available with
respect to other insured accounts, and gave the FDIC more discretion to price deposit insurance
coverage according to risk for all insured institutions regardless of the level of the level of
the fund reserve ratio. For 2007, the
FDIC has announced rates of between 5 cents and 7 cents for $100.00 of deposits for banks with
higher levels of capital and a low degree of supervisory concern, up to 43 cents per $100.00 of
deposits for institutions in the highest risk category.
If, as a result of an examination, the FDIC were to determine that the financial condition,
capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any
of the banks operations had become unsatisfactory, or that any of the banks or their management
was in violation of any law or regulation, the FDIC may take a number of different remedial actions
as it deems appropriate. These actions include the power to enjoin unsafe or unsound practices,
to require affirmative actions to correct any conditions resulting from any violation or practice,
to issue an administrative order that can be
15
judicially enforced, to direct an increase in the banks capital, to restrict the banks
growth, to assess civil monetary penalties against the banks officers or directors, to remove
officers and directors and, if the FDIC concludes that such conditions cannot be corrected or there
is an imminent risk of loss to depositors, to terminate the banks deposit insurance.
Under Nevada, Arizona and California law, the respective state banking supervisory authority
has many of the same remedial powers with respect to its state-chartered banks.
Change in Control. The application of the CIBC Act is described in the discussion above
regarding bank holding companies. Under Nevada banking law, a Nevada bank must report a change in
ownership of 10% or more of the banks outstanding voting stock to the Nevada FID within three
business days after obtaining knowledge of the change. Any person who acquires control of a Nevada
bank must obtain the prior approval of the Nevada Commissioner. Arizona banking law provides that
no person may acquire control of an Arizona bank without the prior approval of the Arizona
Superintendent. A person who has the power to vote 15% or more of the voting stock of an Arizona
bank is presumed to control the bank. California banking law requires that any person must obtain
the prior approval of the California Commissioner before that person may acquire control of a
California bank. A person who has the power to vote 10% or more of the voting stock of a California
bank is presumed to control the bank.
Bank Merger. Section 18(c) of the Federal Deposit Insurance Act (FDI Act) requires a bank
or any other insured depository institution to obtain the approval of its primary federal banking
supervisory authority before it may merge or consolidate with or acquire the assets or assume the
liabilities of any other insured depository institution. State law requirements are similar. Nevada
banking law requires that a bank must obtain the prior approval of the Nevada Commissioner before
it may merge or consolidate with or transfer its assets and liabilities to another bank. Arizona
banking law requires the approval of the Arizona Superintendent before a bank may merge or
consolidate with another bank. Under California law, a California bank that is the survivor of a
merger must file an application for approval with the California Commissioner.
Regulation of Nonbanking Subsidiaries
Miller/Russell & Associates, Inc. Miller/Russell & Associates, Inc. is an Arizona corporation
and an investment adviser that is registered with the SEC under the Investment Advisers Act of 1940
(Advisers Act). Under the Advisers Act, an investment adviser is subject to supervision and
inspection by the SEC. A significant element of supervision under the Advisers Act is the
requirement to make significant disclosures to the public under Part II of Form ADV of the
advisers services and fees, the qualifications of its associated persons, financial difficulties
and potential conflicts of interests. An investment adviser must keep extensive books and records,
including all customer agreements, communications with clients, orders placed and proprietary
trading by the adviser or any advisory representative.
Premier Trust Inc. Premier Trust, Inc. is a trust company licensed by the State of Nevada.
Under Nevada law, a company may not transact any trust business, with certain exceptions, unless
authorized by the Commissioner. The Commissioner examines the books and records of registered trust
companies and may take possession of all the property and assets of a trust company whose capital
is impaired or is otherwise determined to be unsafe and a danger to the public. Premier Trust also
is licensed as a trust company in Arizona and is subject to regulation and examination by the
Arizona Superintendent.
Capital Standards
Regulatory Capital Guidelines. The Federal Reserve and the FDIC have risk-based capital
adequacy guidelines intended to measure capital adequacy with regard to the degree of risk
associated with a banking organizations operations for transactions reported on the balance sheet
as assets and transactions, such as letters of credit and recourse arrangements, that are reported
as off-balance-sheet items. Under these guidelines, the nominal dollar amounts of assets on the
balance sheet and credit-equivalent amounts of off- balance-sheet items are multiplied by one of
several risk adjustment percentages. These range from 0.0% for assets with low credit risk, such as
cash and certain U.S. government securities, to 100.0% for assets with relatively higher credit
risk, such as business loans. A banking organizations risk-based capital ratios are obtained by
dividing its Tier 1 capital and total qualifying capital (Tier 1 capital and a limited amount of
Tier 2 capital) by its total risk-adjusted assets and off-balance-sheet items. Tier 1 capital
consists of common stock, retained earnings, noncumulative perpetual preferred stock and minority
interests in certain subsidiaries, less most other intangible assets. Tier 2 capital may consist of
a limited amount of the
16
allowance for loan and lease losses and certain other instruments that have some
characteristics of equity. The inclusion of elements of Tier 2 capital as qualifying capital is
subject to certain other requirements and limitations of the federal banking supervisory agencies.
Since December 31, 1992, the Federal Reserve and the FDIC have required a minimum ratio of Tier 1
capital to risk-adjusted assets and off-balance-sheet items of 4.0% and a minimum ratio of
qualifying total capital to risk-adjusted assets and off-balance-sheet items of 8.0%.
The Federal Reserve and the FDIC require banking organizations to maintain a minimum amount of
Tier 1 capital relative to average total assets, referred to as the leverage ratio. The principal
objective of the leverage ratio is to constrain the maximum degree to which a bank holding company
may leverage its equity capital base. For a banking organization rated in the highest of the five
categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1
capital to total assets is 3.0%. However, an institution with a 3.0% leverage ratio would be
unlikely to receive the highest rating since a strong capital position is a significant part of the
regulators rating criteria. All banking organizations not rated in the highest category must
maintain an additional capital cushion of 100 to 200 basis points. The Federal Reserve and the FDIC
have the discretion to set higher minimum capital requirements for specific institutions whose
specific circumstances warrant it, such as a bank or bank holding company anticipating significant
growth. A bank that does not achieve and maintain the required capital levels may be issued a
capital directive by the Federal Reserve or the FDIC, as appropriate, to ensure the maintenance of
required capital levels. Neither the Federal Reserve nor the FDIC has advised Western Alliance or
any of its subsidiary banks that it is subject to any special capital requirements.
Prompt Corrective Action. Federal banking agencies possess broad powers to take corrective
and other supervisory action to resolve the problems of insured depository institutions, including
institutions that fall below one or more of the prescribed minimum capital ratios described above.
An institution that is classified based upon its capital levels as well-capitalized, adequately
capitalized, or undercapitalized may be treated as though it was in the next lower capital category
if its primary federal banking supervisory authority, after notice and opportunity for hearing,
determines that an unsafe or unsound condition or practice warrants such treatment. At each
successively lower capital category, an insured depository institution is subject to additional
restrictions. A bank holding company must guarantee that a subsidiary bank that adopts a capital
restoration plan will meet its plan obligations, in an amount not to exceed 5% of the subsidiary
banks assets or the amount required to meet regulatory capital requirements, whichever is less.
Any capital loans made by a bank holding company to a subsidiary bank are subordinated to the
claims of depositors in the bank and to certain other indebtedness of the subsidiary bank. In the
event of the bankruptcy of a bank holding company, any commitment by the bank holding company to a
federal banking regulatory agency to maintain the capital of a subsidiary bank would be assumed by
the bankruptcy trustee and would be entitled to priority of payment.
In addition to measures that may be taken under the prompt corrective action provisions,
federal banking regulatory authorities may bring enforcement actions against banks and bank holding
companies for unsafe or unsound practices in the conduct of their businesses or for violations of
any law, rule or regulation, any condition imposed in writing by the appropriate federal banking
regulatory authority or any written agreement with the authority. Possible enforcement actions
include the appointment of a conservator or receiver, the issuance of a cease-and-desist order that
could be judicially enforced, the termination of insurance of deposits (in the case of a depository
institution), the imposition of civil money penalties, the issuance of directives to increase
capital, the issuance of formal and informal agreements, the issuance of removal and prohibition
orders against institution-affiliated parties and the enforcement of such actions through
injunctions or restraining orders. In addition, a bank holding companys inability to serve as a
source of strength for its subsidiary banks could serve as an additional basis for a regulatory
action against the bank holding company.
Under Nevada law, if the stockholders equity of a Nevada state-chartered bank becomes
impaired, the Nevada Commissioner must require the bank to make the impairment good within three
months after receiving notice from the Nevada Commissioner. If the impairment is not made good, the
Nevada Commissioner may take possession of the bank and liquidate it.
Dividends. Western Alliance has never declared or paid cash dividends on its capital stock.
Western Alliance currently intends to retain any future earnings for future growth and does not
anticipate paying any cash dividends in the foreseeable future. Any determination in the future to
pay dividends will be at the discretion of Western Alliances board of directors and will depend on
the companys earnings, financial
17
condition, results of operations, business prospects, capital requirements, regulatory
restrictions, contractual restrictions and other factors that the board of directors may deem
relevant.
Western Alliances ability to pay dividends is subject to the regulatory authority of the
Federal Reserve. Although there are no specific federal laws or regulations restricting dividend
payments by bank holding companies, the supervisory concern of the Federal Reserve focuses on a
holding companys capital position, its ability to meet its financial obligations as they come due,
and its capacity to act as a source of financial strength to its subsidiaries. In addition, Federal
Reserve policy discourages the payment of dividends by a bank holding company that are not
supported by current operating earnings.
As a bank holding company registered with the State of Nevada, Western Alliance also is
subject to limitations under Nevada law on the payment of dividends. Nevada banking law imposes no
restrictions on bank holding companies regarding the payment of dividends. Under Nevada corporate
law, section 78-288 of the Nevada Revised Statutes provides that no cash dividend or other
distribution to shareholders, other than a stock dividend, may be made if, after giving effect to
the dividend, the corporation would not be able to pay its debts as they become due or, unless
specifically allowed by the articles of incorporation, the corporations total assets would be less
than the sum of its total liabilities and the claims of preferred stockholders upon dissolution of
the corporation.
From time to time, Western Alliance may become a party to financing agreements and other
contractual obligations that have the effect of limiting or prohibiting the declaration or payment
of dividends. Holding company expenses and obligations with respect to its outstanding trust
preferred securities and corresponding subordinated debt also may limit or impair Western
Alliances ability to declare and pay dividends.
Since Western Alliance has no significant assets other than the voting stock of its
subsidiaries, it currently depends on dividends from its bank subsidiaries and, to a much lesser
extent, its nonbank subsidiaries, for a substantial portion of its revenue. The ability of a state
nonmember bank to pay cash dividends is not restricted by federal law or regulations. State law
imposes restrictions on the ability of each of Western Alliances subsidiary banks to pay
dividends:
|
|
|
Under sections 661.235 and 661.240 of the Nevada Revised Statutes, Bank of Nevada may
not pay dividends unless the banks surplus fund, not including any initial surplus fund,
equals the banks initial stockholders equity, including 10% of the previous years net
profits, and the dividend would not reduce the banks stockholders equity below the
initial stockholders equity of the bank or 6% of the total deposit liability of the bank. |
|
|
|
Under section 6-187 of the Arizona Revised Statutes, Alliance Bank of Arizona may pay
dividends on the same basis as any other Arizona corporation. Under section 10-640 of the
Arizona Revised Statutes, a corporation may not make a distribution to shareholders if to
do so would render the corporation insolvent or unable to pay its debts as they become due.
However, an Arizona bank may not declare a non-stock dividend out of capital surplus
without the approval of the Superintendent. |
|
|
|
Under section 642 of the California Financial Code, Torrey Pines Bank and Alta Alliance
Bank may not, without the prior approval of the California Commissioner, make a
distribution to its shareholders in an amount exceeding the banks retained earnings or its
net income during its last three fiscal years, less any previous distributions made during
that period by the bank or its subsidiaries, whichever is less. Under section 643 of the
California Financial Code, the California Commissioner may approve a larger distribution,
but in no event to exceed the banks net income during the year, net income during the
prior fiscal year or retained earnings, whichever is greatest. |
Redemption. A bank holding company may not purchase or redeem its equity securities without
the prior written approval of the Federal Reserve if the purchase or redemption combined with all
other purchases and redemptions by the bank holding company during the preceding 12 months equals
or exceeds 10% of the bank holding companys consolidated net worth. However, prior approval is not
required if the bank holding company is well-managed, not the subject of any unresolved supervisory
issues and both before and immediately after the purchase or redemption is well-capitalized.
18
Increasing Competition in Financial Services
Interstate Banking And Branching. The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (Riegle-Neal Act) generally authorizes interstate branching. Currently, bank holding
companies may purchase banks in any state, and banks may merge with banks in other states, unless
the home state of the bank holding company or either merging bank has opted out under the
legislation. After properly entering a state, an out-of-state bank may establish de novo branches
or acquire branches or acquire other banks on the same terms as a bank that is chartered by the
state.
Nevada has enacted legislation authorizing interstate mergers pursuant to the Riegle-Neal Act.
The Nevada statute permits out-of-state banks and bank holding companies meeting certain
requirements to maintain and operate the Nevada branches of a Nevada bank that are acquired in an
interstate combination. An out-of-state bank may not enter the state by establishing a de novo
branch or acquiring a branch of a depository institution in Nevada without acquiring the
institution itself or its charter. However, with the written approval of the Nevada Commissioner,
such an out-of-state bank or bank holding company may engage in such a transaction in a county with
a population less than 100,000.
An out-of-state bank may establish branches in Arizona by acquiring a depository institution
that is headquartered in the state or a branch of such an institution, provided that the
institution or branch is more than five years old and the state in which the out-of-state bank is
headquartered extends reciprocal rights. An out-of-state bank holding company without a subsidiary
bank in Arizona may establish a de novo bank in the state, and thereafter may acquire additional
banks.
An out-of-state bank may not enter California by establishing a de novo branch or acquiring a
branch of a depository institution in California unless it merges with a California bank or
acquires the whole business unit of a California bank. An out-of-state bank holding company without
a subsidiary bank in California may establish a de novo bank in the state, and thereafter may
acquire additional banks.
Selected Regulation of Banking Activities
Transactions with Affiliates. Banks are subject to restrictions imposed by the FRA and
regulations adopted by the Federal Reserve to implement it with regard to extensions of credit to
affiliates, investments in securities issued by affiliates and the use of affiliates securities as
collateral for loans to any borrower. These laws and regulations may limit the ability of Western
Alliance to obtain funds from its subsidiary banks for its cash needs, including funds for payment
of dividends, interest and operational expenses.
Insider Credit Transactions. Banks also are subject to certain restrictions regarding
extensions of credit to executive officers, directors or principal shareholders of a bank and its
affiliates or to any related interests of such persons (i.e., insiders). All extensions of credit
to insiders must be made on substantially the same terms and pursuant to the same credit
underwriting procedures as are applicable to comparable transactions with persons who are neither
insiders nor employees, and must not involve more than the normal risk of repayment or present
other unfavorable features. Insider loans also are subject to certain lending limits, restrictions
on overdrafts to insiders and requirements for prior approval by the banks board of directors.
Lending Limits. State banking law generally limits the amount of funds that a bank may lend
to a single borrower. Under Nevada law, the total amount of outstanding loans that a bank may make
to a single borrower generally may not exceed 25% of stockholders equity. Under Arizona law, the
obligations of one borrower to a bank may not exceed 15% of the banks capital. Under California
law, the obligations of any one borrower to a bank generally may not exceed 25% of the sum of the
banks shareholders equity, allowance for loan losses, capital notes and debentures.
Tying Arrangements. Western Alliance and its subsidiary banks are prohibited from engaging in
certain tying arrangements in connection with any extension of credit, sale or lease of property or
furnishing of services. With certain exceptions for traditional banking services, Western
Alliances subsidiary banks may not condition an extension of credit to a customer on a requirement
that the customer obtain additional credit, property or services from the bank, Western Alliance or
any of Western Alliances other subsidiaries, that the customer provide some additional credit,
property or services to the bank, Western Alliance or any of Western Alliances other subsidiaries
or that the customer refrain from obtaining credit, property or other services from a competitor.
19
Regulation of Management. Federal law sets forth circumstances under which officers or
directors of a bank or bank holding company may be removed by the institutions primary federal
banking supervisory authority. Federal law also prohibits a management official of a bank or bank
holding company from serving as a management official with an unaffiliated bank or bank holding
company that has offices within a specified geographic area that is related to the location of the
banks offices and the asset size of the institutions.
Safety and Soundness Standards. Federal law imposes upon banks certain non-capital safety and
soundness standards. These standards cover internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset growth,
compensation and benefits. Additional standards apply to asset quality, earnings and stock
valuation. An institution that fails to meet these standards must develop a plan, acceptable to its
regulators, specifying the steps that the institution will take to meet the standards. Failure to
submit or implement such a plan may subject the institution to regulatory sanctions.
Consumer Protection Laws and Regulations
The banking regulatory authorities have increased their attention in recent years to
compliance with consumer protection laws and their implementing regulations. Examination and
enforcement have become more intense in nature, and insured institutions have been advised to
monitor carefully compliance with such laws and regulations. The bank is subject to many federal
consumer protection statutes and regulations, some of which are discussed below.
Community Reinvestment Act. The CRA is intended to encourage insured depository institutions,
while operating safely and soundly, to help meet the credit needs of their communities. The CRA
specifically directs the federal regulatory agencies, when examining insured depository
institutions, to assess a banks record of helping meet the credit needs of its entire community,
including low- and moderate-income neighborhoods, consistent with safe and sound banking practices.
The CRA further requires the agencies to take a financial institutions record of meeting its
community credit needs into account when evaluating applications for, among other things, domestic
branches, mergers or acquisitions, or holding company formations. The agencies use the CRA
assessment factors in order to provide a rating to the financial institution. The ratings range
from a high of outstanding to a low of substantial noncompliance. Bank of Nevada has
consistently been rated Outstanding for CRA performance by the FDIC, most recently as of October
10, 2006. Two of Westerns subsidiary banks, Alliance Bank of Arizona and Torrey Pines Bank, were
rated Satisfactory for CRA performance by the FDIC as of November 1, 2004 and September 1, 2005,
respectively. Westerns other subsidiary bank, Alta Alliance Bank, opened on October 16, 2006, and
has not yet had its first CRA examination.
Equal Credit Opportunity Act. The Equal Credit Opportunity Act generally prohibits
discrimination in any credit transaction, whether for consumer or business purposes, on the basis
of race, color, religion, national origin, sex, marital status, age (except in limited
circumstances), receipt of income from public assistance programs, or good faith exercise of any
rights under the Consumer Credit Protection Act.
Truth in Lending Act. The Truth in Lending Act (TILA) is designed to ensure that credit
terms are disclosed in a meaningful way so that consumers may compare credit terms more readily and
knowledgeably. As a result of TILA, all creditors must use the same credit terminology to express
rates and payments, including the annual percentage rate, the finance charge, the amount financed,
the total of payments and the payment schedule, among other things.
Fair Housing Act. The Fair Housing Act (FHA) regulates many practices, and makes it
unlawful for any lender to discriminate in its housing-related lending activities against any
person because of race, color, religion, national origin, sex, handicap or familial status. A
number of lending practices have been found by the courts to be illegal under the FHA, including
some practices that are not specifically mentioned in the FHA.
Home Mortgage Disclosure Act. The Home Mortgage Disclosure Act (HMDA) grew out of public
concern over credit shortages in certain urban neighborhoods and provides public information that
is intended to help to show whether financial institutions are serving the housing credit needs of
the neighborhoods and communities in which they are located. The HMDA also includes a fair
lending aspect that requires the collection and disclosure of data about applicant and borrower
characteristics as a way of identifying possible discriminatory lending patterns and enforcing
anti-discrimination statutes.
20
Beginning with data reported for 2004, the amount of information that financial institutions
collect and disclose concerning applicants and borrowers has expanded, which is expected to
increase the attention that HMDA data receives from state and federal banking supervisory
authorities, community-oriented organizations and the general public.
Real Estate Settlement Procedures Act. The Real Estate Settlement Procedures Act (RESPA)
requires lenders to provide borrowers with disclosures regarding the nature and cost of real estate
settlements. RESPA also prohibits certain abusive practices, such as kickbacks and fee-splitting
without providing settlement services.
Penalties under the above laws may include fines, reimbursements and other penalties. Due to
heightened regulatory concern related to compliance with these laws generally, Western Alliance and
its subsidiary banks may incur additional compliance costs or be required to expend additional
funds for investments in its local community.
Predatory Lending
Predatory lending is a far-reaching concept and potentially covers a broad range of
behavior. As such, it does not lend itself to a concise or comprehensive definition. However,
predatory lending typically involves one or more of the following elements:
|
|
|
making unaffordable loans based on the borrowers assets rather than the borrowers
ability to repay an obligation; |
|
|
|
inducing a borrower to refinance a loan repeatedly in order to charge high points and
fees each time the loan is refinanced, or loan flipping; and |
|
|
|
engaging in fraud or deception to conceal the true nature of the loan obligation from
an unsuspecting or unsophisticated borrower. |
The Home Ownership Equity and Protection Act of 1994 (HOEPA) and regulations adopted by the
Federal Reserve to implement it require extra disclosures and extend additional protection to
borrowers in closed end consumer credit transactions, such as home repairs or renovation, that are
secured by a mortgage on the borrowers primary residence. The HOEPA disclosures and protections
are applicable to such transactions with any of the following features:
|
|
|
interest rates for first lien mortgage loans more than 8 percentage points above the
yield on U.S. Treasury securities having a comparable maturity; |
|
|
|
interest rates for subordinate lien mortgage loans more than 10 percentage points above
the yield on U.S. Treasury securities having a comparable maturity; or |
|
|
|
total points and fees paid in connection with the credit transaction exceed the greater
of either 8% of the loan amount or a specified dollar amount that is inflation-adjusted
each year. |
HOEPA prohibits or restricts numerous credit practices including loan flipping by the same lender
or loan servicer within a year of the loan being refinanced. Lenders are presumed to have violated
the law unless they document that the borrower has the ability to repay. Lenders that violate the
rules face cancellation of loans and penalties equal to the finance charges paid. HOEPA also
regulates so-called reverse mortgages.
Privacy
Under the GLB Act, all financial institutions, including Western Alliance, its bank
subsidiaries and certain of their nonbanking affiliates and subsidiaries are required to establish
policies and procedures to restrict the sharing of nonpublic customer data with nonaffiliated
parties at the customers request and to protect customer data from unauthorized access. In
addition, the Fair Credit Reporting Act of 1971 (FCRA) includes many provisions concerning
national credit reporting standards and permits consumers, including customers of Western
Alliances subsidiary banks, to opt out of information-sharing for marketing purposes among
affiliated companies. The Fair and Accurate Credit Transactions Act of 2003 amended certain
provisions of the FRCA and requires banks and other financial institutions to notify their
customers if they report negative information about them to a credit bureau or if they are granted
credit on terms less favorable than those generally available. The Federal Reserve and the Federal
Trade
21
Commission have extensive rulemaking authority under the FCRA, and Western Alliance and its
subsidiary banks are subject to these provisions. Western Alliance has developed policies and
procedures for itself and its subsidiaries to maintain compliance and believes it is in compliance
with all privacy, information sharing and notification provisions of the GLB Act and the FCRA.
Under California law, every business that owns or licenses personal information about a
California resident must maintain reasonable security procedures and policies to protect that
information. All customer records that contain personal information and that are no longer required
to be retained must be destroyed. Any person that conducts business in California, maintains
customers personal information in unencrypted computer records and experiences a breach of
security with regard to those records must promptly disclose the breach to all California residents
whose personal information was or is reasonably believed to have been acquired by unauthorized
persons as a result of such breach. Any person who maintains computerized personal data for others
and experiences a breach of security must promptly inform the owner or licensee of the breach. A
business may not provide personal information of its customers to third parties for direct mailing
purposes unless the customer opts in to such information sharing. A business that fails to
provide this privilege to its customers must report the uses made of its customers data upon a
customers request.
Compliance
In order to assure that Western Alliance and its subsidiary banks are in compliance with the
laws and regulations that apply to their operations, including those summarized herein, Western
Alliance and each of its subsidiary banks employs a compliance officer and Western Alliance engages
an independent compliance auditing firm. Western Alliance is regularly reviewed by the Federal
Reserve and the subsidiary banks are regularly reviewed by their respective state and federal
banking agencies, as part of which their compliance with applicable laws and regulations is
assessed. Based on the assessments of its outside compliance auditors and state and federal banking
supervisory authorities of Western Alliance and its subsidiary banks, Western Alliance believes
that it materially complies with all the laws and regulations that apply to its operations.
Corporate Governance and Accounting Legislation
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act (SOX) was adopted for the stated purpose
to increase corporate responsibility, enhance penalties for accounting and auditing improprieties
at publicly traded companies, and protect investors by improving the accuracy and reliability of
corporate disclosures pursuant to the securities laws. It applies generally to all companies that
file or are required to file periodic reports with the SEC under the Securities Exchange Act of
1934 (Exchange Act), which includes Western Alliance. SOX requires the SEC and securities
exchanges to adopt extensive additional disclosure, corporate governance and other related rules
and mandates further studies of certain issues by the SEC and the Comptroller General. Among its
provisions, SOX subjects bonuses issued to top executives to disgorgement if a subsequent
restatement of a companys financial statements was due to corporate misconduct, prohibits an
officer or director from misleading or coercing an auditor, prohibits insider trades during pension
fund blackout periods, imposes new criminal penalties for fraud and other wrongful acts and
extends the period during which certain securities fraud lawsuits can be brought against a company
or its officers.
Anti-Money Laundering and Anti-Terrorism Legislation
Congress enacted the Bank Secrecy Act of 1970 (the BSA) to require financial institutions,
including Western Alliance and its subsidiary banks, to maintain certain records and to report
certain transactions to prevent such institutions from being used to hide money derived from
criminal activity and tax evasion. The BSA establishes, among other things, (a) record keeping
requirements to assist government enforcement agencies in tracing financial transactions and flow
of funds; (b) reporting requirements for Suspicious Activity Reports and Currency Transaction
Reports) to assist government enforcement agencies in detecting patterns of criminal activity; (c)
enforcement provisions authorizing criminal and civil penalties for illegal activities and
violations of the BSA and its implementing regulations; and (d) safe harbor provisions that protect
financial institutions from civil liability for their cooperative efforts.
Title III of the USA PATRIOT Act (the USA PATRIOT Act) amended the BSA and incorporates
anti-terrorist financing provisions into the requirements of the BSA and its implementing
regulations. Among other things, the USA PATRIOT Act requires all financial institutions, including
Western Alliance,
22
its subsidiary banks and several of their nonbanking affiliates and subsidiaries, to institute
and maintain a risk-based anti-money laundering compliance program that includes a customer
identification program, provides for information sharing with law enforcement and between certain
financial institutions by means of an exemption from the privacy provisions of the GLB Act,
prohibits U.S. banks and broker-dealers from maintaining accounts with foreign shell banks,
establishes due diligence and enhanced due diligence requirements for certain foreign correspondent
banking and foreign private banking accounts and imposes additional record keeping requirements for
certain correspondent banking arrangements. The USA PATRIOT Act also grants broad authority to the
Secretary of the Treasury to take actions to combat money laundering, and federal bank regulators
are required to evaluate the effectiveness of an applicant in combating money laundering in
determining whether to approve any application submitted by a financial institution. Western
Alliance and its affiliates have adopted policies, procedures and controls to comply with the BSA
and the USA PATRIOT Act, and they engage in very few transactions of any kind with foreign
financial institutions or foreign persons.
The Department of the Treasurys Office of Foreign Asset Control (OFAC) administers and
enforces economic and trade sanctions against targeted foreign countries, entities and individuals
based on U.S. foreign policy and national security goals. As a result, financial institutions,
including Western Alliance, its subsidiary banks and several of their nonbanking affiliates and
subsidiaries, must scrutinize transactions to ensure that they do not represent obligations of, or
ownership interests in, entities owned or controlled by sanctioned targets. In addition, Western
Alliance, its subsidiary banks and several of their nonbanking affiliates and subsidiaries restrict
transactions with certain targeted countries except as permitted by OFAC.
ITEM IA. RISK FACTORS
Our businesses face risks and uncertainties, including those discussed below and elsewhere in
this report. These factors represent risks and uncertainties that could have a material adverse
effect on our business, results of operations and financial condition. These risks and
uncertainties are not the only ones we face. Others that we do not know about now, or that we do
not now think are significant, may impair our business or the trading price of our securities. The
following are significant risks we have identified.
Risks Related to Our Market and Business
Our current primary market area is substantially dependent on gaming and tourism revenue, and a
downturn in gaming or tourism could hurt our business and our prospects.
Our business is currently concentrated in the Las Vegas metropolitan area. The economy of the
Las Vegas metropolitan area is unique in the United States for its level of dependence on services
and industries related to gaming and tourism. Any event that negatively impacts the gaming or
tourism industry will adversely impact the Las Vegas economy.
Gaming and tourism revenue (whether or not such tourism is directly related to gaming) is
vulnerable to fluctuations in the national economy. A prolonged downturn in the national economy
could have a significant adverse effect on the economy of the Las Vegas area. Virtually any
development or event that could dissuade travel or spending related to gaming and tourism, whether
inside or outside of Las Vegas, could adversely affect the Las Vegas economy. In this regard, the
Las Vegas economy is more susceptible than the economies of other cities to issues such as higher
gasoline and other fuel prices, increased airfares, unemployment levels, recession, rising interest
rates, and other economic conditions, whether domestic or foreign. Gaming and tourism are also
susceptible to certain political conditions or events, such as military hostilities and acts of
terrorism, whether domestic or foreign. A terrorist act, or the mere threat of a terrorist act, may
adversely affect gaming and tourism and the Las Vegas economy and may cause substantial harm to our
business.
In addition, Las Vegas competes with other areas of the country for gaming revenue, and it is
possible that the expansion of gaming operations in other states, such as California, as a result
of changes in laws or otherwise, could significantly reduce gaming revenue in the Las Vegas area.
Although we have no substantial customer relationships in the gaming and tourism industries, a
downturn in the Las Vegas economy, generally, could have an adverse effect on our customers and
result in an increase in loan delinquencies and foreclosures, a reduction in the demand for our
products and services and a reduction of the value of our collateral for loans which could result
in the reduction of a customers
23
borrowing power, any of which could adversely affect our business, financial condition,
results of operations and prospects.
We may not be able to continue our growth at the rate we have in the past several years.
We have grown substantially, from having one chartered bank with $443.7 million in total
assets and $410.2 million in total deposits as of December 31, 2000, to four chartered banks with
$4.2 billion in total assets and $3.4 billion in total deposits as of December 31, 2006. If we are
unable to effectively execute on our strategy, we may not be able to continue to grow at our
historical rates. In particular, Alliance Bank of Arizona and Torrey Pines Bank have achieved
unusually high annual rates of growth as compared to other banks opened since 2003. We do not
expect this high level of growth at Alliance Bank of Arizona and Torrey Pines Bank to continue in
the future.
Our growth and expansion strategy may not prove to be successful and our market value and
profitability may suffer.
Growth through acquisitions of banks or the organization of new banks in high-growth markets,
especially in markets outside of our current markets, represents an important component of our
business strategy. Any future acquisitions will be accompanied by the risks commonly encountered in
acquisitions. These risks include, among other things:
|
|
|
difficulty of integrating the operations and personnel; |
|
|
|
potential disruption of our ongoing business; and |
|
|
|
inability of our management to maximize our financial and strategic position by the
successful implementation of uniform product offerings and the incorporation of uniform
technology into our product offerings and control systems. |
We expect that competition for suitable acquisition candidates may be significant. We may
compete with other banks or financial service companies with similar acquisition strategies, many
of which are larger and have greater financial and other resources. We cannot assure you that we
will be able to successfully identify and acquire suitable acquisition targets on acceptable terms
and conditions.
In addition to the acquisition of existing financial institutions, we may consider the
organization of new banks in new market areas. We do not have any current plan to organize a new
bank. Any acquisition or organization of a new bank carries with it numerous risks, including the
following:
|
|
|
the inability to obtain all required regulatory approvals; |
|
|
|
significant costs and anticipated operating losses during the application and
organizational phases, and the first years of operation of the new bank; |
|
|
|
the inability to secure the services of qualified senior management; |
|
|
|
the local market may not accept the services of a new bank owned and managed by a bank
holding company headquartered outside of the market area of the new bank; |
|
|
|
the inability to obtain attractive locations within a new market at a reasonable cost; and |
|
|
|
the additional strain on management resources and internal systems and controls. |
We cannot assure you that we will be successful in overcoming these risks or any other
problems encountered in connection with acquisitions and the organization of new banks. Our
inability to overcome these risks could have an adverse effect on our ability to achieve our
business strategy and maintain our market value and profitability growth.
24
If we continue to grow rapidly as planned, we may not be able to control costs and maintain our
asset quality.
We expect to continue to grow our assets and deposits, the products and services which we
offer and the scale of our operations, generally, both internally and through acquisitions. Our
ability to manage our growth successfully will depend on our ability to maintain cost controls and
asset quality while attracting additional loans and deposits on favorable terms. If we grow too
quickly and are not able to control costs and maintain asset quality, this rapid growth could
materially adversely affect our financial performance.
We may have difficulty managing our growth, which may divert resources and limit our ability to
successfully expand our operations.
Our rapid growth has placed, and it may continue to place, significant demands on our
operations and management. Our future success will depend on the ability of our officers and other
key employees to continue to implement and improve our operational, credit, financial, management
and other internal risk controls and processes and our reporting systems and procedures, and to
manage a growing number of client relationships. We may not successfully implement improvements to
our management information and control systems and control procedures and processes in an efficient
or timely manner and may discover deficiencies in existing systems and controls. In particular, our
controls and procedures must be able to accommodate an increase in expected loan volume and the
infrastructure that comes with new branches and banks. Thus, our growth strategy may divert
management from our existing businesses and may require us to incur additional expenditures to
expand our administrative and operational infrastructure. If we are unable to manage future
expansion in our operations, we may experience compliance and operational problems, have to slow
the pace of growth, or have to incur additional expenditures beyond current projections to support
such growth, any one of which could adversely affect our business.
Our future growth is dependent upon our ability to recruit additional, qualified employees,
especially seasoned relationship bankers.
Our market areas are experiencing a period of rapid growth, placing a premium on highly
qualified employees in a number of industries, including the financial services industry. Our
business plan includes, and is dependent upon, hiring and retaining highly qualified and motivated
executives and employees at every level. In particular, our success has been partly the result of
our managements ability to seek and retain highly qualified relationship bankers that have
long-standing relationships in their communities. These professionals bring with them valuable
customer relationships, and have been an integral part of our ability to attract deposits and to
expand rapidly in our market areas. We expect to experience substantial competition in our endeavor
to identify, hire and retain the top-quality employees that we believe are key to our future
success. If we are unable to hire and retain qualified employees, we may not be able to grow our
franchise and successfully execute our business strategy.
We are highly dependent on real estate and events that negatively impact the real estate market
could hurt our business.
A significant portion of our loan portfolio is dependent on real estate. As of December 31,
2006, real estate related loans accounted for approximately 78% of total loans. Our financial
condition may be adversely affected by a decline in the value of the real estate securing our
loans. In addition, acts of nature, including earthquakes, fires and floods, which may cause
uninsured damage and other loss of value to real estate that secures these loans, may also
negatively impact our financial condition.
In addition, title company deposits comprised 27.2% of our total non-interest bearing deposits
as of December 31, 2006. A slowdown in real estate activity in the markets we serve may cause a
decline in our deposit growth and may negatively impact our financial condition.
Our high concentration of commercial real estate, construction and land development and commercial,
industrial loans expose us to increased lending risks.
As of December 31, 2006, the composition of our loan portfolio was as follows:
|
|
|
commercial real estate loans of $1.2 billion, or 41.0% of total loans, |
|
|
|
construction and land development loans of $715.5 million, or 23.8% of total loans, |
25
|
|
|
commercial and industrial loans of $645.5 million, or 21.5% of total loans, |
|
|
|
residential real estate loans of $384.1 million, or 12.8% of total loans, and |
|
|
|
consumer loans of $29.6 million, or 0.9% of total loans. |
Commercial real estate, construction and land development and commercial and industrial loans,
which comprised 86.3% of our total loan portfolio as of December 31, 2006, expose us to a greater
risk of loss than our residential real estate and consumer loans, which comprised 13.7% of our
total loan portfolio as of December 31, 2006. Commercial real estate and land development loans
typically involve larger loan balances to single borrowers or groups of related borrowers compared
to residential loans. Consequently, an adverse development with respect to one commercial loan or
one credit relationship may expose us to a significantly greater risk of loss compared to an
adverse development with respect to one residential mortgage loan.
If we lost a significant portion of our low-cost deposits, it would negatively impact our
profitability.
Our profitability depends in part on our success in attracting and retaining a stable base of
low-cost deposits. As of December 31, 2006, our deposit base was
comprised of 33.9% non-interest
bearing deposits, of which 27.2% consisted of title company deposits, which consist primarily of
deposits held in escrow pending the closing of commercial and residential real estate transactions,
and to a lesser extent, operating accounts for title companies; 67.4% consisted of other business
deposits, which consist primarily of operating accounts for businesses; and 5.5% consisted of
consumer deposits. We consider these deposits to be core deposits. While we generally do not
believe these deposits are sensitive to interest rate fluctuations, the competition for these
deposits in our markets is strong and if we lost a significant portion of these low-cost deposits,
it would negatively impact our profitability.
Many of our loans have been made recently, and in certain circumstances there is limited repayment
history against which we can fully assess the adequacy of our allowance for loan losses. If our
allowance for loan losses is not adequate to cover actual loan losses, our earnings will decrease.
The risk of nonpayment of loans is inherent in all lending activities, and nonpayment, if it
occurs, may negatively impact our earnings and overall financial condition, as well as the value of
our common stock. Also, many of our loans have been made over the last three years and in certain
circumstances there is limited repayment history against which we can fully assess the adequacy of
our allowance for loan losses. We make various assumptions and judgments about the collectibility
of our loan portfolio and provide an allowance for probable losses based on several factors. If our
assumptions are wrong, our allowance for loan losses may not be sufficient to cover our losses,
which would have an adverse effect on our operating results. Additions to our allowance for loan
losses decrease our net income. While we have not experienced any significant charge-offs or had
large numbers of nonperforming loans, due to the significant increase in loans originated during
this period, we cannot assure you that we will not experience an increase in delinquencies and
losses as these loans continue to mature. The actual amount of future provisions for loan losses
cannot be determined at this time and may exceed the amounts of past provisions.
Our future success will depend on our ability to compete effectively in a highly competitive
market.
We face substantial competition in all phases of our operations from a variety of different
competitors. Our competitors, including commercial banks, community banks, savings and loan
associations, mutual savings banks, credit unions, consumer finance companies, insurance companies,
securities dealers, brokers, mortgage bankers, investment advisors, money market mutual funds and
other financial institutions, compete with lending and deposit-gathering services offered by us.
Increased competition in our markets may result in reduced loans and deposits.
There is very strong competition for financial services in the market areas in which we
conduct our businesses from many local commercial banks as well as numerous regionally based
commercial banks. Many of these competing institutions have much greater financial and marketing
resources than we have. Due to their size, many competitors can achieve larger economies of scale
and may offer a broader range of products and services than us. If we are unable to offer
competitive products and services, our earnings may be negatively affected.
26
Some of the financial services organizations with which we compete are not subject to the same
degree of regulation as is imposed on bank holding companies and federally insured financial
institutions. As a result, these nonbank competitors have certain advantages over us in accessing
funding and in providing various services. The banking business in our primary market areas is very
competitive, and the level of competition facing us may increase further, which may limit our asset
growth and profitability. For more information on the competition we have in our markets, see
Business Competition.
Our business would be harmed if we lost the services of any of our senior management team or senior
relationship bankers.
We believe that our success to date has been substantially dependent on our senior management
team, which includes Robert Sarver, our Chairman, President and Chief Executive Officer and Chief
Executive Officer of Bank of Nevada, Dale Gibbons, our Chief Financial Officer, Bruce Hendricks,
President of Bank of Nevada, James Lundy, President and Chief Executive Officer of Alliance Bank of
Arizona, Gerald Cady, President and Chief Executive Officer of Torrey Pines Bank, Arnold Grisham,
President and Chief Executive Officer of Alta Alliance Bank and certain of our senior relationship
bankers. We also believe that our prospects for success in the future are dependent on retaining
our senior management team and senior relationship bankers. In addition to their skills and
experience as bankers, these persons provide us with extensive community ties upon which our
competitive strategy is based. Our ability to retain these persons may be hindered by the fact that
we have not entered into employment agreements with any of them. The loss of the services of any of
these persons, particularly Mr. Sarver, could have an adverse effect on our business if we cant
replace them with equally qualified persons who are also familiar with our market areas.
Mr. Sarvers involvement in outside business interests requires substantial time and attention and
may adversely affect our ability to achieve our strategic plan and maintain our current growth.
Mr. Sarver joined us in December of 2002 and has been an integral part of our recent growth.
He has substantial business interests that are unrelated to us, including his ownership interest in
the Phoenix Suns NBA franchise. Mr. Sarvers other business interests demand significant time
commitments, the intensity of which may vary throughout the year. Mr. Sarvers other commitments
may reduce the amount of time he has available to devote to our business. We believe that Mr.
Sarver spends the substantial majority of his business time on matters related to our company.
However, a significant reduction in the amount of time Mr. Sarver devotes to our business may
adversely affect our ability to achieve our strategic plan and maintain our current growth.
A deterioration in economic conditions generally could adversely affect our business, financial
condition, results of operations and prospects.
A deterioration in economic conditions generally could adversely affect our business,
financial condition, results of operations and prospects. Such a deterioration could result in a
variety of adverse consequences to us, including a reduction in net income and the following:
|
|
|
Loan delinquencies, non-performing assets and foreclosures may increase, which could
result in higher operating costs, as well as increases in our loan loss provisions; |
|
|
|
Demand for our products and services may decline, including the demand for loans, which
would adversely affect our revenues; and |
|
|
|
Collateral for loans made by us may decline in value, reducing a customers borrowing
power, and reducing the value of assets and collateral associated with our loans which
would cause decreases in net interest income and increasing loan loss provisions. |
Economic conditions either nationally or locally in areas in which our operations are concentrated
may be less favorable than expected.
Deterioration in local, regional, national or global economic conditions could result in,
among other things, an increase in loan delinquencies, a decrease in property values, a change in
housing turnover rate or a reduction in the level of bank deposits. Particularly, a weakening of
the real estate or employment market in our primary market areas of Las Vegas, San Diego, Tucson,
Phoenix and Oakland could result in an increase in the number of borrowers who default on their
loans and a reduction in the value of the
27
collateral securing their loans, which in turn could have an adverse effect on our
profitability and asset quality.
Terrorist attacks and threats of war or actual war may impact all aspects of our operations,
revenues, costs and stock price in unpredictable ways.
Terrorist attacks in the United States, as well as future events occurring in response or in
connection to them including, without limitation, future terrorist attacks against United States
targets, rumors or threats of war, actual conflicts involving the United States or its allies or
military or trade disruptions, may impact our operations. Any of these events could cause consumer
confidence and savings to decrease or result in increased volatility in the United States and
worldwide financial markets and economy. Any of these occurrences could have an adverse impact on
our operating results, revenues and costs and may result in the volatility of the market price for
our common stock and impair its future price.
We do not anticipate paying any dividends on our common stock. As a result, capital appreciation,
if any, of our common stock may be your sole source of gains in the future.
We have never paid a cash dividend, and do not anticipate paying a cash dividend in the
foreseeable future. As a result, you may only receive a return on your investment in the common
stock if the market price of the common stock increases.
Risks Related to the Banking Industry
We operate in a highly regulated environment; changes in laws and regulations and accounting
principles may adversely affect us.
We are subject to extensive regulation, supervision, and legislation which govern almost all
aspects of our operations. See Supervision and Regulation. The laws and regulations applicable to
the banking industry could change at any time and are primarily intended for the protection of
customers, depositors and the deposit insurance funds. Any changes to these laws or any applicable
accounting principles could make it more difficult and expensive for us to comply and could affect
the way that we conduct business, which may negatively impact our results of operations and
financial condition. While we cannot predict what effect any presently contemplated or future
changes in the laws or regulations or their interpretations would have on us, these changes could
be materially adverse to our investors and stockholders.
Changes in interest rates could adversely affect our profitability, business and prospects.
Increases or decreases in prevailing interest rates could have an adverse effect on our
business, asset quality and prospects. Our operating income and net income depend to a great extent
on our net interest margin. Net interest margin is the difference between the interest yields we
receive on loans, securities and other interest earning assets and the interest rates we pay on
interest bearing deposits, borrowings and other liabilities. These rates are highly sensitive to
many factors beyond our control, including competition, general economic conditions and monetary
and fiscal policies of various governmental and regulatory authorities, including the Board of
Governors of the Federal Reserve System, referred to as the FRB. If the rate of interest we pay on
our interest bearing deposits, borrowings and other liabilities increases more than the rate of
interest we receive on loans, securities and other interest earning assets, our net interest
income, and therefore our earnings, could be adversely affected. Our earnings could also be
adversely affected if the rates on our loans and other investments fall more quickly than those on
our deposits and other liabilities.
In addition, loan volumes are affected by market interest rates on loans; rising interest
rates generally are associated with a lower volume of loan originations while lower interest rates
are usually associated with higher loan originations. Conversely, in rising interest rate
environments, loan repayment rates will decline and in falling interest rate environments, loan
repayment rates will increase. We cannot assure you that we will be able to minimize our interest
rate risk. In addition, an increase in the general level of interest rates may adversely affect the
ability of certain borrowers to pay the interest on and principal of their obligations.
Interest rates also affect how much money we can lend. When interest rates rise, the cost of
borrowing increases. Accordingly, changes in market interest rates could materially and adversely
affect our net interest spread, asset quality, loan origination volume, business, financial
condition, results of operations and cash flows.
28
We are required to maintain an allowance for loan losses. This allowance for loan losses may have
to be adjusted in the future. Any adjustment to the allowance for loan losses, whether due to
regulatory changes, economic changes or other factors, may affect our financial condition and
earnings.
We maintain an allowance for loan losses. The allowance is established through a provision for
loan losses based on our managements evaluation of the risks inherent in our loan portfolio and
the general economy. The allowance is based upon a number of factors, including the size of the
loan portfolio, asset classifications, economic trends, industry experience and trends, industry
and geographic concentrations, estimated collateral values, managements assessment of the credit
risk inherent in the portfolio, historical loan loss experience and loan underwriting policies. In
addition, we evaluate all loans identified as problem loans and augment the allowance based upon
our estimation of the potential loss associated with those problem loans.
The federal regulators, in reviewing our loan portfolio as part of a regulatory examination,
may request us to increase our allowance for loan losses, thereby negatively affecting our
financial condition and earnings at that time. Moreover, additions to the allowance may be
necessary based on changes in economic and real estate market conditions, new information regarding
existing loans, identification of additional problem loans and other factors, both within and
outside of our managements control.
We are exposed to risk of environmental liabilities with respect to properties to which we take
title.
About 78% of our outstanding loan portfolio as of December 31, 2006 was secured by real
estate. In the course of our business, we may foreclose and take title to real estate, and could be
subject to environmental liabilities with respect to these properties. We may be held liable to a
governmental entity or to third parties for property damage, personal injury, investigation and
clean-up costs incurred by these parties in connection with environmental contamination, or may be
required to investigate or clean up hazardous or toxic substances, or chemical releases at a
property. The costs associated with investigation or remediation activities could be substantial.
In addition, if we are the owner or former owner of a contaminated site, we may be subject to
common law claims by third parties based on damages and costs resulting from environmental
contamination emanating from the property. These costs and claims could adversely affect our
business and prospects.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
At December 31, 2006, the Company operated 31 domestic locations of which 14 are owned and 17
are on leased premises. In addition, the Company owns a 36,000 square feet operations facility in
Las Vegas, Nevada, has 4 owned and 2 leased properties under construction, owns 3 parcels of land
for future development and has 2 leased branches that are not in use. The Companys corporate
headquarters in Las Vegas, Nevada is the collateral for a loan in the amount of $9,711,000. For
information regarding rental payments, see Note 11 of the Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which Western Alliance is a party or to
which any of our properties are subject. There are no material proceedings known to us to be
contemplated by any governmental authority. From time to time, we are involved in a variety of
litigation matters in the ordinary course of our business and anticipate that we will become
involved in new litigation matters in the future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of 2006.
29
|
|
|
ITEM 5. |
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES |
Prior to our IPO there had been no public market for our common stock. To our knowledge, there
were no trades of our stock from January 1, 2004 through the date of our initial public offering.
IPO shares of our common stock were sold for $22.00 per share. The stocks price at the close
of the market on June 30, 2005 was $25.40. The following table sets forth the low and high closing
prices for the two quarters in the period from June 30, 2005 through December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
Closing Prices |
Quarter Ended |
|
Low |
|
High |
September 30, 2005
|
|
$ |
25.00 |
|
|
$ |
29.87 |
|
December 31, 2005
|
|
$ |
25.99 |
|
|
$ |
31.45 |
|
Our common stock began trading on the New York Stock Exchange under the symbol WAL on June
30, 2005.
The high and low closing sale prices per share of our common stock for each quarter during the
year ended December 31, 2006 are shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
Closing Prices |
Quarter Ended |
|
Low |
|
High |
March 31, 2006
|
|
$ |
28.60 |
|
|
$ |
37.15 |
|
June 30, 2006
|
|
$ |
31.70 |
|
|
$ |
38.28 |
|
September 30, 2006
|
|
$ |
32.90 |
|
|
$ |
38.41 |
|
December 31, 2006
|
|
$ |
31.94 |
|
|
$ |
37.01 |
|
Holders
As of February 16, 2007, there were approximately 499 stockholders of record of our common
stock. At such date, our directors and executive officers owned approximately 40% of our
outstanding shares. There are no other classes of common equity outstanding.
Dividends
Western Alliance is a legal entity separate and distinct from the banks and our other non-bank
subsidiaries. Since we are a holding company with no significant assets other than the capital
stock of our subsidiaries, we depend upon dividends from our subsidiaries for a substantial part of
our revenue. Accordingly, our ability to pay dividends depends primarily upon the receipt of
dividends or other capital distributions from our subsidiaries. Our subsidiaries ability to pay
dividends to Western Alliance is subject to, among other things, their earnings, financial
condition and need for funds, as well as federal and state governmental policies and regulations
applicable to us and each of those subsidiaries, which limit the amount that may be paid as
dividends without prior approval. See Supervision and Regulation for information regarding our
ability to pay cash dividends. In addition, if any required payments on outstanding trust preferred
securities are not made, we will be prohibited from paying dividends on our common stock. Western
Alliance has never paid a cash dividend on its common stock and does
not anticipate paying any cash
dividends in the foreseeable future.
Sale of Unregistered Securities
Related to our establishment of Alta Alliance Bank, on September 1, 2006, the Company issued
263,389 shares of common stock at a purchase price of $34.56 per
share, and warrants to purchase 131,695 shares of common stock at $34.56 to officers, directors and other interested parties,
resulting in
30
gross proceeds of $9,103,000. For every two full shares purchased by an investor in
the offering, the investor received a warrant to purchase an additional share at the same purchase
price. The foregoing securities were issued under circumstances that comply with the requirements
of Section 4(2) under the Securities Act. The proceeds of the offering were used to partially
capitalize Alta Alliance Bank.
Performance Graph
Below is a graph which summarizes the cumulative return earned by the Companys stockholders
since its shares of common stock were registered under Section 12 of the Exchange Act in June of
2005, compared with the cumulative total return on the S&P 500
Index and KBW Regional Banking Index. This presentation assumes that
the value of the investment in the Companys common stock and each index was $100.00 on June 30,
2005 and that subsequent cash dividends were reinvested.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measurement Point |
|
|
Jun 05 |
|
Dec 05 |
|
Jun 06 |
|
Dec 06 |
Western Alliance
Bancorporation |
|
|
100.00 |
|
|
|
117.60 |
|
|
|
136.93 |
|
|
|
136.89 |
|
S&P 500 Index |
|
|
100.00 |
|
|
|
105.76 |
|
|
|
108.61 |
|
|
|
122.42 |
|
KBW Regional Banking Index |
|
|
100.00 |
|
|
|
103.38 |
|
|
|
105.67 |
|
|
|
112.21 |
|
ITEM 6. SELECTED FINANCIAL DATA
The selected financial information in the table below as of and for the years ended December
31, 2006, 2005, 2004, 2003 and 2002 is derived from our audited consolidated financial statements.
Results for past periods are not necessarily indicative of results that may be expected for any
future period.
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
(in thousands, except per share data) |
|
|
|
|
|
Selected Income Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
233,085 |
|
|
$ |
134,910 |
|
|
$ |
90,855 |
|
|
$ |
53,823 |
|
|
$ |
39,117 |
|
Interest expense |
|
|
84,297 |
|
|
|
32,568 |
|
|
|
19,720 |
|
|
|
12,798 |
|
|
|
9,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
148,788 |
|
|
|
102,342 |
|
|
|
71,135 |
|
|
|
41,025 |
|
|
|
29,346 |
|
Provision for loan losses |
|
|
4,660 |
|
|
|
6,179 |
|
|
|
3,914 |
|
|
|
5,145 |
|
|
|
1,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan
losses |
|
|
144,128 |
|
|
|
96,163 |
|
|
|
67,221 |
|
|
|
35,880 |
|
|
|
27,759 |
|
Investment security gains/(losses) |
|
|
(4,436 |
) |
|
|
69 |
|
|
|
19 |
|
|
|
(265 |
) |
|
|
609 |
|
Other income, excluding securities
gains/(losses) |
|
|
17,870 |
|
|
|
12,069 |
|
|
|
8,707 |
|
|
|
4,535 |
|
|
|
3,326 |
|
Non-interest expense |
|
|
96,086 |
|
|
|
64,864 |
|
|
|
44,929 |
|
|
|
27,290 |
|
|
|
19,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
61,476 |
|
|
|
43,437 |
|
|
|
31,018 |
|
|
|
12,860 |
|
|
|
12,644 |
|
Provision for income taxes |
|
|
21,587 |
|
|
|
15,372 |
|
|
|
10,961 |
|
|
|
4,171 |
|
|
|
4,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
39,889 |
|
|
$ |
28,065 |
|
|
$ |
20,057 |
|
|
$ |
8,689 |
|
|
$ |
8,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per sharebasic |
|
$ |
1.56 |
|
|
$ |
1.36 |
|
|
$ |
1.17 |
|
|
$ |
0.61 |
|
|
$ |
0.79 |
|
Earnings per sharediluted |
|
$ |
1.41 |
|
|
$ |
1.24 |
|
|
$ |
1.09 |
|
|
$ |
0.59 |
|
|
$ |
0.78 |
|
Book Value per share |
|
$ |
15.09 |
|
|
$ |
10.71 |
|
|
$ |
7.32 |
|
|
$ |
5.84 |
|
|
$ |
4.85 |
|
Tangible Book Value per share |
|
$ |
9.61 |
|
|
$ |
10.48 |
|
|
$ |
7.02 |
|
|
$ |
5.80 |
|
|
$ |
4.85 |
|
Shares outstanding at period end |
|
|
27,085 |
|
|
|
22,810 |
|
|
|
18,250 |
|
|
|
16,681 |
|
|
|
13,908 |
|
Weighted average shares outstandingbasic |
|
|
25,623 |
|
|
|
20,583 |
|
|
|
17,190 |
|
|
|
14,314 |
|
|
|
10,678 |
|
Weighted average shares outstandingdiluted |
|
|
28,218 |
|
|
|
22,666 |
|
|
|
18,405 |
|
|
|
14,613 |
|
|
|
10,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
264,880 |
|
|
$ |
174,336 |
|
|
$ |
115,397 |
|
|
$ |
65,908 |
|
|
$ |
159,683 |
|
Investments and other securities |
|
|
542,321 |
|
|
|
748,533 |
|
|
|
788,622 |
|
|
|
715,978 |
|
|
|
232,848 |
|
Gross loans, including net deferred loan fees |
|
|
3,003,222 |
|
|
|
1,793,337 |
|
|
|
1,188,535 |
|
|
|
733,078 |
|
|
|
464,355 |
|
Allowance for loan losses |
|
|
33,551 |
|
|
|
21,192 |
|
|
|
15,271 |
|
|
|
11,378 |
|
|
|
6,449 |
|
Assets |
|
|
4,169,604 |
|
|
|
2,857,271 |
|
|
|
2,176,849 |
|
|
|
1,576,773 |
|
|
|
872,074 |
|
Deposits |
|
|
3,400,423 |
|
|
|
2,393,812 |
|
|
|
1,756,036 |
|
|
|
1,094,646 |
|
|
|
720,304 |
|
Junior subordinated and subordinated debt |
|
|
101,857 |
|
|
|
30,928 |
|
|
|
30,928 |
|
|
|
30,928 |
|
|
|
30,928 |
|
Stockholders equity |
|
|
408,579 |
|
|
|
244,223 |
|
|
|
133,571 |
|
|
|
97,451 |
|
|
|
67,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Other Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets |
|
$ |
3,668,405 |
|
|
$ |
2,488,740 |
|
|
$ |
1,902,947 |
|
|
$ |
1,148,820 |
|
|
$ |
687,927 |
|
Average earning assets |
|
|
3,304,325 |
|
|
|
2,324,463 |
|
|
|
1,776,362 |
|
|
|
1,069,990 |
|
|
|
642,734 |
|
Average stockholders equity |
|
|
348,294 |
|
|
|
195,284 |
|
|
|
114,765 |
|
|
|
71,276 |
|
|
|
43,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Financial and Liqudity Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
1.09 |
% |
|
|
1.13 |
% |
|
|
1.05 |
% |
|
|
0.76 |
% |
|
|
1.22 |
% |
Return on average stockholders equity |
|
|
11.45 |
% |
|
|
14.37 |
% |
|
|
17.48 |
% |
|
|
12.19 |
% |
|
|
19.39 |
% |
Return on average tangible stockholders equity |
|
|
14.20 |
% |
|
|
14.76 |
% |
|
|
18.08 |
% |
|
|
12.19 |
% |
|
|
19.39 |
% |
Net interest margin (1) |
|
|
4.52 |
% |
|
|
4.41 |
% |
|
|
4.00 |
% |
|
|
3.83 |
% |
|
|
4.57 |
% |
Efficiency ratio (2) |
|
|
57.65 |
% |
|
|
56.69 |
% |
|
|
56.26 |
% |
|
|
59.90 |
% |
|
|
58.31 |
% |
Loan to deposit ratio |
|
|
88.32 |
% |
|
|
74.92 |
% |
|
|
67.68 |
% |
|
|
66.97 |
% |
|
|
64.47 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Ratios (Company): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Ratio |
|
|
8.2 |
% |
|
|
10.2 |
% |
|
|
7.7 |
% |
|
|
8.9 |
% |
|
|
11.2 |
% |
Tier 1 Risk-Based Capital ratio |
|
|
9.4 |
% |
|
|
12.8 |
% |
|
|
10.9 |
% |
|
|
13.3 |
% |
|
|
15.4 |
% |
Total Risk-Based Capital ratio |
|
|
11.5 |
% |
|
|
13.8 |
% |
|
|
12.0 |
% |
|
|
14.4 |
% |
|
|
18.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Asset Quality Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans to gross loans |
|
|
0.05 |
% |
|
|
0.01 |
% |
|
|
0.13 |
% |
|
|
0.03 |
% |
|
|
0.22 |
% |
Non-accrual loans to total assets |
|
|
0.03 |
% |
|
|
0.00 |
% |
|
|
0.07 |
% |
|
|
0.01 |
% |
|
|
0.12 |
% |
Loans past due 90 days or more and still
accruing to total loans |
|
|
0.03 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.01 |
% |
|
|
0.04 |
% |
Allowance for loan losses to total loans |
|
|
1.12 |
% |
|
|
1.18 |
% |
|
|
1.28 |
% |
|
|
1.55 |
% |
|
|
1.39 |
% |
Allowance for loan losses to non-accrual loans |
|
|
0.00 |
% |
|
|
19805.61 |
% |
|
|
959.84 |
% |
|
|
4137.45 |
% |
|
|
181.71 |
% |
Net charge-offs to average loans |
|
|
0.04 |
% |
|
|
0.02 |
% |
|
|
0.00 |
% |
|
|
0.17 |
% |
|
|
0.19 |
% |
|
|
|
(1) |
|
Net interest margin represents net interest income as a percentage of average interest-earning assets. |
|
(2) |
|
Efficiency ratio represents noninterest expenses as a percentage of the total of net interest income plus noninterest income. |
32
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in Managements Discussion and Analysis of Financial
Condition and Results of Operations, Business and elsewhere in this prospectus constitute
forward-looking statements. Forward-looking statements relate to expectations, beliefs,
projections, future plans and strategies, anticipated events or trends and similar expressions
concerning matters that are not historical facts. In some cases, you can identify forward looking
statements by terms such as may, will, should, expect, intend, plan, anticipate,
believe, estimate, predict, potential or the negative of these terms or other comparable
terminology.
The forward-looking statements contained in this prospectus reflect our current views about
future events and financial performance and are subject to risks, uncertainties, assumptions and
changes in circumstances that may cause our actual results to differ significantly from historical
results and those expressed in any forward-looking statement, including those risks discussed under
the heading Risk Factors in this annual report. Some factors that could cause actual results to
differ materially from historical or expected results include:
|
|
|
changes in general economic conditions, either nationally or locally in the areas in
which we conduct or will conduct our business; |
|
|
|
inflation, interest rate, market and monetary fluctuations; |
|
|
|
changes in gaming or tourism in our primary market area; |
|
|
|
risks associated with our growth and expansion strategy and related costs; |
|
|
|
increased lending risks associated with our concentration of commercial real estate,
construction and land development and commercial, industrial loans; |
|
|
|
increases in competitive pressures among financial institutions and businesses offering
similar products and services; |
|
|
|
higher defaults on our loan portfolio than we expect; |
|
|
|
changes in managements estimate of the adequacy of the allowance for loan losses; |
|
|
|
legislative or regulatory changes or changes in accounting principles, policies or guidelines; |
|
|
|
managements estimates and projections of interest rates and interest rate policy; |
|
|
|
the execution of our business plan; and |
|
|
|
other factors affecting the financial services industry generally or the banking
industry in particular. |
For more information regarding risks that may cause our actual results to differ materially
from any forward-looking statements, see Risk Factors beginning on page 22. We do not intend and
disclaim any duty or obligation to update or revise any industry information or forward-looking
statements set forth in this prospectus to reflect new information, future events or otherwise,
except as may be required by the securities laws.
33
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with Selected
Consolidated Financial Data and our consolidated financial statements and related notes included
elsewhere in this annual report. This discussion and analysis contains forward-looking statements
that involve risk, uncertainties and assumptions. Certain risks, uncertainties and other factors,
including but not limited to those set forth under Cautionary Note Regarding Forward-Looking
Statements may cause actual results to differ materially from those projected in the
forward-looking statements.
Overview and History
We are a bank holding company headquartered in Las Vegas, Nevada. We provide a full range of
banking and related services to locally owned businesses, professional firms, real estate
developers and investors, local nonprofit organizations, high net worth individuals and consumers
through our subsidiary banks and financial services companies located in Nevada, Arizona and
California. In addition to traditional lending and deposit gathering capabilities, we also offer a
broad array of financial products and services aimed at satisfying the needs of small to mid-sized
businesses and their proprietors, including cash management, trust administration and estate
planning, custody and investments and equipment leasing.
We generate the majority of our revenue from interest on loans, service charges on customer
accounts and income from investment securities. This revenue is offset by interest expense paid on
deposits and other borrowings and non-interest expense such as administrative and occupancy
expenses. Net interest income is the difference between interest income on interest-earning assets
such as loans and securities and interest expense on interest-bearing liabilities such as customer
deposits and other borrowings which are used to fund those assets. Net interest income is our
largest source of net income. Interest rate fluctuations, as well as changes in the amount and type
of earning assets and liabilities, combine to affect net interest income.
We provide a variety of loans to our customers, including commercial and residential real
estate loans, construction and land development loans, commercial and industrial loans, Small
Business Administration, or SBA loans, and to a lesser extent, consumer loans. We rely primarily on
locally generated deposits to provide us with funds for making loans.
In addition to these traditional commercial banking capabilities, we also provide our
customers with cash management, trust administration and estate planning, equipment leasing, and
custody and investment services, resulting in revenue generated from non-interest income. We
receive fees from our deposit customers in the form of service fees, checking fees and other fees.
Other services such as safe deposit and wire transfers provide additional fee income. We may also
generate income from time to time from the sale of investment securities. The fees collected by us
are found in our Consolidated Statements of Income under non-interest income. Offsetting these
earnings are operating expenses referred to as non-interest expense. Because banking is a very
people intensive industry, our largest operating expense is employee compensation and related
expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Year Ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
|
($ in thousands, expect per share amounts) |
Net Income |
|
$ |
39,889 |
|
|
$ |
28,065 |
|
|
$ |
20,057 |
|
Basic earnings per share |
|
|
1.56 |
|
|
|
1.36 |
|
|
|
1.17 |
|
Diluted earnings per share |
|
|
1.41 |
|
|
|
1.24 |
|
|
|
1.09 |
|
Total Assets |
|
|
4,169,604 |
|
|
|
2,857,271 |
|
|
|
2,176,849 |
|
Gross Loans |
|
|
3,003,222 |
|
|
|
1,793,337 |
|
|
|
1,188,535 |
|
Total Deposits |
|
|
3,400,423 |
|
|
|
2,393,812 |
|
|
|
1,756,036 |
|
Net interest margin |
|
|
4.52 |
% |
|
|
4.41 |
% |
|
|
4.00 |
% |
Efficiency Ratio |
|
|
57.65 |
|
|
|
56.69 |
|
|
|
56.26 |
|
Return on average assets |
|
|
1.09 |
|
|
|
1.13 |
|
|
|
1.05 |
|
Return on average equity |
|
|
11.45 |
|
|
|
14.37 |
|
|
|
17.48 |
|
Return on average tangible equity |
|
|
14.20 |
|
|
|
14.76 |
|
|
|
18.08 |
|
34
Primary Factors in Evaluating Financial Condition and Results of Operations
As a bank holding company, we focus on several factors in evaluating our financial condition
and results of operations, including:
|
|
|
Return on Average Equity, or ROE and Return on Average Tangible Equity, or ROTE; |
|
|
|
Return on Average Assets, or ROA; |
|
|
|
Asset and Deposit Growth; and |
Return on Average Equity and Tangible Equity. Our net income for the year ended December 31,
2006 increased 42.1% to $39.9 million compared to $28.1 million for the year ended December 31,
2005. The increase in net income was due primarily to increases in net interest income of $46.4
million and other income of $5.8 million, partially offset by an increase of $31.2 million in other
expenses and a loss on securities portfolio restructuring of $4.4 million. Also contributing to the
increase in net income was a decrease in the provision for loan losses of $1.5 million. Basic
earnings per share increased to $1.56 per share for the year ended December 31, 2006, compared to
$1.36 per share for the same period in 2005. Diluted earnings per share increased to $1.41 per
share for the year ended December 31, 2006, compared to $1.24 per share for the same period last
year. Average shares outstanding increased 5.0 million from 20.6 million for the year ended
December 31, 2005 to 25.6 million for the year ended December 31, 2006. Average stockholders
equity increased $153 million for the same periods. The increase in shares outstanding and average
stockholders equity was due primarily to our merger with Intermountain First Bancorporation which
closed in March 2006. The increase in net income and shares outstanding resulted in an ROE of
11.5% for the year ended December 31, 2006, compared to 14.4% for the year ended December 31, 2005,
and ROTE of 14.2% for the year ended December 31, 2006, compared to 14.8% for the year ended
December 31, 2005.
Return on Average Assets. Our ROA for the year ended December 31, 2006 decreased to 1.09%
compared to 1.13% for the same period in 2005. The decrease in ROA is primarily due to an increase
in intangible assets arising from the mergers closed during 2006.
Asset Quality. For all banks and bank holding companies, asset quality plays a significant
role in the overall financial condition of the institution and results of operations. We measure
asset quality in terms of non-accrual loans and assets as a percentage of gross loans and assets,
and net charge-offs as a percentage of average loans. Net charge-offs are calculated as the
difference between charged-off loans and recovery payments received on previously charged-off
loans. As of December 31, 2006, non-accrual loans were $1,417,000 compared to $107,000 at December
31, 2005. Non-accrual loans as a percentage of gross loans were 0.05% as of December 31, 2006,
compared to 0.01% as of December 31, 2005. At December 31, 2006 and December 31, 2005, our
nonperforming assets were exclusively comprised of non-accrual loans, other impaired loans and
loans past due 90 days or more and still accruing. For the year ended December 31, 2006, net
charge-offs as a percentage of average loans were 0.04%, compared to 0.02% for the year ended
December 31, 2005.
Asset Growth. The ability to produce loans and generate deposits is fundamental to our asset
growth. Our assets and liabilities are comprised primarily of loans and deposits, respectively.
Total assets increased 45.9% to $4.2 billion as of December 31, 2006 from $2.9 billion as of
December 31, 2005. Gross loans grew 67.5% to $3.0 billion as of December 31, 2006 from $1.8 billion
as of December 31, 2005. Total deposits increased 42.1% to $3.4 billion as of December 31, 2006
from $2.4 billion as of December 31, 2005. Loans and deposits acquired through mergers during 2006
had balances of $642 million and $606 million at June 30, 2006, respectively.
Operating Efficiency. Operating efficiency is measured in terms of how efficiently income
before income taxes is generated as a percentage of revenue. Our efficiency ratio (non-interest
expenses divided by the sum of net interest income and non interest income) was 57.65% for the year
ended December 31, 2006 compared to 56.69% for the same period in 2005.
35
Critical Accounting Policies
The Notes to Consolidated Financial Statements contain a summary of our significant accounting
policies, including discussions on recently issued accounting pronouncements, our adoption of them
and the related impact of their adoption. We believe that certain of these policies, along with
various estimates that we are required to make in recording our financial transactions, are
important to have a complete picture of our financial position. In addition, these estimates
require us to make complex and subjective judgments, many of which include matters with a high
degree of uncertainty. The following is a discussion of these critical accounting policies and
significant estimates. Additional information about these policies can be found in Note 1 of the
Consolidated Financial Statements.
Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for
probable losses incurred in the loan portfolio. Our allowance for loan loss methodology
incorporates a variety of risk considerations in establishing an allowance for loan losses that we
believe is adequate to absorb probable losses in the existing portfolio. Such analysis addresses
our historical loss experience, delinquency and charge-off trends, collateral values, changes in
nonperforming loans, economic conditions, peer group experience and other considerations. This
information is then analyzed to determine estimated loss factors which, in turn, is assigned to
each loan category. These factors also incorporate known information about individual loans,
including the borrowers sensitivity to interest rate movements. Changes in the factors themselves
are driven by perceived risk in pools of homogenous loans classified by collateral type, purpose
and term. Management monitors local trends to anticipate future delinquency potential on a
quarterly basis. In addition to ongoing internal loan reviews and risk assessment, the audit
committee utilizes an independent loan review firm to provide advice on the appropriateness of the
allowance for loan losses.
The allowance for loan losses is increased by the provision for loan losses charged to expense
and reduced by loans charged off, net of recoveries. Provisions for loan losses are provided on
both a specific and general basis. Specific allowances are provided for watch, criticized, and
impaired credits for which the expected/anticipated loss may be measurable. General valuation
allowances are based on a portfolio segmentation based on collateral type, purpose and risk
grading, with a further evaluation of various factors noted above.
We incorporate our internal loss history to establish potential risk based on collateral type
securing each loan. As an additional comparison, we examine peer group banks to determine the
nature and scope of their losses. Finally, we closely examine each credit graded Watch
List/Special Mention and below to individually assess the appropriate specific loan loss reserve
for such credit.
At least annually, we review the assumptions and formulae by which additions are made to the
specific and general valuation allowances for loan losses in an effort to refine such allowance in
light of the current status of the factors described above. The total loan portfolio is thoroughly
reviewed at least quarterly for satisfactory levels of general and specific reserves together with
impaired loans to determine if write downs are necessary.
Although we believe the levels of the allowance as of December 31, 2006 and 2005 were adequate
to absorb probable losses in the loan portfolio, a decline in local economic conditions or other
factors could result in increasing losses that cannot be reasonably estimated at this time.
Available-for-Sale Securities. Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, requires that available-for-sale
securities be carried at fair value. Management utilizes the services of a third party vendor to
assist with the determination of estimated fair values. Adjustments to the available-for-sale
securities fair value impact the consolidated financial statements by increasing or decreasing
assets and stockholders equity.
Goodwill. The Company records as goodwill the excess of the purchase price over the fair value
of the identifiable net assets acquired. Statement of Financial Accounting Standards (SFAS) No.
142, Goodwill and Other Intangible Assets, prescribes a two-step process for impairment testing of
goodwill, which is performed annually, as well as when an event triggering impairment may have
occurred. The first step tests for impairment, while the second step, if necessary, measures the
impairment. The Company has elected to perform its annual analysis during the fourth quarter of
each fiscal year as of October 1st. No indicators of impairment were identified during
the year ending December 31, 2006.
36
Stock Based Compensation. Effective January 1, 2006 (the adoption date), the Company adopted
SFAS No. 123 (revised 2005), Share Based Payment (SFAS 123R). SFAS 123R requires the Company to
record the fair value of stock options granted to employees as expense over the vesting period.
Prior to adoption of SFAS 123R, the Company accounted for stock option grants using the recognition
and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. Therefore, no stock option-based compensation was reflected in net income,
as all options are required by the Plan to be granted with an exercise price equal to the estimated
fair value of the underlying common stock on the date of grant.
Prior to the adoption of SFAS 123R, the Company applied the disclosure provisions of SFAS 123,
Accounting for Stock-Based Compensation. SFAS 123 required the disclosure of the pro forma impact
on net income and earnings per share as if the value of the options were calculated at fair value.
SFAS 123 permitted private companies to calculate the fair value of stock options using the minimum
value method while public companies were required to use a fair value model. Prior to the
Companys initial public offering (IPO) the Company used the minimum value method to calculate the
fair value of stock options. Subsequent to the Companys IPO, the Company utilizes the
Black-Scholes model to calculate the fair value of stock options.
The Company has adopted SFAS 123R using the prospective method for options granted prior to
the IPO and the modified prospective method for options granted subsequent to the IPO. Under the
Companys transition method, SFAS 123R applies to new awards and to awards that were outstanding on
the adoption date that are subsequently modified, repurchased, or cancelled. In addition, the
expense recognition provision of SFAS 123R applies to options granted prior to the adoption date
but subsequent to the IPO that were unvested at the adoption date.
Loans Acquired through Merger. In December 2003, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 03-3, Accounting for Certain Loans and Debt
Securities Acquired in a Transfer. SOP 03-3 addresses the accounting for acquired loans that show
evidence of having deteriorated in terms of credit quality since their origination and for which a
loss is deemed probable of occurring. SOP 03-3 requires acquired loans to be recorded at their
fair value, defined as the present value of future cash flows including interest income, to be
recognized over the life of the loan. SOP 03-3 prohibits the carryover of an allowance for loan
loss on certain acquired loans within its scope considered in the future cash flows assessment. In
relation to the acquisitions discussed in Note 2 to the Consolidated Financial Statements, SOP 03-3
did not have a material effect on the Companys consolidated financial statements.
Trends and Developments Impacting Our Recent Results
Certain trends emerged and developments have occurred that are important in understanding our
recent results and that are potentially significant in assessing future performance.
Growth in our market areas. Our growth has been fueled in particular by the significant
population and economic growth of the greater Las Vegas area where we conduct the majority of our
operations. The growth in this area has coincided with significant investments in the gaming and
tourism industry. The significant population increase has resulted in an increase in the
acquisition of raw land for residential and commercial development, the construction of residential
communities, shopping centers and office buildings, and the development and expansion of the
businesses and professions that provide essential goods and services to this expanded population.
Similarly, growth in the Phoenix, Tucson, San Diego and Oakland markets has contributed to our
growth.
Asset sensitivity. Management uses various modeling strategies to manage the repricing
characteristics of our assets and liabilities. These models contain a number of assumptions and can
not take into account all the various factors that influence the sensitivities of our assets and
liabilities. Despite these limitations, our models at December 31, 2006 indicated that our balance
sheet was moderately asset sensitive. A company is considered to be asset sensitive if the amount
of its interest earning assets maturing or repricing within a certain time period exceed the amount
of its interest-bearing liabilities also maturing or repricing within the same period. Being asset
sensitive means generally that in times of rising interest rates, a companys net interest income
will increase, and in times of falling interest rates, net interest income will decrease.
37
Because many of our assets are floating rate loans, which are in part funded by our relatively
large non-interest bearing deposit base, we are asset sensitive. During 2003 and 2004, we mitigated
this asset sensitivity and increased earnings by investing in mortgage-backed securities funded by
short-term FHLB borrowings. This strategy had the effect of leveraging our excess capital to
produce incremental returns without incurring additional credit risk. In light of the rising
interest rate environment, beginning in the third quarter of 2004, we discontinued this strategy.
See Quantitative and Qualitative Disclosure about Market Risk.
Impact of expansion on non-interest expense. We plan to open 6 additional branches in our
existing markets over the next 12 months. We anticipate that the expansion will result in a
significant increase in occupancy and equipment expense. The cost to construct and furnish a new
branch is approximately $2.5 million, excluding the cost to lease or purchase the land on which the
branch is located. Consistent with our historical growth strategy, as we open new offices and
expand both within and outside our current markets, we plan to recruit seasoned relationship
bankers, thereby increasing our salary expenses. Initially, this increase in salary expense is
expected to be higher than the revenues to be received from the customer relationships brought to
us by the new relationship bankers.
In October 2006, Alta Alliance Bank opened to the public. Alta Alliance Bank is a wholly owned
subsidiary of the Company, headquartered in Oakland, CA. The opening of Alta had a significant
impact on the financial statements of the Company in 2006. Approximately $1.0 million in start up
and organizational expenditures were made in order to begin operations.
Impact of acquisitions on net income. On March 31, 2006, we completed our merger with
Intermountain First Bancorp, and thereby acquired Nevada First Bank. Total loans and deposits
acquired in this merger were $440 million and $405 million, respectively, as of June 30, 2006. We
also added a total of 4 full service branches in Las Vegas, Henderson and Reno, Nevada through this
merger.
Effective April 29, 2006, the Company acquired 100% of the outstanding common stock of Bank of
Nevada, headquartered in Las Vegas, Nevada. At the date of acquisition, Bank of Nevada was merged
into BankWest of Nevada (whose name was subsequently changed to Bank of Nevada). Total loans and
deposits acquired in this merger were $202 million and $200 million, respectively, as of June 30,
2006. We also added a total of 3 full service branches in Las Vegas and Mesquite, NV through this
merger.
In December 2006, we announced a definitive agreement to acquire First Independent Capital of
Nevada, which is a Reno, Nevada, based financial institution. We anticipate that this acquisition
will close at the end of the first quarter of 2007, at which point we will realize a significant
increase in compensation, occupancy, and other non-interest expenses. We anticipate that the net
interest income we will realize from this acquisition will exceed the increase in non-interest
expenses.
Impact of service center on non-interest income. We have a service center facility which
became operational in the fourth quarter of 2006. We expect that this facility will increase our
capacity to provide courier, cash management and other business services. We anticipate this will
have a favorable impact on our non-interest income.
Results of Operations
Our results of operations depend substantially on net interest income, which is the difference
between interest income on interest-earning assets, consisting primarily of loans receivable,
securities and other short-term investments, and interest expense on interest-bearing liabilities,
consisting primarily of deposits and borrowings. Our results of operations are also dependent upon
our generation of non-interest income, consisting of income from trust and investment advisory
services and banking service fees. Other factors contributing to our results of operations include
our provisions for loan losses, gains or losses on sales of securities and income taxes, as well as
the level of our non-interest expenses, such as compensation and benefits, occupancy and equipment
and other miscellaneous operating expenses.
38
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
The following table sets forth a summary financial overview for the years ended December 31,
2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
December 31, |
|
Increase |
|
|
2006 |
|
2005 |
|
(Decrease) |
|
|
(in thousands, except per share amounts) |
Consolidated Statement of Earnings Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
233,085 |
|
|
$ |
134,910 |
|
|
$ |
98,175 |
|
Interest expense |
|
|
84,297 |
|
|
|
32,568 |
|
|
|
51,729 |
|
|
|
|
Net interest income |
|
|
148,788 |
|
|
|
102,342 |
|
|
|
46,446 |
|
Provision for loan losses |
|
|
4,660 |
|
|
|
6,179 |
|
|
|
(1,519 |
) |
|
|
|
Net interest income after provision for loan losses |
|
|
144,128 |
|
|
|
96,163 |
|
|
|
47,965 |
|
Investment security gains/(losses) |
|
|
(4,436 |
) |
|
|
69 |
|
|
|
(4,505 |
) |
Other income, excluding security gains/(losses) |
|
|
17,870 |
|
|
|
12,069 |
|
|
|
5,801 |
|
Other expense |
|
|
96,086 |
|
|
|
64,864 |
|
|
|
31,222 |
|
|
|
|
Net income before income taxes |
|
|
61,476 |
|
|
|
43,437 |
|
|
|
18,039 |
|
Income tax expense |
|
|
21,587 |
|
|
|
15,372 |
|
|
|
6,215 |
|
|
|
|
Net income |
|
$ |
39,889 |
|
|
$ |
28,065 |
|
|
$ |
11,824 |
|
|
|
|
Earnings per share basic |
|
$ |
1.56 |
|
|
$ |
1.36 |
|
|
$ |
0.20 |
|
|
|
|
Earnings per share diluted |
|
$ |
1.41 |
|
|
$ |
1.24 |
|
|
$ |
0.17 |
|
|
|
|
The 42.1% increase in net income in the year ended December 31, 2006 compared to the year
ended December 31, 2005 was due primarily to increases in net interest income of $46.4 million and
other income of $5.8 million, partially offset by an increase of $31.2 million in other expenses
and a loss on portfolio restructuring of $4.4 million. Also contributing to the increase in net
income was a decrease in the provision for loan losses of $1.5 million. The increase in net
interest income was the result of an increase in the volume of interest-earning assets, primarily
loans, partially offset by an increase in our cost of funds, due principally to a rising deposit
market rate environment and an increase in borrowing rates.
Net Interest Income and Net Interest Margin. The 45.4% increase in net interest income for
the year ended December 31, 2006 compared to the year ended December 31, 2005 was due to an
increase in interest income of $98.2 million, reflecting the effect of an increase of $980 million
in average interest-bearing assets which was funded with an increase of $847 million in average
deposits, of which $162 million were non-interest bearing.
The average yield on our interest-earning assets was 7.07% for the year ended December 31,
2006, compared to 5.81% for the year ended December 31, 2005, an increase of 21.7%. The increase in
the yield on our interest-earning assets is primarily a result of an increase in the yield earned
on our loan portfolio and a shift of funds previously held in securities into higher-yielding
loans. The increase in the yield on our loan portfolio from 6.83% in 2005 to 7.71% in 2006 was due
to two factors: (1) market rates in 2006 were higher than those in 2005, and therefore the new
loans booked in 2006 were generally at higher rates than the average portfolio rate at December 31,
2005; and (2) approximately one-half of our loan portfolio is variable rate, and therefore these
loans reprice at higher rates in a rising rate environment as was seen in the year ended December
31, 2006.
The cost of our average interest-bearing liabilities increased to 3.67% in the year ended
December 31, 2006, from 2.27% in the year ended December 31, 2005, which is a result of higher
rates paid on deposit accounts, borrowings and junior subordinated debt caused by the steady upward
pressure on short-term interest rates driven by the Federal Open Market Committees (FOMC) rate
increases through the first half of 2006. Due in part to our acquisitions, we have also seen a
shift in our deposit mix whereby non-interest bearing deposits comprise a smaller percentage of our
entire deposit portfolio, thus increasing our funding costs.
Our average rate on our interest-bearing deposits increased 63.6% from 2.09% for the year
ended December 31, 2005, to 3.42% for the year ended December 31, 2006, reflecting increases in
general market
39
rates. Our average rate on total deposits (including non-interest bearing deposits) increased
82.9% from 1.23% for the year ended December 31, 2005, to 2.25% for the year ended December 31,
2006.
Our interest margin of 4.52% for the year ended December 31, 2006 was higher than our margin
for the previous year of 4.41% due to an increase in our yield on interest-bearing assets and our
elevated mix of variable rate loans to our total portfolio, offset by a smaller relative increase
in our overall cost of funds.
Average Balances and Average Interest Rates. The table below sets forth balance sheet items
on a daily average basis for the years ended December 31, 2006 and 2005 and presents the daily
average interest rates earned on assets and the daily average interest rates paid on liabilities
for such periods. Non-accrual loans have been included in the average loan balances. Securities
include securities available for sale and securities held to maturity. Securities available for
sale are carried at amortized cost for purposes of calculating the average rate received on taxable
securities below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
($ in thousands) |
|
Balance |
|
|
Interest |
|
|
Yield/Cost |
|
|
Balance |
|
|
Interest |
|
|
Yield/Cost |
|
Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
591,904 |
|
|
$ |
25,886 |
|
|
|
4.37 |
% |
|
$ |
729,884 |
|
|
$ |
29,099 |
|
|
|
3.99 |
% |
Tax-exempt (1) |
|
|
18,609 |
|
|
|
455 |
|
|
|
4.70 |
% |
|
|
8,558 |
|
|
|
394 |
|
|
|
6.30 |
% |
|
|
|
|
|
|
|
|
|
Total securities |
|
|
610,513 |
|
|
|
26,341 |
|
|
|
4.31 |
% |
|
|
738,442 |
|
|
|
29,493 |
|
|
|
3.99 |
% |
Federal funds sold and other |
|
|
35,149 |
|
|
|
1,798 |
|
|
|
5.12 |
% |
|
|
71,450 |
|
|
|
2,341 |
|
|
|
3.28 |
% |
Loans (1) (2) (3) |
|
|
2,641,636 |
|
|
|
203,792 |
|
|
|
7.71 |
% |
|
|
1,501,089 |
|
|
|
102,481 |
|
|
|
6.83 |
% |
Restricted stock |
|
|
17,027 |
|
|
|
1,154 |
|
|
|
6.78 |
% |
|
|
13,482 |
|
|
|
595 |
|
|
|
4.41 |
% |
|
|
|
|
|
|
|
|
|
Total earnings assets |
|
|
3,304,325 |
|
|
|
233,085 |
|
|
|
7.07 |
% |
|
|
2,324,463 |
|
|
|
134,910 |
|
|
|
5.81 |
% |
Non-earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
101,749 |
|
|
|
|
|
|
|
|
|
|
|
77,347 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(29,442 |
) |
|
|
|
|
|
|
|
|
|
|
(17,954 |
) |
|
|
|
|
|
|
|
|
Bank-owned life insurance |
|
|
58,022 |
|
|
|
|
|
|
|
|
|
|
|
36,200 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
233,751 |
|
|
|
|
|
|
|
|
|
|
|
68,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,668,405 |
|
|
|
|
|
|
|
|
|
|
$ |
2,488,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources of Funds
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking |
|
|
222,851 |
|
|
|
5,319 |
|
|
|
2.39 |
% |
|
|
109,415 |
|
|
|
594 |
|
|
|
0.54 |
% |
Savings and money market |
|
|
1,215,139 |
|
|
|
40,097 |
|
|
|
3.30 |
% |
|
|
827,886 |
|
|
|
16,908 |
|
|
|
2.04 |
% |
Time deposits |
|
|
478,228 |
|
|
|
20,196 |
|
|
|
4.22 |
% |
|
|
287,083 |
|
|
|
8,044 |
|
|
|
2.80 |
% |
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
1,916,218 |
|
|
|
65,612 |
|
|
|
3.42 |
% |
|
|
1,224,384 |
|
|
|
25,546 |
|
|
|
2.09 |
% |
Short-term borrowings |
|
|
243,780 |
|
|
|
11,101 |
|
|
|
4.55 |
% |
|
|
117,703 |
|
|
|
3,234 |
|
|
|
2.75 |
% |
Long-term debt |
|
|
73,155 |
|
|
|
2,724 |
|
|
|
3.72 |
% |
|
|
63,754 |
|
|
|
1,675 |
|
|
|
2.63 |
% |
Junior subordinated and
subordinated debt |
|
|
63,330 |
|
|
|
4,860 |
|
|
|
7.67 |
% |
|
|
30,928 |
|
|
|
2,113 |
|
|
|
6.83 |
% |
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
2,296,483 |
|
|
|
84,297 |
|
|
|
3.67 |
% |
|
|
1,436,769 |
|
|
|
32,568 |
|
|
|
2.27 |
% |
Non-interest Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits |
|
|
1,000,726 |
|
|
|
|
|
|
|
|
|
|
|
845,581 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
22,902 |
|
|
|
|
|
|
|
|
|
|
|
11,106 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
348,294 |
|
|
|
|
|
|
|
|
|
|
|
195,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
3,668,405 |
|
|
|
|
|
|
|
|
|
|
$ |
2,488,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and margin (4) |
|
|
|
|
|
$ |
148,788 |
|
|
|
4.52 |
% |
|
|
|
|
|
$ |
102,342 |
|
|
|
4.41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread (5) |
|
|
|
|
|
|
|
|
|
|
3.40 |
% |
|
|
|
|
|
|
|
|
|
|
3.54 |
% |
|
|
|
(1) |
|
Yields on loans and securities have been adjusted to a tax equivalent basis. |
|
(2) |
|
Net loan fees of $7,365,000 and $5,051,000 are included in the yield computation for 2006 and
2005, respectively. |
|
(3) |
|
Includes average non-accrual loans of $374,000 in 2006 and $481,000 in 2005. |
40
|
|
|
(4) |
|
Net interest margin is computed by dividing net interest income by total average earning
assets. |
|
(5) |
|
Net interest spread represents average yield earned on interest-earning assets less the
average rate paid on interest bearing liabilities. |
Net Interest Income. The table below sets forth the relative impact on net interest income of
changes in the volume of earning assets and interest-bearing liabilities and changes in rates
earned and paid by us on such assets and liabilities. For purposes of this table, non-accrual loans
have been included in the average loan balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2006 v. 2005 |
|
|
Increase (Decrease) |
|
|
Due to Changes in (1) |
|
|
Volume |
|
Rate |
|
Total |
|
|
(in thousands) |
Interest on securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
(6,034 |
) |
|
$ |
2,821 |
|
|
$ |
(3,213 |
) |
Tax-exempt |
|
|
246 |
|
|
|
(185 |
) |
|
|
61 |
|
Federal funds sold and other |
|
|
(1,857 |
) |
|
|
1,314 |
|
|
|
(543 |
) |
Loans |
|
|
87,989 |
|
|
|
13,322 |
|
|
|
101,311 |
|
Restricted stock |
|
|
240 |
|
|
|
319 |
|
|
|
559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
80,584 |
|
|
|
17,591 |
|
|
|
98,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking |
|
|
2,707 |
|
|
|
2,018 |
|
|
|
4,725 |
|
Savings and Money market |
|
|
12,779 |
|
|
|
10,410 |
|
|
|
23,189 |
|
Time deposits |
|
|
8,072 |
|
|
|
4,080 |
|
|
|
12,152 |
|
Short-term borrowings |
|
|
5,741 |
|
|
|
2,126 |
|
|
|
7,867 |
|
Long-term debt |
|
|
350 |
|
|
|
699 |
|
|
|
1,049 |
|
Junior subordinated debt |
|
|
2,487 |
|
|
|
260 |
|
|
|
2,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
32,136 |
|
|
|
19,593 |
|
|
|
51,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase |
|
$ |
48,448 |
|
|
$ |
(2,002 |
) |
|
$ |
46,446 |
|
|
|
|
|
|
|
(1) |
|
Changes due to both volume and rate have been allocated to volume changes. |
Provision for Loan Losses. The provision for loan losses in each period is reflected as a
charge against earnings in that period. The provision is equal to the amount required to maintain
the allowance for loan losses at a level that, in our judgment, is adequate to absorb probable loan
losses inherent in the loan portfolio.
Our provision for loan losses was $4.7 million for the year ended December 31, 2006, compared
with $6.2 million for the year ended December 31, 2005. The provision decreased primarily because
of our low level of historical charge-offs, which yielded lower loss experience factors in our
required reserve calculations.
Investment Security Losses. During the fourth quarter of 2006, we liquidated $159 million of
our securities portfolio and recognized a pre-tax loss of $4.4 million.
Non-Interest Income. We earn non-interest income primarily through fees related to:
|
|
|
Trust and investment advisory services, |
|
|
|
Services provided to deposit customers, |
41
|
|
|
Services provided to current and potential loan customers, and |
|
|
|
Bank owned life insurance. |
The following tables present, for the periods indicated, the major categories of non-interest
income (excluding securities gains/(losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
December 31, |
|
Increase |
|
|
2006 |
|
2005 |
|
(Decrease) |
|
|
(in thousands) |
Trust and investment advisory services |
|
$ |
7,346 |
|
|
$ |
5,699 |
|
|
$ |
1,647 |
|
Service charges |
|
|
3,450 |
|
|
|
2,495 |
|
|
|
955 |
|
Income from bank owned life insurance |
|
|
2,661 |
|
|
|
1,664 |
|
|
|
997 |
|
Other |
|
|
4,413 |
|
|
|
2,211 |
|
|
|
2,202 |
|
|
|
|
Total non-interest income |
|
$ |
17,870 |
|
|
$ |
12,069 |
|
|
$ |
5,801 |
|
|
|
|
The $5.8 million, or 48%, increase in non-interest income was influenced by several factors.
Collectively, Premier Trust, Inc. and Miller/Russell Associates, Inc. produced $7.3 million in
trust and investment advisory fees in the year ended December 31, 2006, compared to $5.7 million in
the year ended December 31, 2005. The increase was due to an increase in volume of business from
both entities. Trust assets and assets under management have increased at both entities from a
combined amount of $1.41 billion at December 31, 2005 to $1.83 billion at December 31, 2006.
Service charges increased $955,000 from 2005 to 2006 due to higher deposit balances and the
growth in our customer base.
Income from bank owned life insurance, or BOLI, increased $997,000. In addition to $2.7
million of BOLI acquired through merger, we purchased additional BOLI products with a face amount
of $25.0 million in 2006 to help offset employee benefit costs.
Other income increased $2.2 million, due to the growth of the Company and its operations, and
includes broker fees received on sales of leases and mortgages and gains on sales of SBA loans.
Non-Interest Expense. The following table presents, for the periods indicated, the major
categories of non-interest expense:
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
December 31, |
|
Increase |
|
|
2006 |
|
2005 |
|
(Decrease) |
|
|
(in thousands) |
Salaries and employee benefits |
|
$ |
54,767 |
|
|
$ |
36,816 |
|
|
$ |
17,951 |
|
Occupancy |
|
|
12,958 |
|
|
|
9,819 |
|
|
|
3,139 |
|
Customer service |
|
|
6,684 |
|
|
|
3,720 |
|
|
|
2,964 |
|
Advertising, public relations and business development |
|
|
4,242 |
|
|
|
2,806 |
|
|
|
1,436 |
|
Legal, professional and director fees |
|
|
2,798 |
|
|
|
2,051 |
|
|
|
747 |
|
Correspondent banking service charges and wire transfer costs |
|
|
1,662 |
|
|
|
1,651 |
|
|
|
11 |
|
Audits and exams |
|
|
2,375 |
|
|
|
1,538 |
|
|
|
837 |
|
Supplies |
|
|
1,710 |
|
|
|
1,083 |
|
|
|
627 |
|
Data processing |
|
|
1,748 |
|
|
|
1,053 |
|
|
|
695 |
|
Telephone |
|
|
1,093 |
|
|
|
759 |
|
|
|
334 |
|
Insurance |
|
|
1,048 |
|
|
|
752 |
|
|
|
296 |
|
Organizational Costs |
|
|
977 |
|
|
|
|
|
|
|
977 |
|
Travel and automobile |
|
|
790 |
|
|
|
684 |
|
|
|
106 |
|
Other |
|
|
3,234 |
|
|
|
2,132 |
|
|
|
1,102 |
|
|
|
|
Total non-interest expense |
|
$ |
96,086 |
|
|
$ |
64,864 |
|
|
$ |
31,222 |
|
|
|
|
Non-interest expense grew $31.2 million, or 48.1%. This growth is attributable to our overall
growth, and specifically to the acquisition of Bank of Nevada and First Intermountain Bancorp, the
opening of new branches and the hiring of new relationship officers and other employees. At
December 31, 2006, we had 785 full-time equivalent employees compared to 537 at December 31, 2005.
The increase in salaries and occupancy expenses related to the growth discussed above totaled $21
million, which is 67.6% of the total increase in non-interest expenses.
Also affecting non-interest expenses was the increase in our customer service costs. This line
item grew $3.0 million, or 79.7%, due primarily to an increase in analysis earnings credit rates
during the year ended December 31, 2006 compared to those during the year ended December 31, 2005.
Advertising, public relations and business development increased $1.4 million, or 51.2%. This
increase is a result of the growth in assets and operations of the Company.
Audits and exams increased $837,000 to $2.4 million. The increase is primarily attributable to
2006 being the first year in which we were subject to the Sarbanes-Oxley Rule 404.
The $977,000 in organizational costs relates to the opening of Alta Alliance Bank in October
2006. This total includes salaries, marketing, legal and other professional costs incurred prior to
the opening of the bank.
Other non-interest expense increased $1.1 million from December 31, 2006 to December 31, 2005.
Other non-interest expense increased, in general, as a result of the growth in assets and
operations of the Company.
We incurred $100,000 of audit, legal and recovery costs, net of insurance proceeds, due to the
defalcation which was discovered in the third quarter of 2006. The defalcation also resulted in
$350,000 in fraud losses, net of insurance proceeds, which are included in other expenses.
Provision for Income Taxes. We recorded tax provisions of $21.6 million and $15.4 million for
the years ended December 31, 2006 and 2005, respectively. Our effective tax rates were 35.1% and
35.4% for 2006 and 2005, respectively.
43
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
The following table sets forth a summary financial overview for the years ended December 31,
2005 and 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
Increase |
|
|
|
($ in thousands, except per share data) |
|
Consolidated Statement of Earnings Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
134,910 |
|
|
$ |
90,855 |
|
|
$ |
44,055 |
|
Interest expense |
|
|
32,568 |
|
|
|
19,720 |
|
|
|
12,848 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
102,342 |
|
|
|
71,135 |
|
|
|
31,207 |
|
Provision for loan losses |
|
|
6,179 |
|
|
|
3,914 |
|
|
|
2,265 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
96,163 |
|
|
|
67,221 |
|
|
|
28,942 |
|
Investment security gains (losses) |
|
|
69 |
|
|
|
19 |
|
|
|
50 |
|
Other income (excluding securities gains (losses) |
|
|
12,069 |
|
|
|
8,707 |
|
|
|
3,362 |
|
Other expense |
|
|
64,864 |
|
|
|
44,929 |
|
|
|
19,935 |
|
|
|
|
|
|
|
|
|
|
|
Net income before income taxes |
|
|
43,437 |
|
|
|
31,018 |
|
|
|
12,419 |
|
Income tax expense |
|
|
15,372 |
|
|
|
10,961 |
|
|
|
4,411 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
28,065 |
|
|
$ |
20,057 |
|
|
$ |
8,008 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic |
|
$ |
1.36 |
|
|
$ |
1.17 |
|
|
$ |
0.19 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted |
|
$ |
1.24 |
|
|
$ |
1.09 |
|
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
Our net income for the year ended December 31, 2005 increased 39.9% to $28.1 million
compared to $20.1 million for the year ended December 31, 2004. The increase in net income was due
primarily to increases in net interest income of $31.2 million and other income of $3.4 million,
partially offset by an increase of $19.9 million in other expenses and an additional provision for
loan losses of $2.3 million.
Net Interest Income and Net Interest Margin. The 43.9% increase in net interest income for the
year ended December 31, 2005 compared to the year ended December 31, 2004 was due to an increase in
interest income of $44.1 million, reflecting the effect of an increase of $548.1 million in average
interest-bearing assets which was funded with an increase of $619.9 million in average deposits, of
which $244.8 million were non-interest bearing.
The average yield on our interest-earning assets was 5.81% for the year ended December 31,
2005, compared to 5.12% for the year ended December 31, 2004, an increase of 13.5%. The increase in
the yield on our interest-earning assets is a primarily a result of an increase in the yield earned
on our loan portfolio and a shift of funds previously held in securities into higher-yielding
loans. The increase in the yield on our loan portfolio from 6.26% in 2004 to 6.83% in 2005 was due
to two factors: (1) market rates in 2005 were higher than those in 2004, and therefore the new
loans booked in 2005 were generally at higher rates than the average portfolio rate at December 31,
2004; and (2) approximately one-half of our loan portfolio is variable rate, and therefore these
loans reprice at higher rates in a rising rate environment as was seen in the year ended December
31, 2005.
The cost of our average interest-bearing liabilities increased to 2.27% in the year ended
December 31, 2005, from 1.68% in the year ended December 31, 2004, which is a result of higher
rates paid on deposit accounts and borrowings.
Our average rate on our interest-bearing deposits increased 46.2% from 1.43% for the year
ended December 31, 2004, to 2.09% for the year ended December 31, 2005, reflecting increases in
general market rates. Our average rate on total deposits (including non-interest bearing deposits)
increased 46.4% from 0.84% for the year ended December 31, 2004, to 1.23% for the year ended
December 31, 2005.
Our interest margin of 4.41% for the year ended December 31, 2005 was higher than our margin
for the previous year of 4.01% due to an increase in our yield on interest-bearing assets, offset
by a smaller relative increase in our overall cost of funds.
Average Balances and Average Interest Rates. The table below sets forth balance sheet items on
a daily average basis for the years ended December 31, 2005 and 2004 and presents the daily average
interest rates earned on assets and the daily average interest rates paid on liabilities for such
periods. Non-accrual loans have been included in the average loan balances. Securities include
securities available for sale and securities held to maturity. Securities available for sale are
carried at amortized cost for purposes of calculating the average rate received on taxable
securities below.
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
($ in thousands) |
|
2005 |
|
|
2004 |
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Balance |
|
|
Interest |
|
|
Yield/Cost |
|
|
Balance |
|
|
Interest |
|
|
Yield/Cost |
|
Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
729,884 |
|
|
$ |
29,099 |
|
|
|
3.99 |
% |
|
$ |
781,407 |
|
|
$ |
30,373 |
|
|
|
3.89 |
% |
Tax-exempt (1) |
|
|
8,558 |
|
|
|
394 |
|
|
|
6.30 |
% |
|
|
7,198 |
|
|
|
341 |
|
|
|
6.13 |
% |
|
|
|
|
|
Total securities |
|
|
738,442 |
|
|
|
29,493 |
|
|
|
3.99 |
% |
|
|
788,605 |
|
|
|
30,714 |
|
|
|
3.89 |
% |
Federal funds sold and other |
|
|
71,450 |
|
|
|
2,341 |
|
|
|
3.28 |
% |
|
|
25,589 |
|
|
|
293 |
|
|
|
1.15 |
% |
Loans (1) (2) (3) |
|
|
1,501,089 |
|
|
|
102,481 |
|
|
|
6.83 |
% |
|
|
947,848 |
|
|
|
59,311 |
|
|
|
6.26 |
% |
Federal Home Loan Bank stock |
|
|
13,482 |
|
|
|
595 |
|
|
|
4.41 |
% |
|
|
14,320 |
|
|
|
537 |
|
|
|
3.75 |
% |
|
|
|
|
|
Total earnings assets |
|
|
2,324,463 |
|
|
|
134,910 |
|
|
|
5.81 |
% |
|
|
1,776,362 |
|
|
|
90,855 |
|
|
|
5.12 |
% |
Non-earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
77,347 |
|
|
|
|
|
|
|
|
|
|
|
67,334 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(17,954 |
) |
|
|
|
|
|
|
|
|
|
|
(13,370 |
) |
|
|
|
|
|
|
|
|
Bank-owned life insurance |
|
|
36,200 |
|
|
|
|
|
|
|
|
|
|
|
25,544 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
68,684 |
|
|
|
|
|
|
|
|
|
|
|
47,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,488,740 |
|
|
|
|
|
|
|
|
|
|
$ |
1,902,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources of Funds
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking |
|
|
109,415 |
|
|
|
594 |
|
|
|
0.54 |
% |
|
|
73,029 |
|
|
|
142 |
|
|
|
0.19 |
% |
Savings and money market |
|
|
827,886 |
|
|
|
16,908 |
|
|
|
2.04 |
% |
|
|
561,744 |
|
|
|
7,585 |
|
|
|
1.35 |
% |
Time deposits |
|
|
287,083 |
|
|
|
8,044 |
|
|
|
2.80 |
% |
|
|
214,515 |
|
|
|
4,396 |
|
|
|
2.05 |
% |
|
|
|
|
|
Total interest-bearing deposits |
|
|
1,224,384 |
|
|
|
25,546 |
|
|
|
2.09 |
% |
|
|
849,288 |
|
|
|
12,123 |
|
|
|
1.43 |
% |
Short-term borrowings |
|
|
117,703 |
|
|
|
3,234 |
|
|
|
2.75 |
% |
|
|
239,175 |
|
|
|
4,472 |
|
|
|
1.87 |
% |
Long-term debt |
|
|
63,754 |
|
|
|
1,675 |
|
|
|
2.63 |
% |
|
|
54,733 |
|
|
|
1,586 |
|
|
|
2.90 |
% |
Junior subordinated debt |
|
|
30,928 |
|
|
|
2,113 |
|
|
|
6.83 |
% |
|
|
30,928 |
|
|
|
1,539 |
|
|
|
4.98 |
% |
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,436,769 |
|
|
|
32,568 |
|
|
|
2.27 |
% |
|
|
1,174,124 |
|
|
|
19,720 |
|
|
|
1.68 |
% |
Non-interest Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits |
|
|
845,581 |
|
|
|
|
|
|
|
|
|
|
|
600,790 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
11,106 |
|
|
|
|
|
|
|
|
|
|
|
13,268 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
195,284 |
|
|
|
|
|
|
|
|
|
|
|
114,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders |
|
$ |
2,488,740 |
|
|
|
|
|
|
|
|
|
|
$ |
1,902,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and margin (4) |
|
|
|
|
|
$ |
102,342 |
|
|
|
4.41 |
% |
|
|
|
|
|
$ |
71,135 |
|
|
|
4.01 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread (5) |
|
|
|
|
|
|
|
|
|
|
3.54 |
% |
|
|
|
|
|
|
|
|
|
|
3.44 |
% |
|
|
|
(1) |
|
Yields on loans and securities have been adjusted to a tax equivalent basis. |
|
(2) |
|
Net loan fees of $5,051,000 and $3,081,000 are included in the yield computation for 2005 and
2004, respectively. |
|
(3) |
|
Includes average non-accrual loans of $481,000 in 2005 and $426,000 in 2004. |
|
(4) |
|
Net interest margin is computed by dividing net interest income by total average earning
assets. |
|
(5) |
|
Net interest spread represents average yield earned on interest-earning assets less the average
rate paid on interest bearing liabilities. |
45
Net Interest Income. The table below sets forth the relative impact on net interest income of
changes in the volume of earning assets and interest-bearing liabilities and changes in rates
earned and paid by us on such assets and liabilities. For purposes of this table, non-accrual loans
have been included in the average loan balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2005 v. 2004 |
|
|
Increase (Decrease) |
|
|
Due to Changes in (1) |
|
|
Volume |
|
Rate |
|
Total |
|
|
(in thousands) |
Interest on securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
(2,054 |
) |
|
$ |
780 |
|
|
$ |
(1,274 |
) |
Tax-exempt |
|
|
41 |
|
|
|
12 |
|
|
|
53 |
|
Federal funds sold and other |
|
|
1,503 |
|
|
|
545 |
|
|
|
2,048 |
|
Loans |
|
|
37,770 |
|
|
|
5,400 |
|
|
|
43,170 |
|
Federal Home Loan Bank stock |
|
|
(37 |
) |
|
|
95 |
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
37,223 |
|
|
|
6,832 |
|
|
|
44,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking |
|
|
198 |
|
|
|
254 |
|
|
|
452 |
|
Savings and Money market |
|
|
5,435 |
|
|
|
3,888 |
|
|
|
9,323 |
|
Time deposits |
|
|
2,033 |
|
|
|
1,615 |
|
|
|
3,648 |
|
Short-term borrowings |
|
|
(3,338 |
) |
|
|
2,100 |
|
|
|
(1,238 |
) |
Long-term debt |
|
|
237 |
|
|
|
(148 |
) |
|
|
89 |
|
Junior subordinated debt |
|
|
|
|
|
|
574 |
|
|
|
574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
4,565 |
|
|
|
8,283 |
|
|
|
12,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase |
|
$ |
32,658 |
|
|
$ |
(1,451 |
) |
|
$ |
31,207 |
|
|
|
|
|
|
|
(1) |
|
Changes due to both volume and rate have been allocated to volume changes. |
Provision for Loan Losses. The provision for loan losses in each period is reflected as a
charge against earnings in that period. The provision is equal to the amount required to maintain
the allowance for loan losses at a level that, in our judgment, is adequate to absorb probable loan
losses inherent in the loan portfolio.
Our provision for loan losses increased to $6.2 million for the year ended December 31, 2005,
from $3.9 million for the year ended December 31, 2004. The provision increased primarily because
of loan growth of $604.8 million for the year ended December 31, 2005, compared to loan growth of
$455.5 million for the year ended December 31, 2004, an increase in growth of $149.3 million. Also,
net charge-offs increased from the year ended December 31, 2004 to the year ended December 31, 2005
from $21,000 to $258,000.
Non-Interest Income. We earn non-interest income primarily through fees related to:
|
|
|
Trust and investment advisory services, |
|
|
|
|
Services provided to deposit customers, and |
46
|
|
|
Services provided to current and potential loan customers. |
The following tables present, for the periods indicated, the major categories of non-interest
income (excluding investment securities gains/(losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
December 31, |
|
Increase |
|
|
2005 |
|
2004 |
|
(Decrease) |
|
|
(in thousands) |
Trust and investment advisory services |
|
$ |
5,699 |
|
|
$ |
2,896 |
|
|
$ |
2,803 |
|
Service charges |
|
|
2,495 |
|
|
|
2,333 |
|
|
|
162 |
|
Income from bank owned life insurance |
|
|
1,664 |
|
|
|
1,203 |
|
|
|
461 |
|
Other |
|
|
2,211 |
|
|
|
2,275 |
|
|
|
(64 |
) |
|
|
|
Total non-interest income |
|
$ |
12,069 |
|
|
$ |
8,707 |
|
|
$ |
3,362 |
|
|
|
|
The $3.4 million, or 38.6%, increase in non-interest income was influenced by several
factors. Premier Trust, Inc. was purchased on December 30, 2003, and Miller/Russell & Associates,
Inc. was purchased on May 17, 2004. Collectively, these subsidiaries produced $5.7 million in trust
and investment advisory fees in the year ended December 31, 2005, compared to $2.9 million in the
year ended December 31, 2004. The increase was due to a full year of activity recorded by
Miller/Russell & Associates, Inc. in 2005 compared to less than eight months activity in the prior
year. Also, trust assets and assets under management have increased at both entities from a
combined amount of $999 million at December 31, 2004 to $1.41 billion at December 31, 2005.
Service charges increased $162,000 from 2004 to 2005 due to higher deposit balances and the
growth in our customer base.
Income from bank owned life insurance, or BOLI, increased $461,000. We purchased additional
BOLI products with a face amount of $24.0 million in the third quarter of 2005 to help offset
employee benefit costs.
Non-Interest Expense. The following table presents, for the periods indicated, the major
categories of non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
December 31, |
|
Increase |
|
|
2005 |
|
2004 |
|
(Decrease) |
|
|
(in thousands) |
Salaries and employee benefits |
|
$ |
36,816 |
|
|
$ |
25,590 |
|
|
$ |
11,226 |
|
Occupancy |
|
|
9,819 |
|
|
|
7,309 |
|
|
|
2,510 |
|
Customer service |
|
|
3,720 |
|
|
|
1,998 |
|
|
|
1,722 |
|
Advertising, public relations and business development |
|
|
2,806 |
|
|
|
1,672 |
|
|
|
1,134 |
|
Legal, professional and director fees |
|
|
2,051 |
|
|
|
1,405 |
|
|
|
646 |
|
Correspondent banking service charges and wire transfer costs |
|
|
1,651 |
|
|
|
1,260 |
|
|
|
391 |
|
Audits and exams |
|
|
1,538 |
|
|
|
935 |
|
|
|
603 |
|
Supplies |
|
|
1,083 |
|
|
|
838 |
|
|
|
245 |
|
Data processing |
|
|
1,053 |
|
|
|
641 |
|
|
|
412 |
|
Telephone |
|
|
759 |
|
|
|
578 |
|
|
|
181 |
|
Insurance |
|
|
752 |
|
|
|
540 |
|
|
|
212 |
|
Travel and automobile |
|
|
684 |
|
|
|
467 |
|
|
|
217 |
|
Other |
|
|
2,132 |
|
|
|
1,696 |
|
|
|
436 |
|
|
|
|
Total non-interest expense |
|
$ |
64,864 |
|
|
$ |
44,929 |
|
|
$ |
19,935 |
|
|
|
|
47
Non-interest expense grew $19.9 million, or 44.4%. This growth is attributable to our
overall growth, and specifically to the opening of new branches and the hiring of new relationship
officers and other employees. At December 31, 2005, we had 537 full-time equivalent employees
compared to 424 at December 31, 2004. Three banking branches were opened during 2005, and senior
managers and relationship officers for various branches expected to open in 2006 were hired in late
2004 and into 2005. Miller/Russell & Associates, Inc. was acquired in May 2004, and therefore 2005
was the first year for which a full twelve months of activity is reflected. The increase in
salaries and occupancy expenses related to the growth discussed above totaled $13.7 million, which
is 69% of the total increase in non-interest expenses.
Also affecting non-interest expenses was the increase in our customer service costs. This line
item grew $1.7 million, or 86.2%, due primarily to an increase in analysis earnings credits paid to
certain title company depositors, due to higher balances maintained by the title companies and
higher earnings credit rates during the year ended December 31, 2005 compared to those during the
year ended December 31, 2004. We provide an analysis earnings credit for certain title company
depositors, which is calculated by applying a variable crediting rate to such customers average
monthly deposit balances, less any deposit service charges incurred. We then purchase external
services on their behalf based on the amount of the earnings credit. These external services, which
are commonly offered in the banking industry, include courier, bookkeeping and data processing
services. The costs associated with these earnings credits will increase or decrease based on
movements in crediting rates and fluctuations in the average monthly deposit balances. Beginning in
the third quarter of 2005, we began offering loans at below market rates to certain of our title
company depositors in lieu of providing an earnings credit. This caused a shift in the cost of
maintaining these title company deposits from non-interest expense to a reduction in the growth of
the yield on our loan portfolio in the fourth quarter of 2005. This trend continued into 2006.
Advertising, public relations and business development increased $1.1 million, or 67.8%.
During 2005, Bank of Nevada entered into a sponsorship agreement with the Las Vegas Monorail,
whereby Bank of Nevada pays a fee in exchange for the right to showcase the name of the bank on the
exterior of one monorail train, and to display promotional material on the interior of the train.
Further, Bank of Nevada gained exclusive ATM rights to the Las Vegas Monorail stations. The design
and contract costs associated with this sponsorship are reflected in this line item and account for
the majority of the increase.
Other non-interest expense increased $3.3 million from December 31, 2004 to December 31, 2005.
Other non-interest expense increased, in general, as a result of the growth in assets and
operations of the Company, and due to the increased costs associated with being a public company,
including audit, legal, compliance and insurance expenses.
Provision for Income Taxes. We recorded tax provisions of $15.4 million and $11.0 million for
the years ended December 31, 2005 and 2004, respectively. Our effective tax rates were 35.4% and
35.3% for 2005 and 2004, respectively.
Financial Condition
Total Assets
On a consolidated basis, our total assets as of December 31, 2006, December 31, 2005 and
December 31, 2004 were $4.2 billion, $2.9 billion and $2.2 billion, respectively. The overall
increase from December 31, 2005 to December 31, 2006 was primarily due to a $1.2 billion, or 67.6%,
increase in gross loans, a $90.5 million, or 51.9% increase in cash and cash equivalents and a
$41.4 million, or 70.1% increase in premises and equipment. The overall increase from December 31,
2004 to December 31, 2005 was primarily due to a $604.8 million, or 50.9%, increase in gross loans,
a $58.9 million, or 51.1% increase in cash and cash equivalents and a $29.1 million, or 99.0%
increase in premises and equipment.
Loans
Our gross loans, including deferred loan fees, on a consolidated basis as of December 31,
2006, December 31, 2005, and December 31, 2004 were $3.0 billion, $1.8 billion and $1.2 billion,
respectively. Since January 1, 2002, residential real estate loans experienced the highest
percentage growth within the portfolio, growing from $21.9 million to $384.1 million as of December
31, 2006. Our overall growth in loans from December 31, 2002 to December 31, 2006 is consistent
with our focus and strategy to grow our loan portfolio by focusing on markets which we believe have
attractive growth prospects.
48
The following table shows the amounts of loans outstanding by type of loan at the end of each
of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
(in thousands) |
|
Construction and land development |
|
$ |
715,546 |
|
|
$ |
432,668 |
|
|
$ |
323,176 |
|
|
$ |
195,182 |
|
|
$ |
127,974 |
|
Commercial real estate |
|
|
1,232,260 |
|
|
|
727,210 |
|
|
|
491,949 |
|
|
|
324,702 |
|
|
|
209,834 |
|
Residential real estate |
|
|
384,082 |
|
|
|
272,861 |
|
|
|
116,360 |
|
|
|
42,773 |
|
|
|
21,893 |
|
Commercial and industrial |
|
|
645,469 |
|
|
|
342,452 |
|
|
|
241,292 |
|
|
|
159,889 |
|
|
|
94,411 |
|
Consumer |
|
|
29,561 |
|
|
|
20,434 |
|
|
|
17,682 |
|
|
|
11,802 |
|
|
|
10,281 |
|
Net deferred loan fees |
|
|
(3,696 |
) |
|
|
(2,288 |
) |
|
|
(1,924 |
) |
|
|
(1,270 |
) |
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans, net of deferred fees |
|
|
3,003,222 |
|
|
|
1,793,337 |
|
|
|
1,188,535 |
|
|
|
733,078 |
|
|
|
464,355 |
|
Less: Allowance for loan losses |
|
|
(33,551 |
) |
|
|
(21,192 |
) |
|
|
(15,271 |
) |
|
|
(11,378 |
) |
|
|
(6,449 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,969,671 |
|
|
$ |
1,772,145 |
|
|
$ |
1,173,264 |
|
|
$ |
721,700 |
|
|
$ |
457,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables set forth the amount of loans outstanding by type of loan as of
December 31, 2006 which were contractually due in one year or less, more than one year and less
than five years, and more than five years based on remaining scheduled repayments of principal.
Lines of credit or other loans having no stated final maturity and no stated schedule of repayments
are reported as due in one year or less. The tables also present an analysis of the rate structure
for loans within the same maturity time periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
|
|
Due Within |
|
|
Due 1-5 |
|
|
Due Over |
|
|
|
|
|
|
One Year |
|
|
Years |
|
|
Five Years |
|
|
Total |
|
|
|
(in thousands) |
|
Construction and land development |
|
$ |
556,883 |
|
|
$ |
116,611 |
|
|
$ |
42,052 |
|
|
$ |
715,546 |
|
Commercial real estate |
|
|
174,625 |
|
|
|
411,663 |
|
|
|
645,972 |
|
|
|
1,232,260 |
|
Residential real estate |
|
|
29,042 |
|
|
|
28,025 |
|
|
|
327,015 |
|
|
|
384,082 |
|
Commercial and industrial |
|
|
431,487 |
|
|
|
191,350 |
|
|
|
22,632 |
|
|
|
645,469 |
|
Consumer |
|
|
21,379 |
|
|
|
7,464 |
|
|
|
718 |
|
|
|
29,561 |
|
Net deferred loan fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,696 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans, net of deferred fees |
|
|
1,213,416 |
|
|
|
755,113 |
|
|
|
1,038,389 |
|
|
|
3,003,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
$ |
226,286 |
|
|
$ |
510,976 |
|
|
$ |
712,606 |
|
|
$ |
1,449,868 |
|
Variable |
|
|
987,130 |
|
|
|
244,137 |
|
|
|
325,783 |
|
|
|
1,557,050 |
|
Net deferred loan fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,696 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans, net of deferred fees |
|
$ |
1,213,416 |
|
|
$ |
755,113 |
|
|
$ |
1,038,389 |
|
|
$ |
3,003,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrations. Our loan portfolio has a concentration of loans in commercial real-estate
related loans and includes significant credit exposure to the commercial real estate industry. As
of December 31, 2006, December 31, 2005 and December 31, 2004, commercial real estate-related loans
comprised 64.9%, 64.7% and 68.6% of total gross loans, respectively. Substantially all of these
loans are secured by first liens with an initial loan to value ratio of generally no more than 80%.
Approximately one-half of these commercial real estate loans are owner occupied. One-to-four family
residential real estate loans have a lower risk than commercial real estate and construction and
land development loans due to lower loan balances to single borrowers. Our policy for requiring
collateral is to obtain collateral whenever it is available or desirable, depending upon the degree
of risk we are willing to accept. Repayment of loans is expected from the sale
49
proceeds of the collateral or from the borrowers cash flows. Deterioration in the performance of
the economy or real estate values in our primary market areas, in particular, could have an adverse
impact on collectibility, and consequently have an adverse effect on our profitability.
Non-Performing Assets. Non-performing loans include loans past due 90 days or more and still
accruing interest, non-accrual loans, restructured loans, and other real estate owned, or OREO. In
general, loans are placed on non-accrual status when we determine timely recognition of interest to
be in doubt due to the borrowers financial condition and collection efforts. Restructured loans
have modified terms to reduce either principal or interest due to deterioration in the borrowers
financial condition. OREO results from loans where we have received physical possession of the
borrowers assets. The following table summarizes the loans for which the accrual of interest has
been discontinued, loans past due 90 days or more and still accruing interest, restructured loans,
and OREO.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
|
($ in thousands) |
Total non-accrual loans |
|
$ |
1,417 |
|
|
$ |
107 |
|
|
$ |
1,591 |
|
|
$ |
210 |
|
|
$ |
1,039 |
|
Other impaired loans |
|
|
839 |
|
|
|
|
|
|
|
127 |
|
|
|
|
|
|
|
|
|
Loans past due 90 days or more and still accruing |
|
|
794 |
|
|
|
34 |
|
|
|
2 |
|
|
|
65 |
|
|
|
317 |
|
Restructured loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,193 |
|
Other real estate owned (OREO) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans to gross loans |
|
|
0.05 |
% |
|
|
0.01 |
% |
|
|
0.13 |
% |
|
|
0.03 |
% |
|
|
0.22 |
% |
Loans past due 90 days or more and still accruing to
total loans |
|
|
0.03 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.01 |
|
|
|
0.04 |
|
Interest income received on nonaccrual loans |
|
$ |
120 |
|
|
$ |
1 |
|
|
$ |
61 |
|
|
$ |
6 |
|
|
$ |
158 |
|
Interest income that would have been recorded
under the original terms of the loans |
|
$ |
147 |
|
|
$ |
10 |
|
|
$ |
96 |
|
|
$ |
29 |
|
|
$ |
242 |
|
As of December 31, 2006 and December 31, 2005, non-accrual loans totaled $1,417,000 and
$107,000, respectively. Non-accrual loans at December 31, 2006 consisted of 11 loans with no single
loan having a principal balance greater than $625,000.
Impaired Loans. A loan is impaired when it is probable we will be unable to collect all
contractual principal and interest payments due in accordance with the terms of the loan agreement.
Impaired loans are measured based on the present value of expected future cash flows discounted at
the loans effective interest rate or, as a practical expedient, at the loans observable market
price or the fair value of the collateral if the loan is collateral dependent. The categories of
non-accrual loans and impaired loans overlap, although they are not coextensive. We consider all
circumstances regarding the loan and borrower on an individual basis when determining whether a
loan is impaired such as the collateral value, reasons for the delay, payment record, the amount
past due, and number of days past due.
As of December 31, 2006, December 31, 2005 and December 31, 2004, the aggregate total amount
of loans classified as impaired was $2,256,000, $107,000 and $1.7 million, respectively. The total
specific allowance for loan losses related to these loans was $489,000, $26,000 and $498,000 for
December 31, 2006 and December 31, 2005 and 2004, respectively.
The amount of interest income recognized on impaired loans for the years ended December 31,
2006, 2005 and 2004 was $120,000, $1,000 and $61,000, respectively. We would have recorded interest
income of $147,000, $10,000 and $96,000 on non-accrual loans had the loans been current for the
years ended December 31, 2006, 2005 and 2004, respectively.
Allowance for Loan Losses
Like all financial institutions, we must maintain an adequate allowance for loan losses. The
allowance for loan losses is established through a provision for loan losses charged to expense.
Loans are charged against the allowance for loan losses when we believe that collectibility of the
principal is unlikely. Subsequent recoveries, if any, are credited to the allowance. The allowance
is an amount that we believe will be adequate to absorb probable losses on existing loans that may
become uncollectible, based on evaluation of the collectibility of loans and prior credit loss
experience, together with the other factors noted earlier.
50
Our allowance for loan loss methodology incorporates several quantitative and qualitative risk
factors used to establish the appropriate allowance for loan loss at each reporting date.
Quantitative factors include our historical loss experience, peer group experience, delinquency and
charge-off trends, collateral values, changes in non-performing loans, other factors, and
information about individual loans including the borrowers sensitivity to interest rate movements.
Qualitative factors include the economic condition of our operating markets and the state of
certain industries. Specific changes in the risk factors are based on perceived risk of similar
groups of loans classified by collateral type, purpose and terms. Statistics on local trends,
peers, and an internal five-year loss history are also incorporated into the allowance. 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 Southern Nevada, Arizona and Southern California. 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 Federal Deposit Insurance Corporation, or FDIC, and state banking regulatory
agencies, as an integral part of their examination processes, periodically review the Banks
allowance for loan losses, and may require us to make additions to the allowance based on their
judgment about information available to them at the time of their examinations. Management
periodically 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
watch credits, criticized loans, and impaired loans. For such loans that are also classified as
impaired, an allowance is established when the discounted cash flows (or collateral value or
observable market price) of the impaired loan are lower than the carrying value of that loan,
pursuant to Financial Accounting Standards Board, or FASB, Statement No. 114, Accounting by
Creditors for Impairment of a Loan. The general allowance covers non-classified loans and is based
on historical loss experience adjusted for the various qualitative and quantitative factors listed
above, pursuant to FASB Statement No. 5, or FASB 5, Accounting for Contingencies. Loans graded
Watch List/Special Mention and below are individually examined closely to determine the
appropriate loan loss reserve.
The following table summarizes the activity in our allowance for loan losses for the period
indicated.
Allowance for Loan Losses
The table below presents information regarding our provision and allowance for loan losses for
the periods and years indicated.
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
|
($ in thousands) |
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
21,192 |
|
|
$ |
15,271 |
|
|
$ |
11,378 |
|
|
$ |
6,449 |
|
|
$ |
6,563 |
|
Provisions charged to operating expenses |
|
|
4,660 |
|
|
|
6,179 |
|
|
|
3,914 |
|
|
|
5,145 |
|
|
|
1,587 |
|
Acquisitions |
|
|
8,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
737 |
|
|
|
(850 |
) |
Recoveries of loans previously charged-off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140 |
|
|
|
|
|
Residential real estate |
|
|
5 |
|
|
|
3 |
|
|
|
15 |
|
|
|
1 |
|
|
|
|
|
Commercial and industrial |
|
|
324 |
|
|
|
164 |
|
|
|
132 |
|
|
|
272 |
|
|
|
464 |
|
Consumer |
|
|
107 |
|
|
|
29 |
|
|
|
10 |
|
|
|
7 |
|
|
|
7 |
|
|
|
|
Total recoveries |
|
|
436 |
|
|
|
196 |
|
|
|
157 |
|
|
|
420 |
|
|
|
471 |
|
Loans charged-off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development |
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140 |
|
|
|
|
|
Residential real estate |
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
20 |
|
|
|
60 |
|
Commercial and industrial |
|
|
1,273 |
|
|
|
194 |
|
|
|
115 |
|
|
|
1,090 |
|
|
|
1,201 |
|
Consumer |
|
|
168 |
|
|
|
260 |
|
|
|
54 |
|
|
|
123 |
|
|
|
61 |
|
|
|
|
Total charged-off |
|
|
1,505 |
|
|
|
454 |
|
|
|
178 |
|
|
|
1,373 |
|
|
|
1,322 |
|
Net charge-offs |
|
|
1,069 |
|
|
|
258 |
|
|
|
21 |
|
|
|
953 |
|
|
|
851 |
|
|
|
|
Balance at end of period |
|
$ |
33,551 |
|
|
$ |
21,192 |
|
|
$ |
15,271 |
|
|
$ |
11,378 |
|
|
$ |
6,449 |
|
|
|
|
Net charge-offs to average loans outstanding |
|
|
0.04 |
% |
|
|
0.02 |
% |
|
|
0.00 |
% |
|
|
0.17 |
% |
|
|
0.19 |
% |
Allowance for loan losses to gross loans |
|
|
1.12 |
|
|
|
1.18 |
|
|
|
1.28 |
|
|
|
1.55 |
|
|
|
1.39 |
|
|
|
|
(1) |
|
In accordance with regulatory reporting requirements and American Institute of Certified
Public Accountants Statement of Position 01-06, Accounting by Certain Entities that Lend to or
Finance the Activities of Others, the Company has reclassified the portion of its allowance for
loan losses that relates to undisbursed commitments during the year ended December 31, 2002. During
the year ended December 31, 2003, management reevaluated its methodology for calculating this
amount and reclassified an amount from other liabilities to the allowance for loan losses. |
The following table details the allocation of the allowance for loan losses to the various
categories. The allocation is made for analytical purposes and it is not necessarily indicative of
the categories in which future credit losses may occur. The total allowance is available to absorb
losses from any segment of loans. The allocations in the table below were determined by a
combination of the following factors: specific allocations made on loans considered impaired as
determined by management and the loan review committee, a general allocation on certain other
impaired loans, and historical losses in each loan type category combined with a weighting of the
current loan composition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses at December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Loans |
|
|
|
|
|
|
% of Loans |
|
|
|
|
|
|
% of Loans |
|
|
|
|
|
|
% of Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Each |
|
|
|
|
|
|
in Each |
|
|
|
|
|
|
in Each |
|
|
|
|
|
|
in Each |
|
|
|
|
|
|
% of Loans in |
|
|
|
|
|
|
|
Category to |
|
|
|
|
|
|
Category to |
|
|
|
|
|
|
Category to |
|
|
|
|
|
|
Category to |
|
|
|
|
|
|
Each Category |
|
|
|
Amount |
|
|
Gross Loans |
|
|
Amount |
|
|
Gross Loans |
|
|
Amount |
|
|
Gross Loans |
|
|
Amount |
|
|
Gross Loans |
|
|
Amount |
|
|
to Gross Loans |
|
Construction and land development |
|
$ |
13,456 |
|
|
|
23.8 |
% |
|
$ |
6,646 |
|
|
|
24.1 |
% |
|
$ |
4,920 |
|
|
|
27.1 |
% |
|
$ |
3,252 |
|
|
|
26.6 |
% |
|
$ |
1,050 |
|
|
|
27.6 |
% |
Commercial real estate |
|
|
6,483 |
|
|
|
41.0 |
|
|
|
3,050 |
|
|
|
40.5 |
|
|
|
2,095 |
|
|
|
41.3 |
|
|
|
1,446 |
|
|
|
44.2 |
|
|
|
2,531 |
|
|
|
45.2 |
|
Residential real estate |
|
|
1,729 |
|
|
|
12.8 |
|
|
|
1,219 |
|
|
|
15.2 |
|
|
|
327 |
|
|
|
9.8 |
|
|
|
179 |
|
|
|
5.8 |
|
|
|
282 |
|
|
|
4.7 |
|
Commercial and industrial |
|
|
11,312 |
|
|
|
21.5 |
|
|
|
9,842 |
|
|
|
19.1 |
|
|
|
7,502 |
|
|
|
20.3 |
|
|
|
6,192 |
|
|
|
21.8 |
|
|
|
2,340 |
|
|
|
20.3 |
|
Consumer |
|
|
571 |
|
|
|
0.9 |
|
|
|
435 |
|
|
|
1.1 |
|
|
|
427 |
|
|
|
1.5 |
|
|
|
309 |
|
|
|
1.6 |
|
|
|
246 |
|
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
33,551 |
|
|
|
100 |
% |
|
$ |
21,192 |
|
|
|
100 |
% |
|
$ |
15,271 |
|
|
|
100 |
% |
|
$ |
11,378 |
|
|
|
100 |
% |
|
$ |
6,449 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
52
In general, the Commercial and Industrial Loans category represents the highest risk
category for commercial banks. Historically, our largest source of losses has been in this
category. As a result, we utilize a larger estimated loss factor for this category than we do for
real estate secured loans. The reserve related to our commercial loan portfolio as of December 31,
2006 was $11.3 million, or 33.7% of the total allowance. Other categories, such as stock and bond
secured or assignment of cash collateral loans are provided a nominal loss factor based upon a
history of comparatively lower losses. While the majority of our historical charge-offs have
occurred in the commercial portfolio, we believe that the allowance allocation is adequate when
considering the current composition of commercial loans and related loss factors.
Our Construction and Land Development category reflects some borrower concentration risk and
carries the enhanced risk encountered with construction loans in general. Currently, construction
activity within our primary markets is very competitive, presenting challenges in the timely
completion of projects. A construction project can be delayed for an extended period as
unanticipated problems arise. Unscheduled work can be difficult to accomplish due to the high
demand for construction workers and delays associated with permitting issues. As a result, a higher
loan loss allocation is devoted to this loan category than to other loan categories except consumer
loans.
Our Commercial Real Estate loan category contains a mixture of new and seasoned properties,
retail, office, warehouse, medical and some special purpose. Loans on properties are generally
underwritten at a loan to value ratio of less than 80% with a minimum debt coverage ratio of 1.20.
Historically, our losses on this product have been minimal and the portfolio continues to exhibit
exceptionally high credit quality. Moreover, a large percentage of the Commercial Real Estate loan
portfolio is comprised of owner-occupied relationships, which usually reflect a relatively low risk
profile. Consequently, the estimated loan loss factor applied to this sub-category is comparatively
low.
Investments
Securities are identified as either held-to-maturity or available-for-sale based upon various
factors, including asset/liability management strategies, liquidity and profitability objectives,
and regulatory requirements. Held-to-maturity securities are carried at cost, adjusted for
amortization of premiums or accretion of discounts. Available-for-sale securities are securities
that may be sold prior to maturity based upon asset/liability management decisions. Securities
identified as available-for-sale are carried at fair value. Unrealized gains or losses on
available-for-sale securities are recorded as accumulated other comprehensive income in
stockholders equity. Amortization of premiums or accretion of discounts on mortgage-backed
securities is periodically adjusted for estimated prepayments.
We use our investment securities portfolio to ensure liquidity for cash requirements, manage
interest rate risk, provide a source of income and to manage asset quality. The carrying value of
our investment securities as of December 31, 2006 totaled $542.3 million, compared to $748.5
million at December 31, 2005, and $788.6 million as of December 31, 2004. The decrease experienced
from December 31, 2005 to December 31, 2006 was a result of the maturity of our Auction Rate
Securities portfolio, called U.S. Government-sponsored agency obligations and the liquidation of
securities with a book value of $159 million in December 2006. The decrease experienced from 2004
to 2005 was a result of called U.S. Government-sponsored agency obligations and principal received
from mortgage-backed obligations.
Our portfolio of investment securities during 2005 and 2004 consisted primarily of
mortgage-backed obligations and U.S. Government agency obligations. In 2006 we maintained a high
level of investment in mortgage-backed securities while shifting from U.S. Government agency
obligations to higher yielding asset-backed securities and adjustable rate preferred stock.
The carrying value of our portfolio of investment securities at December 31, 2006, 2005 and
2004 was as follows:
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
U.S. Treasury securities |
|
$ |
3,646 |
|
|
$ |
3,498 |
|
|
$ |
3,501 |
|
U.S. Government-sponsored agencies |
|
|
27,747 |
|
|
|
137,578 |
|
|
|
118,348 |
|
Mortgage-backed obligations |
|
|
379,497 |
|
|
|
519,858 |
|
|
|
648,100 |
|
SBA Loan Pools |
|
|
392 |
|
|
|
426 |
|
|
|
625 |
|
State and Municipal obligations |
|
|
10,502 |
|
|
|
7,128 |
|
|
|
7,290 |
|
Adjustable rate preferred stock |
|
|
49,065 |
|
|
|
|
|
|
|
|
|
Asset-backed securities |
|
|
47,983 |
|
|
|
|
|
|
|
|
|
Auction rate securities |
|
|
|
|
|
|
67,999 |
|
|
|
|
|
Other |
|
|
23,489 |
|
|
|
12,046 |
|
|
|
10,758 |
|
|
|
|
Total investment securities |
|
$ |
542,321 |
|
|
$ |
748,533 |
|
|
$ |
788,622 |
|
|
|
|
The maturity distribution and weighted average yield of our available for sale and held to
maturity portfolios at December 31, 2006 are summarized in the table below. This table excludes
investments in equity securities with amortized cost of $21.1 million as such securities have no
stated maturity. Weighted average yield is calculated by dividing income within each maturity range
by the outstanding amount of the related investment and has not been tax affected on tax-exempt
obligations. Securities available for sale are carried at amortized cost in the table below for
purposes of calculating the weighted average yield received on such securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due Over 10 |
|
|
|
|
December 31, 2006 |
|
Due Under 1 Year |
|
|
Due 1-5 Years |
|
|
Due 5-10 Years |
|
|
Years |
|
|
Total |
|
($ in thousands) |
|
Amount/Yield |
|
|
Amount/Yield |
|
|
Amount/Yield |
|
|
Amount/Yield |
|
|
Amount/Yield |
|
Available for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
1,669 |
|
|
|
5.04 |
% |
|
$ |
|
|
|
|
0.00 |
% |
|
$ |
|
|
|
|
0.00 |
% |
|
$ |
|
|
|
|
0.00 |
% |
|
$ |
1,669 |
|
|
|
5.04 |
% |
U.S. Government-sponsored
Agency obligations |
|
|
7,000 |
|
|
|
3.60 |
|
|
|
10,449 |
|
|
|
5.26 |
|
|
|
9,341 |
|
|
|
4.97 |
|
|
|
1,174 |
|
|
|
6.57 |
|
|
|
27,964 |
|
|
|
4.80 |
|
Mortgage-backed obligations |
|
|
|
|
|
|
0.00 |
|
|
|
5,394 |
|
|
|
3.22 |
|
|
|
892 |
|
|
|
4.82 |
|
|
|
293,197 |
|
|
|
4.68 |
|
|
|
299,483 |
|
|
|
4.66 |
|
State and Municipal obligations |
|
|
120 |
|
|
|
4.80 |
|
|
|
2,165 |
|
|
|
5.27 |
|
|
|
1,130 |
|
|
|
3.83 |
|
|
|
|
|
|
|
0.00 |
|
|
|
3,415 |
|
|
|
4.77 |
|
Asset-backed securities |
|
|
|
|
|
|
0.00 |
|
|
|
|
|
|
|
0.00 |
|
|
|
|
|
|
|
0.00 |
|
|
|
48,069 |
|
|
|
7.94 |
|
|
|
48,069 |
|
|
|
7.94 |
|
Adjustable rate preferred securities |
|
|
|
|
|
|
0.00 |
|
|
|
15,542 |
|
|
|
5.15 |
|
|
|
|
|
|
|
0.00 |
|
|
|
33,437 |
|
|
|
5.51 |
|
|
|
48,979 |
|
|
|
5.39 |
|
Other |
|
|
|
|
|
|
0.00 |
|
|
|
|
|
|
|
0.00 |
|
|
|
|
|
|
|
0.00 |
|
|
|
2,210 |
|
|
|
4.58 |
|
|
|
2,210 |
|
|
|
4.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale |
|
$ |
8,789 |
|
|
|
3.90 |
% |
|
$ |
33,550 |
|
|
|
4.88 |
% |
|
$ |
11,363 |
|
|
|
4.85 |
% |
|
$ |
378,087 |
|
|
|
5.18 |
% |
|
$ |
431,789 |
|
|
|
5.12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
1,980 |
|
|
|
5.04 |
% |
|
$ |
|
|
|
|
0.00 |
% |
|
$ |
|
|
|
|
0.00 |
% |
|
$ |
|
|
|
|
0.00 |
% |
|
$ |
1,980 |
|
|
|
5.04 |
% |
State and Municipal obligations |
|
|
|
|
|
|
0.00 |
|
|
|
|
|
|
|
0.00 |
|
|
|
3,064 |
|
|
|
4.71 |
|
|
|
4,022 |
|
|
|
4.98 |
|
|
|
7,086 |
|
|
|
4.86 |
|
Mortgage-backed obligations |
|
|
|
|
|
|
0.00 |
|
|
|
|
|
|
|
0.00 |
|
|
|
|
|
|
|
0.00 |
|
|
|
88,037 |
|
|
|
4.59 |
|
|
|
88,037 |
|
|
|
4.59 |
|
SBA Loan Pools |
|
|
|
|
|
|
0.00 |
|
|
|
|
|
|
|
0.00 |
|
|
|
248 |
|
|
|
5.96 |
|
|
|
144 |
|
|
|
5.92 |
|
|
|
392 |
|
|
|
5.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity |
|
$ |
1,980 |
|
|
|
5.04 |
% |
|
$ |
|
|
|
|
0.00 |
|
|
$ |
3,312 |
|
|
|
4.80 |
% |
|
$ |
92,203 |
|
|
|
4.61 |
% |
|
$ |
97,495 |
|
|
|
4.63 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We had a concentration of mortgage-backed securities during the year ended December 31, 2006.
The aggregate carrying value and aggregate fair value of these securities at December 31, 2006 are
$379,497,000 and $377,190,000, respectively.
We had a concentration of U.S. Government sponsored agencies and mortgage-backed securities
during each of the years ended December 31, 2005 and 2004. The aggregate carrying value and
aggregate fair value of these securities at December 31, 2005 and 2004 are as follows.
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2005 |
|
2004 |
|
|
(in thousands) |
Aggregate carrying value |
|
$ |
657,436 |
|
|
$ |
766,448 |
|
|
|
|
Aggregate fair value |
|
$ |
654,636 |
|
|
$ |
765,453 |
|
|
|
|
54
Premises and Equipment
On December 30, 2005, the Company purchased the corporate headquarters of Bank of Nevada for a
total acquisition price of approximately $16.3 million. The location was previously leased by the
Company. In connection with this purchase, the Company assumed a note on the building. The note
amount at December 31, 2006 is $9.7 million, has a fixed interest rate of 8.79%, and matures in
2010. The note is secured by the purchased building.
Due to a combination of acquisitions and investment in new branch and operations locations,
premises and equipment increased $41.4 million from December 31, 2005 to December 31, 2006.
Premises and equipment acquired through mergers totaled $11.9 million with the remaining increase
attributable to new branch locations and the new operations center in Las Vegas, Nevada.
Goodwill
In connection with the 2006 acquisitions of Intermountain First Bancorporation and Bank of
Nevada, we recorded goodwill in the amount of $128.2 million
Other Assets
During 2006, we purchased $25.0 million of bank owned life insurance to offset the cost of
employee benefits.
Deposits
Deposits historically have been the primary source of funding our asset growth. As of December
31, 2006, total deposits were $3.4 billion, compared to $2.4 billion as of December 31, 2005 and
$1.8 billion as of December 31, 2004. In addition to the deposit growth from mergers and
acquisitions, the increase in total deposits is attributable to our ability to attract a stable
base of low-cost deposits. As of December 31, 2006, non-interest bearing deposits were $1.2
billion, compared to $980.0 million as of December 31, 2005 and $749.2 million as of December 31,
2004. As of December 31, 2006, title company deposits comprised 27.2% of our total non-interest
bearing deposits. Interest-bearing accounts have also experienced growth. As of December 31, 2006,
interest-bearing deposits were $2.2 billion, compared to $1.4 billion and $1.0 billion as of
December 31, 2005 and 2004, respectively. Interest-bearing deposits are comprised of NOW accounts,
savings and money market accounts, certificates of deposit under $100,000, and certificates of
deposit over $100,000.
The average balances and weighted average rates paid on deposits for the years ended December
31, 2006, 2005 and 2004, are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
2006 Average |
|
|
2005 Average |
|
|
2004 Average |
|
|
|
Balance/Rate |
|
|
Balance/Rate |
|
|
Balance/Rate |
|
|
|
($ in thousands) |
|
Interest checking (NOW) |
|
$ |
222,851 |
|
|
|
2.39 |
% |
|
$ |
109,415 |
|
|
|
0.54 |
% |
|
$ |
73,029 |
|
|
|
0.19 |
% |
Savings and money market |
|
|
1,215,139 |
|
|
|
3.30 |
|
|
|
827,886 |
|
|
|
2.04 |
|
|
|
561,744 |
|
|
|
1.35 |
|
Time |
|
|
478,228 |
|
|
|
4.22 |
|
|
|
287,083 |
|
|
|
2.80 |
|
|
|
214,515 |
|
|
|
2.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
1,916,218 |
|
|
|
3.42 |
|
|
|
1,224,384 |
|
|
|
2.09 |
|
|
|
849,288 |
|
|
|
1.43 |
|
Non-interest bearing demand deposits |
|
|
1,000,726 |
|
|
|
|
|
|
|
845,581 |
|
|
|
|
|
|
|
600,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
2,916,944 |
|
|
|
2.25 |
% |
|
$ |
2,069,965 |
|
|
|
1.23 |
% |
|
$ |
1,450,078 |
|
|
|
0.84 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The remaining maturity for certificates of deposit of $100,000 or more as of December 31, 2006
is presented in the following table.
55
|
|
|
|
|
|
|
December 31, 2006 |
|
|
|
(in thousands) |
|
3 months or less |
|
$ |
262,549 |
|
3 to 6 months |
|
|
136,089 |
|
6 to 12 months |
|
|
106,801 |
|
Over 12 months |
|
|
19,496 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
524,935 |
|
|
|
|
|
Capital Resources
Current risk-based regulatory capital standards generally require banks and bank holding
companies to maintain three minimum capital ratios. Tier 1 risk-based capital ratio compares Tier
1 or core capital, which consists principally of common equity, and risk-weighted assets for a
minimum ratio of at least 4%. Total risk-based capital ratio compares total capital, which consists
of Tier 1 capital, certain forms of subordinated debt, a portion of the allowance for loan losses,
and preferred stock, to risk-weighted assets for a minimum ratio of at least 8%. Risk-weighted
assets are calculated by multiplying the balance in each category of assets and certain off-balance
sheet obligations by a risk factor, which ranges from zero for cash assets and certain government
obligations to 100% for some types of loans, and adding the products together.
The following table provides a comparison of our risk-based capital ratios and leverage ratios
to the minimum regulatory requirements for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adequately- |
|
Minimum For |
|
|
|
|
|
|
|
|
|
|
Capitalized |
|
Well-Capitalized |
|
|
Actual |
|
Requirements |
|
Requirements |
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
|
|
|
|
As of December 31, 2006 |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
Total Capital (to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Nevada |
|
$ |
265,562 |
|
|
|
10.8 |
% |
|
$ |
196,443 |
|
|
|
8.0 |
% |
|
$ |
245,554 |
|
|
|
10.0 |
% |
Alliance Bank of Arizona |
|
|
67,864 |
|
|
|
11.2 |
|
|
|
48,424 |
|
|
|
8.0 |
|
|
|
60,530 |
|
|
|
10.0 |
|
Torrey Pines Bank |
|
|
54,467 |
|
|
|
11.5 |
|
|
|
37,859 |
|
|
|
8.0 |
|
|
|
47,324 |
|
|
|
10.0 |
|
Alta Alliance Bank |
|
|
24,169 |
|
|
|
89.9 |
|
|
|
2,150 |
|
|
|
8.0 |
|
|
|
2,688 |
|
|
|
10.0 |
|
Company |
|
|
409,481 |
|
|
|
11.5 |
|
|
|
285,294 |
|
|
|
8.0 |
|
|
|
356,617 |
|
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital (to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Nevada |
|
|
202,141 |
|
|
|
8.2 |
|
|
|
98,222 |
|
|
|
4.0 |
|
|
|
147,332 |
|
|
|
6.0 |
|
Alliance Bank of Arizona |
|
|
52,064 |
|
|
|
8.6 |
|
|
|
24,212 |
|
|
|
4.0 |
|
|
|
36,318 |
|
|
|
6.0 |
|
Torrey Pines Bank |
|
|
39,917 |
|
|
|
8.4 |
|
|
|
18,929 |
|
|
|
4.0 |
|
|
|
28,394 |
|
|
|
6.0 |
|
Alta Alliance Bank |
|
|
24,088 |
|
|
|
89.6 |
|
|
|
1,075 |
|
|
|
4.0 |
|
|
|
1,613 |
|
|
|
6.0 |
|
Company |
|
|
335,629 |
|
|
|
9.4 |
|
|
|
142,647 |
|
|
|
4.0 |
|
|
|
213,970 |
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage ratio (to Average Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Nevada |
|
|
202,141 |
|
|
|
7.2 |
|
|
|
111,862 |
|
|
|
4.0 |
|
|
|
139,828 |
|
|
|
5.0 |
|
Alliance Bank of Arizona |
|
|
52,064 |
|
|
|
7.8 |
|
|
|
26,543 |
|
|
|
4.0 |
|
|
|
33,179 |
|
|
|
5.0 |
|
Torrey Pines Bank |
|
|
39,917 |
|
|
|
6.9 |
|
|
|
23,147 |
|
|
|
4.0 |
|
|
|
28,934 |
|
|
|
5.0 |
|
Alta Alliance Bank |
|
|
24,088 |
|
|
|
80.3 |
|
|
|
1,200 |
|
|
|
4.0 |
|
|
|
1,500 |
|
|
|
5.0 |
|
Company |
|
|
335,629 |
|
|
|
8.2 |
|
|
|
162,755 |
|
|
|
4.0 |
|
|
|
203,443 |
|
|
|
5.0 |
|
Alta Alliance Bank has agreed to maintain a total Tier I capital to average assets ratio of at
least 9% for its first three years of existence.
We were well capitalized at all the banks and the holding company as of December 31, 2006.
56
Junior Subordinated and Subordinated Debt
In order to manage our capital position more efficiently, we have formed or acquired through
merger four statutory business trusts for the sole purpose of issuing trust preferred securities.
The junior subordinated debt has maturity dates as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate |
|
|
|
|
|
|
|
|
|
|
Name of Trust |
|
December 31, 2006 |
|
|
Maturity |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
BankWest Nevada Capital Trust I |
|
six-month LIBOR plus 3.75% |
|
|
2031 |
|
|
$ |
15,464 |
|
|
$ |
15,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BankWest Nevada Capital Trust II |
|
three-month LIBOR plus 3.35% |
|
|
2033 |
|
|
|
15,464 |
|
|
|
15,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermountain First Statutory Trust I |
|
six-month LIBOR plus 2.80% |
|
|
2034 |
|
|
|
10,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WAL Trust No. 1 |
|
fixed at 6.78% through June 2011; |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thereafter three month LIBOR plus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.45% |
|
|
2036 |
|
|
|
20,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
61,857 |
|
|
$ |
30,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the event of certain changes or amendments to regulatory requirements or Federal tax rules,
the debt is redeemable in whole. The obligations under these instruments are fully and
unconditionally guaranteed by the Company and rank subordinate and junior in right of payment to
all other liabilities of the Company. The trust preferred securities qualify as Tier 1 Capital for
the Company, subject to certain limitations, with the excess being included in total capital for
regulatory purposes.
In 2006, Bank of Nevada issued $40,000,000 in floating rate unsecured subordinated debt. The
rate is based on three month LIBOR plus 1.20%. The debt requires quarterly interest payments and
matures in September 2016. $30,000,000 was distributed to Western Alliance Bancorporation to fund
general corporate purposes, while $10,000,000 was retained by Bank of Nevada.
Contractual Obligations and Off-Balance Sheet Arrangements
We routinely enter into contracts for services in the conduct of ordinary business operations
which may require payment for services to be provided in the future and may contain penalty clauses
for early termination of the contracts. To meet the financing needs of our customers, we are also
parties to financial instruments with off-balance sheet risk including commitments to extend credit
and standby letters of credit. We have also committed to irrevocably and unconditionally guarantee
the following payments or distributions with respect to the holders of preferred securities to the
extent that BankWest Nevada Trust I, BankWest Nevada Trust II, Intermountain First Statutory Trust
I, and WAL Trust No. 1 have not made such payments or distributions: (1) accrued and unpaid
distributions, (2) the redemption price, and (3) upon
a dissolution or termination of the trust, the lesser of the liquidation amount and all
accrued and unpaid distributions and the amount of assets of the trust remaining available for
distribution. We do not believe that these off-balance sheet arrangements have or are reasonably
likely to have a material effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
However, there can be no assurance that such arrangements will not have a future effect.
Long-Term Borrowed Funds. We also have entered into long-term contractual obligations
consisting of advances from Federal Home Loan Bank (FHLB). These advances are secured with
collateral generally consisting of securities and loans. As of December 31, 2006, these long-term FHLB
advances totaled $48.3 million and will mature by June 30, 2012. Interest payments are due
semi-annually. The weighted average rate of the long-term FHLB advances as of December 31, 2006 was
3.07%.
The following table sets forth our significant contractual obligations as of December 31,
2006.
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than |
|
|
1-3 |
|
|
3-5 |
|
|
After |
|
Contractual Obligations |
|
Total |
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
5 Years |
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
Long term borrowed funds |
|
$ |
58,011 |
|
|
$ |
33,410 |
|
|
$ |
5,249 |
|
|
$ |
9,352 |
|
|
$ |
10,000 |
|
Junior subordinated deferrable interest debentures |
|
|
61,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,857 |
|
Subordinated debt |
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000 |
|
Construction contracts |
|
|
7,939 |
|
|
|
7,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations |
|
|
23,559 |
|
|
|
3,494 |
|
|
|
6,059 |
|
|
|
5,814 |
|
|
|
8,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
191,366 |
|
|
$ |
44,843 |
|
|
$ |
11,308 |
|
|
$ |
15,166 |
|
|
$ |
120,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our commitments associated with outstanding letters of credit, commitments to extend credit,
and credit card guarantees as of December 31, 2006 are summarized below. Since commitments
associated with letters of credit and commitments to extend credit may expire unused, the amounts
shown do not necessarily reflect the actual future cash funding requirements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Amount of Commitment Expiration Per Period |
|
|
|
Amounts |
|
|
Less Than |
|
|
1-3 |
|
|
3-5 |
|
|
After |
|
Other Commitments |
|
Committed |
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
5 Years |
|
|
|
(In thousands) |
|
Commitments to extend credit |
|
$ |
1,083,854 |
|
|
$ |
837,427 |
|
|
$ |
87,193 |
|
|
$ |
11,406 |
|
|
$ |
147,828 |
|
Credit card commitments and guarantees |
|
|
16,233 |
|
|
|
16,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit |
|
|
61,157 |
|
|
|
58,341 |
|
|
|
2,316 |
|
|
|
500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,161,244 |
|
|
$ |
912,001 |
|
|
$ |
89,509 |
|
|
$ |
11,906 |
|
|
$ |
147,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term Borrowed Funds. Short-term borrowed funds are used to support liquidity needs
created by seasonal deposit flows, to temporarily satisfy funding needs from increased loan demand,
and for other short-term purposes. The majority of these short-term borrowed funds consist of
advances from FHLB and customer repurchase agreements. The borrowing capacity at FHLB is determined
based on collateral pledged, generally consisting of securities and loans, at the time of
borrowing. We also have borrowings from other sources pledged by securities including securities
sold under agreements to repurchase, which are reflected at the amount of cash received in
connection with the transaction, and may require additional collateral based on the fair value of
the underlying securities. As of December 31, 2006, total short-term borrowed funds were $181.7
million with a weighted average interest rate at period end of 4.47%, compared to total short-term
borrowed funds of $85.2 million as of December 31, 2005 with a weighted average interest rate at
year end of 2.85%. The increase of $96.5 million was, in general, a result of loan growth in excess
of deposit growth.
The following table sets forth certain information regarding FHLB advances and repurchase
agreements at the dates or for the periods indicated.
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
|
($ in thousands) |
FHLB Advances and other: |
|
|
|
|
|
|
|
|
|
|
|
|
Maximum month-end balance |
|
$ |
52,000 |
|
|
$ |
155,400 |
|
|
$ |
174,200 |
|
Balance at end of year |
|
|
11,000 |
|
|
|
7,000 |
|
|
|
159,900 |
|
Average balance |
|
|
145,586 |
|
|
|
71,075 |
|
|
|
186,662 |
|
Customer Repurchase Accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
Maximum month-end balance |
|
$ |
170,656 |
|
|
$ |
78,170 |
|
|
$ |
78,050 |
|
Balance at end of year |
|
|
170,656 |
|
|
|
78,170 |
|
|
|
25,594 |
|
Average balance |
|
|
98,194 |
|
|
|
46,628 |
|
|
|
52,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Short-Term Borrowed Funds |
|
$ |
181,656 |
|
|
$ |
85,170 |
|
|
$ |
185,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate at end of year |
|
|
4.47 |
% |
|
|
2.85 |
% |
|
|
2.23 |
% |
Weighted average interest rate during year |
|
|
4.56 |
% |
|
|
2.75 |
% |
|
|
1.87 |
% |
Since growth in core deposits may be at intervals different from loan demand, we may follow a
pattern of funding irregular growth in assets with short-term borrowings, which are then replaced
with core deposits. This temporary funding source is likely to be utilized for generally short-term
periods, although no assurance can be given that this will, in fact, occur.
Liquidity
The ability to have readily available funds sufficient to repay fully maturing liabilities is
of primary importance to depositors, creditors and regulators. Our liquidity, represented by cash
and due from banks, federal funds sold and available-for-sale securities, is a result of our
operating, investing and financing activities and related cash flows. In order to ensure funds are
available at all times, on at least a quarterly basis, we project the amount of funds that will be
required and maintain relationships with a diversified customer base so funds are accessible.
Liquidity requirements can also be met through short-term borrowings or the disposition of
short-term assets. We have borrowing lines at correspondent banks
totaling $136.0 million. In
addition, securities and loans are pledged to the FHLB totaling $167.1 million and $635.9 million,
respectively, on total borrowings from the FHLB of $59.3 million as of December 31, 2006.
We have a formal liquidity policy, and in the opinion of management, our liquid assets are
considered adequate to meet our cash flow needs for loan funding and deposit cash withdrawal for
the next 60 90 days. At December 31, 2006, we had $709.7 million in liquid assets comprised of
$264.9 million in cash and cash equivalents (including federal funds sold of $121.2 million) and
$444.8 million in available-for-sale securities.
On a long-term basis, our liquidity will be met by changing the relative distribution of our
asset portfolios, for example, reducing investment or loan volumes, or selling or encumbering
assets. Further, we will increase liquidity by soliciting higher levels of deposit accounts through
promotional activities and/or borrowing from our correspondent banks as well as the Federal Home
Loan Bank of San Francisco. At the current time, our long-term liquidity needs primarily relate to
funds required to support loan originations and commitments and deposit withdrawals. All of these
needs can currently be met by cash flows from investment payments and maturities, and investment
sales if the need arises.
Our liquidity is comprised of three primary classifications: (i) cash flows provided by
operating activities; (ii) cash flows used in investing activities; and (iii) cash flows provided
by financing activities. Net cash provided by or used in operating activities consists primarily of
net income adjusted for changes in certain other asset and liability accounts and certain non-cash
income and expense items such as the loan loss provision, investment and other amortizations and
depreciation. For the years ended December 31,
2006, 2005 and 2004 net cash provided by operating activities was $43.8, $34.4 and $27.3
million, respectively.
59
Our primary investing activities are the origination of real estate, commercial and consumer
loans and purchase and sale of securities. Our net cash provided by and used in investing
activities has been primarily influenced by our loan and securities activities. The net increase in
loans for the years ended December 31, 2006, 2005 and 2004 was $602.2 million, $574.5 million and
$434.5 million, respectively. Proceeds from maturities and sales of securities, net of purchases of
securities available-for-sale and held-to-maturity for the year ended December 31, 2006 were $241.6
million. Net purchases of securities for the years ended December 31, 2005 and 2004 were $50.3
million and $91.8 million, respectively.
Net cash provided by financing activities has been impacted significantly by increases in
deposit levels. During the years ended December 31, 2006, 2005 and 2004, deposits increased by
$339.1 million, $637.8 million and $661.4 million, respectively. The net increase in our
borrowings combined with proceeds from the issuance of junior subordinated and subordinated debt
totaled $121.9 million for the year ended December 31, 2006, compared with a net decline in
borrowings of $100.3 million for 2005.
Our federal funds sold increased $58.0 million from December 31, 2005 to December 31, 2006.
This is due to the growth in our deposits combined with the decrease of our investment portfolio
over the same period.
Federal and state banking regulations place certain restrictions on dividends paid by the
Banks to Western Alliance. The total amount of dividends which may be paid at any date is generally
limited to the retained earnings of each Bank. Dividends paid by the Banks to the Company would be
prohibited if the effect thereof would cause the respective Banks capital to be reduced below
applicable minimum capital requirements.
Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss in a financial instrument arising from adverse changes in
market prices and rates, foreign currency exchange rates, commodity prices and equity prices. Our
market risk arises primarily from interest rate risk inherent in our lending, investing and deposit
taking activities. To that end, management actively monitors and manages our interest rate risk
exposure. We do not have any market risk sensitive instruments entered into for trading purposes.
We manage our interest rate sensitivity by matching the re-pricing opportunities on our earning
assets to those on our funding liabilities.
Management uses various asset/liability strategies to manage the re-pricing characteristics of
our assets and liabilities designed to ensure that exposure to interest rate fluctuations is
limited within our guidelines of acceptable levels of risk-taking. Hedging strategies, including
the terms and pricing of loans and deposits, and management of the deployment of our securities are
used to reduce mismatches in interest rate re-pricing opportunities of portfolio assets and their
funding sources.
Interest rate risk is addressed by each banks respective Asset Liability Management
Committee, or ALCO, (or its equivalent) which is comprised of senior finance, operations, human
resources and lending officers. ALCO monitors interest rate risk by analyzing the potential impact
on the net economic value of equity and net interest income from potential changes in interest
rates, and consider the impact of alternative strategies or changes in balance sheet structure. We
manage our balance sheet in part to maintain the potential impact on economic value of equity and
net interest income within acceptable ranges despite changes in interest rates.
Our exposure to interest rate risk is reviewed on at least a quarterly basis by the ALCO.
Interest rate risk exposure is measured using interest rate sensitivity analysis to determine our
change in economic value of equity in the event of hypothetical changes in interest rates. If
potential changes to net economic value of equity and net interest income resulting from
hypothetical interest rate changes are not within the limits established by each banks Board of
Directors, the respective Board of Directors may direct management to adjust the asset and
liability mix to bring interest rate risk within board-approved limits.
Economic Value of Equity. We measure the impact of market interest rate changes on the net
present value of estimated cash flows from our assets, liabilities and off-balance sheet items,
defined as economic value of equity, using a simulation model. This simulation model assesses the
changes in the market value
of interest rate sensitive financial instruments that would occur in response to an
instantaneous and sustained increase or decrease (shock) in market interest rates.
60
At December 31, 2006, our economic value of equity exposure related to these hypothetical
changes in market interest rates was within the current guidelines established by us. The following
table shows our projected change in economic value of equity for this set of rate shocks at
December 31, 2006.
Economic Value of Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
Percentage |
|
Percentage of |
|
|
Economic |
|
Change |
|
of Total |
|
Equity |
Interest Rate Scenario |
|
Value |
|
from Base |
|
Assets |
|
Book Value |
|
|
($ in millions) |
Up 300 basis points |
|
$ |
649.2 |
|
|
|
4.9 |
% |
|
|
15.6 |
% |
|
|
158.9 |
% |
Up 200 basis points |
|
|
644.8 |
|
|
|
4.2 |
|
|
|
15.5 |
|
|
|
157.8 |
|
Up 100 basis points |
|
|
633.4 |
|
|
|
2.4 |
|
|
|
15.2 |
|
|
|
155.0 |
|
BASE |
|
|
618.8 |
|
|
|
|
|
|
|
14.8 |
|
|
|
151.5 |
|
Down 100 basis points |
|
|
596.0 |
|
|
|
(3.7 |
) |
|
|
14.3 |
|
|
|
145.9 |
|
Down 200 basis points |
|
|
568.0 |
|
|
|
(8.2 |
) |
|
|
13.6 |
|
|
|
139.0 |
|
Down 300 basis points |
|
|
531.7 |
|
|
|
(14.1 |
) |
|
|
12.8 |
|
|
|
130.1 |
|
The computation of prospective effects of hypothetical interest rate changes are based on
numerous assumptions, including relative levels of market interest rates, asset prepayments and
deposit decay, and should not be relied upon as indicative of actual results. Further, the
computations do not contemplate any actions we may undertake in response to changes in interest
rates. Actual amounts may differ from the projections set forth above should market conditions vary
from the underlying assumptions.
Net Interest Income Simulation. In order to measure interest rate risk at December 31, 2006,
we used a simulation model to project changes in net interest income that result from forecasted
changes in interest rates. This analysis calculates the difference between net interest income
forecasted using a rising and a falling interest rate scenario and a net interest income using a
base market interest rate derived from the current treasury yield curve. The income simulation
model includes various assumptions regarding the re-pricing relationships for each of our products.
Many of our assets are floating rate loans, which are assumed to re-price immediately, and
proportional to the change in market rates, depending on their contracted index. Some loans and
investments include the opportunity of prepayment (embedded options), and accordingly the
simulation model uses indexes to estimate these prepayments and reinvest their proceeds at current
yields. Our non-term deposit products re-price more slowly, usually changing less than the change
in market rates and at our discretion.
This analysis indicates the impact of changes in net interest income for the given set of rate
changes and assumptions. It assumes the balance sheet remains static and that its structure does
not change over the course of the year. It does not account for all factors that impact this
analysis, including changes by management to mitigate the impact of interest rate changes or
secondary impacts such as changes to our credit risk profile as interest rates change.
Furthermore, loan prepayment rate estimates and spread relationships change regularly.
Interest rate changes create changes in actual loan prepayment rates that will differ from the
market estimates incorporated in this analysis. Changes that vary significantly from the
assumptions may have significant effects on our net interest income.
For the rising and falling interest rate scenarios, the base market interest rate forecast was
increased and decreased over twelve months by 300 basis points. At December 31, 2006, our net
interest margin exposure related to these hypothetical changes in market interest rates was within
the current guidelines established by us.
61
Sensitivity of Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
Adjusted Net |
|
Change |
Interest Rate Scenario |
|
Interest Income |
|
from Base |
|
|
(in millions) |
|
|
|
|
Up 300 basis points |
|
$ |
173.6 |
|
|
|
5.0 |
% |
Up 200 basis points |
|
|
172.6 |
|
|
|
4.4 |
|
Up 100 basis points |
|
|
170.0 |
|
|
|
2.8 |
|
BASE |
|
|
165.3 |
|
|
|
|
|
Down 100 basis points |
|
|
160.7 |
|
|
|
(2.8 |
) |
Down 200 basis points |
|
|
158.0 |
|
|
|
(4.4 |
) |
Down 300 basis points |
|
|
156.9 |
|
|
|
(5.1 |
) |
Recent Accounting Pronouncements
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement 109 (FIN 48), which clarifies the accounting for
uncertainty in tax positions. This Interpretation provides that the tax effects from an uncertain
tax position can be recognized in our financial statements only if the position is more likely than
not of being sustained on audit, based on the technical merits of the position. The provisions of
FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect
of the change in accounting principle recorded as an adjustment to opening retained earnings. We do
not expect FIN 48 to have a material impact on our financial statements.
In September 2006, the FASB ratified the consensus of the Emerging Issues Task Force (EITF)
Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of
Endorsement Split-Dollar Life Insurance Arrangement. EITF 06-4 applies to endorsement split dollar
life insurance policies that provide a benefit to an employee that extends to postretirement
periods and requires an employer to recognize a liability for future benefits over the service
period based on the substantive agreement with the employee. EITF 06-4 is effective for fiscal
years beginning after December 15, 2007, with early adoption permitted. We do not expect EITF 06-4
to have a material impact on our financial statements.
FASB Statement No. 157, Fair Value Measurements, defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. Upon adoption of FASB Statement No. 157, the Company
will be required to expand disclosures about the use of fair value and the methods used to measure
fair value. FASB Statement No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal years. Early application
is encouraged. We do not expect FASB Statement No. 157 to have a material impact on our financial
statements.
In September 2006, the FASB ratified the consensus reached by the Emerging Issues Task Force
in Issue No. 06-5, Accounting for Purchases of Life Insurance Determining the Amount That Could
Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life
Insurance (EITF 06-5). EITF 06-5 is effective for fiscal years beginning after December 15, 2006.
The Company is currently evaluating the impact this guidance will have on our financial statements.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Assets and Financial
Liabilities-Including an Amendment of FASB Statement No. 115. SFAS 159 permits an entity to choose
to measure many financial instruments and certain other items at fair value. Most of the provisions
of SFAS 159 are elective, however, the amendment to SFAS 115, Accounting for Certain Investments in
Debt and Equity Securities, applies to all entities with available for sale or trading securities.
For financial instruments elected to be accounted for at fair value, an entity will report the
unrealized gains and losses in earnings. SFAS 159 is effective as of the beginning of an entitys
first fiscal year that begins after November 15, 2007. SFAS 159 was recently issued and the Company
is currently assessing the financial impact this statement will have on our financial statements.
62
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of quantitative and qualitative disclosures about market risk, please see
Item 7 Managements Discussion and Analysis of Financial Condition and results of Operations
Quantitative and Qualitative Disclosure about Market Risk on page 58.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements and supplementary data included in this annual report
are listed in Item 15 and begin at page F-1 immediately following the signature page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
As of December 31, 2006, the Company carried out an evaluation, under the supervision and with
the participation of the Companys management, including the Companys Chief Executive Officer
along with the Companys Chief Financial Officer, of the effectiveness of the design and operation
of the Companys disclosure controls and procedures pursuant to Rule 13a-15(b), as adopted by the
Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 (Exchange Act).
Based upon that evaluation, the Companys Chief Executive Officer along with the Companys Chief
Financial Officer concluded that the Companys disclosure controls and procedures are effective to
timely alert them to material information relating to the Company (including its consolidated
subsidiary) required to be included in the Companys periodic SEC filings.
Disclosure controls and procedures are the controls and other procedures that are designed to
ensure that information required to be disclosed in the reports that the Company files or submits
under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed in
the reports that the Company files or submits under the Exchange Act is accumulated and
communicated to management, including the Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.
There have been no changes in the Companys internal controls, or in other factors which could
significantly affect these controls, over financial reporting that have materially affected, or are
or are reasonably likely to materially affect, the Companys internal control over financial
reporting.
Managements Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate
internal control over financial reporting. The Companys internal control over financial reporting
is a process designed under the supervision of the Companys Chief Executive Officer and Chief
Financial Officer to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of the Companys financial statements for external purposes in accordance with
U.S. generally accepted accounting principles.
As of December 31, 2006, management assessed the effectiveness of the Companys internal
control over financial reporting based on the criteria for effective internal control over
financial reporting
established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
63
Organizations of the Treadway Commission (COSO). Based on the assessment, management determined
that the Company maintained effective internal control over financial reporting as of December 31,
2006, based on those criteria.
McGladrey & Pullen, LLP , the independent registered public accounting firm that audited the
consolidated financial statements of the Company included in this Annual Report on Form 10-K, has
issued an attestation report on managements assessment of the Companys internal control over
financial reporting as of December 31, 2006. The report, which expresses unqualified opinions on
managements assessment and on the effectiveness of the Companys internal control over financial
reporting as of December 31, 2006, is included below under the heading Report of Independent
Registered Public Accounting Firm.
The Companys management, including its Chief Executive Officer and Chief Financial Officer,
does not expect that its disclosure controls and procedures, or its internal controls will prevent
all error and all fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are resource constraints,
and the benefit of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company have been detected.
|
|
|
/s/ Robert Sarver
|
|
/s/ Dale Gibbons |
|
|
|
Robert Sarver
Chief Executive Officer
|
|
Dale Gibbons
Executive Vice President, Chief Financial Officer |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Western Alliance Bancorporation
Las Vegas, Nevada
We have audited managements assessment, included in the accompanying Report of Management
that Western Alliance Bancorporation and subsidiaries (collectively referred to herein as the
Company) maintained effective internal control over financial reporting as of December 31, 2006,
based on criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is
responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on managements assessment and an opinion on the effectiveness of the
companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or
64
timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that the Company maintained effective internal control
over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based
on criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2006, based on criteria established in Internal ControlIntegrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements of Western Alliance
Bancorporation and our report dated February 28, 2007 expressed an unqualified opinion.
/s/
McGLADREY & PULLEN, LLP
Las Vegas, Nevada
February 28, 2007
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 of Form 10-K is incorporated by reference from the
information contained in the Companys Proxy Statement for the 2007 Annual Meeting of Shareholders
which will be filed pursuant to Regulation 14A.
The Company has adopted a Code of Conduct applicable to all of our directors and employees,
including the principal executive officer, principal financial officer and principal accounting
officer. A copy of the Code of Conduct is available on the Companys website at
www.westernalliancebancorp.com.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K is incorporated by reference from the
information contained in the Companys Proxy Statement for the 2007 Annual Meeting of Shareholders
which will be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 of Form 10-K is incorporated by reference from the
information contained in the Companys Proxy Statement for the 2007 Annual Meeting of Shareholders
which will be filed pursuant to Regulation 14A.
65
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by Item 13 of Form 10-K is incorporated by reference from the
information contained in the Companys Proxy Statement for the 2007 Annual Meeting of Shareholders
which will be filed pursuant to Regulation 14A.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 of Form 10-K is incorporated by reference from the
information contained in the Companys Proxy Statement for the 2007 Annual Meeting of Shareholders
which will be filed pursuant to Regulation 14A.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents Filed as Part of this Report
(1) The following financial statements are incorporated by reference from Item 8 hereto:
|
|
|
|
|
Consolidated Balance Sheets as of December 31, 2006 and 2005 |
|
Page F-2 |
|
|
|
|
|
Consolidated Statements of Income for the three years ended
December 31, 2006, 2005 and 2004 |
|
Page F-3 |
|
|
|
|
|
Consolidated Statements of Stockholders Equity for the three
years ended December 31, 2006, 2005 and 2004 |
|
Page F-4 |
|
|
|
|
|
Consolidated Statements of Cash Flows for the three years ended
December 31, 2006, 2005 and 2004 |
|
Page F-5 |
|
|
|
|
|
Notes to Consolidated Financial Statements |
|
Page F-6 |
|
|
|
|
|
Report of Independent Registered Public Accounting Firm |
|
Page F-36 |
(2) Financial Statement Schedules
Not applicable.
EXHIBITS
|
|
|
2 .1
|
|
Agreement and Plan of Merger By and Between Western Alliance
Bancorporation and Intermountain First Bancorporation (incorporated
by reference to Appendix A to Western Alliances Form S-4 filed with
the SEC on February 15, 2006). |
|
|
|
2 .2
|
|
Agreement and Plan of Merger By and Between Western Alliance
Bancorporation and Bank of Nevada (incorporated by reference to
Exhibit 10.13 to Western Alliances Form S-4 filed with the SEC on
February 15, 2006). |
|
|
|
2.3
|
|
Agreement and Plan of Merger By and Between Western Alliance
Bancorporation and First Independent Capital of Nevada (incorporated
by reference to Appendix A to Western Alliances Form S-4 filed with
the SEC on February 1, 2007). |
|
|
|
3 .1
|
|
Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to Amendment No. 1 to Western Alliances
Registration Statement on Form S-1 filed with the SEC on June 7,
2005). |
|
|
|
3 .2
|
|
Amended and Restated By-Laws (incorporated by reference to Exhibit
3.1 to Western Alliances Form 8-K filed with the SEC on October 12,
2005). |
66
|
|
|
4 .1
|
|
Form of common stock certificate (incorporated by reference to
Exhibit 4.1 to Amendment No. 3 to Western Alliances Registration
Statement on Form S-1 filed with the SEC on June 27, 2005). |
|
|
|
10 .1
|
|
Western Alliance Bancorporation 2005 Stock Incentive Plan
(incorporated by reference to Exhibit 10.1 to Amendment No. 1 to
Western Alliances Registration Statement on Form S-1 filed with the
SEC on June 7, 2005). |
|
|
|
10 .2
|
|
Form of BankWest of Nevada Incentive Stock Option Plan Agreement
(incorporated by reference to Exhibit 10.3 to Western Alliances
Registration Statement on Form S-1 filed with the SEC on April 28,
2005). |
|
|
|
10 .3
|
|
Form of Western Alliance Incentive Stock Option Plan Agreement
(incorporated by reference to Exhibit 10.4 to Western Alliances
Registration Statement on Form S-1 filed with the SEC on April 28,
2005). |
|
|
|
10 .4
|
|
Form of Western Alliance 2002 Stock Option Plan Agreement
(incorporated by reference to Exhibit 10.5 to Western Alliances
Registration Statement on Form S-1 filed with the SEC on April 28,
2005). |
|
|
|
10 .5
|
|
Form of Western Alliance 2002 Stock Option Plan Agreement (with
double trigger acceleration clause) (incorporated by reference to
Exhibit 10.6 to Western Alliances Registration Statement on Form
S-1 filed with the SEC on April 28, 2005). |
|
|
|
10 .6
|
|
Form of Indemnification Agreement by and between Western Alliance
Bancorporation and the following directors and officers: Messrs.
Baker, Beach, Boyd, Cady, Froeschle, Gibbons, Hilton, Lundy, Mack,
A. Marshall, T. Marshall, Nigro, Sarver, Snyder, Wall and Woodrum,
Drs. Nagy and Nave, and Mses. Boyd Johnson and Mahan (incorporated
by reference to Exhibit 10.7 to Western Alliances Registration
Statement on Form S-1 filed with the SEC on April 28, 2005). |
|
|
|
10 .7
|
|
Form of Non-Competition Agreement by and between Western Alliance
Bancorporation and the following directors and officers: Messrs.
Froeschle, Sarver, Lundy, Snyder and Woodrum (incorporated by
reference to Exhibit 10.8 to Western Alliances Registration
Statement on Form S-1 filed with the SEC on April 28, 2005). |
|
|
|
10 .8
|
|
Form of Warrant to purchase shares of Western Alliance
Bancorporation common stock, dated December 12, 2002, together with
a schedule of warrantholders (incorporated by reference to Exhibit
10.9 to Western Alliances Registration Statement on Form S-1 filed
with the SEC on April 28, 2005). |
|
|
|
10 .9
|
|
Real Estate Purchase Agreement between GRS Sahara Ave. Corp. and
BankWest of Nevada (incorporated by reference to Exhibit 10.1 to
Western Alliances Form 8-K filed with the SEC on September 26,
2005). |
|
|
|
21 .1
|
|
List of Subsidiaries of Western Alliance Bancorporation |
|
|
|
23 .1
|
|
Consent of McGladrey & Pullen, LLP. |
|
|
|
31 .1
|
|
CEO Certification Pursuant Rule 13a-14(a)/15d-a4(a) |
|
|
|
31 .2
|
|
CFO Certification Pursuant Rule 13a-14(a)/15d-14(a) |
|
|
|
32
|
|
CEO and CFO Certification Pursuant 18 U.S.C. Section 1350, as
adopted pursuant to section 906 of the Sarbanes Oxley Act of 2002 |
Shareholders may obtain copies of exhibits by writing to: Dale Gibbons, Western Alliance
Bancorporation, 2700 West Sahara Avenue, Las Vegas, Nevada 89102.
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Company has caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
|
|
|
|
WESTERN ALLIANCE BANCORPORATION
|
|
February 28, 2007 |
By: |
/s/ Robert Sarver |
|
|
|
Robert Sarver |
|
|
|
Chairman of the Board; President and
Chief Executive Officer |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this registration
statement has been signed by the following persons on behalf of the Company in their listed
capacities on February 28, 2007:
|
|
|
Name |
|
Title |
|
|
|
/s/ Robert Sarver
|
|
Chairman of the Board; President and Chief |
|
|
Executive
Officer (Principal Executive Officer) |
|
|
|
/s/ Dale Gibbons
|
|
Executive Vice President and |
|
|
Chief
Financial Officer (Principal Financial Officer) |
|
|
|
/s/ Terry A. Shirey
|
|
Senior Vice President and Controller |
|
|
(Principal
Accounting Officer) |
|
|
|
|
|
Director |
|
|
|
|
|
|
/s/ Bruce Beach
|
|
Director |
|
|
|
|
|
|
/s/ William S. Boyd
|
|
Director |
|
|
|
|
|
|
/s/ Steve Hilton
|
|
Director |
|
|
|
|
|
|
/s/ Marianne Boyd Johnson
|
|
Director |
|
|
|
|
|
|
/s/ Cary Mack
|
|
Director |
|
|
|
68
|
|
|
Name |
|
Title |
|
|
|
/s/
George J. Maloof, Jr.
|
|
Director |
|
|
|
|
|
|
/s/
Arthur Marshall
|
|
Director |
|
|
|
|
|
|
/s/
Todd Marshall
|
|
Director |
|
|
|
|
/s/ M. Nafees Nagy, M.D.
|
|
Director |
|
|
|
|
/s/ James Nave, D.V.M.
|
|
Director |
|
|
|
|
/s/
Donald Snyder
|
|
Director |
|
|
|
|
|
|
|
|
Director |
|
|
|
69
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page |
|
Financial Statements |
|
|
|
|
|
|
|
F-2 |
|
|
|
|
F-3 |
|
|
|
|
F-4 |
|
|
|
|
F-5 |
|
|
|
|
F-6 |
|
|
|
|
F-36 |
|
F-1
WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
|
(in thousands, except per |
|
|
share amounts) |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
143,721 |
|
|
$ |
111,150 |
|
Federal funds sold and other |
|
|
121,159 |
|
|
|
63,186 |
|
|
|
|
Cash and cash equivalents |
|
|
264,880 |
|
|
|
174,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity (approximate fair value $95,404
and $112,601, respectively) |
|
|
97,495 |
|
|
|
115,171 |
|
Securities available for sale |
|
|
444,826 |
|
|
|
633,362 |
|
|
|
|
|
|
|
|
|
|
Gross loans, including net deferred loan fees |
|
|
3,003,222 |
|
|
|
1,793,337 |
|
Less: Allowance for loan losses |
|
|
(33,551 |
) |
|
|
(21,192 |
) |
|
|
|
Loans, net |
|
|
2,969,671 |
|
|
|
1,772,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net |
|
|
99,859 |
|
|
|
58,430 |
|
Bank owned life insurance |
|
|
82,058 |
|
|
|
51,834 |
|
Investment
in restricted securities |
|
|
18,483 |
|
|
|
14,456 |
|
Accrued interest receivable |
|
|
17,425 |
|
|
|
10,545 |
|
Deferred tax assets, net |
|
|
8,000 |
|
|
|
10,807 |
|
Goodwill |
|
|
132,188 |
|
|
|
3,946 |
|
Other intangible assets, net of accumulated amortization of
$1,457 and $405, respectively |
|
|
16,042 |
|
|
|
1,218 |
|
Other assets |
|
|
18,677 |
|
|
|
11,021 |
|
|
|
|
Total assets |
|
$ |
4,169,604 |
|
|
$ |
2,857,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Non-interest bearing demand deposits |
|
$ |
1,154,245 |
|
|
$ |
980,009 |
|
Interest bearing deposits: |
|
|
|
|
|
|
|
|
Demand |
|
|
246,318 |
|
|
|
122,262 |
|
Savings and money market |
|
|
1,407,916 |
|
|
|
949,582 |
|
Time, $100 and over |
|
|
524,935 |
|
|
|
316,205 |
|
Other time |
|
|
67,009 |
|
|
|
25,754 |
|
|
|
|
|
|
|
3,400,423 |
|
|
|
2,393,812 |
|
Customer repurchase agreements |
|
|
170,656 |
|
|
|
78,170 |
|
Federal Home Loan Bank advances and other borrowings |
|
|
|
|
|
|
|
|
One year or less |
|
|
11,000 |
|
|
|
7,000 |
|
Over one year |
|
|
58,011 |
|
|
|
73,512 |
|
Junior subordinated debt |
|
|
61,857 |
|
|
|
30,928 |
|
Subordinated debt |
|
|
40,000 |
|
|
|
|
|
Accrued interest payable and other liabilities |
|
|
19,078 |
|
|
|
29,626 |
|
|
|
|
Total liabilities |
|
|
3,761,025 |
|
|
|
2,613,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Notes 6, 9, 10 and 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
|
|
|
|
|
|
Preferred stock, par value $.0001; shares authorized 20,000; no
shares issued and outstanding 2006 and 2005 |
|
|
|
|
|
|
|
|
Common stock, par value $.0001; shares authorized 100,000;
shares issued and outstanding 2006: 27,085; 2005: 22,810 |
|
|
3 |
|
|
|
2 |
|
Additional paid-in capital |
|
|
287,553 |
|
|
|
167,632 |
|
Retained earnings |
|
|
126,170 |
|
|
|
86,281 |
|
Accumulated other comprehensive loss net unrealized loss on
available for sale securities |
|
|
(5,147 |
) |
|
|
(9,692 |
) |
|
|
|
Total stockholders equity |
|
|
408,579 |
|
|
|
244,223 |
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
4,169,604 |
|
|
$ |
2,857,271 |
|
|
|
|
See Notes to Consolidated Financial Statements.
F-2
WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2006, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
|
($ in thousands, except per share amounts) |
Interest income on: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
203,792 |
|
|
$ |
102,481 |
|
|
$ |
59,311 |
|
Securities taxable |
|
|
25,886 |
|
|
|
29,099 |
|
|
|
30,373 |
|
Securities nontaxable |
|
|
455 |
|
|
|
394 |
|
|
|
341 |
|
Dividends taxable |
|
|
1,004 |
|
|
|
595 |
|
|
|
537 |
|
Dividends nontaxable |
|
|
150 |
|
|
|
|
|
|
|
|
|
Federal funds sold and other |
|
|
1,798 |
|
|
|
2,341 |
|
|
|
293 |
|
|
|
|
Total interest income |
|
|
233,085 |
|
|
|
134,910 |
|
|
|
90,855 |
|
|
|
|
Interest expense on: |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
65,612 |
|
|
|
25,546 |
|
|
|
12,123 |
|
FHLB advances and other borrowings, short-term |
|
|
11,101 |
|
|
|
3,234 |
|
|
|
4,472 |
|
FHLB advances and other borrowings, long-term |
|
|
2,724 |
|
|
|
1,675 |
|
|
|
1,586 |
|
Junior subordinated debt |
|
|
4,134 |
|
|
|
2,113 |
|
|
|
1,539 |
|
Subordinated debt |
|
|
726 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
84,297 |
|
|
|
32,568 |
|
|
|
19,720 |
|
|
|
|
Net interest income |
|
|
148,788 |
|
|
|
102,342 |
|
|
|
71,135 |
|
Provision for loan losses |
|
|
4,660 |
|
|
|
6,179 |
|
|
|
3,914 |
|
|
|
|
Net interest income after provision for loan
losses |
|
|
144,128 |
|
|
|
96,163 |
|
|
|
67,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
Trust and investment advisory services |
|
|
7,346 |
|
|
|
5,699 |
|
|
|
2,896 |
|
Service charges |
|
|
3,450 |
|
|
|
2,495 |
|
|
|
2,333 |
|
Income from bank owned life insurance |
|
|
2,661 |
|
|
|
1,664 |
|
|
|
1,203 |
|
Other |
|
|
4,413 |
|
|
|
2,211 |
|
|
|
2,275 |
|
|
|
|
Other income, excluding securities gains (losses) |
|
|
17,870 |
|
|
|
12,069 |
|
|
|
8,707 |
|
Investment securities gains (losses), net |
|
|
(4,436 |
) |
|
|
69 |
|
|
|
19 |
|
|
|
|
|
|
|
13,434 |
|
|
|
12,138 |
|
|
|
8,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
54,767 |
|
|
|
36,816 |
|
|
|
25,590 |
|
Occupancy |
|
|
12,958 |
|
|
|
9,819 |
|
|
|
7,309 |
|
Customer service |
|
|
6,684 |
|
|
|
3,720 |
|
|
|
1,998 |
|
Advertising, public relations and business development |
|
|
4,242 |
|
|
|
2,806 |
|
|
|
1,672 |
|
Legal, professional and director fees |
|
|
2,798 |
|
|
|
2,051 |
|
|
|
1,405 |
|
Audits and exams |
|
|
2,375 |
|
|
|
1,538 |
|
|
|
935 |
|
Data processing |
|
|
1,748 |
|
|
|
1,053 |
|
|
|
641 |
|
Supplies |
|
|
1,710 |
|
|
|
1,083 |
|
|
|
838 |
|
Correspondent banking service charges and wire transfer costs |
|
|
1,662 |
|
|
|
1,651 |
|
|
|
1,260 |
|
Telephone |
|
|
1,093 |
|
|
|
759 |
|
|
|
578 |
|
Insurance |
|
|
1,048 |
|
|
|
752 |
|
|
|
540 |
|
Organizational costs |
|
|
977 |
|
|
|
|
|
|
|
|
|
Travel and automobile |
|
|
790 |
|
|
|
684 |
|
|
|
467 |
|
Other |
|
|
3,234 |
|
|
|
2,132 |
|
|
|
1,696 |
|
|
|
|
|
|
|
96,086 |
|
|
|
64,864 |
|
|
|
44,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
61,476 |
|
|
|
43,437 |
|
|
|
31,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
21,587 |
|
|
|
15,372 |
|
|
|
10,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
39,889 |
|
|
$ |
28,065 |
|
|
$ |
20,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.56 |
|
|
$ |
1.36 |
|
|
$ |
1.17 |
|
|
|
|
Diluted |
|
$ |
1.41 |
|
|
$ |
1.24 |
|
|
$ |
1.09 |
|
|
|
|
See Notes to Consolidated Financial Statements.
F-3
WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Years Ended December 31, 2006, 2005 and 2004
(In thousands, except per
share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Comprehensive |
|
|
|
|
|
|
Comprehensive |
|
|
Common Stock |
|
|
Paid-in |
|
|
Retained |
|
|
Income |
|
|
|
|
Description |
|
Income |
|
|
Shares Issued |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
(Loss) |
|
|
Total |
|
Balance, December 31, 2003 |
|
|
|
|
|
|
16,681 |
|
|
$ |
2 |
|
|
$ |
62,533 |
|
|
$ |
38,159 |
|
|
$ |
(3,243 |
) |
|
$ |
97,451 |
|
Stock options exercised |
|
|
|
|
|
|
98 |
|
|
|
|
|
|
|
415 |
|
|
|
|
|
|
|
|
|
|
|
415 |
|
Stock warrants exercised |
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
156 |
|
|
|
|
|
|
|
|
|
|
|
156 |
|
Issuance of 1,250 shares of common stock
at $12 per share, net of offering costs of $45 |
|
|
|
|
|
|
1,250 |
|
|
|
|
|
|
|
14,955 |
|
|
|
|
|
|
|
|
|
|
|
14,955 |
|
Issuance of 200,000 shares of common stock at
$12 per share, in connection with merger |
|
|
|
|
|
|
200 |
|
|
|
|
|
|
|
2,400 |
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
20,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,057 |
|
|
|
|
|
|
|
20,057 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses on securities available for sale
arising during the period, net of taxes of $1,096 |
|
|
(1,850 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less reclassification adjustment for gains included in net
income, net of taxes of $6 |
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holding losses |
|
|
(1,863 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,863 |
) |
|
|
(1,863 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004 |
|
|
|
|
|
|
18,249 |
|
|
|
2 |
|
|
|
80,459 |
|
|
|
58,216 |
|
|
|
(5,106 |
) |
|
|
133,571 |
|
Stock options exercised |
|
|
|
|
|
|
228 |
|
|
|
|
|
|
|
1,222 |
|
|
|
|
|
|
|
|
|
|
|
1,222 |
|
Stock warrants exercised |
|
|
|
|
|
|
106 |
|
|
|
|
|
|
|
806 |
|
|
|
|
|
|
|
|
|
|
|
806 |
|
Issuance of 4,200 shares of common stock,
net of offering costs of $7,337 |
|
|
|
|
|
|
4,200 |
|
|
|
|
|
|
|
85,063 |
|
|
|
|
|
|
|
|
|
|
|
85,063 |
|
Restricted stock granted |
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
82 |
|
Stock based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
28,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,065 |
|
|
|
|
|
|
|
28,065 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses on securities available for sale
arising during the period, net of taxes of $2,679 |
|
|
(4,541 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less reclassification adjustment for gains included in net
income, net of taxes of $24 |
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holding losses |
|
|
(4,586 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,586 |
) |
|
|
(4,586 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005 |
|
|
|
|
|
|
22,810 |
|
|
|
2 |
|
|
|
167,632 |
|
|
|
86,281 |
|
|
|
(9,692 |
) |
|
|
244,223 |
|
Stock options exercised, including tax benefit of $362 |
|
|
|
|
|
|
319 |
|
|
|
|
|
|
|
2,549 |
|
|
|
|
|
|
|
|
|
|
|
2,549 |
|
Stock warrants exercised |
|
|
|
|
|
|
72 |
|
|
|
|
|
|
|
546 |
|
|
|
|
|
|
|
|
|
|
|
546 |
|
Issuance of common stock in connection with acquisition,
net of offering costs of $264 |
|
|
|
|
|
|
3,390 |
|
|
|
1 |
|
|
|
101,003 |
|
|
|
|
|
|
|
|
|
|
|
101,004 |
|
Stock options converted at acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,406 |
|
|
|
|
|
|
|
|
|
|
|
3,406 |
|
Issuance of 263 shares of common stock, net of
offering costs of $46 |
|
|
|
|
|
|
263 |
|
|
|
|
|
|
|
9,057 |
|
|
|
|
|
|
|
|
|
|
|
9,057 |
|
Restricted stock granted, net of forfeitures |
|
|
|
|
|
|
208 |
|
|
|
|
|
|
|
1,857 |
|
|
|
|
|
|
|
|
|
|
|
1,857 |
|
Stock-based compensation expense |
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
1,503 |
|
|
|
|
|
|
|
|
|
|
|
1,503 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
39,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,889 |
|
|
|
|
|
|
|
39,889 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains on securities available for sale
arising during the period, net of taxes of $949 |
|
|
1,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus reclassification adjustment for losses included in net
income, net of taxes of $1,553 |
|
|
2,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holding gains |
|
|
4,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,545 |
|
|
|
4,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
44,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006 |
|
|
|
|
|
|
27,085 |
|
|
$ |
3 |
|
|
$ |
287,553 |
|
|
$ |
126,170 |
|
|
$ |
(5,147 |
) |
|
$ |
408,579 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-4
WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2006, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
|
($ in thousands) |
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
39,889 |
|
|
$ |
28,065 |
|
|
$ |
20,057 |
|
Adjustments to reconcile net income to net
cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
6,668 |
|
|
|
3,783 |
|
|
|
2,629 |
|
Net amortization of securities premiums |
|
|
1,066 |
|
|
|
1,219 |
|
|
|
3,698 |
|
Stock dividends received, restricted securities |
|
|
(875 |
) |
|
|
(890 |
) |
|
|
(536 |
) |
Provision for loan losses |
|
|
4,660 |
|
|
|
6,179 |
|
|
|
3,914 |
|
(Gain) loss on sale of securities |
|
|
4,436 |
|
|
|
(69 |
) |
|
|
(19 |
) |
Deferred taxes |
|
|
2,968 |
|
|
|
(2,158 |
) |
|
|
(69 |
) |
Compensation
cost on restricted stock grants |
|
|
1,857 |
|
|
|
|
|
|
|
|
|
Stock based compensation expense |
|
|
1,503 |
|
|
|
|
|
|
|
|
|
(Increase) in accrued interest receivable |
|
|
(3,772 |
) |
|
|
(2,186 |
) |
|
|
(1,970 |
) |
(Increase) in bank-owned life insurance |
|
|
(2,661 |
) |
|
|
(1,664 |
) |
|
|
(1,203 |
) |
(Increase) in other assets |
|
|
(6,161 |
) |
|
|
(479 |
) |
|
|
(844 |
) |
Increase (decrease) in accrued interest payable and
other liabilities |
|
|
(5,720 |
) |
|
|
2,530 |
|
|
|
1,627 |
|
Other, net |
|
|
(94 |
) |
|
|
29 |
|
|
|
(10 |
) |
|
|
|
Net cash provided by operating
activities |
|
|
43,764 |
|
|
|
34,359 |
|
|
|
27,274 |
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of securities held to maturity |
|
|
(2,927 |
) |
|
|
(13,209 |
) |
|
|
(32,706 |
) |
Proceeds from maturities of securities held to maturity |
|
|
20,571 |
|
|
|
27,373 |
|
|
|
35,241 |
|
Purchases of securities available for sale |
|
|
(202,821 |
) |
|
|
(135,271 |
) |
|
|
(441,986 |
) |
Proceeds from maturities of securities available for sale |
|
|
272,637 |
|
|
|
152,707 |
|
|
|
305,908 |
|
Proceeds from the sale of securities available for sale |
|
|
154,177 |
|
|
|
18,728 |
|
|
|
41,775 |
|
Net cash paid in settlement of acquisition |
|
|
(5,965 |
) |
|
|
|
|
|
|
(2,177 |
) |
Liquidation
(purchase) of restricted securities |
|
|
459 |
|
|
|
1,531 |
|
|
|
(1,933 |
) |
Net
(increase) in loans made to customers |
|
|
(602,176 |
) |
|
|
(574,456 |
) |
|
|
(434,531 |
) |
Purchased mortgages |
|
|
|
|
|
|
(30,346 |
) |
|
|
(20,926 |
) |
Purchase of premises and equipment |
|
|
(35,172 |
) |
|
|
(22,756 |
) |
|
|
(13,899 |
) |
Purchase of bank-owned life insurance |
|
|
(25,000 |
) |
|
|
(24,000 |
) |
|
|
|
|
Other, net |
|
|
|
|
|
|
(264 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(426,217 |
) |
|
|
(599,963 |
) |
|
|
(565,234 |
) |
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
339,124 |
|
|
|
637,776 |
|
|
|
661,390 |
|
Net (repayments) proceeds from borrowings |
|
|
61,985 |
|
|
|
(100,324 |
) |
|
|
(89,467 |
) |
Proceeds from issuance of junior subordinated and
subordinated debt |
|
|
60,000 |
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options and stock warrants |
|
|
2,733 |
|
|
|
2,028 |
|
|
|
571 |
|
Excess tax benefits from share-based payment arrangements |
|
|
362 |
|
|
|
|
|
|
|
|
|
Cost of issuing stock in acquisition |
|
|
(264 |
) |
|
|
|
|
|
|
|
|
Proceeds from stock issuance, net |
|
|
9,057 |
|
|
|
85,063 |
|
|
|
14,955 |
|
|
|
|
Net cash provided by financing
activities |
|
|
472,997 |
|
|
|
624,543 |
|
|
|
587,449 |
|
|
|
|
Increase in cash and cash equivalents |
|
|
90,544 |
|
|
|
58,939 |
|
|
|
49,489 |
|
Cash and Cash Equivalents, beginning of year |
|
|
174,336 |
|
|
|
115,397 |
|
|
|
65,908 |
|
|
|
|
Cash and Cash Equivalents, end of year |
|
$ |
264,880 |
|
|
$ |
174,336 |
|
|
$ |
115,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information |
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for interest, net of capitalized interest (Note 6) |
|
$ |
81,667 |
|
|
$ |
32,373 |
|
|
$ |
19,601 |
|
Cash payments for income taxes |
|
$ |
23,385 |
|
|
$ |
17,481 |
|
|
$ |
10,129 |
|
Supplemental Disclosure of noncash Investing and Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of premises and equipment funded with borrowings |
|
$ |
|
|
|
$ |
9,812 |
|
|
$ |
|
|
Securities available for sale in process of settlement |
|
$ |
|
|
|
$ |
20,000 |
|
|
$ |
|
|
Stock and stock options issued in connection with acquisitions |
|
$ |
104,674 |
|
|
$ |
|
|
|
$ |
2,400 |
|
See Notes to Consolidated Financial Statements.
F-5
WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
Note 1. Nature of Business and Summary of Significant Accounting Policies
Nature of business
Western Alliance Bancorporation is a bank holding company providing a full range of banking
services to commercial and consumer customers through its wholly owned subsidiaries Bank of Nevada
(formerly BankWest of Nevada), operating primarily in Nevada, Alliance Bank of Arizona, operating
primarily in Arizona, Torrey Pines Bank, operating primarily in Southern California, Alta Alliance
Bank, operating primarily in Northern California, Miller/Russell & Associates, Inc., operating in
Nevada, Arizona and Southern California, and Premier Trust, Inc., operating in Nevada and Arizona.
These entities are collectively referred to herein as the Company. Alta Alliance Bank began
operations during the year ended December 31, 2006. The accounting and reporting policies of the
Company conform to accounting principles generally accepted in the United States of America and
general industry practices.
A summary of the significant accounting policies of the Company follows:
Use of estimates in the preparation of financial statements
The preparation of financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates. A material
estimate that is particularly susceptible to significant change in the near term relates to the
determination of the allowance for loan losses.
Principles of consolidation
With the exception of certain trust subsidiaries (Note 10) which do not meet the criteria for
consolidation pursuant to Financial Accounting Standards Board (FASB) Interpretation No. 46 (FIN
46), Consolidation of Variable Interest Entities, the consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, Bank of Nevada and its subsidiary BW
Real Estate, Inc., Alliance Bank of Arizona, Torrey Pines Bank, Alta Alliance Bank (collectively
referred to herein as the Banks), Miller/Russell & Associates, Inc., and Premier Trust, Inc. All
significant intercompany balances and transactions have been eliminated in consolidation.
Cash and cash equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts
due from banks (including cash items in process of clearing) and federal funds sold. Cash flows
from loans originated by the Company and deposits are reported net.
The Company maintains amounts due from banks, which at times may exceed federally insured
limits. The Company has not experienced any losses in such accounts.
Securities
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% of the principal
outstanding has been collected is considered a maturity for purposes of classification and
disclosure.
Securities classified as available for sale are equity securities and those 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 available for sale would be based on various factors,
including significant movements in interest rates, changes in the maturity mix of the Companys
assets and liabilities, liquidity needs, regulatory capital considerations and other similar
factors. Securities available for sale are reported at fair
F-6
value with unrealized gains or losses reported as other comprehensive income (loss), net of
the related deferred tax effect. Realized gains or losses, determined on the basis of the cost of
specific securities sold, are included in earnings.
Purchase premiums and discounts are generally recognized in interest income using the interest
method over the term of the securities. For mortgage-backed securities, estimates of prepayments
are considered in the constant yield calculations.
Declines in the fair value of individual securities classified as available for sale below
their amortized cost that are determined to be other than temporary result in write-downs of the
individual securities to their fair value with the resulting write-downs included in current
earnings as realized losses. In determining other-than-temporary losses, management considers (1)
the length of time and the extent to which the fair value has been less than cost, (2) the
financial condition and near-term prospects of the issuer, and (3) the intent and ability of the
Company to retain its investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value.
Loans
Loans are stated at the amount of unpaid principal, reduced by unearned net loan fees and
allowance for loan losses.
The allowance for loan losses is established through a provision for loan losses charged to
expense. Loans are charged against the allowance for loan losses when management believes that
collectibility of the principal is unlikely. Subsequent recoveries, if any, are credited to the
allowance.
The allowance is an amount that management believes will be adequate to absorb probable losses
on existing loans that may become uncollectible, based on evaluation of the collectibility of loans
and prior credit loss experience. This evaluation also takes into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio quality, review of
specific problem credits, peer bank information, and current economic conditions that may affect
the borrowers ability to pay. Due to the credit concentration of the Companys loan portfolio in
real estate secured loans, the value of collateral is heavily dependent on real estate values in
Nevada, Arizona and California. 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 Federal Deposit Insurance Corporation (FDIC) and
state banking regulatory agencies, as an integral part of their examination processes, periodically
review the Banks allowance for loan losses, and may require the Banks to make additions to the
allowance based on their judgment about information available to them at the time of their
examinations.
The allowance consists of specific and general components. The specific component relates to
loans that are classified as doubtful, substandard or special mention. For such loans that are also
classified as impaired, an allowance is established when the discounted cash flows (or collateral
value or observable market price) of the impaired loan is lower than the carrying value of that
loan, pursuant to FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan. The
general component covers non-classified loans and is based on historical loss experience adjusted
for qualitative and environmental factors, pursuant to FASB Statement No. 5 (FASB 5), Accounting
for Contingencies.
A loan is impaired when it is probable the Company will be unable to collect all contractual
principal and interest payments due in accordance with the terms of the loan agreement. Impaired
loans are measured based on the present value of expected future cash flows discounted at the
loans effective interest rate or, as a practical expedient, at the loans observable market price
or the fair value of the collateral if the loan is collateral dependent. The amount of impairment,
if any, and any subsequent changes are included in the allowance for loan losses.
Interest and fees on loans
Interest on loans is recognized over the terms of the loans and is calculated under the
effective interest method. The accrual of interest on impaired loans is discontinued when, in
managements opinion, the borrower may be unable to make payments as they become due.
F-7
The Company determines a loan to be delinquent when payments have not been made according to
contractual terms, typically evidenced by nonpayment of a monthly installment by the due date. The
accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the
credit is well secured and in the process of collection. Credit card loans and other personal loans
are typically charged off no later than 180 days delinquent.
All interest accrued but not collected for loans that are placed on nonaccrual status or
charged off is reversed against interest income. The interest on these loans is accounted for on
the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned
to accrual status when all the principal and interest amounts contractually due are brought current
and future payments are reasonably assured.
Loan origination and commitment fees and certain direct loan origination costs are deferred
and the net amount amortized as an adjustment to the related loans yield. The Company is generally
amortizing these amounts over the contractual life of the loan. Commitment fees, based upon a
percentage of a customers unused line of credit, and fees related to standby letters of credit are
recognized over the commitment period.
As a service for customers, the Company has entered into agreements with unaffiliated mortgage
companies to complete applications, loan documents and perform pre-underwriting activities for
certain residential mortgages. The mortgage loan pre-underwriting fees from these agreements are
recognized as income when earned.
Accounting for Certain Loans Acquired in a Transfer
As a result of the acquisitions discussed in Note 2, the Company adopted Statement of Position
(SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer. SOP 03-3
requires acquired loans to be recorded at fair value and prohibits carrying over valuation
allowances in the initial accounting for acquired impaired loans. Loans carried at fair value,
mortgage loans held for sale, and loans to borrowers in good standing under revolving credit
agreements are excluded from the scope of SOP 03-3. SOP 03-3 limits the yield that may be accreted
on a loan to the excess of the undiscounted expected cash flows over the investors initial
investment in the loan. The excess of the contractual cash flows to be received from the borrower
over expected cash flows may not be recognized as an adjustment of yield. Subsequent increases in
cash flows expected to be collected are recognized prospectively through an adjustment of the
loans yield over its remaining life. Decreases in expected cash flows are recognized as
impairments, or an adjustment to the loans yield, depending on the magnitude of the decrease.
Transfers of financial assets
Transfers of financial assets are accounted for as sales, when control over the assets has
been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets
have been isolated from the Company, (2) the transferee obtains the right (free of conditions that
constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and
(3) the Company does not maintain effective control over the transferred assets through an
agreement to repurchase them before their maturity.
Advertising costs
Advertising costs are expensed as incurred.
Bank owned life insurance
Bank owned life insurance is stated at its cash surrender value. The face amount of the
underlying policies is $209,809 as of December 31, 2006. There are no loans offset against cash
surrender values, and there are no restrictions as to the use of proceeds.
Federal Home Loan Bank stock
The banks, as members of the Federal Home Loan Bank (FHLB) system, are required to maintain an
investment in capital stock of the FHLB in an amount equal to 5% of its advances from the FHLB.
These
F-8
investments are recorded at cost since no ready market exists for them, and they have no
quoted market value.
Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation is computed principally by the straight-line method over the estimated useful lives of
the assets. Improvements to leased property are amortized over the lesser of the term of the lease
or life of the improvements. Depreciation and amortization is computed using the following
estimated lives:
|
|
|
|
|
|
|
Years |
Bank premises |
|
|
31 |
|
Equipment and furniture |
|
|
3 - 10 |
|
Leasehold improvements |
|
|
6 - 10 |
|
Organization and start-up costs
Organization and start-up costs were charged to operations as they were incurred pursuant to
Statement of Position 98-5, Reporting on the Costs of Start-Up Activities. Organization and
start-up costs charged to operations during the year ended December 31, 2006 were approximately
$977. There were no organization and start-up costs charged to operations during the years ended
December 31, 2005 and 2004.
Other intangible assets
Intangible assets consist of core deposit intangible assets, investment advisory and trust
customer relationships, and are amortized over periods ranging from 6
to 14 years.
Goodwill
The Company records as goodwill the excess of the purchase price over the fair value of the
identifiable net assets acquired. Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets, prescribes a two-step process for impairment testing of
goodwill, which is performed annually, as well as when an event triggering impairment may have
occurred. The first step tests for impairment, while the second step, if necessary, measures the
impairment. The Company has elected to perform its annual analysis during the fourth quarter of
each fiscal year as of October 1st. No indicators of impairment were identified during
the year ending December 31, 2006.
Income taxes
Western Alliance Bancorporation and its subsidiaries, other than BW Real Estate, Inc., file a
consolidated federal tax return. Deferred taxes are provided on an asset and liability method
whereby deferred tax assets are recognized for deductible temporary differences and tax credit
carryforwards 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.
Stock compensation plans
The Company has the 2005 Stock Incentive Plan (the Plan) which is described more fully in Note
12. Effective January 1, 2006 (the adoption date), the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 123 (revised 2005), Share Based Payment (SFAS 123R). SFAS 123R
requires the Company to record the fair value of stock options granted to employees as expense over
the vesting period. Except as discussed below, the cost of the award is based on the grant-date
fair value. Prior to adoption of SFAS 123R, the Company accounted for stock option grants using the
recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Therefore, no stock option-based compensation was reflected
in net income, as all options are required by the Plan to be granted with an exercise price equal
to the estimated fair value of the underlying common stock on the date of grant.
F-9
Prior to the adoption of SFAS 123R, the Company applied the disclosure provisions of SFAS 123,
Accounting for Stock-Based Compensation. SFAS 123 required the disclosure of the pro forma impact
on net income and earnings per share as if the value of the options were calculated at fair value.
SFAS 123 permitted private companies to calculate the fair value of stock options using the minimum
value method while public companies were required to use a fair value model. Prior to the
Companys initial public offering (IPO) the Company used the minimum value method to calculate the
fair value of stock options. Subsequent to the Companys IPO, the Company utilizes the
Black-Scholes model to calculate the fair value of stock options.
The Company has adopted SFAS 123R using the prospective method for options granted prior to
the IPO and the modified prospective method for options granted subsequent to the IPO. Under the
Companys transition method, SFAS 123R applies to new awards and to awards that were outstanding on
the adoption date that are subsequently modified, repurchased, or cancelled. In addition, the
expense recognition provision of SFAS 123R applies to options granted prior to the adoption date
but subsequent to the IPO that were unvested at the adoption date.
During the year ended December 31, 2006, the Company granted stock options to the directors of
its subsidiaries. Directors of subsidiaries do not meet the definition of an employee under SFAS
123R. Accordingly, the Company applies EITF Issue No. 96-18, Accounting for Equity Instruments that
are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods or Services
to determine the measurement date for options granted to these directors. Therefore, the expense
related to these options is remeasured each reporting date until the options are vested.
The following table illustrates the effect on net income and earnings per share had
compensation cost for all of the stock-based compensation plans been determined based on the grant
date fair values of awards (the method described in FASB Statement No. 123, Accounting for
Stock-Based Compensation):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2003 |
|
|
|
Net income: |
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
39,889 |
|
|
$ |
28,065 |
|
|
$ |
20,057 |
|
Deduct stock-based employee compensation expense
determined under the minimum value method for
all awards
issued prior to the IPO |
|
|
(960 |
) |
|
|
(893 |
) |
|
|
(696 |
) |
Related tax benefit for nonqualified stock options |
|
|
74 |
|
|
|
60 |
|
|
|
33 |
|
|
|
|
Pro forma |
|
$ |
39,003 |
|
|
$ |
27,232 |
|
|
$ |
19,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
1.56 |
|
|
$ |
1.36 |
|
|
$ |
1.17 |
|
Basic pro forma |
|
|
1.52 |
|
|
|
1.32 |
|
|
|
1.13 |
|
Diluted as reported |
|
|
1.41 |
|
|
|
1.24 |
|
|
|
1.09 |
|
Diluted pro forma |
|
|
1.38 |
|
|
|
1.20 |
|
|
|
1.05 |
|
Preferred stock
No shares of preferred stock are issued and outstanding, and we have no current intent to
issue preferred stock in the immediate future. The Board of Directors has the authority, without
further action by the stockholders, to issue preferred stock in one or more series and to fix the
number of shares, designations, preferences, powers, and relative, participating, optional or other
special rights. The issuance of preferred stock could decrease the amount of earnings and assets
available for distribution to holders of common stock or adversely affect the rights and powers,
including voting rights, of the holders of common stock, and may have the effect of delaying,
deferring or preventing a change in control of the Company.
Off-balance sheet instruments
In the ordinary course of business, the Company has entered into off-balance sheet financial
instruments consisting of commitments to extend credit and standby letters of credit. Such
financial instruments are recorded in the consolidated financial statements when they are funded.
F-10
Trust assets and investment advisory assets under management
Customer
assets, other than funds on deposit, held in a fiduciary or agency capacity by the
Company are not included in the consolidated balance sheet because they are not assets of the
Company. Trust and investment advisory service income is recorded on an accrual basis. At December
31, 2006 and 2005, Premier Trust had $256 million and $132 million, respectively, in assets under
management and $430 million and $296 million, respectively, in total trust assets. At December 31,
2006 and 2005, Miller/ Russell & Associates had $1.40 billion and $1.11 billion, respectively, in
assets under management.
Fair values of financial instruments
FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, requires
disclosure of fair value information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value.
Management uses its best judgment in estimating the fair value of the Companys financial
instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for
substantially all financial instruments, the fair value estimates presented herein are not
necessarily indicative of the amounts the Company could have realized in a sales transaction at
December 31, 2006 or 2005. The estimated fair value amounts for 2006 and 2005 have been measured as
of their year 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 year end.
The information in Note 16 should not be interpreted as an estimate of the fair value of the
entire Company since a fair value calculation is only required for a limited portion of the
Companys assets.
Due to the wide range of valuation techniques and the degree of subjectivity used in making
the estimate, comparisons between the Companys disclosures and those of other companies or banks
may not be meaningful.
The following methods and assumptions were used by the Company in estimating the fair value of
its financial instruments:
Cash and cash equivalents
The carrying amounts reported in the consolidated balance sheets for cash and due from
banks and federal funds sold approximate their fair value.
Securities
Fair values for securities are based on quoted market prices where available or on quoted
markets for similar securities in the absence of quoted prices on the specific security.
Restricted
securities
The Companys subsidiary banks are members of the Federal Home Loan Bank (FHLB) system and
maintain an investment in capital stock of the FHLB in an amount equal to 5% of its advances
from the FHLB. Alta Alliance Bank is a member of the Federal Reserve Bank (FRB) system and
maintains an investment in capital stock of the FRB. The Companys subsidiary banks also
maintain an investment in their primary correspondent bank. These investments are carried at
cost since no ready market exists for them, and they have no quoted market value.
Loans
For variable rate loans that reprice frequently and that have experienced no significant
change in credit risk, fair values are based on carrying values. Variable rate loans comprised
approximately 52% and 57% of the loan portfolio at December 31, 2006 and 2005, respectively.
Fair value for all other loans is estimated based on discounted cash flows using interest rates
currently being offered for loans with similar terms to borrowers with similar credit quality.
Prepayments prior to the repricing date are
F-11
not expected to be significant. Loans are expected to be held to maturity and any
unrealized gains or losses are not expected to be realized.
Accrued interest receivable and payable
The carrying amounts reported in the consolidated balance sheets for accrued interest
receivable and payable approximate their fair value.
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). 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. Substantially all of the Companys certificates
of deposit at December 31, 2006 and 2005 mature in less than one year. Early withdrawals of
fixed-rate certificates of deposit are not expected to be significant.
Federal Home Loan Bank and other borrowings
The fair values of the Companys borrowings are estimated using discounted cash flow
analyses, based on the Companys incremental borrowing rates for similar types of borrowing
arrangements.
Junior subordinated and subordinated debt
The carrying amounts reported in the consolidated balance sheets for junior subordinated
and subordinated debt instruments approximate their fair value. The majority of such debt is
variable rate, and the fixed rate debt carries interest rates which approximate market rates.
Off-balance sheet instruments
Fair values for the Companys off-balance sheet instruments (lending commitments and
standby letters of credit) are based on quoted fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the counterparties
credit standing.
Earnings per share
Diluted earnings per share is based on the weighted average outstanding common shares during
each year, including common stock equivalents. Basic earnings per share is based on the weighted
average outstanding common shares during the year.
Basic and diluted earnings per share, based on the weighted average outstanding shares, are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock |
|
$ |
39,889 |
|
|
$ |
28,065 |
|
|
$ |
20,057 |
|
Average common shares outstanding |
|
|
25,623 |
|
|
|
20,583 |
|
|
|
17,190 |
|
|
|
|
Earnings per share |
|
$ |
1.56 |
|
|
$ |
1.36 |
|
|
$ |
1.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock |
|
$ |
39,889 |
|
|
$ |
28,065 |
|
|
$ |
20,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
|
|
25,623 |
|
|
|
20,583 |
|
|
|
17,190 |
|
Stock option adjustment |
|
|
1,355 |
|
|
|
1,168 |
|
|
|
694 |
|
Stock warrant adjustment |
|
|
1,044 |
|
|
|
915 |
|
|
|
521 |
|
Restricted stock award adjustment |
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
|
|
28,218 |
|
|
|
22,666 |
|
|
|
18,405 |
|
|
|
|
Earnings per share |
|
$ |
1.41 |
|
|
$ |
1.24 |
|
|
$ |
1.09 |
|
|
|
|
F-12
Reclassifications
Certain amounts in the consolidated financial statements as of and for the years ended
December 31, 2005 and 2004 have been reclassified to conform to the current presentation. The
reclassifications have no effect on net income or stockholders equity as previously reported.
Recent accounting pronouncements
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement 109 (FIN 48), which clarifies the accounting for
uncertainty in tax positions. This Interpretation provides that the tax effects from an uncertain
tax position can be recognized in our financial statements only if the position is more likely than
not of being sustained on audit, based on the technical merits of the position. The provisions of
FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect
of the change in accounting principle recorded as an adjustment to opening retained earnings. The
Company does not expect FIN 48 to have a material impact on the financial statements.
In September 2006, the FASB ratified the consensus of the Emerging Issues Task Force (EITF)
Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of
Endorsement Split-Dollar Life Insurance Arrangement. EITF 06-4 applies to endorsement split dollar
life insurance policies that provide a benefit to an employee that extends to postretirement
periods and requires an employer to recognize a liability for future benefits over the service
period based on the substantive agreement with the employee. EITF 06-4 is effective for fiscal
years beginning after December 15, 2007, with early adoption permitted. The Company does not
expect EITF 06-4 to have a material impact on the financial statements.
FASB Statement No. 157, Fair Value Measurements, defines fair value, establishes a framework
for measuring fair value in accordance with generally accepted accounting principles (GAAP), and
expands disclosures about fair value measurements. Upon adoption of FASB Statement No. 157, the
Company will be required to expand disclosures about the use of fair value and the methods used to
measure fair value. FASB Statement No. 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal years. Early
application is encouraged. The Company does not expect FASB Statement No. 157 to have a material
impact on the financial statements.
In September 2006, the FASB ratified the consensus reached by the Emerging Issues Task Force
in Issue No. 06-5, Accounting for Purchases of Life Insurance Determining the Amount That Could
Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life
Insurance (EITF 06-5). EITF 06-5 is effective for fiscal years beginning after December 15, 2006.
The Company does not expect EITF 06-5 will have a material impact on the financial statements.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Assets and Financial
Liabilities-Including an Amendment of FASB Statement No. 115. SFAS 159 permits an entity to choose
to measure many financial instruments and certain other items at fair value. Most of the provisions
of SFAS 159 are elective, however, the amendment to SFAS 115, Accounting for Certain Investments in
Debt and Equity Securities, applies to all entities with available for sale or trading securities.
For financial instruments elected to be accounted for at fair value, an entity will report the
unrealized gains and losses in earnings. SFAS 159 is effective as of the beginning of an entitys
first fiscal year that begins after November 15, 2007. SFAS 159 was recently issued and the Company
is currently assessing the financial impact this statement will have on the financial statements.
Note 2. Mergers and Acquisition Activity
Effective March 31, 2006, the Company acquired 100% of the outstanding common stock of
Intermountain First Bancorporation (Intermountain), headquartered in Las Vegas, Nevada.
Intermountain was the parent company of Nevada First Bank. The merger was accomplished according
to the Agreement and Plan of Merger (the Merger Agreement), dated December 30, 2005. At the date
of acquisition, Nevada First Bank became a wholly-owned subsidiary of the Company, and on April 29,
2006, Nevada First Bank was merged into BankWest of Nevada. As the merger closed on March 31,
2006, Intermountains results for the three months ended March 31, 2006 were not included with the
Companys results of operations. The merger increases the Companys presence in Las Vegas, Nevada
and expands the Companys market into Northern Nevada.
F-13
As provided by the Merger Agreement and based on valuation amounts determined as of the merger
date, approximately 1.486 million shares of Intermountain common stock were exchanged for $6.85
million in cash and 3.39 million shares of the Companys common stock at a calculated exchange
ratio of 2.44. The exchange of shares represented approximately 13% of the Companys outstanding
common stock as of the merger date.
Intermountain had 57,150 employee stock options outstanding at the acquisition date (March 31,
2006). All of the Intermountain stock options vested upon change in control. On the acquisition
date, the Company replaced the Intermountain stock options with options to purchase shares of the
Companys stock. In order to determine the number of options to be granted, the number of
Intermountain options was multiplied by the exchange ratio of 2.44 and the exercise price was
divided by the exchange ratio. All other terms (vesting, contractual life, etc.) were carried
forward from the Intermountain options. As a result, the Company granted a total of 139,446 stock
options with a weighted average exercise price of $5.91 to former Intermountain employees on the
acquisition date. The fair value of the stock options of $3.4 million is included in the purchase
price.
The following table shows the condensed balance sheet of amounts assigned to assets and
liabilities, including all purchase adjustments at the time of acquisition, of Intermountain as of
March 31, 2006:
|
|
|
|
|
Cash and due from banks |
|
$ |
35,938 |
|
Loans, net of allowance |
|
|
402,063 |
|
Securities |
|
|
33,776 |
|
Goodwill and core deposit intangible |
|
|
85,326 |
|
Fixed assets |
|
|
7,210 |
|
Other assets |
|
|
7,339 |
|
Deposits |
|
|
(421,978 |
) |
Borrowed funds |
|
|
(19,000 |
) |
Junior subordinated debt |
|
|
(10,310 |
) |
Other liabilities |
|
|
(7,600 |
) |
|
|
|
|
Net assets acquired |
|
$ |
112,764 |
|
|
|
|
|
The merger was accounted for under the purchase method of accounting. Accordingly, the results
of operations of Intermountain since the date of acquisition are included in the consolidated
financial statements. The purchase price was allocated to the assets acquired and the liabilities
assumed based on their estimated fair values at the merger date. None of the goodwill is expected
to be deductible for tax purposes. This is summarized below as of December 31, 2006:
|
|
|
|
|
|
|
|
|
Number of shares of Company stock issued for Intermountain stock |
|
|
3,390,306 |
|
|
|
|
|
Price of the Companys stock on the date of Merger Agreement |
|
$ |
29.87 |
|
|
|
|
|
Total stock consideration |
|
|
|
|
|
$ |
101,268 |
|
Fair value of Intermountains stock options converted
to Company stock options at merger date |
|
|
|
|
|
|
3,406 |
|
|
|
|
|
|
|
|
|
Total common stock and replacement stock options issued |
|
|
|
|
|
|
104,674 |
|
Cash consideration |
|
|
|
|
|
|
6,847 |
|
|
|
|
|
|
|
|
|
Total stock and cash consideration |
|
|
|
|
|
|
111,521 |
|
Acquisition costs: |
|
|
|
|
|
|
|
|
Direct costs of acquisition |
|
|
|
|
|
|
1,243 |
|
|
|
|
|
|
|
|
|
Total purchase price and acquisition costs |
|
|
|
|
|
|
112,764 |
|
Less: fair value of Intermountain tangible net assets acquired |
|
|
|
|
|
|
(27,438 |
) |
Less: estimated value of core deposit
intangible (estimated life is 12 years) |
|
|
|
|
|
|
(9,166 |
) |
|
|
|
|
|
|
|
|
Estimated goodwill arising from transaction |
|
|
|
|
|
$ |
76,160 |
|
|
|
|
|
|
|
|
|
Effective April 29, 2006, the Company acquired 100% of the outstanding common stock of Bank of
Nevada, headquartered in Las Vegas, Nevada. The merger was accomplished according to the Agreement
and Plan of Merger (the Bank of Nevada Merger Agreement), dated January 16, 2006. At the date
of acquisition, Bank of Nevada was merged into BankWest of Nevada (whose name was subsequently
changed to Bank of Nevada). As the merger closed on April 29, 2006, Bank of Nevadas results for
the four
F-14
months ended April 30, 2006 were not included with the Companys results of operations.
The merger increases the Companys presence in Las Vegas, Nevada.
As provided by the Bank of Nevada Merger Agreement, approximately 844,000 shares of Bank of
Nevada common stock and 119,000 stock options were exchanged for $74.0 million in cash.
The following table shows the condensed balance sheet of amounts assigned to assets and
liabilities, including all purchase adjustments at the time of acquisition, of Bank of Nevada as of
April 30, 2006:
|
|
|
|
|
Cash and due from banks |
|
$ |
41,086 |
|
Loans, net of allowance |
|
|
197,947 |
|
Securities |
|
|
19,960 |
|
Goodwill and core deposit intangible |
|
|
58,792 |
|
Fixed assets |
|
|
4,663 |
|
Other assets |
|
|
5,532 |
|
Deposits |
|
|
(245,509 |
) |
Other liabilities |
|
|
(7,572 |
) |
|
|
|
|
Net assets acquired |
|
$ |
74,899 |
|
|
|
|
|
The merger was accounted for under the purchase method of accounting. Accordingly, the results
of operations of Bank of Nevada since the date of acquisition are included in the consolidated
financial statements. The purchase price was allocated to the assets acquired and the liabilities
assumed based on their estimated fair values at the merger date. This is summarized below as of
December 31, 2006:
|
|
|
|
|
Cash consideration |
|
$ |
73,997 |
|
Acquisition costs: |
|
|
|
|
Direct costs of acquisition |
|
|
902 |
|
|
|
|
|
Total purchase price and acquisition costs |
|
|
74,899 |
|
Less: fair value of Bank of Nevada tangible net assets acquired |
|
|
(16,107 |
) |
Less: estimated value of core deposit intangible (estimated life
is 14 years) |
|
|
(6,710 |
) |
|
|
|
|
Estimated goodwill arising from transaction |
|
$ |
52,082 |
|
|
|
|
|
Certain amounts, including goodwill, are subject to change when the determination of the asset
and liability values is finalized within one year from the merger date. Valuations of certain
assets and liabilities of Intermountain and Bank of Nevada will be performed with the assistance of
independent valuation consultants. None of the resulting goodwill is expected to be deductible for
tax purposes. All of the goodwill is allocated to the Bank of Nevada operating segment.
Pre-tax amortization of core deposit intangible assets acquired in the Intermountain and Bank
of Nevada mergers is expected to be $1,145 for each of the years in the five year period ending
December 31, 2011.
The following unaudited pro forma condensed combined financial information presents the
Companys results of operations for the years indicated had the mergers taken place as of January
1, 2005:
F-15
|
|
|
|
|
|
|
|
|
|
|
Years ended |
|
|
December 31, |
|
|
2006 |
|
2005 |
|
|
|
Net interest income |
|
$ |
159,494 |
|
|
$ |
130,805 |
|
Provision for loan losses |
|
|
(7,650 |
) |
|
|
(7,386 |
) |
Gain (loss) on sale of securities |
|
|
(4,436 |
) |
|
|
69 |
|
Non-interest income |
|
|
18,126 |
|
|
|
13,739 |
|
Merger-related expense |
|
|
(4,960 |
) |
|
|
|
|
Other non-interest expense |
|
|
(101,781 |
) |
|
|
(84,885 |
) |
|
|
|
Income before income taxes |
|
|
58,793 |
|
|
|
52,342 |
|
Income taxes |
|
|
20,627 |
|
|
|
18,817 |
|
|
|
|
Net income |
|
$ |
38,166 |
|
|
$ |
33,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.44 |
|
|
$ |
1.40 |
|
Diluted |
|
$ |
1.31 |
|
|
$ |
1.28 |
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares outstanding during the period |
|
|
|
|
|
|
|
|
Basic |
|
|
26,469 |
|
|
|
23,991 |
|
Diluted |
|
|
29,064 |
|
|
|
26,077 |
|
Merger related expense in the twelve months ended December 31, 2006 of $4,960, relate to costs
associated with these mergers and consist of employee-related costs of $3.6 million, and other
costs of $1.4 million. Employee-related costs generally consist of various one time payments and
accruals related to employment agreement change-in-control provisions.
On December 20, 2006, the Company and First Independent Capital of Nevada (First Independent)
signed a definitive agreement under which First Independent will merge into Western Alliance
Bancorporation. Privately held First Independent owns First Independent Bank of Nevada, which had
assets of $428 million, deposits of $386 million, loans of $288 million and equity capital of $32
million at December 31, 2006. Under the terms of the agreement, First Independent
stockholders may elect to receive either $93.60 in cash or Western Alliance common stock of
comparable value (subject to certain collar provisions) as determined by a pricing period prior to
close. The agreement contains proration and allocation procedures to ensure that 80% of the First
Independent shares are exchanged for shares of Western Alliance. First Independent shareholders may
be eligible for additional cash payments of up to $2.38 per share depending upon the performance of
certain loans in the First Independent Bank loan portfolio during the two-year period after the
merger has been completed. The transaction is valued at approximately $115 million and is expected
to close late in the first quarter of 2007.
Note 3. Restrictions on Cash and Due from Banks
The Company is required to maintain balances in cash or on deposit with the Federal Reserve
Bank. The total of those reserve balances was approximately $15,079 and $7,548 as of December 31,
2006 and 2005, respectively.
Note 4. Securities
Carrying amounts and fair values of investment securities at December 31 are summarized as
follows:
F-16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Fair |
|
|
Cost |
|
Gains |
|
(Losses) |
|
Value |
|
|
|
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Treasury securities |
|
$ |
1,980 |
|
|
$ |
|
|
|
$ |
(3 |
) |
|
$ |
1,977 |
|
Small Business Administration
loan pools |
|
|
392 |
|
|
|
2 |
|
|
|
|
|
|
|
394 |
|
Municipal obligations |
|
|
7,086 |
|
|
|
217 |
|
|
|
|
|
|
|
7,303 |
|
Mortgage-backed securities |
|
|
88,037 |
|
|
|
43 |
|
|
|
(2,350 |
) |
|
|
85,730 |
|
|
|
|
|
|
$ |
97,495 |
|
|
$ |
262 |
|
|
$ |
(2,353 |
) |
|
$ |
95,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
1,669 |
|
|
$ |
|
|
|
$ |
(3 |
) |
|
$ |
1,666 |
|
U.S. Government-sponsored agencies |
|
|
27,964 |
|
|
|
|
|
|
|
(217 |
) |
|
|
27,747 |
|
Municipal obligations |
|
|
3,415 |
|
|
|
1 |
|
|
|
|
|
|
|
3,416 |
|
Mortgage-backed securities |
|
|
299,483 |
|
|
|
26 |
|
|
|
(8,049 |
) |
|
|
291,460 |
|
Asset-backed securities |
|
|
48,069 |
|
|
|
2 |
|
|
|
(88 |
) |
|
|
47,983 |
|
Adjustable-rate preferred stock |
|
|
48,979 |
|
|
|
103 |
|
|
|
(17 |
) |
|
|
49,065 |
|
Other |
|
|
23,327 |
|
|
|
507 |
|
|
|
(345 |
) |
|
|
23,489 |
|
|
|
|
|
|
$ |
452,906 |
|
|
$ |
639 |
|
|
$ |
(8,719 |
) |
|
$ |
444,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Fair |
|
|
Cost |
|
Gains |
|
(Losses) |
|
Value |
|
|
|
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Treasury securities |
|
$ |
3,498 |
|
|
$ |
|
|
|
$ |
(43 |
) |
|
$ |
3,455 |
|
Small Business Administration
loan pools |
|
|
426 |
|
|
|
|
|
|
|
(2 |
) |
|
|
424 |
|
Municipal obligations |
|
|
7,128 |
|
|
|
275 |
|
|
|
|
|
|
|
7,403 |
|
Mortgage-backed securities |
|
|
104,119 |
|
|
|
|
|
|
|
(2,800 |
) |
|
|
101,319 |
|
|
|
|
|
|
$ |
115,171 |
|
|
$ |
275 |
|
|
$ |
(2,845 |
) |
|
$ |
112,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government-sponsored agencies |
|
$ |
138,787 |
|
|
$ |
|
|
|
$ |
(1,209 |
) |
|
$ |
137,578 |
|
Mortgage-backed securities |
|
|
429,490 |
|
|
|
14 |
|
|
|
(13,765 |
) |
|
|
415,739 |
|
Auction rate securities |
|
|
67,999 |
|
|
|
|
|
|
|
|
|
|
|
67,999 |
|
Other |
|
|
12,263 |
|
|
|
|
|
|
|
(217 |
) |
|
|
12,046 |
|
|
|
|
|
|
$ |
648,539 |
|
|
$ |
14 |
|
|
$ |
(15,191 |
) |
|
$ |
633,362 |
|
|
|
|
Securities with carrying amounts of approximately $374,495 and $597,637 at December 31, 2006
and 2005, respectively, were pledged for various purposes as required or permitted by law.
Information pertaining to securities with gross unrealized losses at December 31, 2006 and
2005, aggregated by investment category and length of time that individual securities have been in
a continuous loss position follows:
F-17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
Less Than Twelve Months |
|
Over Twelve Months |
|
|
Gross |
|
|
|
|
|
Gross |
|
|
|
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
|
Losses |
|
Value |
|
Losses |
|
Value |
|
|
|
|
|
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Treasury securities |
|
$ |
3 |
|
|
$ |
1,977 |
|
|
$ |
|
|
|
$ |
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
2,350 |
|
|
|
76,535 |
|
|
|
|
|
|
$ |
3 |
|
|
$ |
1,977 |
|
|
$ |
2,350 |
|
|
$ |
76,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than Twelve Months |
|
Over Twelve Months |
|
|
Gross |
|
|
|
|
|
Gross |
|
|
|
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
|
Losses |
|
Value |
|
Losses |
|
Value |
|
|
|
|
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
3 |
|
|
$ |
1,667 |
|
|
$ |
|
|
|
$ |
|
|
U.S. Government-sponsored agencies |
|
|
7 |
|
|
|
4,993 |
|
|
|
210 |
|
|
|
22,795 |
|
Mortgage-backed securities |
|
|
1 |
|
|
|
141 |
|
|
|
8,048 |
|
|
|
225,620 |
|
Adjustable rate preferred stock |
|
|
88 |
|
|
|
4,916 |
|
|
|
|
|
|
|
|
|
Asset-backed securities |
|
|
17 |
|
|
|
7,012 |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
345 |
|
|
|
14,692 |
|
|
|
|
|
|
$ |
116 |
|
|
$ |
18,729 |
|
|
$ |
8,603 |
|
|
$ |
263,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
Less Than Twelve Months |
|
Over Twelve Months |
|
|
Gross |
|
|
|
|
|
Gross |
|
|
|
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
|
Losses |
|
Value |
|
Losses |
|
Value |
|
|
|
|
|
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Treasury securities |
|
$ |
5 |
|
|
$ |
992 |
|
|
$ |
38 |
|
|
$ |
2,463 |
|
Small Business Administration
loan pools |
|
|
1 |
|
|
|
156 |
|
|
|
1 |
|
|
|
17 |
|
Mortgage-backed securities |
|
|
633 |
|
|
|
32,168 |
|
|
|
2,167 |
|
|
|
67,131 |
|
|
|
|
|
|
$ |
639 |
|
|
$ |
33,316 |
|
|
$ |
2,206 |
|
|
$ |
69,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than Twelve Months |
|
Over Twelve Months |
|
|
Gross |
|
|
|
|
|
Gross |
|
|
|
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
|
Losses |
|
Value |
|
Losses |
|
Value |
|
|
|
|
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government-sponsored agencies |
|
$ |
214 |
|
|
$ |
21,484 |
|
|
$ |
995 |
|
|
$ |
66,168 |
|
Mortgage-backed securities |
|
|
1,523 |
|
|
|
92,384 |
|
|
|
12,242 |
|
|
|
321,103 |
|
Other |
|
|
217 |
|
|
|
12,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,954 |
|
|
$ |
125,914 |
|
|
$ |
13,237 |
|
|
$ |
387,271 |
|
|
|
|
Management evaluates securities for other-than-temporary impairment at least on a quarterly
basis, and more frequently when economic or market conditions warrant such evaluation.
Consideration is given to (1) the length of time and the extent to which the fair value has been
less than cost, (2) the financial condition and near term prospects of the issuer, and (3) the
intent and ability of the Company to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value.
At December 31, 2006 and 2005, 84 and 125 debt securities, respectively, have unrealized
losses with aggregate depreciation of approximately 3.0% and 2.7%, respectively, from the Companys
amortized cost basis. These unrealized losses relate primarily to fluctuations in the current
interest rate environment. In analyzing an issuers financial condition, management considers
whether the securities are issued by the federal government or its agencies, whether downgrades by
bond rating agencies have occurred, and industry analysis reports. Since no downgrades have
occurred and management has the ability and intent to hold debt securities for the foreseeable
future, no declines are deemed to be other than temporary.
F-18
The amortized cost and fair value of securities as of December 31, 2006 by contractual
maturities are shown below. The actual maturities of the mortgage-backed securities and Small
Business Administration loan pools may differ from their contractual maturities because the loans
underlying the securities may be repaid without any penalties. Therefore, these securities are
listed separately in the maturity summary. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
Fair |
|
|
Cost |
|
Value |
|
|
|
Securities held to maturity |
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
1,980 |
|
|
$ |
1,977 |
|
Due after one year through five years |
|
|
|
|
|
|
|
|
Due after five years through ten years |
|
|
3,064 |
|
|
|
3,153 |
|
Due after ten years |
|
|
4,022 |
|
|
|
4,150 |
|
Small Business Administration loan pools |
|
|
392 |
|
|
|
394 |
|
Mortgage backed securities |
|
|
88,037 |
|
|
|
85,730 |
|
|
|
|
|
|
$ |
97,495 |
|
|
$ |
95,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
8,789 |
|
|
$ |
8,698 |
|
Due after one year through five years |
|
|
28,156 |
|
|
|
28,189 |
|
Due after five years through ten years |
|
|
10,481 |
|
|
|
10,377 |
|
Due after ten years |
|
|
82,670 |
|
|
|
82,613 |
|
Mortgage backed securities |
|
|
299,483 |
|
|
|
291,460 |
|
Other |
|
|
23,327 |
|
|
|
23,489 |
|
|
|
|
|
|
$ |
452,906 |
|
|
$ |
444,826 |
|
|
|
|
Gross gains and losses from investment securities of $0 and $4,436 in 2006, $138 and $69 in
2005, and $177 and $158 in 2004, respectively, were recognized on the sale of securities.
F-19
Note 5. Loans
The components of the Companys loan portfolio as of December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
|
|
Construction and land development |
|
$ |
715,546 |
|
|
$ |
432,668 |
|
Commercial real estate |
|
|
1,232,260 |
|
|
|
727,210 |
|
Residential real estate |
|
|
384,082 |
|
|
|
272,861 |
|
Commercial and industrial |
|
|
645,469 |
|
|
|
342,452 |
|
Consumer |
|
|
29,561 |
|
|
|
20,434 |
|
Less: net deferred loan fees |
|
|
(3,696 |
) |
|
|
(2,288 |
) |
|
|
|
|
|
|
3,003,222 |
|
|
|
1,793,337 |
|
|
|
|
|
|
|
|
|
|
Less: |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(33,551 |
) |
|
|
(21,192 |
) |
|
|
|
|
|
$ |
2,969,671 |
|
|
$ |
1,772,145 |
|
|
|
|
At
December 31, 2006, loans
of $635,859 were pledged to secure Federal Home Loan Bank lines of
credit.
Information about impaired and non-accrual loans as of and for the years ended December 31 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
|
|
Total impaired loans, all with an allowance for loan losses |
|
$ |
2,256 |
|
|
$ |
107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Related allowance for loan losses on impaired loans |
|
$ |
489 |
|
|
$ |
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non accrual loans |
|
$ |
1,417 |
|
|
$ |
107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans past due 90 days or more and still accruing |
|
$ |
794 |
|
|
$ |
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
Average balance during the year on impaired loans |
|
$ |
2,294 |
|
|
$ |
115 |
|
|
$ |
1,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized on impaired loans |
|
$ |
120 |
|
|
$ |
1 |
|
|
$ |
61 |
|
|
|
|
The Company is not committed to lend significant additional funds on these impaired loans.
Changes in the allowance for loan losses for the years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
Balance, beginning |
|
$ |
21,192 |
|
|
$ |
15,271 |
|
|
$ |
11,378 |
|
Acquisitions |
|
|
8,768 |
|
|
|
|
|
|
|
|
|
Provision charged to operating expense |
|
|
4,660 |
|
|
|
6,179 |
|
|
|
3,914 |
|
Recoveries of amounts charged off |
|
|
436 |
|
|
|
196 |
|
|
|
157 |
|
Less amounts charged off |
|
|
(1,505 |
) |
|
|
(454 |
) |
|
|
(178 |
) |
|
|
|
Balance, ending |
|
$ |
33,551 |
|
|
$ |
21,192 |
|
|
$ |
15,271 |
|
|
|
|
F-20
Note 6. Premises and Equipment
The major classes of premises and equipment and the total accumulated depreciation and
amortization as of December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
|
|
Land |
|
$ |
31,191 |
|
|
$ |
20,505 |
|
Bank premises |
|
|
45,298 |
|
|
|
24,214 |
|
Equipment and furniture |
|
|
30,494 |
|
|
|
20,517 |
|
Leasehold improvements |
|
|
7,545 |
|
|
|
2,870 |
|
Construction in progress |
|
|
7,819 |
|
|
|
3,748 |
|
|
|
|
|
|
|
122,347 |
|
|
|
71,854 |
|
Less accumulated depreciation and amortization |
|
|
(22,488 |
) |
|
|
(13,424 |
) |
|
|
|
Net premises and equipment |
|
$ |
99,859 |
|
|
$ |
58,430 |
|
|
|
|
Our remaining commitment related to our construction in progress at December 31, 2006 is
$7,939.
During the year ended December 31, 2006, the Company capitalized interest on construction in
progress in the amount of $477.
Note 7. Income Tax Matters
The cumulative tax effects of the primary temporary differences as of December 31 are shown in
the following table:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
12,300 |
|
|
$ |
7,800 |
|
Unrealized loss on available for sale securities |
|
|
2,900 |
|
|
|
5,500 |
|
Organizational costs |
|
|
800 |
|
|
|
200 |
|
Deferred compensation |
|
|
200 |
|
|
|
200 |
|
Other |
|
|
400 |
|
|
|
507 |
|
|
|
|
Total deferred tax assets |
|
|
16,600 |
|
|
|
14,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Deferred loan costs |
|
|
(2,000 |
) |
|
|
(1,600 |
) |
Premises and equipment |
|
|
(400 |
) |
|
|
(1,300 |
) |
Federal Home Loan Bank dividend |
|
|
(800 |
) |
|
|
(500 |
) |
Core deposit intangible |
|
|
(5,400 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(8,600 |
) |
|
|
(3,400 |
) |
|
|
|
Net deferred tax asset |
|
$ |
8,000 |
|
|
$ |
10,807 |
|
|
|
|
As of December 31, 2006 and 2005, no valuation allowance was considered necessary as
management believes it is more likely than not that the deferred tax assets will be realized due to
taxes paid in prior years or future operations. The provision for income taxes charged to
operations consists of the following for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
Current |
|
$ |
18,619 |
|
|
$ |
17,530 |
|
|
$ |
11,030 |
|
Deferred |
|
|
2,968 |
|
|
|
(2,158 |
) |
|
|
(69 |
) |
|
|
|
Total provision for income taxes |
|
$ |
21,587 |
|
|
$ |
15,372 |
|
|
$ |
10,961 |
|
|
|
|
The reasons for the differences between the statutory federal income tax rate and the
effective tax rates are summarized as follows:
F-21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
Computed expected tax expense |
|
$ |
21,517 |
|
|
$ |
15,203 |
|
|
$ |
10,856 |
|
Increase (decrease) resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal
benefits and
dividends received deductions |
|
|
905 |
|
|
|
670 |
|
|
|
580 |
|
Bank-owned life insurance |
|
|
(924 |
) |
|
|
(582 |
) |
|
|
(420 |
) |
Tax-exempt income |
|
|
(183 |
) |
|
|
(133 |
) |
|
|
(116 |
) |
Nondeductible expenses |
|
|
203 |
|
|
|
168 |
|
|
|
100 |
|
Other |
|
|
69 |
|
|
|
46 |
|
|
|
(39 |
) |
|
|
|
|
|
$ |
21,587 |
|
|
$ |
15,372 |
|
|
$ |
10,961 |
|
|
|
|
Note 8. Deposits
At December 31, 2006, the scheduled maturities of all time deposits are as follows:
|
|
|
|
|
2007 |
|
$ |
569,462 |
|
2008 |
|
|
17,279 |
|
2009 |
|
|
5,101 |
|
2010 |
|
|
87 |
|
2011 |
|
|
15 |
|
|
|
|
|
|
|
$ |
591,944 |
|
|
|
|
|
As of December 31, 2006 and 2005, approximately $313,866 and $313,033, respectively, of the
Companys non-interest bearing demand deposits consisted of demand accounts maintained by title
insurance companies. The Company provides an analysis earnings credit for certain title company
depositors, which credit is calculated by applying a variable crediting rate to such customers
average monthly deposit balances, less any internal charges incurred, which are comprised of common
deposit service charges. We then purchase external services on behalf of these customers or grant
below-market rate loans based on the amount of the earnings credit. These external services, which
are commonly offered in the banking industry, include courier, bookkeeping and data processing
services. The expense of these external services combined with the cost of the below-market rate
loans totaled $4,278, $2,105 and $701 for the years ended December 31, 2006, 2005 and 2004,
respectively, and is included in customer service expense in the accompanying statements of income.
Note 9. Borrowed Funds
The Company has a line of credit available from the Federal Home Loan Bank (FHLB). Borrowing
capacity is determined based on collateral pledged, generally consisting of securities and loans,
at the time of the borrowing. The Company also has borrowings from other sources pledged by
securities. A summary of the Companys borrowings as of December 31, 2006 and 2005 follows:
F-22
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
|
|
Short Term |
|
|
|
|
|
|
|
|
FHLB Advances (weighted average
rate is 2006: 5.26% and 2005: 4.00%) |
|
$ |
11,000 |
|
|
$ |
7,000 |
|
Securities sold under agreement to repurchase (weighted average
rate is 2006: 4.42% and 2005: 2.74%) |
|
|
170,656 |
|
|
|
78,170 |
|
|
|
|
Due in one year or less |
|
$ |
181,656 |
|
|
$ |
85,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term |
|
|
|
|
|
|
|
|
FHLB Advances (weighted average
rate is 2006: 3.07% and 2005: 2.63%) |
|
$ |
48,300 |
|
|
$ |
63,700 |
|
Other long term debt (weighted average rate is 8.79%) |
|
|
9,711 |
|
|
|
9,812 |
|
|
|
|
Due in over one year |
|
$ |
58,011 |
|
|
$ |
73,512 |
|
|
|
|
Long term FHLB advances and other borrowings mature as follows:
|
|
|
|
|
2007 |
|
$ |
33,410 |
|
2008 |
|
|
5,118 |
|
2009 |
|
|
131 |
|
2010 |
|
|
9,352 |
|
2011 |
|
|
|
|
Thereafter |
|
|
10,000 |
|
|
|
|
|
|
|
$ |
58,011 |
|
|
|
|
|
On December 30, 2005, the Company purchased the corporate headquarters of Bank of Nevada. The
location was previously leased by the Company. In connection with this purchase, the Company
assumed a note on the building. The note amount at December 31, 2006 is $9,711, has a fixed
interest rate of 8.79%, and matures in 2010. The note is secured by the purchased building.
The Banks have entered into agreements under which they can borrow up to $116,000 on an
unsecured basis. The lending institutions will determine the interest rate charged on borrowings at
the time of the borrowing. The Company has also entered into an agreement under which it can borrow
up to $20,000. The line of credit is secured by Alliance Bank of Arizona stock and carries an
interest rate at the federal funds borrowing rate plus 1.00%. There were no borrowings against
these lines of credit at December 31, 2006 or 2005.
Note 10. Junior Subordinated and Subordinated Debt
The Company has formed or acquired through mergers four statutory business trusts which exist
for the exclusive purpose of issuing Cumulative Trust Preferred Securities. All of the funds
raised from the issuance of these securities were passed to the Company and are reflected in the
accompanying balance sheet as junior subordinated debt in the amount of $61,857. The junior
subordinated debt has maturity dates as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate |
|
|
|
|
|
|
|
|
|
Name of Trust |
|
December 31, 2006 |
|
Maturity |
|
|
2006 |
|
|
2005 |
|
BankWest Nevada Capital Trust I |
|
six-month LIBOR plus 3.75% |
|
|
2031 |
|
|
|
15,464 |
|
|
|
15,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BankWest Nevada Capital Trust II |
|
three-month LIBOR plus 3.35% |
|
|
2033 |
|
|
|
15,464 |
|
|
|
15,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermountain First Statutory
Trust I |
|
six-month LIBOR plus 2.80% |
|
|
2034 |
|
|
|
10,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WAL Trust No. 1 |
|
fixed at 6.78% through June 2011; thereafter three month LIBOR plus 1.45% |
|
|
2036 |
|
|
|
20,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
61,857 |
|
|
$ |
30,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the event of certain changes or amendments to regulatory requirements or Federal tax rules,
the debt is redeemable in whole. The obligations under these instruments are fully and
unconditionally guaranteed
F-23
by the Company and rank subordinate and junior in right of payment to
all other liabilities of the Company. The trust preferred securities qualify as Tier 1 Capital for
the Company, subject to certain limitations, with the excess being included in total capital for
regulatory purposes.
In 2006, Bank of Nevada issued $40,000 in floating rate unsecured subordinated debt. The rate
is based on three month LIBOR plus 1.20%. The debt requires quarterly interest payments and matures
in September 2016. $30,000 was distributed to Western Alliance Bancorporation to fund general
corporate purposes, while $10,000 was retained by Bank of Nevada.
Note 11. Commitments and Contingencies
Contingencies
In the normal course of business, the Company is involved in various legal proceedings. In the
opinion of management, any liability resulting from such proceedings would not have a material
adverse effect on the consolidated financial statements.
Financial instruments with off-balance sheet risk
The Company is party to financial instruments with off-balance sheet risk in the normal course
of business to meet the financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit. They involve, to varying degrees,
elements of credit risk in excess of amounts recognized in the consolidated balance sheets.
The Companys exposure to credit loss in the event of nonperformance by the other parties to
the financial instrument for these commitments is represented by the contractual amounts of those
instruments. The Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. A summary of the contract amount of the
Companys exposure to off-balance sheet risk as of December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
|
|
Commitments to extend credit, including unsecured loan
commitments of $194,586 in 2006 and $111,522 in 2005 |
|
$ |
1,083,854 |
|
|
$ |
750,349 |
|
Credit card commitments and guarantees |
|
|
16,233 |
|
|
|
7,616 |
|
Standby letters of credit, including unsecured letters of credit of
$17,815 in 2006 and $4,550 in 2005 |
|
|
61,157 |
|
|
|
28,720 |
|
|
|
|
|
|
$ |
1,161,244 |
|
|
$ |
786,685 |
|
|
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customers creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on managements credit evaluation of the party. Collateral held
varies, but may include accounts receivable, inventory, property and equipment, residential real
estate and income-producing commercial properties.
The Company guarantees certain customer credit card balances held by an unrelated third party.
These unsecured guarantees act to streamline the credit underwriting process and are issued as a
service to certain customers who wish to obtain a credit card from the third party vendor. The
Company recognizes nominal fees from these arrangements and views them strictly as a means of
maintaining good customer relationships. The guarantee is offered to those customers who, based
solely upon managements evaluation, maintain a relationship with the Company that justifies the
inherent risk. All such guarantees exist for the life of each respective credit card relationship.
The Company would be required to perform under the guarantee upon a customers default on the
credit card relationship with the third party. Historical losses under this program have been
nominal. Upon entering into a credit card guarantee, the Company records the related liability at
fair value pursuant to FASB Interpretation 45 (FIN 45), Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Thereafter,
the related liability is evaluated pursuant to FASB 5. The total credit card balances outstanding
at December 31, 2006 and 2005 were $1,578 and $1,566, respectively.
F-24
Standby letters of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. Those guarantees are primarily issued to support public
and private borrowing arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers. Collateral held
varies as specified above and is required as the Company deems necessary. Essentially all letters
of credit issued have expiration dates within one year. Upon entering into a letter of credit, the
Company records the related liability at fair value pursuant to FIN 45. Thereafter, the related
liability is evaluated pursuant to FASB 5.
The total liability for financial instruments with off-balance sheet risk as of December 31,
2006 and 2005 was $357 and $455, respectively.
Lease Commitments
The Company leases certain premises and equipment under noncancelable operating leases
expiring through 2015. The following is a schedule of future minimum rental payments under these
leases at December 31, 2006:
|
|
|
|
|
2007 |
|
$ |
3,494 |
|
2008 |
|
|
3,099 |
|
2009 |
|
|
2,960 |
|
2010 |
|
|
2,906 |
|
2011 |
|
|
2,908 |
|
Thereafter |
|
|
8,192 |
|
|
|
|
|
|
|
$ |
23,559 |
|
|
|
|
|
Rent expense of $3,512, $3,902 and $3,174 is included in occupancy expenses for the years
ended December 31, 2006, 2005 and 2004, respectively.
Concentrations
The Company grants commercial, construction, real estate and consumer loans to customers
through branch offices located in the Companys primary markets. The Companys business is
concentrated in these areas and the loan portfolio includes significant credit exposure to the
commercial real estate industry of these areas. As of December 31, 2006 and 2005, commercial real
estate related loans accounted for approximately 65% of total loans, respectively, and
approximately 7% of commercial real estate loans are secured by undeveloped land. Substantially all
of these loans are secured by first liens with an initial loan to value ratio of generally not more
than 80%. Approximately 61% of these real estate loans are owner occupied. In addition,
approximately 6% and 5% of total loans are unsecured as of December 31, 2006 and 2005,
respectively. At December 31, 2006, approximately 37% of our residential real estate loan
portfolio is comprised of interest only loans. These loans have an average loan-to-value of less
than 60%.
The loans are expected to be repaid from cash flows or proceeds from the sale of selected
assets of the borrowers. The Companys policy for requiring collateral is to obtain collateral
whenever it is available or desirable, depending upon the degree of risk the Company is willing to
take.
Note 12. Stock Options, Stock Warrants and Restricted Stock Awards
During 2005, the stockholders approved the 2005 Stock Incentive Plan (the Plan). The Plan is
an amendment and restatement of our prior stock compensation plans, and therefore supersedes the
prior plans while preserving the material terms of the prior plan awards. The Plan gives the Board
of Directors the authority to grant up to 3,254 stock awards consisting of unrestricted stock,
stock units, dividend equivalent rights, stock options (incentive and non-qualified), stock
appreciation rights, restricted stock, and performance and annual incentive awards. Stock awards
available to grant at December 31, 2006 are 335. The maximum
contractual term for options granted under the plan is ten years.
The Plan contains certain individual limits on the maximum amount that can be paid in cash
under the Plan and on the maximum number of shares of common stock that may be issued pursuant to
the Plan in a calendar year. The maximum number of shares subject to options or stock appreciation
rights that can
F-25
be issued under the Plan to any person is 150,000 shares in any calendar year. The
maximum number of shares that can be issued under the Plan to any person, other than pursuant to an
option or stock appreciation right, is 150,000 in any calendar year. The maximum amount that may
be earned as an annual incentive award or other cash award in any fiscal year by any one person is
$5.0 million and the maximum amount that may be earned as a performance award or other cash award
by any one person is $15.0 million.
The fair value of each option award is estimated on the date of grant using the Black-Scholes
option valuation model that uses the assumptions noted in the following table. The expected
volatility is
based on the historical volatility of the stock of similar companies that have traded at least as
long as the expected life of the Companys options. Except for replacement options, the Company
estimates the life of the options by calculating the average of the vesting period and the
contractual life. The expected life of replacement options was estimated based on managements
judgment considering the remaining contractual term of the
replacement options. The risk-free rate for periods within the contractual life of the option is based on the
U.S. Treasury yield curve in effect at the time of the grant. The dividends rate assumption of
zero is based on managements intention not to pay dividends for the foreseeable future. A summary
of the assumptions used in calculating the fair value of option awards during the years ended
December 31, 2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended |
|
|
Replacement |
|
December 31, |
|
December 31, |
|
December 31, |
|
|
Options |
|
2006 |
|
2005 (post-IPO) |
|
2005 (pre-IPO) |
|
|
|
Expected life in years |
|
|
2 |
|
|
|
5 |
|
|
|
6 |
|
|
|
7 |
|
Risk-free interest rate |
|
|
4.3 |
% |
|
|
4.6 |
% |
|
|
4.2 |
% |
|
|
4.1 |
% |
Dividends rate |
|
None |
|
None |
|
None |
|
None |
Fair value per
optional share |
|
$ |
24.43 |
|
|
$ |
10.93 |
|
|
$ |
8.91 |
|
|
$ |
4.04 |
|
Volatility |
|
|
23 |
% |
|
|
28 |
% |
|
|
29 |
% |
|
|
N/A |
|
Stock options granted in 2006 generally have a vesting period of 4 years and a life of 7
years. Restricted stock awards granted in 2006 generally has a vesting period of 3 years. The
Company recognizes compensation cost for options with a graded vesting on a straight-line basis
over the requisite service period for the entire award.
A summary of option activity under the Plan as December 31, 2006 and 2005, and changes during
the years then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
2006 |
|
2005 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
Shares |
|
Exercise |
|
Shares |
|
Exercise |
|
|
(in thousands) |
|
Price |
|
(in thousands) |
|
Price |
|
|
|
Outstanding options, beginning of period |
|
|
2,125 |
|
|
$ |
10.10 |
|
|
|
1,986 |
|
|
$ |
7.96 |
|
Granted |
|
|
375 |
|
|
|
33.69 |
|
|
|
407 |
|
|
|
17.88 |
|
Replacement options (see Note 2) |
|
|
140 |
|
|
|
5.91 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(319 |
) |
|
|
6.90 |
|
|
|
(228 |
) |
|
|
5.30 |
|
Forfeited or expired |
|
|
(125 |
) |
|
|
16.89 |
|
|
|
(40 |
) |
|
|
10.92 |
|
|
|
|
|
|
Outstanding options, end of period |
|
|
2,196 |
|
|
$ |
13.94 |
|
|
|
2,125 |
|
|
$ |
10.10 |
|
|
|
|
|
|
Options exercisable, end of period |
|
|
1,013 |
|
|
$ |
8.52 |
|
|
|
783 |
|
|
$ |
7.43 |
|
|
|
|
|
|
At December 31, 2006 and 2005, the weighted average remaining contractual terms of outstanding
stock options were 6.6 years and 7.6 years, respectively. The weighted average contractual terms of
vested stock options for the same dates were 6.2 years and 7.4 years, respectively. At December 31,
2006 and 2005, the aggregate intrinsic values of outstanding stock options were $45,750 and
$42,007, respectively. At the same dates, the aggregate intrinsic values of vested stock options
were $26,591 and $17,571, respectively.
The total intrinsic value of options exercised during the years ended December 31, 2006 and
2005 were $8,893 and $3,892, respectively.
F-26
At December 31, 2006 and 2005, the aggregate intrinsic values of restricted stock awards
outstanding are $8,185 and $806, respectively.
A summary of the status of the Companys nonvested shares of restricted stock as of December
31, 2006 and changes during the years then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average Grant |
Nonvested Restricted Stock |
|
Shares |
|
Date Fair Value |
|
Nonvested at January 1, 2006 |
|
|
27 |
|
|
$ |
16.50 |
|
Granted |
|
|
243 |
|
|
|
32.51 |
|
Vested |
|
|
(6 |
) |
|
|
16.50 |
|
Forfeited |
|
|
(34 |
) |
|
|
33.48 |
|
|
|
|
Nonvested at December 31, 2006 |
|
|
230 |
|
|
$ |
30.90 |
|
|
|
|
As of December 31, 2006, there was $9,377 of total unrecognized compensation cost related to
non-vested share-based compensation arrangements granted under the Plan. That cost is expected to
be recognized over a weighted average period of 2.8 years. The total fair value of shares and
options vested during the years ended December 31, 2006 and 2005
was $4,804 and $703, respectively.
At December 31, 2006 and 2005, there were 1,435 warrants outstanding with a weighted average
exercise price of $10.09. These warrants are immediately exercisable.
Note 13. Regulatory Capital
The Company and the Banks are subject to various regulatory capital requirements administered
by federal banking agencies. Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Companys and the Banks consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and the Banks must meet specific capital guidelines that involve qualitative
measures of their assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and other factors.
Prompt corrective action provisions are not applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy require the Company
and the Banks to maintain minimum amounts and ratios (set forth in the following table) of total
and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of
Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31,
2006, that the Company and the Banks meet all capital adequacy requirements to which they are
subject.
As of December 31, 2006, the most recent notification from federal banking agencies
categorized the Company, Bank of Nevada, Alliance Bank of Arizona and Torrey Pines Bank as
well-capitalized as defined by the banking agencies. To be categorized as well-capitalized, the
Banks must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set
forth in the table below.
The actual capital amounts and ratios for the Banks and Company as of December 31 are
presented in the following table:
F-27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Capital |
|
To Be |
|
|
Actual |
|
Adequacy Purposes |
|
Well Capitalized |
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
|
|
As of December 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk Weighted
Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Nevada |
|
$ |
265,562 |
|
|
|
10.8 |
% |
|
$ |
196,443 |
|
|
|
8.0 |
% |
|
$ |
245,554 |
|
|
|
10.0 |
% |
Alliance Bank of Arizona |
|
|
67,864 |
|
|
|
11.2 |
% |
|
|
48,424 |
|
|
|
8.0 |
% |
|
|
60,530 |
|
|
|
10.0 |
% |
Torrey Pines Bank |
|
|
54,467 |
|
|
|
11.5 |
% |
|
|
37,859 |
|
|
|
8.0 |
% |
|
|
47,324 |
|
|
|
10.0 |
% |
Alta Alliance Bank |
|
|
24,169 |
|
|
|
89.9 |
% |
|
|
2,150 |
|
|
|
8.0 |
% |
|
|
2,688 |
|
|
|
10.0 |
% |
Company |
|
|
409,481 |
|
|
|
11.5 |
% |
|
|
285,294 |
|
|
|
8.0 |
% |
|
|
356,617 |
|
|
|
10.0 |
% |
Tier I Capital (to Risk Weighted
Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Nevada |
|
|
202,141 |
|
|
|
8.2 |
% |
|
|
98,222 |
|
|
|
4.0 |
% |
|
|
147,332 |
|
|
|
6.0 |
% |
Alliance Bank of Arizona |
|
|
52,064 |
|
|
|
8.6 |
% |
|
|
24,212 |
|
|
|
4.0 |
% |
|
|
36,318 |
|
|
|
6.0 |
% |
Torrey Pines Bank |
|
|
39,917 |
|
|
|
8.4 |
% |
|
|
18,929 |
|
|
|
4.0 |
% |
|
|
28,394 |
|
|
|
6.0 |
% |
Alta Alliance Bank |
|
|
24,088 |
|
|
|
89.6 |
% |
|
|
1,075 |
|
|
|
4.0 |
% |
|
|
1,613 |
|
|
|
6.0 |
% |
Company |
|
|
335,629 |
|
|
|
9.4 |
% |
|
|
142,647 |
|
|
|
4.0 |
% |
|
|
213,970 |
|
|
|
6.0 |
% |
Tier I Capital (to Average Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Nevada |
|
|
202,141 |
|
|
|
7.2 |
% |
|
|
111,862 |
|
|
|
4.0 |
% |
|
|
139,828 |
|
|
|
5.0 |
% |
Alliance Bank of Arizona |
|
|
52,064 |
|
|
|
7.8 |
% |
|
|
26,543 |
|
|
|
4.0 |
% |
|
|
33,179 |
|
|
|
5.0 |
% |
Torrey Pines Bank |
|
|
39,917 |
|
|
|
6.9 |
% |
|
|
23,147 |
|
|
|
4.0 |
% |
|
|
28,934 |
|
|
|
5.0 |
% |
Alta Alliance Bank |
|
|
24,088 |
|
|
|
80.3 |
% |
|
|
1,200 |
|
|
|
4.0 |
% |
|
|
1,500 |
|
|
|
5.0 |
% |
Company |
|
|
335,629 |
|
|
|
8.2 |
% |
|
|
162,755 |
|
|
|
4.0 |
% |
|
|
203,443 |
|
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk Weighted
Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Nevada |
|
$ |
148,180 |
|
|
|
11.1 |
% |
|
$ |
106,877 |
|
|
|
8.0 |
% |
|
$ |
133,597 |
|
|
|
10.0 |
% |
Alliance Bank of Arizona |
|
|
50,374 |
|
|
|
10.5 |
% |
|
|
38,371 |
|
|
|
8.0 |
% |
|
|
47,963 |
|
|
|
10.0 |
% |
Torrey Pines Bank |
|
|
37,498 |
|
|
|
10.8 |
% |
|
|
27,673 |
|
|
|
8.0 |
% |
|
|
34,591 |
|
|
|
10.0 |
% |
Company |
|
|
300,198 |
|
|
|
13.8 |
% |
|
|
173,759 |
|
|
|
8.0 |
% |
|
|
217,198 |
|
|
|
10.0 |
% |
Tier I Capital (to Risk Weighted
Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Nevada |
|
|
135,607 |
|
|
|
10.2 |
% |
|
|
53,439 |
|
|
|
4.0 |
% |
|
|
80,158 |
|
|
|
6.0 |
% |
Alliance Bank of Arizona |
|
|
44,817 |
|
|
|
9.3 |
% |
|
|
19,185 |
|
|
|
4.0 |
% |
|
|
28,778 |
|
|
|
6.0 |
% |
Torrey Pines Bank |
|
|
33,981 |
|
|
|
9.8 |
% |
|
|
13,836 |
|
|
|
4.0 |
% |
|
|
20,755 |
|
|
|
6.0 |
% |
Company |
|
|
278,550 |
|
|
|
12.8 |
% |
|
|
86,879 |
|
|
|
4.0 |
% |
|
|
130,319 |
|
|
|
6.0 |
% |
Tier I Capital (to Average Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Nevada |
|
|
135,607 |
|
|
|
7.4 |
% |
|
|
73,422 |
|
|
|
4.0 |
% |
|
|
91,777 |
|
|
|
5.0 |
% |
Alliance Bank of Arizona |
|
|
44,817 |
|
|
|
8.8 |
% |
|
|
20,368 |
|
|
|
4.0 |
% |
|
|
25,460 |
|
|
|
5.0 |
% |
Torrey Pines Bank |
|
|
33,981 |
|
|
|
8.7 |
% |
|
|
15,608 |
|
|
|
4.0 |
% |
|
|
19,510 |
|
|
|
5.0 |
% |
Company |
|
|
278,550 |
|
|
|
10.2 |
% |
|
|
109,727 |
|
|
|
4.0 |
% |
|
|
137,159 |
|
|
|
5.0 |
% |
Additionally, State of Nevada banking regulations restrict distribution of the net assets of
Bank of Nevada because such regulations require the sum of Bank of Nevadas stockholders equity
and reserve for loan losses to be at least 6% of the average of Bank of Nevadas total daily
deposit liabilities for the preceding 60 days. As a result of these regulations, approximately
$136,739 and $94,584 of Bank of Nevadas stockholders equity was restricted at December 31, 2006
and 2005, respectively.
Alta Alliance Bank has agreed to maintain a total Tier I capital to average assets ratio of at
least 9% for its first three years of existence.
The States of Nevada and Arizona require that trust companies maintain capital of at least
$300 and $500, respectively. Premier Trust meets these capital requirements as of December 31, 2006
and 2005.
Note 14. Employee Benefit Plan
The Company has a qualified 401(k) employee benefit plan for all eligible employees.
Participants are able to defer between 1% and 15% (up to a maximum of $15,000 for those under 50
years of age) of their annual compensation. The Company may elect to contribute a discretionary
amount each year. The Companys total contribution was $906, $596 and $385 for the years ended
December 31, 2006, 2005 and 2004, respectively.
F-28
Note 15. Transactions with Related Parties
Principal stockholders of the Company and officers and directors, including their families and
companies of which they are principal owners, are considered to be related parties. These related
parties were loan customers of, and had other transactions with, the Company in the ordinary course
of business. In managements opinion, these loans and transactions were on the same terms as those
for comparable loans and transactions with unrelated parties. The aggregate activity in such loans
for the years ended December 31 was as follows:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
|
|
Balance, beginning |
|
$ |
27,608 |
|
|
$ |
27,087 |
|
New loans |
|
|
64,421 |
|
|
|
31,650 |
|
Repayments |
|
|
(28,898 |
) |
|
|
(31,129 |
) |
|
|
|
Balance, ending |
|
$ |
63,131 |
|
|
$ |
27,608 |
|
|
|
|
None of these loans are past due, on nonaccrual or have been restructured to provide a
reduction or deferral of interest or principal because of deterioration in the financial position
of the borrower. There were no loans to a related party that were considered classified loans at
December 31, 2006 or 2005.
Total loan commitments outstanding with related parties total approximately $44,553 and
$25,824 at December 31, 2006 and 2005, respectively.
Note 16. Fair Value of Financial Instruments
The estimated fair value of the Companys financial instruments at December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
|
Amount |
|
Value |
|
Amount |
|
Value |
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
143,721 |
|
|
$ |
143,721 |
|
|
$ |
111,150 |
|
|
$ |
111,150 |
|
Federal
funds sold and other |
|
|
121,159 |
|
|
|
121,159 |
|
|
|
63,186 |
|
|
|
63,186 |
|
Securities held to maturity |
|
|
97,495 |
|
|
|
95,404 |
|
|
|
115,171 |
|
|
|
112,601 |
|
Securities available for sale |
|
|
444,826 |
|
|
|
444,826 |
|
|
|
633,362 |
|
|
|
633,362 |
|
Investment
in restricted securities |
|
|
18,483 |
|
|
|
18,483 |
|
|
|
14,456 |
|
|
|
14,456 |
|
Loans, net |
|
|
2,969,671 |
|
|
|
2,943,370 |
|
|
|
1,772,145 |
|
|
|
1,759,336 |
|
Accrued interest receivable |
|
|
17,425 |
|
|
|
17,425 |
|
|
|
10,545 |
|
|
|
10,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
3,400,423 |
|
|
|
3,400,095 |
|
|
|
2,393,812 |
|
|
|
2,394,199 |
|
Accrued interest payable |
|
|
5,264 |
|
|
|
5,264 |
|
|
|
2,634 |
|
|
|
2,634 |
|
Other borrowed funds |
|
|
239,667 |
|
|
|
239,363 |
|
|
|
158,682 |
|
|
|
157,639 |
|
Junior subordinated debt |
|
|
61,857 |
|
|
|
61,857 |
|
|
|
30,928 |
|
|
|
30,928 |
|
Subordinated debt |
|
|
40,000 |
|
|
|
40,000 |
|
|
|
|
|
|
|
|
|
Interest rate risk
The Company assumes interest rate risk (the risk to the Companys earnings and capital from
changes in interest rate levels) as a result of its normal operations. As a result, the fair values
of the Companys financial instruments as well as its future net interest income will change when
interest rate levels change and that change may be either favorable or unfavorable to the Company.
Interest rate risk exposure is measured using interest rate sensitivity analysis to determine
our change in net portfolio value and net interest income resulting from hypothetical changes in
interest rates. If potential changes to net portfolio value and net interest income resulting from
hypothetical interest rate changes are not within the limits established by the Board of Directors,
the Board of Directors may direct management to adjust the asset and liability mix to bring
interest rate risk within board-approved limits. As of December 31, 2006, the Companys interest
rate risk profile was within all Board-prescribed limits.
F-29
The Company manages its interest rate risk through its investment and repurchase activities.
The Company seeks to maintain a moderately asset sensitive position (i.e., interest income in a
rising rate environment would rise farther than the Companys interest expense and conversely in a
falling interest rate environment).
Fair value of commitments
The estimated fair value of the standby letters of credit at December 31, 2006 and 2005 is
insignificant. Loan commitments on which the committed interest rate is less than the current
market rate are also insignificant at December 31, 2006 and 2005.
Note 17. Parent Company Financial Information
Condensed Balance Sheets
December 31, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
720 |
|
|
$ |
4,518 |
|
Securities available for sale |
|
|
8,514 |
|
|
|
57,926 |
|
Investment in subsidiaries |
|
|
460,972 |
|
|
|
212,970 |
|
Other assets |
|
|
2,514 |
|
|
|
1,201 |
|
|
|
|
|
|
$ |
472,720 |
|
|
$ |
276,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Accrued interest and other liabilities |
|
$ |
2,284 |
|
|
$ |
1,464 |
|
Junior subordinated debt |
|
|
61,857 |
|
|
|
30,928 |
|
|
|
|
Total liabilities |
|
|
64,141 |
|
|
|
32,392 |
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Common stock |
|
|
3 |
|
|
|
2 |
|
Additional paid-in capital |
|
|
287,553 |
|
|
|
167,632 |
|
Retained earnings |
|
|
126,170 |
|
|
|
86,281 |
|
Accumulated other comprehensive loss |
|
|
(5,147 |
) |
|
|
(9,692 |
) |
|
|
|
Total stockholders equity |
|
|
408,579 |
|
|
|
244,223 |
|
|
|
|
|
|
$ |
472,720 |
|
|
$ |
276,615 |
|
|
|
|
F-30
Condensed Statements of Income
Years ended December 31, 2006, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
Interest and dividend income |
|
$ |
716 |
|
|
$ |
929 |
|
|
$ |
97 |
|
Interest expense on borrowings |
|
|
4,331 |
|
|
|
2,112 |
|
|
|
1,539 |
|
|
|
|
Net interest expense |
|
|
(3,615 |
) |
|
|
(1,183 |
) |
|
|
(1,442 |
) |
|
|
|
Other income: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from consolidated subsidiaries |
|
|
45,469 |
|
|
|
30,629 |
|
|
|
22,096 |
|
Other income |
|
|
68 |
|
|
|
77 |
|
|
|
|
|
|
|
|
Total other income |
|
|
45,537 |
|
|
|
30,706 |
|
|
|
22,096 |
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
3,059 |
|
|
|
1,783 |
|
|
|
330 |
|
Other |
|
|
1,620 |
|
|
|
466 |
|
|
|
383 |
|
|
|
|
|
|
|
4,679 |
|
|
|
2,249 |
|
|
|
713 |
|
|
|
|
Income before income tax benefit |
|
|
37,243 |
|
|
|
27,274 |
|
|
|
19,941 |
|
Income tax benefit |
|
|
2,646 |
|
|
|
791 |
|
|
|
116 |
|
|
|
|
Net income |
|
$ |
39,889 |
|
|
$ |
28,065 |
|
|
$ |
20,057 |
|
|
|
|
Condensed Statements of Cash Flows
Years Ended December 31, 2006, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
39,889 |
|
|
$ |
28,065 |
|
|
$ |
20,057 |
|
Adjustments to reconcile net income to net cash
used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in net undistributed earnings of
consolidated subsidiaries |
|
|
(15,469 |
) |
|
|
(30,629 |
) |
|
|
(22,096 |
) |
Net accretion of securities discounts |
|
|
|
|
|
|
(877 |
) |
|
|
|
|
Compensation cost on restricted stock |
|
|
263 |
|
|
|
26 |
|
|
|
|
|
Stock-based compensation expense |
|
|
99 |
|
|
|
|
|
|
|
|
|
(Increase) decrease in other assets |
|
|
(633 |
) |
|
|
44 |
|
|
|
(92 |
) |
Increase in other liabilities |
|
|
820 |
|
|
|
731 |
|
|
|
129 |
|
Other, net |
|
|
845 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating
activities |
|
|
25,814 |
|
|
|
(2,640 |
) |
|
|
(2,002 |
) |
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of securities available for sale |
|
|
(8,000 |
) |
|
|
(57,118 |
) |
|
|
|
|
Proceeds from maturities of securities available for
sale |
|
|
57,989 |
|
|
|
|
|
|
|
|
|
Net cash paid in settlement of acquisition |
|
|
(82,989 |
) |
|
|
|
|
|
|
(2,177 |
) |
Investment in subisidiaries |
|
|
(28,500 |
) |
|
|
(30,000 |
) |
|
|
(25,446 |
) |
|
|
|
Net cash used in investing activities |
|
|
(61,500 |
) |
|
|
(87,118 |
) |
|
|
(27,623 |
) |
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of junior subordinated debt |
|
|
20,000 |
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options and
stock warrants |
|
|
2,733 |
|
|
|
2,028 |
|
|
|
571 |
|
Excess tax benefits on share-based payment
arrangements |
|
|
362 |
|
|
|
|
|
|
|
|
|
Cost of issuing stock in acquisition |
|
|
(264 |
) |
|
|
|
|
|
|
|
|
Proceeds from stock issuance, net |
|
|
9,057 |
|
|
|
85,063 |
|
|
|
14,955 |
|
|
|
|
Net cash provided by financing activities |
|
|
31,888 |
|
|
|
87,091 |
|
|
|
15,526 |
|
|
|
|
Decrease in cash and cash equivalents |
|
|
(3,798 |
) |
|
|
(2,667 |
) |
|
|
(14,099 |
) |
Cash and Cash Equivalents, beginning of year |
|
|
4,518 |
|
|
|
7,185 |
|
|
|
21,284 |
|
|
|
|
Cash and Cash Equivalents, end of year |
|
$ |
720 |
|
|
$ |
4,518 |
|
|
$ |
7,185 |
|
|
|
|
F-31
Note 18. Segment Information
The Company provides a full range of banking services, as well as trust and investment
advisory services through its six consolidated subsidiaries. The company manages its business with
a primary focus on each subsidiary. Thus, the Company has identified six operating segments.
However, the trust and investment advisory segments do not meet the quantitative thresholds for
disclosure and have therefore been included in the other column. Parent company information is
also included in the other category because it represents an overhead function rather than an
operating segment. The Company has not aggregated any operating segments.
The Company reported three segments in the financial statements issued prior to December 31,
2006. In October 2006, the Company opened a new bank subsidiary, Alta Alliance Bank, which is
located in Northern California. Although Alta Alliance Bank does not meet the quantitative
thresholds for disclosure at December 31, 2006, this segment is reported because it is expected to
meet the quantitative thresholds for disclosure in the future.
The four reported segments derive a majority of their revenues from interest income and the
chief operating decision maker relies primarily on net interest income to assess the performance of
the segments and make decisions about resources to be allocated to the segments. The accounting
policies of the reported segments are the same as those of the Company as described in Note 1.
Transactions between segments consist primarily of borrowings and loan participations. Federal
funds purchases and sales and other borrowed funds transactions result in profits that are
eliminated for reporting consolidated results of operations. Loan participations are recorded at
par value with no resulting gain or loss. The Company allocates centrally provided services to the
operating segments based upon estimated usage of those services.
The Company does not have a single external customer from which it derives 10 percent of more
of its revenues.
The following is a summary of selected operating segment information as of and for the years
ended December 31, 2006, 2005 and 2004:
F-32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
Alliance Bank |
|
Torrey Pines |
|
Alta Alliance |
|
|
|
|
|
Intersegment |
|
Consolidated |
|
|
of Nevada |
|
of Arizona |
|
Bank |
|
Bank |
|
Other |
|
Eliminations |
|
Company |
|
|
|
2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
2,904,117 |
|
|
$ |
643,298 |
|
|
$ |
581,640 |
|
|
$ |
56,227 |
|
|
$ |
21,526 |
|
|
$ |
(37,204 |
) |
|
$ |
4,169,604 |
|
Gross loans and deferred fees |
|
|
2,094,454 |
|
|
|
506,710 |
|
|
|
414,390 |
|
|
|
7,668 |
|
|
|
|
|
|
|
(20,000 |
) |
|
|
3,003,222 |
|
Less: Allowance for loan losses |
|
|
(23,188 |
) |
|
|
(5,732 |
) |
|
|
(4,550 |
) |
|
|
(81 |
) |
|
|
|
|
|
|
|
|
|
|
(33,551 |
) |
|
|
|
Net loans |
|
|
2,071,266 |
|
|
|
500,978 |
|
|
|
409,840 |
|
|
|
7,587 |
|
|
|
|
|
|
|
(20,000 |
) |
|
|
2,969,671 |
|
|
|
|
Deposits |
|
|
2,326,412 |
|
|
|
552,901 |
|
|
|
491,647 |
|
|
|
31,339 |
|
|
|
|
|
|
|
(1,876 |
) |
|
|
3,400,423 |
|
Stockholders equity |
|
|
336,184 |
|
|
|
51,497 |
|
|
|
39,424 |
|
|
|
24,089 |
|
|
|
(42,615 |
) |
|
|
|
|
|
|
408,579 |
|
|
Number of branch locations |
|
|
15 |
|
|
|
9 |
|
|
|
6 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
31 |
|
Full-time equivalent employees |
|
|
472 |
|
|
|
135 |
|
|
|
110 |
|
|
|
9 |
|
|
|
59 |
|
|
|
|
|
|
|
785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) |
|
$ |
105,127 |
|
|
$ |
24,615 |
|
|
$ |
22,397 |
|
|
$ |
226 |
|
|
$ |
(3,577 |
) |
|
$ |
|
|
|
$ |
148,788 |
|
Provision for loan losses |
|
|
3,134 |
|
|
|
340 |
|
|
|
1,105 |
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
4,660 |
|
|
|
|
Net interest income (loss) after
provision for loan losses |
|
|
101,993 |
|
|
|
24,275 |
|
|
|
21,292 |
|
|
|
145 |
|
|
|
(3,577 |
) |
|
|
|
|
|
|
144,128 |
|
Loss from sale of securities |
|
|
(3,374 |
) |
|
|
(908 |
) |
|
|
(154 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,436 |
) |
Noninterest income |
|
|
7,979 |
|
|
|
2,523 |
|
|
|
1,479 |
|
|
|
45 |
|
|
|
7,170 |
|
|
|
(1,326 |
) |
|
|
17,870 |
|
Noninterest expense |
|
|
(50,867 |
) |
|
|
(19,128 |
) |
|
|
(15,005 |
) |
|
|
(1,859 |
) |
|
|
(10,793 |
) |
|
|
1,566 |
|
|
|
(96,086 |
) |
|
|
|
Income (loss) before income taxes |
|
|
55,731 |
|
|
|
6,762 |
|
|
|
7,612 |
|
|
|
(1,669 |
) |
|
|
(7,200 |
) |
|
|
240 |
|
|
|
61,476 |
|
Income tax expense (benefit) |
|
|
18,668 |
|
|
|
2,563 |
|
|
|
3,088 |
|
|
|
(659 |
) |
|
|
(2,073 |
) |
|
|
|
|
|
|
21,587 |
|
|
|
|
Net income (loss) |
|
$ |
37,063 |
|
|
$ |
4,199 |
|
|
$ |
4,524 |
|
|
$ |
(1,010 |
) |
|
$ |
(5,127 |
) |
|
$ |
240 |
|
|
$ |
39,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
Alliance Bank |
|
Torrey Pines |
|
|
|
|
|
Intersegment |
|
Consolidated |
|
|
of Nevada |
|
of Arizona |
|
Bank |
|
Other |
|
Eliminations |
|
Company |
|
|
|
2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
1,886,742 |
|
|
$ |
519,961 |
|
|
$ |
405,011 |
|
|
$ |
79,388 |
|
|
$ |
(33,831 |
) |
|
$ |
2,857,271 |
|
Gross loans and deferred
fees |
|
|
1,083,599 |
|
|
|
404,644 |
|
|
|
305,094 |
|
|
|
|
|
|
|
|
|
|
|
1,793,337 |
|
Less: Allowance for loan
losses |
|
|
(12,291 |
) |
|
|
(5,456 |
) |
|
|
(3,445 |
) |
|
|
|
|
|
|
|
|
|
|
(21,192 |
) |
|
|
|
Net loans |
|
|
1,071,308 |
|
|
|
399,188 |
|
|
|
301,649 |
|
|
|
|
|
|
|
|
|
|
|
1,772,145 |
|
|
|
|
Deposits |
|
|
1,606,750 |
|
|
|
457,177 |
|
|
|
335,292 |
|
|
|
|
|
|
|
(5,407 |
) |
|
|
2,393,812 |
|
Stockholders equity |
|
|
127,969 |
|
|
|
43,627 |
|
|
|
33,386 |
|
|
|
39,241 |
|
|
|
|
|
|
|
244,223 |
|
|
Number of branch locations |
|
|
5 |
|
|
|
7 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
16 |
|
Full-time equivalent
employees |
|
|
299 |
|
|
|
122 |
|
|
|
77 |
|
|
|
39 |
|
|
|
|
|
|
|
537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) |
|
$ |
70,004 |
|
|
$ |
18,878 |
|
|
$ |
14,646 |
|
|
$ |
(1,168 |
) |
|
$ |
(18 |
) |
|
$ |
102,342 |
|
Provision for loan losses |
|
|
2,692 |
|
|
|
2,040 |
|
|
|
1,447 |
|
|
|
|
|
|
|
|
|
|
|
6,179 |
|
|
|
|
Net interest income (loss)
after
provision for loan
losses |
|
|
67,312 |
|
|
|
16,838 |
|
|
|
13,199 |
|
|
|
(1,168 |
) |
|
|
(18 |
) |
|
|
96,163 |
|
Gain from sale of securities |
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69 |
|
Noninterest income |
|
|
5,266 |
|
|
|
1,359 |
|
|
|
738 |
|
|
|
5,804 |
|
|
|
(1,098 |
) |
|
|
12,069 |
|
Noninterest expense |
|
|
(34,669 |
) |
|
|
(13,298 |
) |
|
|
(10,234 |
) |
|
|
(7,719 |
) |
|
|
1,056 |
|
|
|
(64,864 |
) |
|
|
|
Income (loss)before income
taxes |
|
|
37,978 |
|
|
|
4,899 |
|
|
|
3,703 |
|
|
|
(3,083 |
) |
|
|
(60 |
) |
|
|
43,437 |
|
Income tax expense (benefit) |
|
|
12,636 |
|
|
|
1,874 |
|
|
|
1,497 |
|
|
|
(635 |
) |
|
|
|
|
|
|
15,372 |
|
|
|
|
Net income (loss) |
|
$ |
25,342 |
|
|
$ |
3,025 |
|
|
$ |
2,206 |
|
|
$ |
(2,448 |
) |
|
$ |
(60 |
) |
|
$ |
28,065 |
|
|
|
|
F-33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
Alliance Bank |
|
Torrey Pines |
|
|
|
|
|
Intersegment |
|
Consolidated |
|
|
of Nevada |
|
of Arizona |
|
Bank |
|
Other |
|
Eliminations |
|
Company |
|
|
|
2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
1,578,332 |
|
|
$ |
332,805 |
|
|
$ |
257,516 |
|
|
$ |
24,793 |
|
|
$ |
(16,597 |
) |
|
$ |
2,176,849 |
|
Gross loans and deferred
fees |
|
|
790,312 |
|
|
|
234,141 |
|
|
|
164,082 |
|
|
|
|
|
|
|
|
|
|
|
1,188,535 |
|
Less: Allowance for loan
losses |
|
|
(9,857 |
) |
|
|
(3,416 |
) |
|
|
(1,998 |
) |
|
|
|
|
|
|
|
|
|
|
(15,271 |
) |
|
|
|
Net loans |
|
|
780,455 |
|
|
|
230,725 |
|
|
|
162,084 |
|
|
|
|
|
|
|
|
|
|
|
1,173,264 |
|
|
|
|
Deposits |
|
|
1,287,615 |
|
|
|
277,231 |
|
|
|
199,382 |
|
|
|
|
|
|
|
(8,192 |
) |
|
|
1,756,036 |
|
Stockholders equity |
|
|
91,361 |
|
|
|
31,189 |
|
|
|
26,405 |
|
|
|
(15,384 |
) |
|
|
|
|
|
|
133,571 |
|
|
Number of branch locations |
|
|
5 |
|
|
|
5 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
13 |
|
Full-time equivalent
employees |
|
|
260 |
|
|
|
79 |
|
|
|
56 |
|
|
|
29 |
|
|
|
|
|
|
|
424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) |
|
$ |
54,215 |
|
|
$ |
10,225 |
|
|
$ |
8,141 |
|
|
$ |
(1,446 |
) |
|
$ |
|
|
|
$ |
71,135 |
|
Provision for loan losses |
|
|
1,417 |
|
|
|
1,657 |
|
|
|
840 |
|
|
|
|
|
|
|
|
|
|
|
3,914 |
|
|
|
|
Net interest income (loss)
after
provision for loan
losses |
|
|
52,798 |
|
|
|
8,568 |
|
|
|
7,301 |
|
|
|
(1,446 |
) |
|
|
|
|
|
|
67,221 |
|
Gain from sale of securities |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
Noninterest income |
|
|
4,832 |
|
|
|
774 |
|
|
|
604 |
|
|
|
2,953 |
|
|
|
(456 |
) |
|
|
8,707 |
|
Noninterest expense |
|
|
(27,286 |
) |
|
|
(8,074 |
) |
|
|
(6,301 |
) |
|
|
(3,705 |
) |
|
|
437 |
|
|
|
(44,929 |
) |
|
|
|
Income (loss) before income
taxes |
|
|
30,363 |
|
|
|
1,268 |
|
|
|
1,604 |
|
|
|
(2,198 |
) |
|
|
(19 |
) |
|
|
31,018 |
|
Income tax expense (benefit) |
|
|
10,033 |
|
|
|
422 |
|
|
|
584 |
|
|
|
(78 |
) |
|
|
|
|
|
|
10,961 |
|
|
|
|
Net income (loss) |
|
$ |
20,330 |
|
|
$ |
846 |
|
|
$ |
1,020 |
|
|
$ |
(2,120 |
) |
|
$ |
(19 |
) |
|
$ |
20,057 |
|
|
|
|
Note 19. Quarterly Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2006 |
|
2005 |
|
|
Fourth |
|
Third |
|
Second |
|
First |
|
Fourth |
|
Third |
|
Second |
|
First |
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
Interest and dividend income |
|
$ |
67,163 |
|
|
$ |
64,344 |
|
|
$ |
59,382 |
|
|
$ |
42,196 |
|
|
$ |
38,975 |
|
|
$ |
35,700 |
|
|
$ |
31,812 |
|
|
$ |
28,423 |
|
Interest expense |
|
|
26,588 |
|
|
|
25,068 |
|
|
|
19,839 |
|
|
|
12,802 |
|
|
|
10,360 |
|
|
|
8,369 |
|
|
|
7,430 |
|
|
|
6,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
40,575 |
|
|
|
39,276 |
|
|
|
39,543 |
|
|
|
29,394 |
|
|
|
28,615 |
|
|
|
27,331 |
|
|
|
24,382 |
|
|
|
22,014 |
|
Provision for loan losses |
|
|
709 |
|
|
|
953 |
|
|
|
2,456 |
|
|
|
542 |
|
|
|
1,962 |
|
|
|
1,283 |
|
|
|
1,187 |
|
|
|
1,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income, after
provision for loan losses |
|
|
39,866 |
|
|
|
38,323 |
|
|
|
37,087 |
|
|
|
28,852 |
|
|
|
26,653 |
|
|
|
26,048 |
|
|
|
23,195 |
|
|
|
20,267 |
|
Gain (loss) on sale of
securities |
|
|
(4,436 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69 |
|
|
|
|
|
|
|
|
|
Noninterest income |
|
|
5,260 |
|
|
|
4,631 |
|
|
|
4,482 |
|
|
|
3,497 |
|
|
|
3,403 |
|
|
|
3,164 |
|
|
|
2,918 |
|
|
|
2,584 |
|
Noninterest expenses |
|
|
(26,939 |
) |
|
|
(25,057 |
) |
|
|
(24,570 |
) |
|
|
(19,520 |
) |
|
|
(17,050 |
) |
|
|
(17,274 |
) |
|
|
(15,967 |
) |
|
|
(14,573 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
13,751 |
|
|
|
17,897 |
|
|
|
16,999 |
|
|
|
12,829 |
|
|
|
13,006 |
|
|
|
12,007 |
|
|
|
10,146 |
|
|
|
8,278 |
|
Income tax expense |
|
|
4,744 |
|
|
|
6,330 |
|
|
|
6,122 |
|
|
|
4,391 |
|
|
|
4,564 |
|
|
|
4,258 |
|
|
|
3,593 |
|
|
|
2,957 |
|
|
|
|
|
|
Net income |
|
$ |
9,007 |
|
|
$ |
11,567 |
|
|
$ |
10,877 |
|
|
$ |
8,438 |
|
|
$ |
8,442 |
|
|
$ |
7,749 |
|
|
$ |
6,553 |
|
|
$ |
5,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.34 |
|
|
$ |
0.44 |
|
|
$ |
0.41 |
|
|
$ |
0.37 |
|
|
$ |
0.37 |
|
|
$ |
0.34 |
|
|
$ |
0.35 |
|
|
$ |
0.29 |
|
|
|
|
|
|
Diluted |
|
$ |
0.31 |
|
|
$ |
0.40 |
|
|
$ |
0.38 |
|
|
$ |
0.33 |
|
|
$ |
0.34 |
|
|
$ |
0.31 |
|
|
$ |
0.32 |
|
|
$ |
0.27 |
|
|
|
|
|
|
F-34
Note 20. Employee Defalcation
In July 2006, the Company identified evidence of an employee defalcation pertaining to certain
accounts at a branch office of its Bank of Nevada subsidiary. The alleged defalcation primarily
involved improper draws and payments on legitimate notes and the creation of fraudulent loans,
resulting in fraudulent balances and the potential for legitimate loans with undetected credit
problems. The Company understands the employee made payments on impaired credits to avoid scrutiny
of other loans in the affected portfolio.
For the year ended December 31, 2006, the total pretax impact of the defalcation was $450,
including our insurance deductible of $350 and audit, legal and recovery costs. These amounts are
net of insurance proceeds and cash restitution the Company has secured from the former employee.
Note 21. Stock Offerings
On June 29, 2005, the Companys registration statement on Form S-1 related to the initial
public offering of shares of the Companys common stock was declared effective. The Company signed
an underwriting agreement on June 29, 2005, which was on a firm commitment basis, pursuant to which
the underwriters agreed to purchase 3,750 shares of common stock. On July 1, 2005, the principal
underwriter exercised the over-allotment to purchase an additional 450 shares of the Companys
common stock.
The total price to the public for the shares offered and sold by the Company, including the
over-allotment, was $92.4 million. The amount of expenses incurred by the Company in connection
with the offering includes approximately $6.0 million of underwriting discounts and commission and
offering expenses of approximately $1.3 million.
On September 1, 2006, the Company issued 263 shares of common stock at a purchase price of
$34.56 per share, and warrants to purchase 132 shares of common stock at $34.56, resulting in gross
proceeds of $9,103. For every two full shares purchased by an investor in the offering, the
investor received a warrant to purchase an additional share at the same purchase price. The
foregoing were issued under circumstances that comply with the requirements of Section 4(2) under
the Securities Act. The proceeds of the offering were used to partially capitalize Alta Alliance
Bank.
Note 22. Subsequent Events
On January 23, 2007, the Board of Directors approved and granted 157 nonqualified stock
options and 168 shares of restricted stock to various employees. The options have an exercise price
of $34.60, vest over four years at 25% per year, and expire in 7 years, and the shares of
restricted stock generally vest 50% on the second anniversary of the grant date and 50% on the
third anniversary of the grant date. We estimate the total tax deductible compensation expense we
will incur in 2007 related to these stock options and shares of restricted stock is $2.0 million.
F-35
McGladrey & Pullen
Certified Public Accountants
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Western Alliance Bancorporation
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheets of Western Alliance
Bancorporation and subsidiaries (collectively referred to herein as the Company) as of December 31,
2006 and 2005 and the related consolidated statements of income, stockholders equity and cash
flows for each of the three years in the period ended December 31, 2006. These financial statements
are the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 2006 and 2005 and the
results of their operations and their cash flows for each of the three years in the period ended
December 31, 2006, in conformity with U.S. generally accepted accounting principles.
As described in Note 1 to the consolidated financial statements, effective January 1, 2006,
the Company adopted Statement of Financial Accounting Standards No. 123R, Share-Based Payment.
We also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Companys internal control over financial reporting
as of December 31, 2006, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our
report dated February 28, 2007, expressed an unqualified opinion on managements assessment of the
effectiveness of the Companys internal control over financial reporting and an unqualified opinion
on the effectiveness of Western Alliance Bancorporations internal control over financial
reporting.
/s/
McGLADREY & PULLEN, LLP
McGLADREY & PULLEN, LLP
Las Vegas, Nevada
February 28, 2007
F-36
INDEX TO EXHIBITS
2.1 |
|
Agreement and Plan of Merger By and Between Western Alliance
Bancorporation and Intermountain First Bancorporation (incorporated
by reference to Appendix A to Western Alliances Form S-4 filed with
the SEC on February 15, 2006). |
|
2.2 |
|
Agreement and Plan of Merger By and Between Western Alliance
Bancorporation and Bank of Nevada (incorporated by reference to
Exhibit 10.13 to Western Alliances Form S-4 filed with the SEC on
February 15, 2006). |
|
2.3 |
|
Agreement and Plan of Merger By and Between Western Alliance
Bancorporation and First Independent Capital of Nevada (incorporated
by reference to Appendix A to Western Alliances Form S-4 filed with
the SEC on February 1, 2007). |
|
3.1 |
|
Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to Amendment No. 1 to Western Alliances
Registration Statement on Form S-1 filed with the SEC on June 7,
2005). |
|
3.2 |
|
Amended and Restated By-Laws (incorporated by reference to Exhibit
3.1 to Western Alliances Form 8-K filed with the SEC on October 12,
2005). |
|
4.1 |
|
Form of common stock certificate (incorporated by reference to
Exhibit 4.1 to Amendment No. 3 to Western Alliances Registration
Statement on Form S-1 filed with the SEC on June 27, 2005). |
|
10.1 |
|
Western Alliance Bancorporation 2005 Stock Incentive Plan
(incorporated by reference to Exhibit 10.1 to Amendment No. 1 to
Western Alliances Registration Statement on Form S-1 filed with the
SEC on June 7, 2005). |
|
10.2 |
|
Form of BankWest of Nevada Incentive Stock Option Plan Agreement
(incorporated by reference to Exhibit 10.3 to Western Alliances
Registration Statement on Form S-1 filed with the SEC on April 28,
2005). |
|
10.3 |
|
Form of Western Alliance Incentive Stock Option Plan Agreement
(incorporated by reference to Exhibit 10.4 to Western Alliances
Registration Statement on Form S-1 filed with the SEC on April 28,
2005). |
|
10.4 |
|
Form of Western Alliance 2002 Stock Option Plan Agreement
(incorporated by reference to Exhibit 10.5 to Western Alliances
Registration Statement on Form S-1 filed with the SEC on April 28,
2005). |
|
10.5 |
|
Form of Western Alliance 2002 Stock Option Plan Agreement (with
double trigger acceleration clause) (incorporated by reference to
Exhibit 10.6 to Western Alliances Registration Statement on Form
S-1 filed with the SEC on April 28, 2005). |
|
10.6 |
|
Form of Indemnification Agreement by and between Western Alliance
Bancorporation and the following directors and officers: Messrs.
Baker, Beach, Boyd, Cady, Froeschle, Gibbons, Hilton, Lundy, Mack,
A. Marshall, T. Marshall, Nigro, Sarver, Snyder, Wall and Woodrum,
Drs. Nagy and Nave, and Mses. Boyd Johnson and Mahan (incorporated
by reference to Exhibit 10.7 to Western Alliances Registration
Statement on Form S-1 filed with the SEC on April 28, 2005). |
|
10.7 |
|
Form of Non-Competition Agreement by and between Western Alliance
Bancorporation and the following directors and officers: Messrs.
Froeschle, Sarver, Lundy, Snyder and Woodrum (incorporated by
reference to Exhibit 10.8 to Western Alliances Registration
Statement on Form S-1 filed with the SEC on April 28, 2005). |
|
10.8 |
|
Form of Warrant to purchase shares of Western Alliance
Bancorporation common stock, dated December 12, 2002, together with
a schedule of warrantholders (incorporated by reference to Exhibit
10.9 to Western Alliances Registration Statement on Form S-1 filed
with the SEC on April 28, 2005). |
|
10.9 |
|
Real Estate Purchase Agreement between GRS Sahara Ave. Corp. and
BankWest of Nevada (incorporated by reference to Exhibit 10.1 to
Western Alliances Form 8-K filed with the SEC on September 26,
2005). |
|
21.1 |
|
List of Subsidiaries of Western Alliance Bancorporation |
|
23.1 |
|
Consent of McGladrey & Pullen, LLP. |
|
31.1 |
|
CEO Certification Pursuant Rule 13a-14(a)/15d-a4(a) |
|
31.2 |
|
CFO Certification Pursuant Rule 13a-14(a)/15d-14(a) |
|
32 |
|
CEO and CFO Certification Pursuant 18 U.S.C. Section 1350, as
adopted pursuant to section 906 of the Sarbanes Oxley Act of 2002 |
Shareholders may obtain copies of exhibits by writing to: Dale Gibbons, Western Alliance
Bancorporation, 2700 West Sahara Avenue, Las Vegas, Nevada 89102.