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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended September 30, 2013
or
| ¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number: 001-32550
WESTERN ALLIANCE BANCORPORATION
(Exact name of registrant as specified in its charter)
| Nevada | 88-0365922 | |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
| One E. Washington Street, Phoenix, AZ | 85004 | |
| (Address of principal executive offices) | (Zip Code) | |
(602) 389-3500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | x | |||
| Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ | |||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x
Common stock issued and outstanding: 87,198,769 shares as of October 25, 2013.
2
PART I – FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS (UNAUDITED) |
WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
| September 30, | December 31, | |||||||
| 2013 | 2012 | |||||||
| (unaudited) | ||||||||
| (in thousands, except per share amounts) | ||||||||
|
Assets: |
||||||||
|
Cash and due from banks |
$ | 142,625 | $ | 141,789 | ||||
|
Securities purchased under agreement to resell |
128,102 | — | ||||||
|
Interest-bearing deposits in other financial institutions |
238,306 | 62,836 | ||||||
|
|
|
|
|
|||||
|
Cash and cash equivalents |
509,033 | 204,625 | ||||||
|
Money market investments |
4,176 | 664 | ||||||
|
Investment securities—measured at fair value |
3,621 | 5,061 | ||||||
|
Investment securities—available-for-sale, at fair value; amortized cost of $1,095,942 at September 30, 2013 and $926,050 at December 31, 2012 |
1,073,886 | 939,590 | ||||||
|
Investment securities—held-to-maturity, at amortized cost; fair value of $287,543 at September 30, 2013 and $292,819 at December 31, 2012 |
289,108 | 291,333 | ||||||
|
Investments in restricted stock, at cost |
30,186 | 30,936 | ||||||
|
Loans—held for sale |
25,413 | 31,124 | ||||||
|
Loans—held for investment, net of deferred fees |
6,490,870 | 5,678,194 | ||||||
|
Less: allowance for credit losses |
(97,851 | ) | (95,427 | ) | ||||
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|
|
|||||
|
Total loans held for investment |
6,393,019 | 5,582,767 | ||||||
|
Premises and equipment, net |
105,925 | 107,910 | ||||||
|
Other assets acquired through foreclosure, net |
76,475 | 77,247 | ||||||
|
Bank owned life insurance |
139,658 | 138,336 | ||||||
|
Goodwill |
23,224 | 23,224 | ||||||
|
Other intangible assets, net |
4,747 | 6,539 | ||||||
|
Deferred tax assets, net |
79,570 | 51,757 | ||||||
|
Prepaid expenses |
5,236 | 12,029 | ||||||
|
Other assets |
158,152 | 119,495 | ||||||
|
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|
|||||
|
Total assets |
$ | 8,921,429 | $ | 7,622,637 | ||||
|
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|||||
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Liabilities: |
||||||||
|
Deposits: |
||||||||
|
Non-interest-bearing demand |
$ | 1,972,474 | $ | 1,933,169 | ||||
|
Interest-bearing |
5,302,837 | 4,522,008 | ||||||
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|||||
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Total deposits |
7,275,311 | 6,455,177 | ||||||
|
Customer repurchase agreements |
55,524 | 79,034 | ||||||
|
Securities sold short |
126,664 | — | ||||||
|
Other borrowings |
394,105 | 193,717 | ||||||
|
Junior subordinated debt, at fair value |
39,447 | 36,218 | ||||||
|
Other liabilities |
204,090 | 98,875 | ||||||
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|
|||||
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Total liabilities |
8,095,141 | 6,863,021 | ||||||
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|
|||||
|
Commitments and contingencies (Note 7) |
||||||||
|
Stockholders’ equity: |
||||||||
|
Preferred stock—par value $0.0001 and liquidation value per share of $1,000; 20,000,000 authorized; 141,000 shares issued and outstanding at September 30, 2013 and December 31, 2012 |
141,000 | 141,000 | ||||||
|
Common stock—par value $0.0001; 200,000,000 authorized; 87,098,782 shares issued and outstanding at September 30, 2013 and 86,465,050 at December 31, 2012 |
9 | 9 | ||||||
|
Additional paid in capital |
792,140 | 784,852 | ||||||
|
Accumulated deficit |
(92,357 | ) | (174,471 | ) | ||||
|
Accumulated other comprehensive (loss) income |
(14,504 | ) | 8,226 | |||||
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|||||
|
Total stockholders’ equity |
826,288 | 759,616 | ||||||
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|||||
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Total liabilities and stockholders’ equity |
$ | 8,921,429 | $ | 7,622,637 | ||||
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|||||
See accompanying Notes to unaudited Consolidated Financial Statements.
3
WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS (unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||
|
Interest income: |
||||||||||||||||
|
Loans, including fees |
$ | 83,994 | $ | 69,580 | $ | 239,812 | $ | 205,682 | ||||||||
|
Investment securities—taxable |
3,977 | 5,295 | 11,523 | 17,522 | ||||||||||||
|
Investment securities—tax exempt |
3,356 | 2,723 | 9,712 | 7,491 | ||||||||||||
|
Dividends—taxable |
286 | 305 | 909 | 899 | ||||||||||||
|
Dividends—tax exempt |
667 | 711 | 2,122 | 2,096 | ||||||||||||
|
Other |
400 | 55 | 995 | 262 | ||||||||||||
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|
|||||||||
|
Total interest income |
92,680 | 78,669 | 265,073 | 233,952 | ||||||||||||
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|
|||||||||
|
Interest expense: |
||||||||||||||||
|
Deposits |
4,232 | 3,974 | 11,893 | 12,904 | ||||||||||||
|
Other borrowings |
3,409 | 2,225 | 8,808 | 6,624 | ||||||||||||
|
Junior subordinated debt |
460 | 487 | 1,381 | 1,458 | ||||||||||||
|
Customer repurchase agreements |
20 | 37 | 77 | 158 | ||||||||||||
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|||||||||
|
Total interest expense |
8,121 | 6,723 | 22,159 | 21,144 | ||||||||||||
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|||||||||
|
Net interest income |
84,559 | 71,946 | 242,914 | 212,808 | ||||||||||||
|
Provision for credit losses |
— | 8,932 | 8,920 | 35,343 | ||||||||||||
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|||||||||
|
Net interest income after provision for credit losses |
84,559 | 63,014 | 233,994 | 177,465 | ||||||||||||
|
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|
|||||||||
|
Non-interest income: |
||||||||||||||||
|
Service charges and fees |
2,425 | 2,412 | 7,408 | 7,014 | ||||||||||||
|
Income from bank owned life insurance |
1,832 | 1,116 | 3,904 | 3,359 | ||||||||||||
|
Amortization of affordable housing investments |
(1,504 | ) | (651 | ) | (3,304 | ) | (710 | ) | ||||||||
|
(Loss) gain on sales of securities, net |
(1,679 | ) | 1,031 | (1,537 | ) | 2,502 | ||||||||||
|
Mark to market (losses) gains, net |
(7 | ) | 470 | (3,865 | ) | 701 | ||||||||||
|
Bargain purchase gain from acquisition |
— | — | 10,044 | — | ||||||||||||
|
Other income |
1,558 | 2,604 | 4,736 | 7,397 | ||||||||||||
|
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|
|
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|
|||||||||
|
Total noninterest income |
2,625 | 6,982 | 17,386 | 20,263 | ||||||||||||
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|
|
|||||||||
|
Non-interest expense: |
||||||||||||||||
|
Salaries and employee benefits |
28,689 | 25,500 | 83,363 | 78,159 | ||||||||||||
|
Occupancy |
4,901 | 4,655 | 14,500 | 14,046 | ||||||||||||
|
Legal, professional and directors’ fees |
3,006 | 2,291 | 8,017 | 6,380 | ||||||||||||
|
Data processing |
1,872 | 1,390 | 5,912 | 3,678 | ||||||||||||
|
Insurance |
1,884 | 2,121 | 6,350 | 6,323 | ||||||||||||
|
Marketing |
1,599 | 1,231 | 4,970 | 4,061 | ||||||||||||
|
Loan and repossessed asset expenses |
1,136 | 1,236 | 3,453 | 4,573 | ||||||||||||
|
Customer service |
677 | 653 | 2,037 | 1,926 | ||||||||||||
|
Net loss (gain) on sales / valuations of repossesed assets and bank premises, net |
371 | 126 | (234 | ) | 3,678 | |||||||||||
|
Intangible amortization |
597 | 880 | 1,791 | 2,660 | ||||||||||||
|
Goodwill and intangible impairment |
— | 3,435 | — | 3,435 | ||||||||||||
|
Merger / restructure expenses |
1,018 | 113 | 3,833 | 113 | ||||||||||||
|
Other expense |
3,925 | 3,912 | 11,143 | 10,839 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total non-interest expense |
49,675 | 47,543 | 145,135 | 139,871 | ||||||||||||
|
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|
|
|
|
|
|
|
|||||||||
|
Income from continuing operations before provision for income taxes |
37,509 | 22,453 | 106,245 | 57,857 | ||||||||||||
|
Income tax expense |
9,288 | 6,752 | 22,913 | 16,452 | ||||||||||||
|
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|
|
|
|
|
|
|
|||||||||
|
Income from continuing operations |
28,221 | 15,701 | 83,332 | 41,405 | ||||||||||||
|
Loss from discontinued operations, net of tax benefit |
(29 | ) | (243 | ) | (160 | ) | (686 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net income |
28,192 | 15,458 | 83,172 | 40,719 | ||||||||||||
|
Dividends on preferred stock |
352 | 352 | 1,058 | 3,440 | ||||||||||||
|
|
|
|
|
|
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|
|
|||||||||
|
Net income available to common shareholders |
$ | 27,840 | $ | 15,106 | $ | 82,114 | $ | 37,279 | ||||||||
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|||||||||
4
WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS (unaudited)
(continued)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||
|
Earnings per share from continuing operations: |
||||||||||||||||
|
Basic |
$ | 0.32 | $ | 0.19 | $ | 0.96 | $ | 0.47 | ||||||||
|
Diluted |
$ | 0.32 | $ | 0.19 | $ | 0.95 | $ | 0.46 | ||||||||
|
Loss per share from discontinued operations: |
||||||||||||||||
|
Basic |
$ | — | $ | (0.00 | ) | $ | — | $ | (0.01 | ) | ||||||
|
Diluted |
$ | — | $ | (0.00 | ) | $ | — | $ | (0.01 | ) | ||||||
|
Earnings per share applicable to common shareholders: |
||||||||||||||||
|
Basic |
$ | 0.32 | $ | 0.18 | $ | 0.96 | $ | 0.46 | ||||||||
|
Diluted |
$ | 0.32 | $ | 0.18 | $ | 0.95 | $ | 0.45 | ||||||||
|
Weighted average number of common shares outstanding: |
||||||||||||||||
|
Basic |
85,799 | 81,758 | 85,596 | 81,570 | ||||||||||||
|
Diluted |
86,769 | 82,294 | 86,428 | 82,159 | ||||||||||||
|
Dividends declared per common share |
$ | — | $ | — | $ | — | $ | — | ||||||||
See accompanying Notes to unaudited Consolidated Financial Statements.
5
WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| (in thousands) | ||||||||||||||||
|
Net income |
$ | 28,192 | $ | 15,458 | $ | 83,172 | $ | 40,719 | ||||||||
|
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|
|
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|
|||||||||
|
Other comprehensive (loss) income, net: |
||||||||||||||||
|
Unrealized (loss) gain on securities available-for-sale (AFS), net (tax effect of $2,887, $(4,607), $14,327, $(10,637) for each respective period presented) |
(4,770 | ) | 8,478 | (23,670 | ) | 18,803 | ||||||||||
|
Unrealized (loss) gain on cash flow hedge, net (tax effect of $18, $(5), $10, $(10) for each respective period presented) |
(30 | ) | 9 | (17 | ) | 17 | ||||||||||
|
Realized gain on cash flow hedge, net (tax effect of $294 for the respective period presented) |
— | — | — | (519 | ) | |||||||||||
|
Realized loss (gain) on sale of securities AFS included in income, net (tax effect of $(633), $363, $(580), $904 for each respective period presented) |
1,046 | (668 | ) | 957 | (1,598 | ) | ||||||||||
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|
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|
|||||||||
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Net other comprehensive (loss) income |
(3,754 | ) | 7,819 | (22,730 | ) | 16,703 | ||||||||||
|
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|||||||||
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Comprehensive income |
$ | 24,438 | $ | 23,277 | $ | 60,442 | $ | 57,422 | ||||||||
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|||||||||
See accompanying Notes to unaudited Consolidated Financial Statements.
6
WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (unaudited)
| Accumulated | ||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid In | Comprehensive | Accumulated | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | (Loss) Income | Deficit | Equity | |||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||
|
Balance, December 31, 2012: |
141 | $ | 141,000 | 86,465 | $ | 9 | $ | 784,852 | $ | 8,226 | $ | (174,471 | ) | $ | 759,616 | |||||||||||||||||
|
Net income |
— | — | — | — | — | — | 83,172 | 83,172 | ||||||||||||||||||||||||
|
Exercise of stock options |
— | — | 332 | — | 2,924 | — | — | 2,924 | ||||||||||||||||||||||||
|
Stock-based compensation |
— | — | 111 | — | 1,608 | — | — | 1,608 | ||||||||||||||||||||||||
|
Restricted stock grants, net |
— | — | 191 | — | 2,756 | — | — | 2,756 | ||||||||||||||||||||||||
|
Dividends on preferred stock |
— | — | — | — | — | — | (1,058 | ) | (1,058 | ) | ||||||||||||||||||||||
|
Other comprehensive loss, net |
— | — | — | — | — | (22,730 | ) | — | (22,730 | ) | ||||||||||||||||||||||
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|
Balance, September 30, 2013 |
141 | $ | 141,000 | 87,099 | $ | 9 | $ | 792,140 | $ | (14,504 | ) | $ | (92,357 | ) | $ | 826,288 | ||||||||||||||||
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|||||||||||||||||
See accompanying Notes to unaudited Consolidated Financial Statements.
7
WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
| Nine Months Ended September 30, | ||||||||
| 2013 | 2012 | |||||||
| (in thousands) | ||||||||
|
Cash flows from operating activities: |
||||||||
|
Net income |
$ | 83,172 | $ | 40,719 | ||||
|
Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
|
Provision for credit losses |
8,920 | 35,343 | ||||||
|
Depreciation and amortization |
6,655 | 7,319 | ||||||
|
Stock-based compensation |
4,364 | 4,725 | ||||||
|
Deferred income taxes and income taxes receivable |
1,761 | 16,125 | ||||||
|
Net amortization of discounts and premiums for investment securities |
7,658 | 8,027 | ||||||
|
Goodwill and intangible impairment |
— | 3,435 | ||||||
|
Accretion and amortization of fair market value adjustments due to acquisitions |
(10,285 | ) | — | |||||
|
(Gains) / Losses on: |
||||||||
|
Sales of securities, AFS |
1,537 | (2,502 | ) | |||||
|
Acquisition of Centennial Bank |
(10,044 | ) | — | |||||
|
Other assets acquired through foreclosure, net |
(2,388 | ) | (317 | ) | ||||
|
Valuation adjustments of other repossessed assets, net |
2,279 | 4,060 | ||||||
|
Sale of premises and equipment, net |
(125 | ) | (65 | ) | ||||
|
Sale of minority interest in Miller / Russell & Associates, Inc. |
— | (776 | ) | |||||
|
Changes in, net of acquisitions: |
||||||||
|
Other assets/liabilities, net |
26,437 | 9,554 | ||||||
|
Fair value of assets and liabilities measured at fair value |
3,865 | (701 | ) | |||||
|
|
|
|
|
|||||
|
Net cash provided by operating activities |
123,806 | 124,946 | ||||||
|
|
|
|
|
|||||
|
Cash flows from investing activities: |
||||||||
|
Investment securities—measured at fair value Principal pay downs and maturities |
1,358 | 954 | ||||||
|
Investment securities—available-for-sale |
||||||||
|
Proceeds from sales |
63,153 | 143,553 | ||||||
|
Principal pay downs and maturities |
161,394 | 304,428 | ||||||
|
Purchases |
(373,485 | ) | (277,619 | ) | ||||
|
Investment securities—held-to-maturity Principal pay downs and maturities |
— | 735 | ||||||
|
Purchase of investment tax credits |
(28,172 | ) | (17,901 | ) | ||||
|
(Purchase) / sale of money market investments, net |
(3,512 | ) | 1,577 | |||||
|
Liquidation of restricted stock |
750 | 676 | ||||||
|
Loan fundings and principal collections, net |
(388,259 | ) | (612,929 | ) | ||||
|
Proceeds from loan sales |
— | 3,435 | ||||||
|
Sale and purchase of premises and equipment, net |
(2,472 | ) | (5,951 | ) | ||||
|
Proceeds from sale of other real estate owned and repossessed assets, net |
20,513 | 26,650 | ||||||
|
Cash and cash equivalents acquired in acquisition, net |
21,204 | — | ||||||
|
|
|
|
|
|||||
|
Net cash used in investing activities |
(527,528 | ) | (432,392 | ) | ||||
|
|
|
|
|
|||||
8
WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(continued)
| Nine Months Ended September 30, | ||||||||
| 2013 | 2012 | |||||||
| (in thousands) | ||||||||
|
Cash flows from financing activities: |
||||||||
|
Net increase in deposits |
481,989 | 503,464 | ||||||
|
Net decrease in customer repurchases |
(23,510 | ) | — | |||||
|
Proceeds from securities sold short |
126,664 | — | ||||||
|
Net increase (decrease) in borrowings |
121,121 | (42,276 | ) | |||||
|
Proceeds from exercise of common stock options |
2,924 | 2,620 | ||||||
|
Cash dividends paid on preferred stock |
(1,058 | ) | (3,440 | ) | ||||
|
|
|
|
|
|||||
|
Net cash provided by financing activities |
708,130 | 460,368 | ||||||
|
|
|
|
|
|||||
|
Net increase in cash and cash equivalents |
304,408 | 152,922 | ||||||
|
Cash and cash equivalents at beginning of year |
204,625 | 154,995 | ||||||
|
|
|
|
|
|||||
|
Cash and cash equivalents at end of period |
$ | 509,033 | $ | 307,917 | ||||
|
|
|
|
|
|||||
|
Supplemental disclosure: |
||||||||
|
Cash paid during the period for: |
||||||||
|
Interest |
$ | 22,648 | $ | 22,263 | ||||
|
Income taxes |
20,245 | 1,290 | ||||||
|
Non-cash investing and financing activity: |
||||||||
|
Transfers to other assets acquired through foreclosure, net |
14,010 | 19,522 | ||||||
|
Unfunded commitments to purchase investment tax credits |
21,828 | 34,599 | ||||||
|
Assets acquired in Centennial merger transaction |
410,827 | — | ||||||
|
Liabilities assumed in Centennial merger transaction |
421,987 | — | ||||||
|
Change in unrealized (loss) gain on AFS securities, net of tax |
(23,670 | ) | 18,803 | |||||
|
Change in unrealized gain on cash flow hedge, net of tax |
(17 | ) | 17 | |||||
See accompanying Notes to unaudited Consolidated Financial Statements.
9
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
Western Alliance Bancorporation (“WAL” or “the Company”), incorporated under the laws of the state of Nevada, is a bank holding company providing full service banking and related services to locally owned businesses, professional firms, real estate developers and investors, local non-profit organizations, high net worth individuals and other consumers through its three wholly owned subsidiary banks: Bank of Nevada (“BON”), operating in Southern Nevada; Western Alliance Bank (“WAB”), operating in Arizona and Northern Nevada; and Torrey Pines Bank (“TPB”), operating in California. In addition, there are two non-bank subsidiaries, Western Alliance Equipment Finance (“WAEF”), which offers equipment finance services nationwide, and Las Vegas Sunset Properties (“LVSP”), which holds certain non-performing assets. These entities are collectively referred to herein as the Company.
Basis of presentation
The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States (“GAAP”) and conform to practices within the financial services industry. The accounts of the Company and its consolidated subsidiaries are included in these Consolidated Financial Statements. All intercompany balances and transactions have been eliminated.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for credit losses; fair value determinations related to acquisitions, including loans acquired with deteriorated credit quality; fair value of other assets acquired through foreclosure; determination of the valuation allowance related to deferred tax assets; impairment of goodwill and other intangible assets and other than temporary impairment of securities. Although the Company’s management (“Management”) believes these estimates to be reasonably accurate, actual amounts may differ. In the opinion of Management, all adjustments considered necessary have been reflected in the Consolidated Financial Statements.
Principles of consolidation
WAL has eleven wholly owned subsidiaries: BON, WAB, TPB, which are all banking subsidiaries; WAEF, which provides equipment finance services; LVSP, which holds certain non-performing assets; and six unconsolidated subsidiaries used as business trusts in connection with the issuance of trust-preferred securities. In addition, until October 31, 2012, WAL maintained an 80% interest in Shine Investment Advisory Services Inc. (“Shine”), a registered investment advisor. WAL divested its 80% interest in Shine as of October 31, 2012. On April 30, 2013, the Company completed its acquisition of Centennial Bank (“Centennial”) and merged Centennial into WAB effective as of the acquisition date. The assets and liabilities of Centennial are included in the Company’s Consolidated Financial Statements as of April 30, 2013. See Note 2, “Acquisitions and Dispositions” for further discussion.
BON has three wholly owned subsidiaries: BW Real Estate, Inc., which operates as a real estate investment trust and holds certain of BON’s real estate loans and related securities; BON Investments, Inc., which holds certain investment securities, municipal loans and leases; and BW Nevada Holdings, LLC, which owns the Company’s 2700 West Sahara Avenue, Las Vegas, Nevada office building.
WAB has one wholly owned subsidiary, WAB Investments, Inc., which holds certain investment securities, municipal loans and leases, and TPB has one wholly owned subsidiary, TPB Investments, Inc., which holds certain investment securities and leases.
The Company does not have any other entities that should be considered for consolidation. All intercompany balances and transactions have been eliminated in consolidation.
Reclassifications
Certain amounts in the Consolidated Financial Statements as of December 31, 2012 and for the three and nine months ended September 30, 2013 have been reclassified to conform to the current presentation. The reclassifications have no effect on net income or stockholders’ equity as previously reported.
Interim financial information
The accompanying unaudited Consolidated Financial Statements as of September 30, 2013 and 2012 have been prepared in condensed format and, therefore, do not include all of the information and footnotes required by GAAP for complete financial statements. These statements have been prepared on a basis that is substantially consistent with the accounting principles applied to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
10
The information furnished in these interim statements reflects all adjustments which are, in the opinion of Management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal, recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the Company’s audited Consolidated Financial Statements.
Business combinations
Acquisitions are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”), which requires that all identified assets acquired and liabilities assumed are recorded at their estimated fair value as of the acquisition date. Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets, and liabilities assumed, is recorded as goodwill. Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price, a bargain purchase gain is recognized. Acquisition-related costs are expensed as incurred.
Fair values are determined in accordance with FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). In many cases, the determination of these fair values required Management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are subjective in nature and subject to change. Determining the fair value of the assets and liabilities, especially the loan portfolio and other real estate owned (“OREO”), is a complex process involving significant judgment regarding the methods and assumptions used to calculate estimated fair values. The fair value of loans acquired is estimated based on discounted cash flows, which take into consideration current portfolio interest rates and repricing characteristics as well as assumptions related to prepayment speeds and credit losses. Loans acquired with credit deterioration are considered to be impaired and are accounted for in accordance with GAAP (see the policy note, “Loans Acquired with Deteriorated Credit Quality,” for further discussion).
Investment securities
Investment securities may be classified as held-to-maturity (“HTM”), available-for-sale (“AFS”) or trading. The appropriate classification is initially decided at the time of purchase. Securities classified as HTM are those debt securities that 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 the majority of the principal outstanding has been collected is considered a maturity for purposes of classification and disclosure.
Securities classified as AFS or trading are reported on the Consolidated Balance Sheets at their estimated fair value. As the fair value of AFS securities changes, the changes are reported net of income tax as an element of other comprehensive income (“OCI”), except for impaired securities. When AFS securities are sold, the unrealized gain or loss is reclassified from OCI to non-interest income. Changes in the fair values of trading securities are reported in non-interest income. Securities classified as AFS are securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as AFS would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, decline in credit quality, and regulatory capital considerations.
Interest income is recognized based on the coupon rate and increased by accretion of discounts earned or decreased by the amortization of premiums paid, over the contractual life of the security, using the interest method. For mortgage-backed securities, estimates of prepayments are considered in the constant yield calculations.
In estimating whether there are any other than temporary impairment (“OTTI”) losses, Management considers (1) the length of time and the extent to which the fair value has been less than amortized cost, (2) the financial condition and near term prospects of the issuer, (3) the impact of changes in market interest rates, and (4) the intent and ability of the Company to retain its investment for a period of time sufficient to allow for any anticipated recovery in fair value and whether it is not more likely than not the Company would be required to sell the security prior to recovery.
Declines in the fair value of individual debt securities classified as AFS that are deemed to be other than temporary are reflected in earnings when identified. The fair value of the security then becomes the new cost basis. For individual debt securities where the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, the other than temporary decline in fair value of the debt security related to (1) credit loss is recognized in earnings, and (2) market or other factors is recognized in other comprehensive income or loss. Credit losses are recorded if the present value of cash flows is less than amortized cost.
For individual debt securities where the Company intends to sell the security or more likely than not, will not recover all of its amortized cost, the OTTI is recognized in earnings equal to the entire difference between the securities cost basis and its fair value at the balance sheet date. For individual debt securities for which a credit loss has been recognized in earnings, interest accruals and amortization and accretion of premiums and discounts are suspended when the credit loss is recognized. Interest received after accruals have been suspended is recognized on a cash basis.
11
Allowance for credit losses
Credit risk is inherent in the business of extending loans and leases to borrowers. Like other financial institutions, the Company must maintain an adequate allowance for credit losses. The allowance for credit losses is established through a provision for credit losses charged to expense. Loans are charged against the allowance for credit losses when Management believes that the contractual principal or interest will not be collected. Subsequent recoveries, if any, are credited to the allowance. The allowance is an amount believed adequate to absorb probable losses on existing loans that may become uncollectable, based on evaluation of the collectability of loans and prior credit loss experience, together with other factors. The Company formally re-evaluates and establishes the appropriate level of the allowance for credit losses on a quarterly basis.
The Company’s allowance for credit loss methodology incorporates several quantitative and qualitative risk factors used to establish the appropriate allowance for credit losses at each reporting date. Quantitative factors include the Company’s historical loss experience, delinquency and charge-off trends, collateral values, changes in the level of nonperforming loans and other factors. Qualitative factors include the economic condition of the Company’s operating markets and the state of certain industries. Specific changes in the risk factors are based on actual loss experience, as well as perceived risk of similar groups of loans classified by collateral type and loan grade. An internal one-year and five-year loss history are also incorporated into the allowance calculation model. Due to the credit concentration of the Company’s 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 bank regulatory agencies, as an integral part of their examination processes, periodically review the Company’s subsidiary banks’ allowances for credit losses, and may require the subsidiary banks to make additions to the allowance based on their judgment about information available to them at the time of their examinations. Management regularly reviews the assumptions and formulas used in determining the allowance and makes adjustments if required to reflect the current risk profile of the portfolio.
The allowance consists of specific and general components. The specific allowance relates to impaired loans. In general, impaired loans include non-accrual loans, loans 90 days past due and still accruing, and other criticized and classified loans. For such loans, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan are lower than the carrying value of that loan, pursuant to FASB ASC 310, Receivables (“ASC 310”). Loans not collateral dependent are evaluated based on the expected future cash flows discounted at the original contractual interest rate. The amount to which the present value falls short of the current loan obligation is recorded as a reserve or charge-off.
The Company uses an appraised value method to determine the need for a reserve or charge-off on impaired, collateral dependent loans and further discounts the appraisal for disposition costs. The Company obtains an independent collateral valuation analysis for each impaired loan, at least annually.
Loans acquired with deteriorated credit quality
FASB ASC 310-30, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (“ASC 310-30”), applies to a loan with evidence of deterioration of credit quality since its origination, and for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable. For these loans, accounted for under ASC 310-30, Management determines the value of the loan portfolio based, in part, on work provided by an appraiser. Factors considered in the valuation are projected cash flows for the loans, type of loan and related collateral, loan grade, delinquency and loan to value. Loans are grouped together according to similar characteristics and are treated in the aggregate when applying various valuation techniques. Loans are first evaluated individually to determine if there has been credit deterioration since origination. Once acquired loans are determined to have deteriorated credit quality, the Company evaluates such loans for common risk characteristics and aggregation into one or more pools. Common risk characteristics for pooling acquired loans may include credit ratings, loan type, collateral type, delinquency status, geographic location, loan to value, or combinations thereof. Management also estimates the amount of credit losses that are expected to be realized for individual loans by estimating the probability of default and the loss given default, which incorporates the liquidation value of collateral securing loans. These estimates are subjective. The accretion of the fair value adjustments attributable to interest rates on loans acquired with deteriorated credit quality is recorded in interest income in the Consolidated Income Statements over the estimated life of the pool. The fair value adjustment attributable to credit losses on these loans is non-accretable. When a loan is sold, paid off or transferred to OREO and liquidated, any remaining non-accretable yield is recorded in interest income.
12
Adjustments to these loan values in future periods may occur based on Management’s expectation of future cash flows to be collected over the lives of the loans. Estimating cash flows is performed at a pool level and incorporates analysis of historical cash flows, delinquencies, and charge-offs as well as assumptions about future cash flows. Performance can vary from period to period, causing changes in estimates of the expected cash flows. If based on the review of a pool of loans, it is probable that a significant increase or improvement in cash flows previously expected to be collected, any valuation allowance established for the pool of loans is first reduced for the increase in the present value of cash flows expected to be collected, and any remaining increase in estimated cash flows increases the accretable yield and is recognized over the remaining estimated life of the loan pool. If based on the review of a pool of loans, it is probable that a decrease or impairment in cash flows previously expected to be collected or if actual cash flows are less than cash flows previously expected, the allowance for credit losses is increased for the decrease in the present value of the cash flows expected to be collected.
Other assets acquired through foreclosure
Other assets acquired through foreclosure consist primarily of properties acquired as a result of, or in-lieu-of, foreclosure. Properties or other assets (primarily repossessed assets formerly leased) are classified as other real estate owned and other repossessed property and are initially reported at fair value of the asset less estimated selling costs. Subsequent adjustments are based on the lower of carrying value or fair value, less estimated costs to sell the property. Costs relating to the development or improvement of the assets are capitalized and costs relating to holding the assets are charged to non-interest expense. Property is evaluated regularly to ensure the recorded amount is supported by its current fair value and valuation allowances.
Derivative financial instruments
The Company uses interest-rate swaps to mitigate interest-rate risk associated with changes to (1) the fair value of certain fixed-rate financial instruments (fair value hedges) and (2) certain cash flows related to future interest payments on variable rate financial instruments (cash flow hedges).
The Company recognizes derivatives as assets or liabilities in the Consolidated Balance Sheets at their fair value in accordance with FASB ASC 815, Derivatives and Hedging (“ASC 815”). The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. On the date the derivative contract is entered into, the Company designates the derivative as a fair value hedge or cash flow hedge. Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset or liability attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.
For a fair value hedge, the change in the fair value of the derivative instrument is recognized in earnings. For a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded in accumulated other comprehensive income (loss) (“AOCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any ineffective portion of the change in fair value of a cash flow hedge is recognized immediately in non-interest income in the Consolidated Income Statement. Under both the fair value and cash flow hedge scenarios, changes in the fair value of derivatives not considered to be highly effective in hedging the change in fair value or the expected cash flows of the hedged item are recognized in earnings as non-interest income during the period of the change.
The Company documents its hedge relationships, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction at the time the derivative contract is executed. Both at inception and at least quarterly thereafter, the Company assesses whether the derivatives used in hedging transactions are highly effective (as defined in the guidance) in offsetting changes in either the fair value or cash flows of the hedged item. Retroactive effectiveness is assessed, as well as the continued expectation that the hedge will remain effective prospectively. The Company discontinues hedge accounting prospectively when it is determined that a hedge is no longer highly effective. When hedge accounting is discontinued on a fair value hedge that no longer qualifies as an effective hedge, the derivative continues to be reported at fair value on the Consolidated Balance Sheets, but the carrying amount of the hedged item is no longer adjusted for future changes in fair value. The adjustment to the carrying amount of the hedged item that existed at the date hedge accounting is discontinued is amortized over the remaining life of the hedged item into earnings.
Derivative instruments that are not designated as hedges per the accounting guidance are reported in the Consolidated Balance Sheets at fair value and the changes in fair value are recognized in earnings as non-interest income during the period of change.
13
The Company occasionally purchases a financial instrument or originates a loan that contains an embedded derivative instrument. Upon purchasing the instrument or originating the loan, the Company assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the financial instrument (i.e., the host contract) and whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and (2) a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract and carried at fair value. However, in cases where (1) the host contract is measured at fair value, with changes in fair value reported in current earnings, or (2) the Company is unable to reliably identify and measure an embedded derivative for separation from its host contract, the entire contract is carried on the Consolidated Balance Sheet at fair value and is not designated as a hedging instrument.
Commitments and letters of credit
In the ordinary course of business, the Company enters into commitments to extend credit, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded in the Consolidated Financial Statements when they become payable. The credit risk associated with these commitments is evaluated in a manner similar to the allowance for credit losses.
Income taxes
The Company and its subsidiaries, other than BW Real Estate, Inc., file a consolidated federal tax return. Due to tax regulations, several items of income and expense are recognized in different periods for tax return purposes than for financial reporting purposes. These items represent “temporary differences.” Deferred taxes are provided on an asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of Management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.
Fair values of financial instruments
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities. ASC 820 establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The Company uses various valuation approaches, including market, income and/or cost approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would consider in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs, as follows:
| • |
Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
| • |
Level 2 — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, prepayment speeds, volatilities, etc.) or model-based valuation techniques where all significant assumptions are observable, either directly or indirectly, in the market. |
| • |
Level 3 — Valuation is generated from model-based techniques where one or more significant inputs are not observable, either directly or indirectly, in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques may include use of matrix pricing, discounted cash flow models and similar techniques. |
The availability of observable inputs varies based on the nature of the specific financial instrument. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. When market assumptions are available, ASC 820 requires the Company to make assumptions regarding the assumptions that market participants would use to estimate the fair value of the financial instrument at the measurement date.
14
FASB ASC 825, Financial Instruments (“ASC 825”), requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value.
Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent limitations in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at September 30, 2013 or December 31, 2012. The estimated fair value amounts for September 30, 2013 and December 31, 2012 have been measured as of period-end, and have not been reevaluated or updated for purposes of these Consolidated Financial Statements subsequent to those dates. As such, the estimated fair values of these financial instruments subsequent to the reporting date may be different than the amounts reported at the period-end.
The information in Note 11, “Fair Value Accounting,” should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Company’s assets and liabilities.
Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimate, comparisons between the Company’s disclosures and those of other companies or banks may not be meaningful.
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:
Cash and cash equivalents
The carrying amounts reported in the Consolidated Balance Sheets for cash and due from banks approximate their fair value.
Money market and certificates of deposit investments
The carrying amounts reported in the Consolidated Balance Sheets for money market investments approximate their fair value.
Investment securities
The fair values of U.S. Treasuries, corporate bonds, mutual funds, and exchange-listed preferred stock are based on quoted market prices and are categorized as Level 1 in the fair value hierarchy.
The fair value of other investment securities were determined based on matrix pricing. Matrix pricing is a mathematical technique that utilizes observable market inputs including, for example, yield curves, credit ratings and prepayment speeds. Fair values determined using matrix pricing are generally categorized as Level 2 in the fair value hierarchy.
The Company owns certain collateralized debt obligations (“CDOs”) for which quoted prices are not available. Quoted prices for similar assets are also not available for these investment securities. In order to determine the fair value of these securities, the Company has estimated the future cash flows and discount rate using observable market inputs adjusted based on assumptions regarding the adjustments a market participant would assume necessary for each specific security. As a result, the resulting fair values have been categorized as Level 3 in the fair value hierarchy.
Restricted stock
The Company’s subsidiary banks are members of the Federal Home Loan Bank (“FHLB”) system and maintain an investment in capital stock of the FHLB. The Company’s subsidiary banks also maintain an investment in their primary correspondent bank. These investments are carried at cost since no ready market exists for them, and they have no quoted market value. The Company conducts a periodic review and evaluation of its FHLB stock to determine if any impairment exists. The fair values have been categorized as Level 2 in the fair value hierarchy.
Loans
Fair value for loans is estimated based on discounted cash flows using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality with adjustments that the Company believes a market participant would consider in determining fair value based on a third party independent valuation. As a result, the fair value for loans disclosed in Note 11, “Fair Value Accounting,” is categorized as Level 2 in the fair value hierarchy.
Accrued interest receivable and payable
The carrying amounts reported in the Consolidated Balance Sheets for accrued interest receivable and payable approximate their fair value. Accrued interest receivable and payable fair value measurements are classified as Level 3 in the fair value hierarchy.
Derivative financial instruments
All derivatives are recognized in the Consolidated Balance Sheet at their fair value. The fair value for derivatives is determined based on market prices, broker-dealer quotations on similar products or other related input parameters. As a result, the fair values have been categorized as Level 2 in the fair value hierarchy.
15
Deposits
The fair value disclosed for demand and savings deposits is by definition equal to the amount payable on demand at their reporting date (that is, their carrying amount), which the Company believes a market participant would consider in determining fair value. The carrying amount for variable-rate deposit accounts approximates their fair value. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on these deposits. The fair value measurement of the deposit liabilities disclosed in Note 11, “Fair Value Accounting,” is categorized as Level 2 in the fair value hierarchy.
Federal Home Loan Bank advances and other borrowings
The fair values of the Company’s borrowings are estimated using discounted cash flow analyses, based on the market rates for similar types of borrowing arrangements. The FHLB advances have been categorized as Level 2 in the fair value hierarchy due to their short durations. The other borrowings have been categorized as Level 3 in the fair value hierarchy.
Junior subordinated debt
Junior subordinated debt and subordinated debt are valued by comparing interest rates and spreads to benchmark indices offered to institutions with similar credit profiles to the Company and discounting the contractual cash flows on the Company’s debt using these market rates. The junior subordinated debt has been categorized as Level 3 in the fair value hierarchy.
Off-balance sheet instruments
Fair values for the Company’s off-balance sheet instruments (lending commitments and standby letters of credit) are based on quoted fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.
Recent accounting pronouncements
In January 2013, the FASB issued guidance within Accounting Standards Update (“ASU”) 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities . The amendments in ASU 2013-01 to Topic 210, Balance Sheet, clarify that the scope of ASU 2011-11, Disclosures about Offsetting Assets and Liabilities , would apply to derivatives, including bifurcated embedded derivatives, repurchase and reverse agreements, and securities borrowing and lending transactions that are either offset or subject to a master netting arrangement. The amendments are effective for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this guidance did not have a material impact on the Company’s Consolidated Income Statement, Consolidated Balance Sheet, or Consolidated Cash Flows.
In February 2013, the FASB issued guidance within ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income . The amendments in ASU 2013-02 to Topic 220, Comprehensive Income, update, supersede and replace the presentation requirements for reclassifications out of accumulated other comprehensive income in ASUs 2011-05 and 2011-12. The amendments require an entity to provide additional information about reclassifications out of accumulated other comprehensive income. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. The adoption of this guidance did not have a material impact on the Company’s Consolidated Income Statement, Consolidated Balance Sheet, or Consolidated Cash Flows and only impacted the presentation of other comprehensive income in the Consolidated Financial Statements.
In February 2013, the FASB issued guidance within ASU 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date . The amendments in ASU 2013-04 to Topic 405, Liabilities, provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the Update is fixed at the reporting date, except for obligations addressed with existing GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on behalf of its co-obligors. The guidance also requires an entity to disclose the nature and amount of the obligation, as well as other information about those obligations. The amendment is effective retrospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Income Statement, Consolidated Balance Sheet, or Consolidated Cash Flows.
In July 2013, the FASB issued guidance within ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists . The amendments in ASU 2013-11 to Topic 740, Income Taxes , provide guidance on the financial statement presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.
16
2. ACQUISITIONS AND DISPOSITIONS
Acquisitions
On April 30, 2013, the Company completed its acquisition of Centennial Bank (“Centennial”). Under the terms of the merger, the Company paid $57.5 million in cash for all equity interests in Centennial. The Company merged Centennial into WAB effective April 30, 2013, reporting combined assets for the resulting bank of $3.16 billion and deposits of $2.76 billion. The merger was undertaken, in part, because the purchase price of Centennial was at a discount to its tangible book value and was accretive to capital at close of the transaction.
Centennial’s results of operations are included in the Company’s results beginning April 30, 2013. Merger / restructure expenses related to the Centennial acquisition of $0.2 million and $2.7 million for the three and nine months ended September 30, 2013, respectively, have been included in non-interest expense, of which, $1.0 million are acquisition related costs as defined by ASC 805. The acquisition was accounted for under the acquisition method of accounting in accordance with ASC 805. Assets purchased and liabilities assumed were all recorded at their respective acquisition date fair values. A bargain purchase gain of $10.0 million resulted from the acquisition and is included as a component of non-interest income in the Consolidated Income Statement. The amount of gain is equal to the amount by which the estimated fair value of net assets purchased exceeded the consideration paid. Pursuant to the terms of the transaction, $12.7 million in loan receivables were not acquired by the Company.
The recognized amounts of identifiable assets acquired and liabilities assumed are as follows:
| (in thousands) | ||||
|
Assets: |
||||
|
Cash and cash equivalents (1) |
$ | 70,349 | ||
|
Federal funds sold (1) |
8,355 | |||
|
Investment securities - avaialable-for-sale |
26,014 | |||
|
Loans |
351,474 | |||
|
Deferred tax assets, net |
21,666 | |||
|
Premises and equipment |
44 | |||
|
Other assets acquired through foreclosure, net |
5,622 | |||
|
Other assets |
6,007 | |||
|
|
|
|||
|
Total assets acquired |
489,531 | |||
|
|
|
|||
|
Liabilities: |
||||
|
Deposits |
338,811 | |||
|
FHLB advances |
79,943 | |||
|
Other liabilities |
3,233 | |||
|
Total liabilities assumed |
$ | 421,987 | ||
|
|
|
|||
|
Net assets acquired |
67,544 | |||
|
|
|
|||
|
Consideration paid (1) |
57,500 | |||
|
|
|
|||
|
Bargain purchase gain from acquisition |
$ | 10,044 | ||
|
|
|
|||
| (1) |
Cash acquired, net of cash consideration paid of $57.5 million represents the net cash and cash equivalents acquired of $21.2 million as part of the acquisition. |
The fair values of assets acquired and liabilities assumed are subject to adjustment during the first twelve months after the acquisition date if additional information becomes available to indicate a more accurate or appropriate value for an asset or liability. Accordingly, the estimated fair value of net assets are preliminary and subject to measurement period adjustments. Assets that are particularly susceptible to adjustment include certain loans and other assets acquired through foreclosure. However, these adjustments are not expected to be significant. The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows. However, the Company believes that all contractual cash flows related to these financial instruments will be collected. As such, these receivables were not considered impaired at the acquisition date and were not subject to the guidance relating to acquired loans which have shown evidence of credit deterioration since origination.
On October 17, 2012, the Company acquired Western Liberty Bancorp (“Western Liberty”), which included two wholly owned subsidiaries, Service 1 st Bank of Nevada and LVSP. Service 1 st Bank of Nevada was merged into the Company’s wholly owned subsidiary, BON, effective October 19, 2012. LVSP remains a wholly owned subsidiary of WAL.
17
The following table presents pro forma information as if the Centennial and Western Liberty acquisitions had occurred as of January 1, 2012. The pro forma information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on the assumed dates.
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||
|
Net Interest income (1) |
$ | 81,093 | $ | 85,151 | $ | 238,430 | $ | 254,535 | ||||||||
|
Non Interest income (2) |
2,625 | 8,138 | 7,468 | 22,147 | ||||||||||||
|
Net income (3) |
25,820 | 13,549 | 69,435 | 36,012 | ||||||||||||
|
Earnings per share—basic |
$ | 0.30 | $ | 0.17 | $ | 0.81 | $ | 0.44 | ||||||||
|
Earnings per share—diluted |
$ | 0.30 | $ | 0.16 | $ | 0.80 | $ | 0.44 | ||||||||
| (1) | Excludes accretion (or amortization) of fair market value adjustments for loans, deposits and other borrowings advances of $3,466 for the three months ended September 30, 2013 and $10,285 for the nine months ended September 30, 2013. |
| (2) | Excludes bargain purchase gain of $10,044 related to the Centennial acquisition. |
| (3) | Excludes merger / restructure related costs incurred by the Company($181 for the three months ended September 30, 2013 and $2,660 for the nine months ended September 30, 2013) and Centennial ($0 for the three months ended September 30, 2013 and $1,000 for the nine months ended September 30, 2013) and footnotes 1 and 2 noted above as well as the related tax effects. |
Discontinued Operations
The Company has discontinued its affinity credit card business, PartnersFirst, and has presented these activities as discontinued operations. At September 30, 2013 and December 31, 2012, the outstanding credit card loans held for sale were $25.4 million and $31.1 million, respectively. As discussed in Note 14, “Subsequent Events,” certain receivables in this portfolio were sold on October 1, 2013.
The following table summarizes the operating results of the discontinued operations for the periods indicated:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| (in thousands) | ||||||||||||||||
|
Operating revenue |
$ | 1,105 | $ | 315 | $ | 3,376 | $ | 947 | ||||||||
|
Non-interest expenses |
(1,155 | ) | (734 | ) | (3,653 | ) | (2,130 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Loss before income taxes |
(50 | ) | (419 | ) | (277 | ) | (1,183 | ) | ||||||||
|
Income tax benefit |
(21 | ) | (176 | ) | (117 | ) | (497 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net loss |
$ | (29 | ) | $ | (243 | ) | $ | (160 | ) | $ | (686 | ) | ||||
|
|
|
|
|
|
|
|
|
|||||||||
3. INVESTMENT SECURITIES
Carrying amounts and fair values of investment securities at September 30, 2013 and December 31, 2012 are summarized as follows:
| September 30, 2013 | ||||||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | (Losses) | Value | |||||||||||||
| (in thousands) | ||||||||||||||||
|
Held-to-maturity |
||||||||||||||||
|
Collateralized debt obligations |
$ | 50 | $ | 578 | $ | — | $ | 628 | ||||||||
|
Corporate bonds |
97,778 | 647 | (4,586 | ) | 93,839 | |||||||||||
|
Municipal obligations |
189,680 | 3,531 | (1,735 | ) | 191,476 | |||||||||||
|
Other |
1,600 | — | — | 1,600 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 289,108 | $ | 4,756 | $ | (6,321 | ) | $ | 287,543 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
18
| OTTI | ||||||||||||||||||||
| Recognized | ||||||||||||||||||||
| in Other | Gross | Gross | ||||||||||||||||||
| Amortized | Comprehensive | Unrealized | Unrealized | Fair | ||||||||||||||||
| Cost | Income | Gains | (Losses) | Value | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
|
Available-for-sale |
||||||||||||||||||||
|
U.S. government sponsored agency securities |
$ | 28,694 | $ | — | $ | — | $ | (1,317 | ) | $ | 27,377 | |||||||||
|
Municipal obligations |
110,081 | — | 302 | (4,838 | ) | 105,545 | ||||||||||||||
|
Adjustable-rate preferred stock |
66,093 | — | 864 | (5,568 | ) | 61,389 | ||||||||||||||
|
Mutual funds |
32,422 | — | 123 | (222 | ) | 32,323 | ||||||||||||||
|
Direct U.S. obligations and GSE residential mortgage-backed securities |
769,983 | — | 5,748 | (7,253 | ) | 768,478 | ||||||||||||||
|
Private label residential mortgage-backed securities |
27,683 | — | 8 | (1,544 | ) | 26,147 | ||||||||||||||
|
Trust preferred securities |
32,000 | — | — | (8,166 | ) | 23,834 | ||||||||||||||
|
CRA investments |
23,703 | — | — | (403 | ) | 23,300 | ||||||||||||||
|
Collateralized mortgage-backed securities |
5,283 | — | 210 | — | 5,493 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| $ | 1,095,942 | $ | — | $ | 7,255 | $ | (29,311 | ) | $ | 1,073,886 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Measured at fair value |
||||||||||||||||||||
|
Direct U.S. obligations and GSE residential mortgage-backed securities |
|
$ | 3,621 | |||||||||||||||||
|
|
|
|||||||||||||||||||
| December 31, 2012 | ||||||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | (Losses) | Value | |||||||||||||
| (in thousands) | ||||||||||||||||
|
Held-to-maturity |
||||||||||||||||
|
Collateralized debt obligations |
$ | 50 | $ | 1,401 | $ | — | $ | 1,451 | ||||||||
|
Corporate bonds |
97,781 | 984 | (6,684 | ) | 92,081 | |||||||||||
|
Municipal obligations |
191,902 | 5,887 | (102 | ) | 197,687 | |||||||||||
|
CRA investments |
1,600 | — | — | 1,600 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 291,333 | $ | 8,272 | $ | (6,786 | ) | $ | 292,819 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| OTTI | ||||||||||||||||||||
| Recognized | ||||||||||||||||||||
| in Other | Gross | Gross | ||||||||||||||||||
| Amortized | Comprehensive | Unrealized | Unrealized | Fair | ||||||||||||||||
| Cost | Income | Gains | (Losses) | Value | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
|
Available-for-sale |
||||||||||||||||||||
|
Municipal obligations |
$ | 71,777 | $ | — | $ | 1,578 | $ | (184 | ) | $ | 73,171 | |||||||||
|
Adjustable-rate preferred stock |
72,717 | — | 3,591 | (753 | ) | 75,555 | ||||||||||||||
|
Mutual funds |
36,314 | — | 1,647 | — | 37,961 | |||||||||||||||
|
Direct U.S. obligations and GSE residential mortgage-backed securities |
648,641 | — | 14,573 | (10 | ) | 663,204 | ||||||||||||||
|
Private label residential mortgage-backed securities |
35,868 | (1,811 | ) | 2,067 | (517 | ) | 35,607 | |||||||||||||
|
Private label commercial mortgage-backed securities |
5,365 | — | 376 | — | 5,741 | |||||||||||||||
|
Trust preferred securities |
32,000 | — | — | (7,865 | ) | 24,135 | ||||||||||||||
|
CRA investments |
23,368 | — | 848 | — | 24,216 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| $ | 926,050 | $ | (1,811 | ) | $ | 24,680 | $ | (9,329 | ) | $ | 939,590 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Measured at fair value | ||||||||||||||||||||
|
Direct U.S. obligations and GSE residential mortgage-backed securities (3) |
|
$ | 5,061 | |||||||||||||||||
|
|
|
|||||||||||||||||||
19
During the second quarter 2013, a private label mortgage-backed security with a $1.8 million balance of OTTI recognized in other comprehensive income was sold. Accordingly, there is no OTTI balance recognized in other comprehensive income as of September 30, 2013. For additional information on the fair value changes of the securities measured at fair value, see the trading securities table in Note 11, “Fair Value Accounting.”
The Company conducts an OTTI analysis on a quarterly basis. The initial indication of OTTI for both debt and equity securities is a decline in the market value below the amount recorded for an investment, and the severity and duration of the decline. Another potential indication of OTTI is a downgrade below investment grade. In determining whether an impairment is OTTI, the Company considers the length of time and the extent to which the market value has been below cost, recent events specific to the issuer, including investment downgrades by rating agencies and economic conditions of its industry, and the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. For marketable equity securities, the Company also considers the issuer’s financial condition, capital strength, and near-term prospects.
For debt securities and adjustable-rate preferred stock (“ARPS”) that are treated as debt securities for the purpose of OTTI analysis, the Company also considers the cause of the price decline (general level of interest rates and industry- and issuer-specific factors), the issuer’s financial condition, near-term prospects and current ability to make future payments in a timely manner, the issuer’s ability to service debt, and any change in agencies’ ratings at evaluation date from acquisition date and any likely imminent action. For ARPS with a fair value below cost that is not attributable to the credit deterioration of the issuer, such as a decline in cash flows from the security or a downgrade in the security’s rating below investment grade, the Company does not recognize an OTTI charge where determines that it has the intent and ability to retain its investment for a period of time sufficient to allow for any anticipated recovery in fair value.
Gross unrealized losses at September 30, 2013 and December 31, 2012 are primarily caused by interest rate fluctuations, credit spread widening and reduced liquidity in applicable markets. The Company has reviewed securities on which there is an unrealized loss in accordance with its accounting policy for OTTI described above and determined there were no securities impairment charges needed for the three and nine months ended September 30, 2013 and 2012.
The Company does not consider any other securities to be other-than-temporarily impaired as of September 30, 2013 and December 31, 2012. No assurance can be made that additional OTTI will not occur in future periods.
Information pertaining to securities with gross unrealized losses at September 30, 2013 and December 31, 2012, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:
| September 30, 2013 | ||||||||||||||||||||||||
| Less Than Twelve Months | More Than Twelve Months | Total | ||||||||||||||||||||||
| Gross | Gross | Gross | ||||||||||||||||||||||
| Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | |||||||||||||||||||
| Losses | Value | Losses | Value | Losses | Value | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
Held-to-maturity |
||||||||||||||||||||||||
|
Corporate bonds |
$ | — | $ | — | $ | 4,586 | $ | 80,414 | $ | 4,586 | $ | 80,414 | ||||||||||||
|
Municipal obligations |
1,735 | 41,505 | — | — | 1,735 | 41,505 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 1,735 | $ | 41,505 | $ | 4,586 | $ | 80,414 | $ | 6,321 | $ | 121,919 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Available-for-sale |
||||||||||||||||||||||||
|
U.S. Government-sponsored agency securities |
$ | 1,317 | $ | 17,377 | $ | — | $ | — | $ | 1,317 | $ | 17,377 | ||||||||||||
|
Adjustable-rate preferred stock |
5,568 | 43,599 | — | — | 5,568 | 43,599 | ||||||||||||||||||
|
Mutual funds |
222 | 25,862 | — | — | 222 | 25,862 | ||||||||||||||||||
|
Direct U.S obligations and GSE residential mortgage-backed securities |
7,242 | 358,092 | 11 | 1,528 | 7,253 | 359,620 | ||||||||||||||||||
|
Municipal obligations |
4,838 | 79,308 | — | — | 4,838 | 79,308 | ||||||||||||||||||
|
Private label residential mortgage-backed securities |
1,500 | 20,322 | 44 | 3,460 | 1,544 | 23,782 | ||||||||||||||||||
|
Trust preferred securities |
— | — | 8,166 | 23,834 | 8,166 | 23,834 | ||||||||||||||||||
|
Other |
403 | 23,299 | — | — | 403 | 23,299 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 21,090 | $ | 567,859 | $ | 8,221 | $ | 28,822 | $ | 29,311 | $ | 596,681 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| December 31, 2012 | ||||||||||||||||||||||||
| Less Than Twelve Months | More Than Twelve Months | Total | ||||||||||||||||||||||
| Gross | Gross | Gross | ||||||||||||||||||||||
| Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | |||||||||||||||||||
| Losses | Value | Losses | Value | Losses | Value | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
Held-to-maturity |
||||||||||||||||||||||||
|
Corporate bonds |
$ | 206 | $ | 14,794 | $ | 6,478 | $ | 63,522 | $ | 6,684 | $ | 78,316 | ||||||||||||
|
Municipal obligations |
102 | 10,908 | — | — | 102 | 10,908 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 308 | $ | 25,702 | $ | 6,478 | $ | 63,522 | $ | 6,786 | $ | 89,224 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Available-for-sale |
||||||||||||||||||||||||
|
Adjustable-rate preferred stock |
$ | 110 | $ | 7,811 | $ | 643 | $ | 8,723 | $ | 753 | $ | 16,534 | ||||||||||||
|
Mutual funds |
— | — | — | — | — | — | ||||||||||||||||||
|
Corporate bonds |
— | — | — | — | — | — | ||||||||||||||||||
|
Direct U.S obligations and GSE residential mortgage-backed securities |
2 | 557 | 8 | 1,938 | 10 | 2,495 | ||||||||||||||||||
|
Municipal obligations |
184 | 15,713 | — | — | 184 | 15,713 | ||||||||||||||||||
|
Private label residential mortgage-backed securities |
120 | 16,901 | 397 | 6,986 | 517 | 23,887 | ||||||||||||||||||
|
Trust preferred securities |
— | — | 7,865 | 24,135 | 7,865 | 24,135 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 416 | $ | 40,982 | $ | 8,913 | $ | 41,782 | $ | 9,329 | $ | 82,764 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
20
The total number of securities in an unrealized loss position at September 30, 2013 was 202, compared to 66 at December 31, 2012. In analyzing an issuer’s financial condition, Management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysis reports. Since material downgrades have not occurred and Management does not intend to sell the debt securities for the foreseeable future, none of the securities described in the above table or in this paragraph were deemed to be other than temporarily impaired.
At September 30, 2013 and December 31, 2012, the gross unrealized loss on trust preferred securities classified as AFS was $8.2 million and $7.9 million, respectively. The Company actively monitors its debt and other structured securities portfolios classified as AFS for declines in fair value. At September 30, 2013, the gross unrealized loss on the corporate bond portfolio classified as HTM was $4.6 million, compared to $6.7 million at December 31, 2012. During the prior year, the Federal Reserve announced its intention to keep interest rates at historically low levels into 2015. The yields of most of the bonds in the portfolio are tied to LIBOR, thus, negatively affecting their anticipated returns. Additionally, Moody’s had downgraded certain bonds held in the portfolio during 2012. However, all of the bonds remain investment grade.
The amortized cost and fair value of securities as of September 30, 2013 and December 31, 2012, by contractual maturities, are shown below. The actual maturities of the mortgage-backed securities may differ from their contractual maturities because the loans underlying the securities may be repaid without any penalties due to borrowers that have the right to call or prepay obligations with or without call or prepayment penalties. These securities are included in the after ten years category in the following table.
| September 30, 2013 | December 31, 2012 | |||||||||||||||
| Amortized | Estimated | Amortized | Estimated | |||||||||||||
| Cost | Fair Value | Cost | Fair Value | |||||||||||||
| (in thousands) | ||||||||||||||||
|
Held-to-maturity |
||||||||||||||||
|
Due in one year or less |
$ | 2,517 | $ | 2,534 | $ | 1,600 | $ | 1,600 | ||||||||
|
After one year through five years |
15,400 | 15,760 | 13,596 | 13,934 | ||||||||||||
|
After five years through ten years |
147,897 | 144,898 | 121,238 | 116,020 | ||||||||||||
|
After ten years |
123,294 | 124,351 | 154,899 | 161,265 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 289,108 | $ | 287,543 | $ | 291,333 | $ | 292,819 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Available-for-sale |
||||||||||||||||
|
Due in one year or less |
$ | 56,226 | $ | 55,725 | $ | 65,190 | $ | 67,794 | ||||||||
|
After one year through five years |
23,694 | 24,216 | 24,261 | 25,906 | ||||||||||||
|
After five years through ten years |
34,019 | 32,661 | 8,165 | 8,000 | ||||||||||||
|
After ten years (1) |
982,003 | 961,284 | 828,434 | 837,890 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 1,095,942 | $ | 1,073,886 | $ | 926,050 | $ | 939,590 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1) | Includes mortgage-backed securities. |
The following table summarizes the Company’s investment ratings position as of September 30, 2013:
| As of September 30, 2013 | ||||||||||||||||||||||||||||
| AAA |
Split-rated
AAA/AA+ |
AA+ to AA- | A+ to A- | BBB+ to BBB- | BB+ and below | Totals | ||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||
|
Municipal obligations |
$ | 8,006 | $ | — | $ | 130,149 | $ | 149,477 | $ | 7,323 | $ | 270 | $ | 295,225 | ||||||||||||||
|
Direct U.S. obligations & GSE residential mortgage-backed securities |
— | 772,098 | — | — | — | — | 772,098 | |||||||||||||||||||||
|
Private label residential mortgage-backed securities |
12,396 | — | 151 | 5,563 | 4,145 | 3,892 | 26,147 | |||||||||||||||||||||
|
Mutual funds (3) |
— | — | — | — | 32,323 | — | 32,323 | |||||||||||||||||||||
|
U.S. Government-sponsored agency securities |
— | 27,377 | — | — | — | — | 27,377 | |||||||||||||||||||||
|
Adjustable-rate preferred stock |
— | — | — | — | 45,970 | 13,371 | 59,341 | |||||||||||||||||||||
|
Trust preferred securities |
— | — | — | — | 23,834 | — | 23,834 | |||||||||||||||||||||
|
Collateralized debt obligations |
— | — | — | — | — | 50 | 50 | |||||||||||||||||||||
|
Corporate bonds |
— | — | 2,697 | 40,105 | 54,976 | — | 97,778 | |||||||||||||||||||||
|
Collarteralized mortgage-backed securities |
5,493 | — | — | — | — | — | 5,493 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Total (1) (2) |
$ | 25,895 | $ | 799,475 | $ | 132,997 | $ | 195,145 | $ | 168,571 | $ | 17,583 | $ | 1,339,666 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| (1) | The Company used the average credit rating of the combination of S&P, Moody’s and Fitch in the above table where ratings differed. |
| (2) | Securities values are shown at carrying value as of September 30, 2013. Unrated securities consist of CRA investments with a carrying value of $23.3 million, ARPS with a carrying value of $2.0 million and an other investment of $1.6 million. |
| (3) | At least 80% of mutual funds are investment grade corporate bonds. |
21
The following table summarizes the Company’s investment ratings position as of December 31, 2012:
| As of December 31, 2012 | ||||||||||||||||||||||||||||
| AAA |
Split-rated
AAA/AA+ |
AA+ to AA- | A+ to A- | BBB+ to BBB- | BB+ and below | Totals | ||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||
|
Municipal obligations |
$ | 8,120 | $ | — | $ | 149,352 | $ | 92,401 | $ | 14,922 | $ | 278 | $ | 265,073 | ||||||||||||||
|
Direct U.S. obligations & GSE residential mortgage-backed securities |
— | 668,265 | — | — | — | — | 668,265 | |||||||||||||||||||||
|
Private label residential mortgage-backed securities |
15,219 | — | 1,649 | 6,069 | 5,249 | 7,421 | 35,607 | |||||||||||||||||||||
|
Private label commercial mortgage-backed securities |
5,741 | — | — | — | — | — | 5,741 | |||||||||||||||||||||
|
Mutual funds (3) |
— | — | — | — | 37,961 | — | 37,961 | |||||||||||||||||||||
|
U.S. Government-sponsored agency securities |
— | — | — | — | — | — | — | |||||||||||||||||||||
|
Adjustable-rate preferred stock |
— | — | 826 | — | 60,807 | 10,838 | 72,471 | |||||||||||||||||||||
|
Trust preferred securities |
— | — | — | — | 24,135 | — | 24,135 | |||||||||||||||||||||
|
Collateralized debt obligations |
— | — | — | — | — | 50 | 50 | |||||||||||||||||||||
|
Corporate bonds |
— | — | 2,696 | 40,116 | 54,969 | — | 97,781 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Total (1) (2) |
$ | 29,080 | $ | 668,265 | $ | 154,523 | $ | 138,586 | $ | 198,043 | $ | 18,587 | $ | 1,207,084 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| (1) | The Company used the average credit rating of the combination of S&P, Moody’s and Fitch in the above table where ratings differed. |
| (2) | Securities values are shown at carrying value as of December 31, 2012. Unrated securities consist of CRA investments with a carrying value of $24.2 million, one ARPS security with a carrying value of $3.1 million and an other investment of $1.6 million. |
| (3) | At least 80% of mutual funds are investment grade corporate bonds. |
Securities with carrying amounts of approximately $638.5 million and $711.7 million at September 30, 2013 and December 31, 2012, respectively, were pledged for various purposes as required or permitted by law.
The following table presents gross gains and (losses) on sales of investment securities:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| (in thousands) | ||||||||||||||||
|
Gross gains |
$ | 602 | $ | 1,073 | $ | 870 | $ | 2,786 | ||||||||
|
Gross (losses) |
(2,281 | ) | (42 | ) | (2,407 | ) | (284 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | (1,679 | ) | $ | 1,031 | $ | (1,537 | ) | $ | 2,502 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
4. LOANS, LEASES AND ALLOWANCE FOR CREDIT LOSSES
The composition of the Company’s loans held for investment portfolio is as follows:
| September 30, | December 31, | |||||||
| 2013 | 2012 | |||||||
| (in thousands) | ||||||||
|
Commercial and industrial |
$ | 1,990,568 | $ | 1,659,003 | ||||
|
Commercial real estate—non-owner occupied |
1,864,333 | 1,505,600 | ||||||
|
Commercial real estate—owner occupied |
1,551,187 | 1,396,797 | ||||||
|
Construction and land development |
459,764 | 394,319 | ||||||
|
Residential real estate |
358,962 | 407,937 | ||||||
|
Commercial leases |
244,312 | 288,747 | ||||||
|
Consumer |
29,850 | 31,836 | ||||||
|
Deferred fees and unearned income, net |
(8,106 | ) | (6,045 | ) | ||||
|
|
|
|
|
|||||
| 6,490,870 | 5,678,194 | |||||||
|
Allowance for credit losses |
(97,851 | ) | (95,427 | ) | ||||
|
|
|
|
|
|||||
|
Total |
$ | 6,393,019 | $ | 5,582,767 | ||||
|
|
|
|
|
|||||
22
The following table presents the contractual aging of the recorded investment in past due loans by class of loans including loans held for sale and excluding deferred fees:
| September 30, 2013 | ||||||||||||||||||||||||
| Current |
30-59 Days
Past Due |
60-89 Days
Past Due |
Over 90 days
Past Due |
Total
Past Due |
Total | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
Commercial real estate |
||||||||||||||||||||||||
|
Owner occupied |
$ | 1,538,589 | $ | 2,123 | $ | — | $ | 10,475 | $ | 12,598 | $ | 1,551,187 | ||||||||||||
|
Non-owner occupied |
1,629,045 | 1,475 | 12,607 | 7,294 | 21,376 | 1,650,421 | ||||||||||||||||||
|
Multi-family |
213,912 | — | — | — | — | 213,912 | ||||||||||||||||||
|
Commercial and industrial |
||||||||||||||||||||||||
|
Commercial |
1,986,782 | 1,094 | 817 | 1,875 | 3,786 | 1,990,568 | ||||||||||||||||||
|
Leases |
243,959 | — | — | 353 | 353 | 244,312 | ||||||||||||||||||
|
Construction and land development |
||||||||||||||||||||||||
|
Construction |
264,145 | — | — | — | — | 264,145 | ||||||||||||||||||
|
Land |
194,218 | 56 | — | 1,345 | 1,401 | 195,619 | ||||||||||||||||||
|
Residential real estate |
342,382 | 560 | 127 | 15,893 | 16,580 | 358,962 | ||||||||||||||||||
|
Consumer |
54,195 | 309 | 248 | 511 | 1,068 | 55,263 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total loans |
$ | 6,467,227 | $ | 5,617 | $ | 13,799 | $ | 37,746 | $ | 57,162 | $ | 6,524,389 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| December 31, 2012 | ||||||||||||||||||||||||
| Current |
30-59 Days
Past Due |
60-89 Days
Past Due |
Over 90 days
Past Due |
Total
Past Due |
Total | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
Commercial real estate |
||||||||||||||||||||||||
|
Owner occupied |
$ | 1,372,550 | $ | 13,153 | $ | 1,757 | $ | 9,337 | $ | 24,247 | $ | 1,396,797 | ||||||||||||
|
Non-owner occupied |
1,327,481 | 917 | 4,416 | 8,573 | 13,906 | 1,341,387 | ||||||||||||||||||
|
Multi-family |
164,213 | — | — | — | — | 164,213 | ||||||||||||||||||
|
Commercial and industrial |
||||||||||||||||||||||||
|
Commercial |
1,654,787 | 3,109 | 121 | 986 | 4,216 | 1,659,003 | ||||||||||||||||||
|
Leases |
287,768 | 515 | — | 464 | 979 | 288,747 | ||||||||||||||||||
|
Construction and land development |
||||||||||||||||||||||||
|
Construction |
215,597 | — | — | — | — | 215,597 | ||||||||||||||||||
|
Land |
171,919 | 826 | 571 | 5,406 | 6,803 | 178,722 | ||||||||||||||||||
|
Residential real estate |
387,641 | 3,525 | 1,837 | 14,934 | 20,296 | 407,937 | ||||||||||||||||||
|
Consumer |
62,271 | 524 | — | 165 | 689 | 62,960 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total loans |
$ | 5,644,227 | $ | 22,569 | $ | 8,702 | $ | 39,865 | $ | 71,136 | $ | 5,715,363 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
23
The following table presents the recorded investment in nonaccrual loans and loans past due ninety days or more and still accruing interest by class of loans:
| September 30, 2013 | December 31, 2012 | |||||||||||||||||||||||||||||||
| Loans past | Loans past | |||||||||||||||||||||||||||||||
| Non-accrual loans | due 90 days | Non-accrual loans | due 90 days | |||||||||||||||||||||||||||||
| Past Due/ | Total | or more and | Past Due/ | Total | or more and | |||||||||||||||||||||||||||
| Current | Delinquent | Non-accrual | still accruing | Current | Delinquent | Non-accrual | still accruing | |||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||
|
Commercial real estate |
||||||||||||||||||||||||||||||||
|
Owner occupied |
$ | 10,222 | $ | 10,391 | $ | 20,613 | $ | 388 | $ | 14,392 | $ | 18,394 | $ | 32,786 | $ | 1,272 | ||||||||||||||||
|
Non-owner occupied |
12,761 | 12,885 | 25,646 | 4,553 | 18,299 | 8,572 | 26,871 | — | ||||||||||||||||||||||||
|
Multi-family |
— | — | — | — | 318 | — | 318 | — | ||||||||||||||||||||||||
|
Commercial and industrial |
||||||||||||||||||||||||||||||||
|
Commercial |
1,909 | 2,092 | 4,001 | 4 | 2,549 | 3,194 | 5,743 | 15 | ||||||||||||||||||||||||
|
Leases |
114 | 353 | 467 | — | — | 979 | 979 | — | ||||||||||||||||||||||||
|
Construction and land development |
||||||||||||||||||||||||||||||||
|
Construction |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Land |
5,241 | 1,401 | 6,642 | — | 4,375 | 6,718 | 11,093 | — | ||||||||||||||||||||||||
|
Residential real estate |
3,350 | 15,894 | 19,244 | — | 11,561 | 15,161 | 26,722 | 101 | ||||||||||||||||||||||||
|
Consumer |
28 | — | 28 | 511 | 39 | 165 | 204 | — | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total |
$ | 33,625 | $ | 43,016 | $ | 76,641 | $ | 5,456 | $ | 51,533 | $ | 53,183 | $ | 104,716 | $ | 1,388 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
The reduction in interest income associated with loans on nonaccrual status was approximately $1.3 million and $3.8 million for the three and nine months ended September 30, 2013, respectively, and $1.3 million and $4.1 million for the three and nine months ended September 30, 2012, respectively.
The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Company’s risk rating system, the Company classifies problem and potential problem loans as “Special Mention,” “Substandard,” “Doubtful,” and “Loss.” Substandard loans include those characterized by well-defined weaknesses and carry the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The final rating of Loss covers loans considered uncollectible and having such little recoverable value that it is not practical to defer writing off the asset. Loans that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that deserve Management’s close attention, are deemed to be Special Mention. Risk ratings are updated, at a minimum, quarterly. The following tables present the recorded investment and delinquency status by class of loans including loans held for sale and excluding deferred fees by risk rating:
| September 30, 2013 | ||||||||||||||||||||||||
| Pass |
Special
Mention |
Substandard | Doubtful | Loss | Total | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
Commercial real estate |
||||||||||||||||||||||||
|
Owner occupied |
$ | 1,465,697 | $ | 35,217 | $ | 49,293 | $ | 980 | $ | — | $ | 1,551,187 | ||||||||||||
|
Non-owner occupied |
1,490,250 | 64,405 | 95,766 | — | — | 1,650,421 | ||||||||||||||||||
|
Multi-family |
206,586 | 5,618 | 1,708 | — | — | 213,912 | ||||||||||||||||||
|
Commercial and industrial |
||||||||||||||||||||||||
|
Commercial |
1,964,491 | 9,661 | 14,904 | 1,512 | — | 1,990,568 | ||||||||||||||||||
|
Leases |
239,002 | 4,843 | 467 | — | — | 244,312 | ||||||||||||||||||
|
Construction and land development |
||||||||||||||||||||||||
|
Construction |
256,037 | 8,108 | — | — | — | 264,145 | ||||||||||||||||||
|
Land |
167,523 | 4,676 | 23,420 | — | — | 195,619 | ||||||||||||||||||
|
Residential real estate |
324,254 | 3,865 | 30,843 | — | — | 358,962 | ||||||||||||||||||
|
Consumer |
53,518 | 853 | 892 | — | — | 55,263 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total |
$ | 6,167,358 | $ | 137,246 | $ | 217,293 | $ | 2,492 | $ | — | $ | 6,524,389 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
24
| September 30, 2013 | ||||||||||||||||||||||||
| Pass |
Special
Mention |
Substandard | Doubtful | Loss | Total | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
Current (up to 29 days past due) |
$ | 6,164,416 | $ | 136,297 | $ | 165,836 | $ | 678 | $ | — | $ | 6,467,227 | ||||||||||||
|
Past due 30—59 days |
2,622 | 378 | 2,617 | — | — | 5,617 | ||||||||||||||||||
|
Past due 60—89 days |
320 | 571 | 12,908 | — | — | 13,799 | ||||||||||||||||||
|
Past due 90 days or more |
— | — | 35,932 | 1,814 | — | 37,746 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total |
$ | 6,167,358 | $ | 137,246 | $ | 217,293 | $ | 2,492 | $ | — | $ | 6,524,389 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| December 31, 2012 | ||||||||||||||||||||||||
| Pass |
Special
Mention |
Substandard | Doubtful | Loss | Total | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
Commercial real estate |
||||||||||||||||||||||||
|
Owner occupied |
$ | 1,280,337 | $ | 50,552 | $ | 65,908 | $ | — | $ | — | $ | 1,396,797 | ||||||||||||
|
Non-owner occupied |
1,257,011 | 21,065 | 63,311 | — | — | 1,341,387 | ||||||||||||||||||
|
Multi-family |
163,895 | — | 318 | — | — | 164,213 | ||||||||||||||||||
|
Commercial and industrial |
||||||||||||||||||||||||
|
Commercial |
1,630,166 | 12,370 | 15,499 | 968 | — | 1,659,003 | ||||||||||||||||||
|
Leases |
282,075 | 5,693 | 979 | — | — | 288,747 | ||||||||||||||||||
|
Construction and land development |
||||||||||||||||||||||||
|
Construction |
215,395 | 202 | — | — | — | 215,597 | ||||||||||||||||||
|
Land |
141,436 | 5,641 | 31,645 | — | — | 178,722 | ||||||||||||||||||
|
Residential real estate |
365,042 | 7,559 | 32,446 | 2,890 | — | 407,937 | ||||||||||||||||||
|
Consumer |
61,469 | 469 | 1,022 | — | — | 62,960 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total |
$ | 5,396,826 | $ | 103,551 | $ | 211,128 | $ | 3,858 | $ | — | $ | 5,715,363 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| December 31, 2012 | ||||||||||||||||||||||||
| Pass |
Special
Mention |
Substandard | Doubtful | Loss | Total | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
Current (up to 29 days past due) |
$ | 5,387,543 | $ | 100,549 | $ | 152,827 | $ | 3,308 | $ | — | $ | 5,644,227 | ||||||||||||
|
Past due 30—59 days |
4,410 | 1,310 | 16,849 | — | — | 22,569 | ||||||||||||||||||
|
Past due 60—89 days |
4,450 | 1,692 | 2,560 | — | — | 8,702 | ||||||||||||||||||
|
Past due 90 days or more |
423 | — | 38,892 | 550 | — | 39,865 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total |
$ | 5,396,826 | $ | 103,551 | $ | 211,128 | $ | 3,858 | $ | — | $ | 5,715,363 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The table below reflects recorded investment in loans classified as impaired:
| September 30, | December 31, | |||||||
| 2013 | 2012 | |||||||
| (in thousands) | ||||||||
|
Impaired loans with a specific valuation allowance under ASC 310 |
$ | 20,717 | $ | 51,538 | ||||
|
Impaired loans without a specific valuation allowance under ASC 310 |
153,514 | 146,617 | ||||||
|
|
|
|
|
|||||
|
Total impaired loans |
$ | 174,231 | $ | 198,155 | ||||
|
|
|
|
|
|||||
|
Valuation allowance related to impaired loans |
$ | (5,909 | ) | $ | (12,866 | ) | ||
|
|
|
|
|
|||||
25
The following table presents the impaired loans by class:
| September 30, | December 31, | |||||||
| 2013 | 2012 | |||||||
| (in thousands) | ||||||||
|
Commercial real estate |
||||||||
|
Owner occupied |
$ | 45,516 | $ | 58,074 | ||||
|
Non-owner occupied |
54,052 | 52,146 | ||||||
|
Multi-family |
— | 318 | ||||||
|
Commercial and industrial |
||||||||
|
Commercial |
14,106 | 15,531 | ||||||
|
Leases |
467 | 979 | ||||||
|
Construction and land development |
||||||||
|
Construction |
— | — | ||||||
|
Land |
26,748 | 32,492 | ||||||
|
Residential real estate |
32,811 | 37,851 | ||||||
|
Consumer |
531 | 764 | ||||||
|
|
|
|
|
|||||
|
Total |
$ | 174,231 | $ | 198,155 | ||||
|
|
|
|
|
|||||
An allowance for credit loss is established for an impaired loan when the fair value of the loan is less than the recorded investment. In certain cases, portions of impaired loans are charged-off to realizable value instead of establishing a valuation allowance and, are included, when applicable in the table above as “Impaired loans without specific valuation allowance under ASC 310.” The valuation allowance disclosed above is included in the allowance for credit losses reported in the Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012.
The following table presents average investment in impaired loans by loan class:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| (in thousands) | ||||||||||||||||
|
Commercial real estate |
||||||||||||||||
|
Owner occupied |
$ | 46,108 | $ | 61,223 | $ | 52,030 | $ | 55,881 | ||||||||
|
Non-owner occupied |
54,211 | 60,207 | 54,553 | 57,433 | ||||||||||||
|
Multi-family |
— | 882 | 118 | 983 | ||||||||||||
|
Commercial and industrial |
||||||||||||||||
|
Commercial |
13,786 | 25,616 | 14,558 | 26,097 | ||||||||||||
|
Leases |
565 | 1,030 | 817 | 839 | ||||||||||||
|
Construction and land development |
||||||||||||||||
|
Construction |
— | — | — | 1,315 | ||||||||||||
|
Land |
27,418 | 35,215 | 28,268 | 37,440 | ||||||||||||
|
Residential real estate |
34,616 | 37,814 | 34,972 | 34,567 | ||||||||||||
|
Consumer |
564 | 794 | 629 | 1,256 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 177,268 | $ | 222,781 | $ | 185,945 | $ | 215,811 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
26
The following table presents interest income on impaired loans by class:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| (in thousands) | ||||||||||||||||
|
Commercial real estate |
||||||||||||||||
|
Owner occupied |
$ | 426 | $ | 841 | $ | 1,182 | $ | 1,696 | ||||||||
|
Non-owner occupied |
458 | 649 | 1,283 | 1,661 | ||||||||||||
|
Multi-family |
— | — | — | — | ||||||||||||
|
Commercial and industrial |
||||||||||||||||
|
Commercial |
185 | 406 | 454 | 920 | ||||||||||||
|
Leases |
— | — | — | — | ||||||||||||
|
Construction and land development |
||||||||||||||||
|
Construction |
— | — | — | — | ||||||||||||
|
Land |
328 | 171 | 874 | 867 | ||||||||||||
|
Residential real estate |
21 | 78 | 45 | 199 | ||||||||||||
|
Consumer |
7 | 13 | 22 | 31 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 1,425 | $ | 2,158 | $ | 3,860 | $ | 5,374 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The Company is not committed to lend significant additional funds on these impaired loans.
The following table summarizes nonperforming assets:
| September 30, | December 31, | |||||||
| 2013 | 2012 | |||||||
| (in thousands) | ||||||||
|
Nonaccrual loans |
$ | 76,641 | $ | 104,716 | ||||
|
Loans past due 90 days or more on accrual status |
5,456 | 1,388 | ||||||
|
Troubled debt restructured loans |
87,387 | 84,609 | ||||||
|
|
|
|
|
|||||
|
Total nonperforming loans |
169,484 | 190,713 | ||||||
|
Other assets acquired through foreclosure, net |
76,475 | 77,247 | ||||||
|
|
|
|
|
|||||
|
Total nonperforming assets |
$ | 245,959 | $ | 267,960 | ||||
|
|
|
|
|
|||||
Loans Acquired with Deteriorated Credit Quality
The following table presents information regarding the contractually required payments receivable, cash flows expected to be collected and the estimated fair value of loans acquired in the Centennial acquisition, as of April 30, 2013, the closing date of the transaction:
| April 30, 2013 | ||||||||||||
| Commercial | Residential | |||||||||||
| Real Estate | Real Estate | Total | ||||||||||
| (in thousands) | ||||||||||||
|
Contractually required payments: |
||||||||||||
|
Loans with credit deterioration since origination |
$ | 253,419 | $ | — | $ | 253,419 | ||||||
|
Purchased non-credit impaired loans |
368,040 | 2,136 | 370,176 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total loans acquired |
$ | 621,459 | $ | 2,136 | $ | 623,595 | ||||||
|
|
|
|
|
|
|
|||||||
|
Cash flows expected to be collected: |
||||||||||||
|
Loans with credit deterioration since origination |
$ | 145,346 | $ | — | $ | 145,346 | ||||||
|
Purchased non-credit impaired loans |
304,818 | 1,352 | 306,170 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total loans acquired |
$ | 450,164 | $ | 1,352 | $ | 451,516 | ||||||
|
|
|
|
|
|
|
|||||||
|
Fair value of loans acquired: |
||||||||||||
|
Loans with credit deterioration since origination |
$ | 108,863 | $ | — | $ | 108,863 | ||||||
|
Purchased non-credit impaired loans |
241,541 | 1,070 | 242,611 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total loans acquired |
$ | 350,404 | $ | 1,070 | $ | 351,474 | ||||||
|
|
|
|
|
|
|
|||||||
27
Changes in the accretable yield for loans acquired with deteriorated credit quality are as follows:
| September 30, 2013 | ||||||||
|
Three Months
Ended |
Nine Months
Ended |
|||||||
| (in thousands) | ||||||||
|
Balance, at beginning of period |
$ | 26,073 | $ | 7,072 | ||||
|
Addition due to acquisition |
— | 22,318 | ||||||
|
Reclassification from nonaccretable difference |
4,804 | 5,851 | ||||||
|
Accretion to interest income |
(2,044 | ) | (6,408 | ) | ||||
|
|
|
|
|
|||||
|
Balance, at end of period |
$ | 28,833 | $ | 28,833 | ||||
|
|
|
|
|
|||||
The addition during the nine months ended September 30, 2013 reflected in the above table relate to the acquisition of Centennial. The primary drivers of reclassification from nonaccretable to accretable yield resulted from changes in estimated cash flows.
Allowance for Credit Losses
The following table summarizes the changes in the allowance for credit losses by portfolio type:
| For the Three Months Ended September 30, | ||||||||||||||||||||||||
| Construction and | Commercial | Residential | Commercial | |||||||||||||||||||||
| Land Development | Real Estate | Real Estate | and Industrial | Consumer | Total | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
2013 |
||||||||||||||||||||||||
|
Beginning Balance |
$ | 9,614 | $ | 34,583 | $ | 13,847 | $ | 37,383 | $ | 896 | $ | 96,323 | ||||||||||||
|
Charge-offs |
— | (864 | ) | (1,138 | ) | (544 | ) | (712 | ) | (3,258 | ) | |||||||||||||
|
Recoveries |
966 | 422 | 430 | 2,242 | 726 | 4,786 | ||||||||||||||||||
|
Provision |
(533 | ) | (278 | ) | (247 | ) | 354 | 704 | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Ending balance |
$ | 10,047 | $ | 33,863 | $ | 12,892 | $ | 39,435 | $ | 1,614 | $ | 97,851 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
2012 |
||||||||||||||||||||||||
|
Beginning Balance |
$ | 13,378 | $ | 36,733 | $ | 16,957 | $ | 26,132 | $ | 4,312 | $ | 97,512 | ||||||||||||
|
Charge-offs |
(2,315 | ) | (1,470 | ) | (2,242 | ) | (4,100 | ) | (799 | ) | (10,926 | ) | ||||||||||||
|
Recoveries |
567 | 633 | 153 | 501 | 38 | 1,892 | ||||||||||||||||||
|
Provision |
18 | 2,324 | (82 | ) | 5,611 | 1,061 | 8,932 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Ending balance |
$ | 11,648 | $ | 38,220 | $ | 14,786 | $ | 28,144 | $ | 4,612 | $ | 97,410 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| For the Nine Months Ended September 30, | ||||||||||||||||||||||||
|
Construction and
Land Development |
Commercial
Real Estate |
Residential
Real Estate |
Commercial
and Industrial |
Consumer | Total | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
2013 |
||||||||||||||||||||||||
|
Beginning Balance |
$ | 10,554 | $ | 34,982 | $ | 15,237 | $ | 32,860 | $ | 1,794 | $ | 95,427 | ||||||||||||
|
Charge-offs |
(852 | ) | (6,142 | ) | (5,641 | ) | (3,379 | ) | (1,005 | ) | (17,019 | ) | ||||||||||||
|
Recoveries |
1,787 | 1,997 | 1,548 | 4,440 | 751 | 10,523 | ||||||||||||||||||
|
Provision |
(1,442 | ) | 3,026 | 1,748 | 5,514 | 74 | 8,920 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Ending balance |
$ | 10,047 | $ | 33,863 | $ | 12,892 | $ | 39,435 | $ | 1,614 | $ | 97,851 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
2012 |
||||||||||||||||||||||||
|
Beginning Balance |
$ | 14,195 | $ | 35,031 | $ | 19,134 | $ | 25,535 | $ | 5,275 | $ | 99,170 | ||||||||||||
|
Charge-offs |
(10,587 | ) | (12,023 | ) | (5,756 | ) | (12,687 | ) | (3,571 | ) | (44,624 | ) | ||||||||||||
|
Recoveries |
870 | 2,897 | 765 | 2,695 | 294 | 7,521 | ||||||||||||||||||
|
Provision |
7,170 | 12,315 | 643 | 12,601 | 2,614 | 35,343 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Ending balance |
$ | 11,648 | $ | 38,220 | $ | 14,786 | $ | 28,144 | $ | 4,612 | $ | 97,410 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
28
The following table presents impairment method information related to loans and allowance for credit losses by loan portfolio segment:
| Commercial | Commercial | |||||||||||||||||||||||||||||||
| Real Estate- | Real Estate- | Commercial | Residential | Construction | ||||||||||||||||||||||||||||
| Owner | Non-Owner | and | Real | and Land | Commercial | Total | ||||||||||||||||||||||||||
| Occupied | Occupied | Industrial | Estate | Development | Leases | Consumer | Loans | |||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||
|
Loans Held for Investment as of September 30, 2013: |
||||||||||||||||||||||||||||||||
|
Recorded Investment: |
||||||||||||||||||||||||||||||||
|
Impaired loans with an allowance recorded |
$ | 2,440 | $ | 7,654 | $ | 2,285 | $ | 6,018 | $ | 2,178 | $ | 114 | $ | 28 | $ | 20,717 | ||||||||||||||||
|
Impaired loans with no allowance recorded |
43,076 | 46,398 | 11,821 | 26,793 | 24,570 | 353 | 503 | 153,514 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total loans individually evaluated for impairment |
45,516 | 54,052 | 14,106 | 32,811 | 26,748 | 467 | 531 | 174,231 | ||||||||||||||||||||||||
|
Loans collectively evaluated for impairment |
1,482,207 | 1,709,255 | 1,976,080 | 323,942 | 432,521 | 243,845 | 29,319 | 6,197,169 | ||||||||||||||||||||||||
|
Loans acquired with deteriorated credit quality |
23,464 | 101,026 | 382 | 2,209 | 495 | — | — | 127,576 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total loans held for investment |
$ | 1,551,187 | $ | 1,864,333 | $ | 1,990,568 | $ | 358,962 | $ | 459,764 | $ | 244,312 | $ | 29,850 | $ | 6,498,976 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Unpaid Principal Balance |
||||||||||||||||||||||||||||||||
|
Impaired loans with an allowance recorded |
$ | 2,933 | $ | 8,169 | $ | 2,498 | $ | 6,082 | $ | 2,178 | $ | 114 | $ | 28 | 22,002 | |||||||||||||||||
|
Impaired loans with no allowance recorded |
49,720 | 48,656 | 12,325 | 33,706 | 25,223 | 505 | 515 | 170,650 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total loans individually evaluated for impairment |
52,653 | 56,825 | 14,823 | 39,788 | 27,401 | 619 | 543 | 192,652 | ||||||||||||||||||||||||
|
Loans collectively evaluated for impairment |
1,482,207 | 1,709,255 | 1,976,080 | 323,942 | 432,521 | 243,845 | 29,319 | 6,197,169 | ||||||||||||||||||||||||
|
Loans acquired with deteriorated credit quality |
33,112 | 145,235 | 1,513 | 3,750 | 827 | — | — | 184,437 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total loans held for investment |
$ | 1,567,972 | $ | 1,911,315 | $ | 1,992,416 | $ | 367,480 | $ | 460,749 | $ | 244,464 | $ | 29,862 | $ | 6,574,258 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Related Allowance for Credit Losses |
||||||||||||||||||||||||||||||||
|
Impaired loans with an allowance recorded |
$ | 580 | $ | 810 | $ | 1,004 | $ | 2,594 | $ | 831 | $ | 86 | $ | 4 | 5,909 | |||||||||||||||||
|
Impaired loans with no allowance recorded |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total loans individually evaluated for impairment |
580 | 810 | 1,004 | 2,594 | 831 | 86 | 4 | 5,909 | ||||||||||||||||||||||||
|
Loans collectively evaluated for impairment |
14,255 | 16,845 | 35,482 | 10,298 | 9,216 | 2,863 | 1,610 | 90,569 | ||||||||||||||||||||||||
|
Loans acquired with deteriorated credit quality |
— | 1,373 | — | — | — | — | — | 1,373 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total loans held for investment |
$ | 14,835 | $ | 19,028 | $ | 36,486 | $ | 12,892 | $ | 10,047 | $ | 2,949 | $ | 1,614 | $ | 97,851 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Commercial | Commercial | |||||||||||||||||||||||||||||||
| Real Estate- | Real Estate- | Commercial | Residential | Construction | ||||||||||||||||||||||||||||
| Owner | Non-Owner | and | Real | and Land | Commercial | Total | ||||||||||||||||||||||||||
| Occupied | Occupied | Industrial | Estate | Development | Leases | Consumer | Loans | |||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||
|
Loans Held for Investment as of December 31, 2012: |
||||||||||||||||||||||||||||||||
|
Recorded Investment: |
||||||||||||||||||||||||||||||||
|
Impaired loans with an allowance recorded |
$ | 13,615 | $ | 15,217 | $ | 4,700 | $ | 16,482 | $ | 844 | $ | 515 | $ | 165 | $ | 51,538 | ||||||||||||||||
|
Impaired loans with no allowance recorded |
44,459 | 37,247 | 10,831 | 21,369 | 31,648 | 464 | 599 | 146,617 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total loans individually evaluated for impairment |
58,074 | 52,464 | 15,531 | 37,851 | 32,492 | 979 | 764 | 198,155 | ||||||||||||||||||||||||
|
Loans collectively evaluated for impairment |
1,332,185 | 1,440,214 | 1,642,313 | 368,034 | 361,074 | 287,768 | 31,072 | 5,462,660 | ||||||||||||||||||||||||
|
Loans acquired with deteriorated credit quality |
6,538 | 12,922 | 1,159 | 2,052 | 753 | — | — | 23,424 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total loans held for investment |
$ | 1,396,797 | $ | 1,505,600 | $ | 1,659,003 | $ | 407,937 | $ | 394,319 | $ | 288,747 | $ | 31,836 | $ | 5,684,239 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Unpaid Principal Balance |
||||||||||||||||||||||||||||||||
|
Impaired loans with an allowance recorded |
$ | 13,634 | $ | 18,746 | $ | 9,877 | $ | 17,837 | $ | 848 | $ | 515 | $ | 540 | $ | 61,997 | ||||||||||||||||
|
Impaired loans with no allowance recorded |
54,947 | 43,208 | 11,248 | 27,098 | 35,669 | 464 | 612 | 173,246 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total loans individually evaluated for impairment |
68,581 | 61,954 | 21,125 | 44,935 | 36,517 | 979 | 1,152 | 235,243 | ||||||||||||||||||||||||
|
Loans collectively evaluated for impairment |
1,332,185 | 1,440,214 | 1,642,313 | 368,034 | 361,074 | 287,768 | 31,072 | 5,462,660 | ||||||||||||||||||||||||
|
Loans acquired with deteriorated credit quality |
11,893 | 18,397 | 3,730 | 3,811 | 1,170 | — | — | 39,001 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total loans held for investment |
$ | 1,412,659 | $ | 1,520,565 | $ | 1,667,168 | $ | 416,780 | $ | 398,761 | $ | 288,747 | $ | 32,224 | $ | 5,736,904 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Related Allowance for Credit Losses |
||||||||||||||||||||||||||||||||
|
Impaired loans with an allowance recorded |
$ | 2,815 | $ | 1,602 | $ | 2,314 | $ | 5,448 | $ | 284 | $ | 238 | $ | 165 | $ | 12,866 | ||||||||||||||||
|
Impaired loans with no allowance recorded |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total loans individually evaluated for impairment |
2,815 | 1,602 | 2,314 | 5,448 | 284 | 238 | 165 | 12,866 | ||||||||||||||||||||||||
|
Loans collectively evaluated for impairment |
15,118 | 15,447 | 27,546 | 9,789 | 10,270 | 2,762 | 1,629 | 82,561 | ||||||||||||||||||||||||
|
Loans acquired with deteriorated credit quality |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total loans held for investment |
$ | 17,933 | $ | 17,049 | $ | 29,860 | $ | 15,237 | $ | 10,554 | $ | 3,000 | $ | 1,794 | $ | 95,427 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
As of September 30, 2013, there was $1.4 million of allowance for credit losses on loans acquired with credit deterioration. At December 31, 2012, there was no allowance for credit losses on loans acquired with credit deterioration.
In the first quarter of 2012, the Company modified its allowance for credit losses calculation to exclude cash secured loans. Additionally, for internally participated loans, historical loss factors have been revised as follows. Previously the loss factors utilized were based on those of the bank which held the participation. Under the revised methodology, loss characteristics of the originating bank are utilized by the participating bank for the first four quarters after origination, during which time the loan becomes seasoned. The net effect of these changes compared to the calculation method used at December 31, 2011 was to decrease the provision and allowance for credit losses by approximately $2.6 million. The net effect by portfolio segment was to the decrease provision for credit losses for the commercial real estate, commercial and industrial, consumer and residential real estate portfolios by $1.5 million, $0.8 million, $0.2 million and $41,000, respectively.
29
During the second quarter of 2013, the Company further revised its methodology for calculating the allowance for credit losses. Previously, the Company calculated historical loss factors based on net charge-offs. During the second quarter of 2013, the Company recognized elevated recoveries primarily related to earlier charge-offs stemming from the economic downturn. The Company believes that gross charge-offs is a better representation of the loss characteristics for the current economic environment. This change in methodology resulted in an increase of the allowance for credit losses of $7.2 million for the quarter ended June 30, 2013.
Troubled Debt Restructurings (TDR)
A troubled debt restructured loan is a loan on which the Company, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. The loan terms that have been modified or restructured due to a borrower’s financial situation include, but are not limited to, a reduction in the stated interest rate, an extension of the maturity or renewal of the loan at an interest rate below current market, a reduction in the face amount of the debt, a reduction in the accrued interest, extensions, deferrals, renewals and rewrites. The majority of the Company’s modifications are extensions in terms or deferral of payments which result in no lost principal or interest followed by reductions in interest rates or accrued interest. A troubled debt restructured loan is also considered impaired. Generally, a loan that is modified at an effective market rate of interest may no longer be disclosed as a troubled debt restructuring in years subsequent to the restructuring if it is not impaired based on the terms specified by the restructuring agreement.
The following table presents information on the financial effects of troubled debt restructured loans by class for the periods presented:
| Three Months Ended | ||||||||||||||||||||||||
| September 30, 2013 | ||||||||||||||||||||||||
|
Number
of Loans |
Pre-Modification
Outstanding Recorded Investment |
Forgiven
Principal Balance |
Lost
Interest Income (1) |
Post-Modification
Outstanding Recorded Investment |
Waived Fees
and Other Expenses |
|||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
|
Commercial real estate |
||||||||||||||||||||||||
|
Owner occupied |
— | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
|
Non-owner occupied |
— | — | — | — | — | — | ||||||||||||||||||
|
Multi-family |
— | — | — | — | — | — | ||||||||||||||||||
|
Commercial and industrial |
||||||||||||||||||||||||
|
Commercial |
3 | 1,253 | — | 10 | 1,243 | — | ||||||||||||||||||
|
Leases |
— | — | — | — | — | — | ||||||||||||||||||
|
Construction and land development |
||||||||||||||||||||||||
|
Construction |
— | — | — | — | — | — | ||||||||||||||||||
|
Land |
— | — | — | — | — | — | ||||||||||||||||||
|
Residential real estate |
3 | 2,304 | 267 | 613 | 1,424 | 9 | ||||||||||||||||||
|
Consumer |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total |
6 | $ | 3,557 | $ | 267 | $ | 623 | $ | 2,667 | $ | 9 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| (1) | Lost interest income is processed as a charge-off to loan principal in the Company’s Consolidated Financial Statements. |
30
| Nine Months Ended | ||||||||||||||||||||||||
| September 30, 2013 | ||||||||||||||||||||||||
| Pre-Modification | Forgiven | Lost | Post-Modification | Waived Fees | ||||||||||||||||||||
| Number | Outstanding | Principal | Interest | Outstanding | and Other | |||||||||||||||||||
| of Loans | Recorded Investment | Balance | Income (1) | Recorded Investment | Expenses | |||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
|
Commercial real estate |
||||||||||||||||||||||||
|
Owner occupied |
7 | $ | 3,506 | $ | — | $ | 54 | $ | 3,452 | $ | 28 | |||||||||||||
|
Non-owner occupied |
5 | 10,735 | 1,030 | 63 | 9,642 | 14 | ||||||||||||||||||
|
Multi-family |
— | — | — | — | — | — | ||||||||||||||||||
|
Commercial and industrial |
||||||||||||||||||||||||
|
Commercial |
11 | 3,611 | — | 19 | 3,592 | 11 | ||||||||||||||||||
|
Leases |
— | — | — | — | — | — | ||||||||||||||||||
|
Construction and land development |
||||||||||||||||||||||||
|
Construction |
— | — | — | — | — | — | ||||||||||||||||||
|
Land |
2 | 286 | — | — | 286 | 1 | ||||||||||||||||||
|
Residential real estate |
12 | 5,308 | 267 | 887 | 4,154 | 24 | ||||||||||||||||||
|
Consumer |
2 | 74 | — | 5 | 69 | 3 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total |
39 | $ | 23,520 | $ | 1,297 | $ | 1,028 | $ | 21,195 | $ | 81 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| (1) | Lost interest income is processed as a charge-off to loan principal in the Company’s Consolidated Financial Statements. |
|
Three Months Ended
September 30, 2012 |
||||||||||||||||||||||||
| Pre-Modification | Forgiven | Lost | Post-Modification | Waived Fees | ||||||||||||||||||||
| Number | Outstanding | Principal | Interest | Outstanding | and Other | |||||||||||||||||||
| of Loans | Recorded Investment | Balance | Income (1) | Recorded Investment | Expenses | |||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
|
Commercial real estate |
||||||||||||||||||||||||
|
Owner occupied |
2 | $ | 3,111 | $ | — | $ | 28 | $ | 3,083 | $ | 11 | |||||||||||||
|
Non-owner occupied |
10 | 19,773 | 10 | 194 | 19,569 | 5 | ||||||||||||||||||
|
Multi-family |
— | — | — | — | — | — | ||||||||||||||||||
|
Commercial and industrial |
||||||||||||||||||||||||
|
Commercial |
— | — | — | — | — | — | ||||||||||||||||||
|
Leases |
— | — | — | — | — | — | ||||||||||||||||||
|
Construction and land development |
||||||||||||||||||||||||
|
Construction |
— | — | — | — | — | — | ||||||||||||||||||
|
Land |
1 | 2,581 | — | 26 | 2,555 | — | ||||||||||||||||||
|
Residential real estate |
4 | 4,113 | — | 163 | 3,950 | 1 | ||||||||||||||||||
|
Consumer |
1 | 46 | — | 3 | 43 | 2 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total |
18 | $ | 29,624 | $ | 10 | $ | 414 | $ | 29,200 | $ | 19 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| (1) | Lost interest income is processed as a charge-off to loan principal in the Company’s Consolidated Financial Statements. |
|
Nine Months Ended
September 30, 2012 |
||||||||||||||||||||||||
| Pre-Modification | Forgiven | Lost | Post-Modification | Waived Fees | ||||||||||||||||||||
| Number | Outstanding | Principal | Interest | Outstanding | and Other | |||||||||||||||||||
| of Loans | Recorded Investment | Balance | Income (1) | Recorded Investment | Expenses | |||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
|
Commercial real estate |
||||||||||||||||||||||||
|
Owner occupied |
14 | $ | 21,740 | $ | 750 | $ | 493 | $ | 20,497 | $ | 71 | |||||||||||||
|
Non-owner occupied |
15 | 33,629 | 440 | 321 | 32,868 | 16 | ||||||||||||||||||
|
Multi-family |
— | — | — | — | — | — | ||||||||||||||||||
|
Commercial and industrial |
||||||||||||||||||||||||
|
Commercial |
14 | 7,707 | — | 26 | 7,681 | 37 | ||||||||||||||||||
|
Leases |
— | — | — | — | — | — | ||||||||||||||||||
|
Construction and land development |
||||||||||||||||||||||||
|
Construction |
— | — | — | — | — | — | ||||||||||||||||||
|
Land |
6 | 6,460 | — | 259 | 6,201 | 12 | ||||||||||||||||||
|
Residential real estate |
19 | 10,306 | 40 | 1,148 | 9,118 | 8 | ||||||||||||||||||
|
Consumer |
3 | 114 | — | 3 | 111 | 2 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total |
71 | $ | 79,956 | $ | 1,230 | $ | 2,250 | $ | 76,476 | $ | 146 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| (1) | Lost interest income is processed as a charge-off to loan principal in the Company’s Consolidated Financial Statements. |
31
The following table presents TDR loans by class for which there was a payment default during the period:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||||||||
| Number | Recorded | Number | Recorded | Number | Recorded | Number | Recorded | |||||||||||||||||||||||||
| of Loans | Investment | of Loans | Investment | of Loans | Investment | of Loans | Investment | |||||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||||||||
|
Commercial real estate |
||||||||||||||||||||||||||||||||
|
Owner occupied |
— | $ | — | 5 | $ | 4,263 | 3 | $ | 2,506 | 10 | $ | 10,611 | ||||||||||||||||||||
|
Non-owner occupied |
2 | 1,330 | 1 | 1,049 | 3 | 1,490 | 3 | 4,442 | ||||||||||||||||||||||||
|
Multi-family |
— | — | — | — | — | — | 1 | 193 | ||||||||||||||||||||||||
|
Commercial and industrial |
||||||||||||||||||||||||||||||||
|
Commercial |
1 | 307 | 3 | 1,794 | 3 | 1,089 | 7 | 6,700 | ||||||||||||||||||||||||
|
Leases |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Construction and land development |
||||||||||||||||||||||||||||||||
|
Construction |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Land |
— | — | 1 | 347 | 2 | 330 | 5 | 4,013 | ||||||||||||||||||||||||
|
Residential real estate |
— | — | 3 | 3,823 | 2 | 655 | 5 | 4,143 | ||||||||||||||||||||||||
|
Consumer |
— | — | — | — | — | — | 1 | 375 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total |
3 | $ | 1,637 | 13 | $ | 11,276 | 13 | $ | 6,070 | 32 | $ | 30,477 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
A TDR loan is deemed to have a payment default when it becomes past due 90 days, goes on nonaccrual, or is re-structured again.
At September 30, 2013 and December 31, 2012, loan commitments outstanding on TDR loans were $0 and $0.2 million, respectively.
Loan Purchases and Sales
In the third quarter of 2013, the Company had secondary market loan purchases of $87.3 million, consisting of commercial and industrial loans. In the first nine months of 2013, the Company had secondary market loan purchases of $217.8 million, consisting of $213.4 million of commercial and industrial loans and $4.5 million of commercial real estate loans. In the first nine months of 2012, the Company had secondary market loan purchases of $132.3 million, consisting of $66.1 million of commercial leases, $65.2 million of commercial and industrial loans and $1.0 million of commercial real estate loans. In addition, the Company periodically acquires newly originated loans at closing through participations or loan syndications.
The Company had no significant loan sales in the first nine months of 2013 or 2012. The Company held $25.4 million and $31.1 million of credit card loans classified as held for sale at September 30, 2013 and December 31, 2012, respectively.
5. OTHER ASSETS ACQUIRED THROUGH FORECLOSURE
The following table presents the changes in other assets acquired through foreclosure:
| For the Three Months Ended September 30, | ||||||||||||||||||||||||
| 2013 | 2012 | |||||||||||||||||||||||
| Gross Balance |
Valuation
Allowance |
Net Balance | Gross Balance |
Valuation
Allowance |
Net Balance | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
Balance, beginning of the period |
$ | 102,923 | $ | (26,424 | ) | $ | 76,499 | $ | 120,391 | $ | (43,397 | ) | $ | 76,994 | ||||||||||
|
Transfers to other assets acquired through foreclosure, net |
2,737 | — | 2,737 | 10,807 | — | 10,807 | ||||||||||||||||||
|
Proceeds from sale of other real estate owned and repossessed assets, net |
(3,411 | ) | 1,055 | (2,356 | ) | (13,733 | ) | 4,335 | (9,398 | ) | ||||||||||||||
|
Valuation adjustments, net |
— | (697 | ) | (697 | ) | — | (781 | ) | (781 | ) | ||||||||||||||
|
Gains (losses), net (1) |
292 | — | 292 | 611 | — | 611 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Balance, end of period |
$ | 102,541 | $ | (26,066 | ) | $ | 76,475 | $ | 118,076 | $ | (39,843 | ) | $ | 78,233 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| (1) |
Included in gains (losses), net are gains related to transfers to other assets of $62 thousand during the quarter ended September 30, 2013 and $249 thousand during the quarter ended September 30, 2012 pursuant to accounting guidance. |
32
| For the Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2013 | 2012 | |||||||||||||||||||||||
| Gross Balance |
Valuation
Allowance |
Net Balance | Gross Balance |
Valuation
Allowance |
Net Balance | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
Balance, beginning of the period |
$ | 113,474 | $ | (36,227 | ) | $ | 77,247 | $ | 135,148 | $ | (46,044 | ) | $ | 89,104 | ||||||||||
|
Transfers to other assets acquired through foreclosure, net |
14,010 | — | 14,010 | 19,522 | — | 19,522 | ||||||||||||||||||
|
Additions from acquisition of Centennial |
5,622 | — | 5,622 | — | — | — | ||||||||||||||||||
|
Proceeds from sale of other real estate owned and repossessed assets, net |
(32,953 | ) | 12,440 | (20,513 | ) | (36,911 | ) | 10,261 | (26,650 | ) | ||||||||||||||
|
Valuation adjustments, net |
— | (2,279 | ) | (2,279 | ) | — | (4,060 | ) | (4,060 | ) | ||||||||||||||
|
Gains (losses), net (1) |
2,388 | — | 2,388 | 317 | — | 317 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Balance, end of period |
$ | 102,541 | $ | (26,066 | ) | $ | 76,475 | $ | 118,076 | $ | (39,843 | ) | $ | 78,233 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| (1) |
Included in gains (losses), net are gains related to transfers to other assets of $407 thousand during the nine month period ended September 30, 2013 and $291 thousand during the nine month period ended September 30, 2012 pursuant to accounting guidance. |
At September 30, 2013 and 2012, the majority of the Company’s repossessed assets were properties located in Nevada.
6. OTHER BORROWINGS AND OTHER LIABILITIES
The following table summarizes the Company’s borrowings as of September 30, 2013 and December 31, 2012:
| September 30, | December 31, | |||||||
| 2013 | 2012 | |||||||
| (in thousands) | ||||||||
|
Short Term: |
||||||||
|
Federal funds purchased |
$ | 13,285 | $ | — | ||||
|
Revolving line of credit |
32,500 | — | ||||||
|
FHLB advances |
— | 120,000 | ||||||
|
|
|
|
|
|||||
|
Total short term debt |
$ | 45,785 | $ | 120,000 | ||||
|
|
|
|
|
|||||
|
Long Term: |
||||||||
|
FHLB advances |
$ | 274,277 | $ | — | ||||
|
Other long term debt |
74,043 | 73,717 | ||||||
|
|
|
|
|
|||||
| $ | 348,320 | $ | 73,717 | |||||
|
|
|
|
|
|||||
Federal funds purchased consist of unsecured advances of excess balances in reserve accounts held at the Federal Reserve Bank (“FRB”) provided by third parties. During the third quarter of 2013, the Company purchased federal funds to enhance efficiency. As of September 30, 2013, federal funds purchased totaled $13.3 million.
At September 30, 2013, the Company had revolving lines of credit with other institutions, with outstanding advances totaling $32.5 million. The interest rates on these advances range from 1.75% to 4.70% and have a weighted average interest rate of 2.43%.
The Company maintains lines of credit with the FHLB and FRB. The Company’s borrowing capacity is determined based on collateral pledged, generally consisting of investment securities and loans, at the time of the borrowing. The Company also maintains credit lines with other sources secured by pledged securities. As of September 30, 2013, the Company had no short-term FHLB or FRB advances.
In 2010, the Company completed a public offering of $75.0 million, at a discount, in principal Senior Notes due in 2015, bearing interest of 10%. In the first quarter of 2013, the Company executed a long-term FHLB advance for $200.0 million, bearing interest of 1.04%, due January 2, 2018. As part of the Centennial acquisition, the Company acquired long-term FHLB advances of $77.2 million, of which, $5.0 million was repaid during the second quarter 2013. These advances were purchased at a premium of $2.5 million, with interest rates ranging from 1.56% to 3.05% and a weighted average interest rate of 2.67%. The weighted average cost on all long-term debt was 3.30% for the three and nine months ended September 30, 2013, and 10.80% and 10.81% for the three and nine months ended September 30, 2012, respectively.
As of September 30, 2013 and December 31, 2012, the Company had additional available credit with the FHLB of approximately $1.05 billion and $952.8 million, respectively, and with the FRB of approximately $598.3 million and $600.6 million, respectively.
33
During the first three quarters of 2013, the Company entered into a Treasury short transaction to mitigate the Company’s modest liability sensitive interest rate risk profile. The Company sold short fixed-rate Treasury securities and invested the proceeds in a short-term repurchase agreement with a balance of $126.7 million as of September 30, 2013.
7. COMMITMENTS AND CONTINGENCIES
Unfunded Commitments and Letters of Credit
The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. They involve, to varying degrees, elements of credit risk in excess of amounts recognized in the Consolidated Balance Sheets.
Lines of credit are obligations to lend money to a borrower. Credit risk arises when the borrower’s current financial condition may indicate less ability to pay than when the commitment was originally made. In the case of standby letters of credit, the risk arises from the possibility of the failure of the customer to perform according to the terms of a contract. In such a situation, the third party might draw on the standby letter of credit to pay for completion of the contract and the Company would look to its customer to repay these funds with interest. To minimize the risk, the Company uses the same credit policies in making commitments and conditional obligations as it would for a loan to that customer.
Standby letters of credit and financial guarantees are commitments issued by the Company to guarantee the performance of a customer to a third party in borrowing arrangements. The Company generally has recourse to recover from the customer any amounts paid under the guarantees. Typically, letters of credit issued have expiration dates within one year.
A summary of the contractual amounts for unfunded commitments and letters of credit are as follows:
| September 30 | December 31, | |||||||
| 2013 | 2012 | |||||||
| (in thousands) | ||||||||
|
Commitments to extend credit, including unsecured loan commitments of $266,189 at September 30, 2013 and $172,002 at December 31, 2012 |
$ | 1,692,150 | $ | 1,096,264 | ||||
|
Credit card commitments and financial guarantees |
287,186 | 295,506 | ||||||
|
Standby letters of credit, including unsecured letters of credit of $4,032 at September 30, 2013 and $3,915 at December 31, 2012 |
28,105 | 32,757 | ||||||
|
|
|
|
|
|||||
|
Total |
$ | 2,007,441 | $ | 1,424,527 | ||||
|
|
|
|
|
|||||
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. The Company enters into credit arrangements that generally provide for the termination of advances in the event of a covenant violation or other event of default. 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 customer’s 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 Management’s credit evaluation of the party. The commitments are collateralized by the same types of assets used as loan collateral. The unfunded commitments on the credit cards loans held for sale at September 30, 2013 and December 31, 2012 was $2.8 million and $262.6 million, respectively.
The Company has exposure to credit losses from unfunded commitments and letters of credit. As funds have not been disbursed on these commitments, they are not reported as loans outstanding. Credit losses related to these commitments are not included in the allowance for credit losses reported in Note 4, “Loans, Leases and Allowance for Credit Losses” of these Consolidated Financial Statements and are accounted for as a separate loss contingency as a liability. This loss contingency for unfunded loan commitments and letters of credit was $2.0 million and $1.3 million as of September 30, 2013 and December 31, 2012, respectively. Changes to this liability are adjusted through other non-interest expense.
Concentrations of Lending Activities
The Company’s lending activities are primarily driven by the customers served in the market areas where the Company has branch offices in the states of Nevada, California and Arizona. The Company monitors concentrations within five broad categories: geography, industry, product, call code, and collateral. The Company grants commercial, construction, real estate and consumer loans to customers through branch offices located in the Company’s primary markets. The Company’s business is concentrated in these areas and the loan portfolio includes significant credit exposure to the commercial real estate market of these areas. As of September 30, 2013 and December 31, 2012, commercial real estate related loans accounted for approximately 59% and 58% of total loans, respectively, and approximately 1% and 3% of these loans are secured by undeveloped land, respectively. Substantially all of these loans are secured by first liens with an initial loan to value ratio of generally not more than 75%. Approximately 40% and 48% of these commercial real estate loans, excluding construction and land loans, were owner occupied at September 30, 2013 and December 31, 2012, respectively. In addition, approximately 3% and 4% of total loans were unsecured as of September 30, 2013 and December 31, 2012, respectively.
34
Contingencies
The Company is involved in various lawsuits of a routine nature that are being handled and defended in the ordinary course of the Company’s business. Expenses are being incurred in connection with defending the Company, but in the opinion of Management, based in part on consultation with legal counsel, the resolution of these lawsuits and associated defense costs will not have a material impact on the Company’s financial position, results of operations, or cash flows.
Lease Commitments
The Company leases the majority of its office locations and many of these leases contain multiple renewal options and provisions for increased rents. Total rent expense of $1.8 million and $1.5 million was included in occupancy expenses for the three months ended September 30, 2013 and 2012, respectively. For the nine months ended September 30, 2013 and 2012, total rent expense included in occupancy expenses was $5.5 million and $4.4 million, respectively.
8. STOCKHOLDERS’ EQUITY
Stock-based Compensation
For the three and nine months ended September 30, 2013, 17,600 and 537,125 shares of restricted stock were granted to Company employees, respectively. The Company estimates the compensation cost for restricted stock grants based upon the grant date fair value. Generally, these restricted stock grants have a three year vesting period. The aggregate grant date fair value for the restricted stock issued in the three and nine month periods ended September 30, 2013 was $0.3 million and $6.7 million, respectively. In addition, the Company granted 56,311 shares during the nine months ended September 30, 2013 to non-employee WAL and subsidiary directors that vested immediately. There were no grants to non-employee WAL and subsidiary directors during the three months ended September 30, 2013.
There were 1,255,640 and 1,469,285 restricted shares outstanding at September 30, 2013 and December 31, 2012, respectively. For the three and nine months ended September 30, 2013, the Company recognized stock-based compensation related to restricted stock grants of $1.3 million and $2.8 million, respectively, compared to $1.1 million and $3.4 million, respectively, for the three and nine months ended September 30, 2012.
As of September 30, 2013 and 2012, there were 1.2 million and 1.7 million, respectively, of stock options outstanding.
9. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table summarizes the changes in accumulated other comprehensive income by component, net of tax for the period indicated:
| Three Months Ended September 30, | ||||||||||||||||||||||||
| 2013 | 2012 | |||||||||||||||||||||||
|
Unrealized
holding gains (losses) on AFS |
Unrealized gain
on cash flow hedge |
Total |
Unrealized
holding gains (losses) on AFS |
Unrealized gain
on cash flow hedge |
Total | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
Beginning balance |
$ | (10,780 | ) | $ | 30 | $ | (10,750 | ) | $ | 4,283 | $ | 8 | $ | 4,291 | ||||||||||
|
Other comprehensive income before reclassifications |
(4,770 | ) | (30 | ) | (4,800 | ) | 8,478 | 9 | 8,487 | |||||||||||||||
|
Amounts reclassified from accumulated other comprehensive income |
1,046 | — | 1,046 | (668 | ) | — | (668 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net current-period other comprehensive income |
(3,724 | ) | (30 | ) | (3,754 | ) | 7,810 | 9 | 7,819 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Ending balance |
$ | (14,504 | ) | $ | — | $ | (14,504 | ) | $ | 12,093 | $ | 17 | $ | 12,110 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
35
| Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2013 | 2012 | |||||||||||||||||||||||
| Unrealized | Unrealized gain | Unrealized | Unrealized gain | |||||||||||||||||||||
| holding gains | on cash flow | holding gains | on cash flow | |||||||||||||||||||||
| (losses) on AFS | hedge | Total | (losses) on AFS | hedge | Total | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
Beginning balance |
$ | 8,209 | $ | 17 | $ | 8,226 | $ | (5,112 | ) | $ | 519 | $ | (4,593 | ) | ||||||||||
|
Other comprehensive income before reclassifications |
(23,670 | ) | (17 | ) | (23,687 | ) | 18,803 | 17 | 18,820 | |||||||||||||||
|
Amounts reclassified from accumulated other comprehensive income |
957 | — | 957 | (1,598 | ) | (519 | ) | (2,117 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net current-period other comprehensive income |
(22,713 | ) | (17 | ) | (22,730 | ) | 17,205 | (502 | ) | 16,703 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Ending balance |
$ | (14,504 | ) | $ | — | $ | (14,504 | ) | $ | 12,093 | $ | 17 | $ | 12,110 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The following table presents reclassifications out of accumulated other comprehensive income:
| Amount reclassified from accumulated | ||||||||||
| other comprehensive income | ||||||||||
| Details about accumulated other |
Three Months Ended
September 30, |
Affected line item in the statement | ||||||||
|
comprehensive income components |
2013 | 2012 |
where net income is presented |
|||||||
| (in thousands) | ||||||||||
|
Unrealized gains and losses on AFS |
||||||||||
| $ | (1,679 | ) | $ | 1,031 | Realized gain on sale of Investment securities | |||||
| 633 | (363 | ) | Income tax expense | |||||||
|
|
|
|
|
|||||||
| $ | (1,046 | ) | $ | 668 | Net of tax | |||||
|
|
|
|
|
|||||||
| Amount reclassified from accumulated | ||||||||||
| other comprehensive income | ||||||||||
| Details about accumulated other |
Nine Months Ended
September 30, |
Affected line item in the statement | ||||||||
|
comprehensive income components |
2013 | 2012 |
where net income is presented |
|||||||
| (in thousands) | ||||||||||
|
Unrealized gains and losses on AFS |
||||||||||
| $ | (1,537 | ) | $ | 2,502 | Realized gain on sale of Investment securities | |||||
| 580 | (904 | ) | Income tax expense | |||||||
|
|
|
|
|
|||||||
| $ | (957 | ) | $ | 1,598 | Net of tax | |||||
|
|
|
|
|
|||||||
10. EARNINGS PER SHARE
Diluted earnings per share is based on the weighted average outstanding common shares during each period, including common stock equivalents. Basic earnings per share is based on the weighted average outstanding common shares during the period.
Basic and diluted earnings per share, based on the weighted average outstanding shares, are summarized as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| (in thousands,except per share amounts) | ||||||||||||||||
|
Weighted average shares—basic |
85,799 | 81,758 | 85,596 | 81,570 | ||||||||||||
|
Dilutive effect of stock awards |
970 | 536 | 832 | 589 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Weighted average shares—diluted |
86,769 | 82,294 | 86,428 | 82,159 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net income available to common shareholders |
$ | 27,840 | $ | 15,106 | $ | 82,114 | $ | 37,279 | ||||||||
|
Earnings per share—basic |
0.32 | 0.18 | 0.96 | 0.46 | ||||||||||||
|
Earnings per share—diluted |
0.32 | 0.18 | 0.95 | 0.45 | ||||||||||||
36
The Company had 216,310 and 1,053,045 stock options outstanding as of September 30, 2013 and December 31, 2012, respectively, that were not included in the computation of diluted earnings per common share because their effect would be anti-dilutive.
11. FAIR VALUE ACCOUNTING
The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under ASC 825 are described in Note 1, “Summary of Significant Accounting Policies.”
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While Management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. Transfers between levels in the fair value hierarchy are recognized at the end of the reporting period.
Under ASC 825, the Company elected the fair value option (“FVO”) treatment for the junior subordinated debt and certain investment securities. This election is generally irrevocable and unrealized gains and losses on these items must be reported in earnings at each reporting date. The Company continues to account for these items under the FVO. Since adoption, there were no financial instruments purchased by the Company which met the ASC 825 fair value election criteria, and therefore, no additional instruments have been added under the FVO election.
All securities for which the fair value measurement option had been elected are included in a separate line item in the Consolidated Balance Sheet titled “Investment securities—measured at fair value.”
37
For the three and nine months ended September 30, 2013 and 2012, gains and losses from fair value changes included in the Consolidated Income Statements were as follows:
| Changes in Fair Values for Items Measured at Fair | ||||||||||||||||
| Value Pursuant to Election of the FVO | ||||||||||||||||
| Unrealized | Total | |||||||||||||||
| Gain/(Loss) on | Interest | Changes | ||||||||||||||
| Assets and | Expense on | Included in | ||||||||||||||
| Liabilities | Interest | Junior | Current- | |||||||||||||
| Measured at | Income on | Subordinated | Period | |||||||||||||
|
Description |
Fair Value, Net | Securities | Debt | Earnings | ||||||||||||
| (in thousands) | ||||||||||||||||
|
Three Months Ended September 30, 2013 |
||||||||||||||||
|
Securities measured at fair value |
$ | (142 | ) | $ | 1 | $ | — | $ | (141 | ) | ||||||
|
Junior subordinated debt |
478 | — | 329 | 149 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 336 | $ | 1 | $ | 329 | $ | 8 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Nine Months Ended September 30, 2013 |
||||||||||||||||
|
Securities measured at fair value |
$ | (196 | ) | $ | 7 | $ | — | $ | (189 | ) | ||||||
|
Junior subordinated debt |
(3,229 | ) | — | 1,012 | (4,241 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | (3,425 | ) | $ | 7 | $ | 1,012 | $ | (4,430 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Changes in Fair Values for Items Measured at Fair | ||||||||||||||||
| Value Pursuant to Election of the FVO | ||||||||||||||||
| Unrealized | Total | |||||||||||||||
| Gain/(Loss) on | Interest | Changes | ||||||||||||||
| Assets and | Expense on | Included in | ||||||||||||||
| Liabilities | Interest | Junior | Current- | |||||||||||||
| Measured at | Income on | Subordinated | Period | |||||||||||||
|
Description |
Fair Value, Net | Securities | Debt | Earnings | ||||||||||||
| (in thousands) | ||||||||||||||||
|
Three Months Ended September 30, 2012 |
||||||||||||||||
|
Securities measured at fair value |
$ | — | $ | 3 | $ | — | $ | 3 | ||||||||
|
Junior subordinated debt |
469 | — | 329 | 140 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 469 | $ | 3 | $ | 329 | $ | 143 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Nine Months Ended September 30, 2012 |
||||||||||||||||
|
Securities measured at fair value |
$ | (66 | ) | $ | 10 | $ | — | $ | (56 | ) | ||||||
|
Junior subordinated debt |
767 | — | 981 | (214 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 701 | $ | 10 | $ | 981 | $ | (270 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The following table presents gains and losses from fair value changes on securities measured at fair value:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| (in thousands) | ||||||||||||||||
|
Net losses for the period on trading securities included in earnings |
$ | (142 | ) | $ | — | $ | (196 | ) | $ | (66 | ) | |||||
|
Less: net gains and (losses) recognized during the period on trading securities sold during the period |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Change in unrealized gains or (losses) for the period included in earnings for trading securities held at the end of the reporting period |
$ | (142 | ) | $ | — | $ | (196 | ) | $ | (66 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
The difference between the aggregate fair value of junior subordinated debt of $39.4 million and the aggregate unpaid principal balance of $66.5 million was $27.1 million at September 30, 2013. The difference between the aggregate fair value of junior subordinated debt of $36.2 million and the aggregate unpaid principal balance of $66.5 million was $30.3 million at December 31, 2012.
38
Interest income on securities measured at fair value is accounted for similarly to those classified as AFS and HTM. Any premiums or discounts are recognized in interest income over the term of the securities. Interest expense on junior subordinated debt is also determined under a constant yield calculation.
Fair value on a recurring basis
Financial assets and financial liabilities measured at fair value on a recurring basis include the following:
AFS Securities: Adjustable-rate preferred securities, corporate debt securities and CRA mutual fund investments are reported at fair value utilizing Level 1 inputs. Other securities classified as AFS are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.
Securities measured at fair value: All of the Company’s securities measured at fair value, the majority of which are mortgage-backed securities, are reported at fair value utilizing Level 2 inputs in the same manner as described above for securities available-for-sale.
Independent pricing service: Management independently evaluates all of the fair value measurements received from its third party pricing service through multiple review steps. First, Management reviews what has transpired in the market- place with respect to interest rates, credit spreads, volatility, mortgage rates, etc., and makes an expectation on changes to the securities valuations from the previous quarter. Then, Management compares expected changes to the actual valuation changes provided to it by its pricing service. Next, Management compares a robust sampling of safekeeping marks on securities with the marks provided by the Company’s third party pricing service and determines whether there are any notable differences. Then, Management compares the prices on Level 1 priced securities to publicly available prices to verify those prices are similar. Finally, Management discusses the assumptions used for Level 2 priced securities with its pricing service. The pricing service provides Management with observable market data including interest rate curves and mortgage prepayment speed grids, as well as dealer quote sheets, new bond offering sheets, and historical trade documentation. Management reviews the assumptions and decides whether they are reasonable. Management may compare interest rates, credit spreads and prepayments speeds used as part of the assumptions to those that Management believes are reasonable. Management may price securities using the provided assumptions to determine whether they can develop similar prices on like securities. Any discrepancies with Management’s review and the prices provided by the vendor are discussed with the vendor and the Company’s other valuation advisors. Management has formally challenged the prices on several securities, but has found that the vendor prices are reasonable.
Annually, the Company receives a SSAE 16 report from its independent pricing service attesting to the controls placed on the operations of the service from its auditor.
Interest rate swap: Interest rate swaps are reported at fair value utilizing Level 2 inputs. The Company obtains dealer quotations to value its interest rate swaps.
Junior subordinated debt: The Company estimates the fair value of its junior subordinated debt using a discounted cash flow model which incorporates the effect of the Company’s own credit risk in the fair value of the liabilities (Level 3). The Company’s cash flow assumptions were based on the contractual cash flows as the Company anticipates that it will pay the debt according to its contractual terms. The Company’s practice of determining the discount rate as of March 31, 2013 and prior was to use a Peer Index derived from market data available for similar non-investment grade trust preferred securities. As of June 30, 2013 the available market data contracted and the small population of similar non-investment grade trust preferred securities was no longer adequately diversified to ensure an accurate representation of change in the discount rate. As a result, the Company replaced the Peer Index with the BB 20 Year Index relative to the 10 Year Treasury (BB Corporate Bond over Treasury Index), which provides a broader base and correlates similarly with the credit and maturity characteristics of the junior subordinated debt. As of September 30, 2013, the discount rate was determined to be 6.280%, which is a 603 basis point spread over 3 month LIBOR (0.250% as of September 30, 2013). As of September 30, 2012, the Company estimated the discount rate at 6.530%, which was a 617 basis point spread over 3 month LIBOR (0.359%). As of December 31, 2012, the Company estimated the discount rate at 6.846%, which was a 654 basis point spread over 3 month LIBOR (0.306%).
Securities sold short: Securities sold short, comprised of entirely U.S. Treasury bonds, are reported at fair value utilizing Level 1 inputs.
39
The fair value of these assets and liabilities were determined using the following inputs at the periods presented:
| Fair Value Measurements at the End of the Reporting Period Using: | ||||||||||||||||
| Quoted Prices | ||||||||||||||||
| in Active | Significant | |||||||||||||||
| Markets for | Other | Significant | ||||||||||||||
| Identical | Observable | Unobservable | ||||||||||||||
| Assets | Inputs | Inputs | Fair | |||||||||||||
|
September 30, 2013 |
(Level 1) | (Level 2) | (Level 3) | Value | ||||||||||||
| (in thousands) | ||||||||||||||||
|
Assets: |
||||||||||||||||
|
Measured at fair value |
||||||||||||||||
|
Direct U.S. obligations and GSE residential mortgage- backed securities |
$ | — | $ | 3,621 | $ | — | $ | 3,621 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Available-for-sale |
||||||||||||||||
|
U.S. Government-sponsored agency securities |
$ | — | $ | 27,377 | $ | — | $ | 27,377 | ||||||||
|
Municipal obligations |
— | 105,545 | — | 105,545 | ||||||||||||
|
Direct U.S. obligations and GSE residential mortgage-backed securities |
— | 768,478 | — | 768,478 | ||||||||||||
|
Mutual funds |
32,323 | — | — | 32,323 | ||||||||||||
|
Private label residential mortgage-backed securities |
— | 26,147 | — | 26,147 | ||||||||||||
|
Adjustable-rate preferred stock |
61,389 | — | — | 61,389 | ||||||||||||
|
Trust preferred |
— | 23,834 | — | 23,834 | ||||||||||||
|
Collateralized mortgage-backed securities |
— | 5,493 | — | 5,493 | ||||||||||||
|
Other |
23,300 | — | — | 23,300 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 117,012 | $ | 956,874 | $ | — | $ | 1,073,886 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Interest rate swaps |
$ | — | $ | 39 | $ | — | $ | 39 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Liabilities: |
||||||||||||||||
|
Securities sold short |
$ | 126,664 | $ | — | $ | — | $ | 126,664 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Junior subordinated debt |
$ | — | $ | — | $ | 39,447 | $ | 39,447 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Interest rate swaps |
$ | — | $ | 2,188 | $ | — | $ | 2,188 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
40
| Fair Value Measurements at the End of the Reporting Period Using: | ||||||||||||||||
|
December 31, 2012 |
Quoted Prices
in Active Markets for Identical Assets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Fair
Value |
||||||||||||
| (in thousands) | ||||||||||||||||
|
Assets: |
||||||||||||||||
|
Measured at fair value |
||||||||||||||||
|
Direct U.S. obligations and GSE residential mortgage- backed securities |
$ | — | $ | 5,061 | $ | — | $ | 5,061 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Available-for-sale |
||||||||||||||||
|
Municipal obligations |
$ | — | $ | 73,171 | $ | — | $ | 73,171 | ||||||||
|
Direct U.S. obligations and GSE residential mortgage-backed securities |
— | 663,204 | — | 663,204 | ||||||||||||
|
Mutual funds |
37,961 | — | — | 37,961 | ||||||||||||
|
Private label residential mortgage-backed securities |
— | 35,607 | — | 35,607 | ||||||||||||
|
Private label commercial mortgage-backed securities |
— | 5,741 | 5,741 | |||||||||||||
|
Adjustable-rate preferred stock |
75,555 | — | — | 75,555 | ||||||||||||
|
Trust preferred |
24,135 | — | — | 24,135 | ||||||||||||
|
Other |
24,216 | — | — | 24,216 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 161,867 | $ | 777,723 | $ | — | $ | 939,590 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Interest rate swaps |
$ | — | $ | 777 | $ | — | $ | 777 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Liabilities: |
||||||||||||||||
|
Junior subordinated debt |
$ | — | $ | — | $ | 36,218 | $ | 36,218 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Interest rate swaps |
$ | — | $ | 751 | $ | — | $ | 751 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
As of June 30, 2013, trust preferred securities transferred from Level 1 to Level 2 due to the unavailability of active trade information. Per the Company’s policy, the transfer is deemed to have occurred at the end of the reporting period.
For the three and nine months ended September 30, 2013, the change in Level 3 liabilities measured at fair value on a recurring basis was as follows:
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
||||||||
| Junior Subordinated Debt | ||||||||
|
Three Months Ended
September 30, |
||||||||
| 2013 | 2012 | |||||||
| (in thousands) | ||||||||
|
Opening balance |
$ | (39,925 | ) | $ | (36,687 | ) | ||
|
Transfers into Level 3 |
— | — | ||||||
|
Transfers out of Level 3 |
— | — | ||||||
|
Total gains or losses for the period |
||||||||
|
Included in earnings (or changes in net assets) (1) |
478 | 469 | ||||||
|
Included in other comprehensive income |
— | — | ||||||
|
Purchases, sales, and settlements |
||||||||
|
Purchases |
— | — | ||||||
|
Sales |
— | — | ||||||
|
Settlements |
— | — | ||||||
|
|
|
|
|
|||||
|
Closing balance |
$ | (39,447 | ) | $ | (36,218 | ) | ||
|
|
|
|
|
|||||
|
Change in unrealized gains (losses) for the period included in earnings (or changes in net assets) held at the end of the reporting period. |
$ | 478 | $ | 469 | ||||
|
|
|
|
|
|||||
| (1) | Total gains (losses) for the period are included in the non-interest income line, mark to market (losses) gains, net. |
41
| Junior Subordinated Debt | ||||||||
|
Nine Months Ended
September 30, |
||||||||
| 2013 | 2012 | |||||||
| (in thousands) | ||||||||
|
Opening balance |
$ | (36,218 | ) | $ | (36,985 | ) | ||
|
Transfers into Level 3 |
— | — | ||||||
|
Transfers out of Level 3 |
— | — | ||||||
|
Total gains or losses for the period |
||||||||
|
Included in earnings (or changes in net assets) (1) |
(3,229 | ) | 767 | |||||
|
Included in other comprehensive income |
— | — | ||||||
|
Purchases, sales, and settlements |
||||||||
|
Purchases |
— | — | ||||||
|
Sales |
— | — | ||||||
|
Settlements |
— | — | ||||||
|
|
|
|
|
|||||
|
Closing balance |
$ | (39,447 | ) | $ | (36,218 | ) | ||
|
|
|
|
|
|||||
|
Change in unrealized gains (losses) for the period included in earnings (or changes in net assets) held at the end of the reporting period. |
$ | (3,229 | ) | $ | 767 | |||
|
|
|
|
|
|||||
| (1) | Total gains (losses) for the period are included in the non-interest income line, mark to market (losses) gains, net. |
For Level 3 liabilities measured at fair value on a recurring basis, the significant unobservable inputs used in the fair value measurements as of the periods presented, were as follows:
| Fair Value at | ||||||||||||
|
September 30,
2013 |
Valuation
Technique |
Significant Unobservable Inputs |
Input Value | |||||||||
| (dollars in thousands) | ||||||||||||
|
Junior subordinated debt |
$ | 39,447 | Discounted cash flow |
BB Corporate Bond over Treasury Index with comparable credit spread |
6.280 | % | ||||||
| Fair Value at | ||||||||||||
|
December 31,
2012 |
Valuation
Technique |
Significant Unobservable Inputs |
Input Value | |||||||||
| (dollars in thousands) | ||||||||||||
|
Junior subordinated debt |
$ | 36,218 | Discounted cash flow | Median market spreads on publicly issued trust preferreds with comparable credit risk | 6.846 | % | ||||||
The significant unobservable inputs used in the fair value measurement of the Company’s junior subordinated debt as of September 30, 2013 are the BB Corporate Bond over Treasury Index with comparable credit risk and, as of December 31, 2012, are the calculated or estimated credit spreads on comparable publicly traded company trust preferred issuances which were non-investment grade and non-rated. Significant increases (decreases) in these inputs could result in a significantly higher (lower) fair value measurement.
42
Fair value on a nonrecurring basis
Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents such assets carried on the Consolidated Balance Sheet by caption and by level within the ASC 825 hierarchy:
| Fair Value Measurements at the End of the Reporting Period Using | ||||||||||||||||
| Total |
Quoted Prices
in Active Markets for Identical Assets (Level 1) |
Active
Markets for Similar Assets (Level 2) |
Unobservable
Inputs (Level 3) |
|||||||||||||
| (in thousands) | ||||||||||||||||
|
As of September 30, 2013: |
||||||||||||||||
|
Impaired loans with specific valuation allowance |
$ | 14,808 | $ | — | $ | — | $ | 14,808 | ||||||||
|
Impaired loans without specific valuation allowance |
95,843 | — | — | 95,843 | ||||||||||||
|
Other assets acquired through foreclosure, net |
76,475 | — | — | 76,475 | ||||||||||||
|
As of December 31, 2012: |
||||||||||||||||
|
Impaired loans with specific valuation allowance |
$ | 38,672 | $ | — | $ | — | $ | 38,672 | ||||||||
|
Impaired loans without specific valuation allowance |
67,207 | — | — | 67,207 | ||||||||||||
|
Other assets acquired through foreclosure, net |
77,247 | — | — | 77,247 | ||||||||||||
Impaired loans: The specific reserves for collateral dependent impaired loans are based on the fair value of the collateral. The fair value of collateral is determined based on third-party appraisals. Appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Fair value is determined, where possible, using market prices derived from an appraisal or evaluation, which are considered to be Level 2. However, certain assumptions and unobservable inputs are often used by the appraiser; therefore, qualifying the assets as Level 3 in the fair value hierarchy. In some cases, adjustments are made to the appraised values due to various factors, including age of the appraisal (which are generally obtained every twelve months), age of comparables included in the appraisal, and known changes in the market and in the collateral. When significant adjustments are based on unobservable inputs, such as when a current appraised value is not available or Management determines the fair value of the collateral is further impaired below appraised value and there is no observable market price, the resulting fair value measurement has been categorized as a Level 3 measurement. These Level 3 impaired loans had an aggregate carrying amount of $20.7 million and $51.5 million and specific reserves in the allowance for credit losses of $5.9 million and $12.9 million at September 30, 2013 and December 31, 2012, respectively.
Other assets acquired through foreclosure: Other assets acquired through foreclosure consist of properties acquired as a result of, or in-lieu-of, foreclosure. Properties or other assets classified as other assets acquired through foreclosure and other repossessed property are initially reported at the fair value determined by independent appraisals using appraised value, less cost to sell. Such properties are generally re-appraised every twelve months. There is risk for subsequent volatility. Costs relating to the development or improvement of the assets are capitalized and costs relating to holding the assets are charged to expense. The Company had $76.5 million and $77.2 million of such assets at September 30, 2013 and December 31, 2012, respectively. Fair value is determined, where possible, using market prices derived from an appraisal or evaluation, which are considered to be Level 2. However, certain assumptions and unobservable inputs are often used by the appraiser; therefore, qualifying the assets as Level 3 in the fair value hierarchy. When significant adjustments are based on unobservable inputs, such as when a current appraised value is not available or Management determines the fair value of the collateral is further impaired below appraised value and there is no observable market price, the resulting fair value measurement has been categorized as a Level 3 measurement.
Credit vs. non-credit losses
The Company applies the provisions of ASC 320 to its AFS and HTM investment securities portfolios. The OTTI was separated into (1) the amount of total impairment related to the credit loss, and (2) the amount of the total impairment related to all other factors. The amount of the total OTTI related to the credit loss was recognized in earnings. The amount of the total impairment related to all other factors was recognized in OCI. The OTTI was presented in the Consolidated Income Statement with an offset for the amount of the total OTTI that was recognized in OCI.
43
For the three and nine months ended September 30, 2013 and 2012, the Company determined that no securities contained credit losses.
|
Private Label
Mortgage-Backed Securities |
||||||||
|
Nine Months Ended
September 30, |
||||||||
| 2013 | 2012 | |||||||
| (in thousands) | ||||||||
|
Beginning balance of impairment losses held in other comprehensive income |
$ | (1,811 | ) | $ | (1,811 | ) | ||
|
Current period other-than temporary impairment credit losses recognized through earnings |
— | — | ||||||
|
Reductions for securities sold during the period |
1,811 | — | ||||||
|
Additions or reductions in credit losses due to change of intent to sell |
— | — | ||||||
|
Reductions for increases in cash flows to be collected on impaired securities |
— | — | ||||||
|
|
|
|
|
|||||
|
Ending balance of net unrealized gains and (losses) held in other comprehensive income |
$ | — | $ | (1,811 | ) | |||
|
|
|
|
|
|||||
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company’s financial instruments is as follows:
| September 30, 2013 | ||||||||||||||||||||
| Carrying | Fair Value | |||||||||||||||||||
| Amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
|
Financial assets: |
||||||||||||||||||||
|
Investment securities |
$ | 1,366,615 | $ | 176,570 | $ | 1,188,472 | $ | 8 | $ | 1,365,050 | ||||||||||
|
Derivatives (1) |
39 | — | 39 | — | 39 | |||||||||||||||
|
Loans, net |
6,418,432 | — | 5,876,917 | 110,651 | 5,987,568 | |||||||||||||||
|
Financial liabilities: |
||||||||||||||||||||
|
Deposits |
7,275,311 | — | 7,349,886 | — | 7,349,886 | |||||||||||||||
|
Customer repurchases |
55,524 | — | 55,524 | — | 55,524 | |||||||||||||||
|
Securities sold short |
126,664 | 126,664 | — | — | 126,664 | |||||||||||||||
|
Other borrowings |
394,105 | 45,785 | 274,277 | 82,500 | 402,562 | |||||||||||||||
|
Junior subordinated debt |
39,447 | — | — | 39,447 | 39,447 | |||||||||||||||
|
Derivatives (2) |
2,188 | — | 2,188 | — | 2,188 | |||||||||||||||
| (1) | Included in other assets. |
| (2) | Included in other liabilities. |
| December 31, 2012 | ||||||||||||||||||||
| Carrying | Fair Value | |||||||||||||||||||
| Amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
|
Financial assets: |
||||||||||||||||||||
|
Investment securities |
$ | 1,235,984 | $ | 216,337 | $ | 1,021,133 | $ | — | $ | 1,237,470 | ||||||||||
|
Derivatives (1) |
777 | — | 777 | — | 777 | |||||||||||||||
|
Loans, net |
5,613,891 | — | 5,156,776 | 105,879 | 5,262,655 | |||||||||||||||
|
Financial liabilities: |
||||||||||||||||||||
|
Deposits |
6,455,177 | — | 6,458,100 | — | 6,458,100 | |||||||||||||||
|
Customer repurchases |
79,034 | — | 79,034 | — | 79,034 | |||||||||||||||
|
Other borrowings |
193,717 | — | 120,000 | 85,125 | 205,125 | |||||||||||||||
|
Junior subordinated debt |
36,218 | — | — | 36,218 | 36,218 | |||||||||||||||
|
Derivatives (2) |
751 | — | 751 | — | 751 | |||||||||||||||
| (1) | Included in other assets. |
| (2) | Included in other liabilities. |
44
Interest rate risk
The Company assumes interest rate risk (the risk to the Company’s earnings and capital from changes in interest rate levels) as a result of its normal operations. As a result, the fair values of the Company’s 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 the 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 September 30, 2013, the Company’s interest rate risk profile was within Board-approved limits.
Each of the Company’s subsidiary banks has an Asset and Liability Management Committee charged with managing interest rate risk within Board-approved limits. Such limits may vary by bank based on local strategy and other considerations, but in all cases, are structured to prohibit an interest rate risk profile that is significantly asset or liability sensitive. There also exists an Asset and Liability Management Committee at the holding company level that reviews the interest rate risk of each subsidiary bank, as well as an aggregated position for the entire Company.
Fair value of commitments
The estimated fair value of standby letters of credit outstanding at September 30, 2013 and December 31, 2012 was insignificant. Loan commitments on which the committed interest rates were less than the current market rate are also insignificant at September 30, 2013 and December 31, 2012.
12. INCOME TAXES
Deferred tax assets and liabilities are included in the Consolidated Financial Statements at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
Although realization is not assured, the Company believes that the realization of the recognized net deferred tax asset of $79.6 million at September 30, 2013 is more likely than not based on expectations as to future taxable income and based on available tax planning strategies as defined in FASB ASC 740, Income Taxes (“ASC 740”), that could be implemented if necessary to prevent a carryforward from expiring.
Based on its internal analysis, the Company believes that it is more likely than not that the Company will fully utilize deferred federal tax assets pertaining to the existing net operating loss carryforwards and any net operating loss (“NOL”) that would be created by the reversal of the future net deductions that have not yet been taken on a tax return.
The Company’s effective tax rate was 24.8% and 30.1% for the three months ended September 30, 2013 and 2012, respectively, and 21.6% and 28.4% for the nine months ended September 30, 2013 and 2012, respectively. The reduction in the effective tax rate from the first three quarters of 2012, compared to the first three quarters of 2013 is primarily due to the bargain purchase gain related to the Centennial acquisition, low income housing tax credits, an increase in tax exempt income from revenue from municipal obligations, as well as a reduction in the deferred tax valuation allowance for capital loss carryovers arising from transactions that resulted in capital gains.
At September 30, 2013, the Company has a deferred tax valuation allowance of $5.2 million (compared to $8.0 million at December 31, 2012).
The deferred tax asset related to state net operating loss carryovers outstanding at September 30, 2013 is comprised of $1.9 million of tax benefits from Arizona net operating loss carryovers that began to expire in 2013. All of the Company’s remaining California net operating loss carryforwards have been utilized in 2013.
Uncertain Tax Position
The Company files income tax returns in the U.S. federal jurisdiction and in various states. With few exceptions, the Company is no longer subject to U.S. federal, state or local tax examinations by tax authorities for years before 2008.
The Company would recognize interest accrued related to unrecognized tax benefits in tax expense. The Company has not recognized or accrued any interest or penalties for the three and nine month periods ended September 30, 2013 and 2012.
45
Management believes that the Company has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors, including past experience and interpretation of tax law applied to the facts of each matter.
13. SEGMENTS
The Company provides a full range of banking and related financial services through its consolidated subsidiaries. Applicable guidance provides that the identification of reportable segments be on the basis of discrete business units and their financial information to the extent such units are reviewed by the entity’s chief decision maker.
At September 30, 2013, the Company consists of the following segments: “Western Alliance Bank,” “Bank of Nevada,” “Torrey Pines Bank” and “Other” (Western Alliance Bancorporation holding company, WAEF, LVSP, Shine Investment Advisory Services, Inc. until October 31, 2012, and the discontinued operations).
Transactions between segments consist primarily of borrowed funds and loan participations. Federal funds purchased and sold and other borrowed funding transactions that resulted in inter-segment profits were eliminated for reporting consolidated results of operations. Loan participations were recorded at par value with no resulting gain or loss. The Company allocated centrally provided services to the operating segments based upon estimated usage of those services.
The following is a summary of selected operating segment information as of and for the three and nine month periods ended September 30, 2013 and 2012:
46
Western Alliance Bancorporation and Subsidiaries
Operating Segment Results
Unaudited
| Inter- | ||||||||||||||||||||||||
| segment | Consoli- | |||||||||||||||||||||||
| Western | Bank | Torrey | elimi- | dated | ||||||||||||||||||||
| Alliance Bank | of Nevada | Pines Bank* | Other | nations | Company | |||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||
|
At September 30, 2013 |
||||||||||||||||||||||||
|
Assets |
$ | 3,346.7 | $ | 3,288.1 | $ | 2,076.2 | $ | 1,127.8 | $ | (917.4 | ) | $ | 8,921.4 | |||||||||||
|
Held for sale loans |
— | — | 25.4 | — | — | 25.4 | ||||||||||||||||||
|
Gross loans and deferred fees, net |
2,589.2 | 2,387.1 | 1,498.7 | 58.9 | (43.0 | ) | 6,490.9 | |||||||||||||||||
|
Less: Allowance for credit losses |
(28.0 | ) | (51.0 | ) | (18.3 | ) | (0.6 | ) | — | (97.9 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Loans, net |
2,561.2 | 2,336.1 | 1,480.4 | 58.3 | (43.0 | ) | 6,393.0 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Goodwill and intangible assets |
2.8 | 25.1 | — | — | — | 27.9 | ||||||||||||||||||
|
Deposits |
2,832.0 | 2,613.5 | 1,844.7 | — | (14.9 | ) | 7,275.3 | |||||||||||||||||
|
Borrowings |
81.4 | 203.0 | 3.2 | 106.5 | — | 394.1 | ||||||||||||||||||
|
Stockholders’ equity |
291.5 | 373.7 | 171.8 | 844.7 | (855.4 | ) | 826.3 | |||||||||||||||||
|
No. of branches |
18 | 12 | 12 | — | — | 42 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
Three Months Ended September 30, 2013: |
||||||||||||||||||||||||
|
Net interest income (expense) |
$ | 33,755 | $ | 31,888 | $ | 21,055 | $ | (2,139 | ) | $ | — | $ | 84,559 | |||||||||||
|
Provision for (recovery of) credit losses |
6,277 | (6,918 | ) | 2,387 | (1,746 | ) | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net interest income (expense) after provision for credit losses |
27,478 | 38,806 | 18,668 | (393 | ) | — | 84,559 | |||||||||||||||||
|
Non-interest income |
1,816 | 2,314 | 108 | 2,914 | (4,527 | ) | 2,625 | |||||||||||||||||
|
Non-interest expense |
(15,520 | ) | (18,799 | ) | (11,949 | ) | (7,934 | ) | 4,527 | (49,675 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Income (loss) from continuing operations before income taxes |
13,774 | 22,321 | 6,827 | (5,413 | ) | — | 37,509 | |||||||||||||||||
|
Income tax expense (benefit) |
3,977 | 6,027 | 2,230 | (2,946 | ) | — | 9,288 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Income (loss) from continuing operations |
9,797 | 16,294 | 4,597 | (2,467 | ) | — | 28,221 | |||||||||||||||||
|
Loss from discontinued operations, net |
— | — | — | (29 | ) | — | (29 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net income (loss) |
$ | 9,797 | $ | 16,294 | $ | 4,597 | $ | (2,496 | ) | $ | — | $ | 28,192 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
Nine Months Ended September 30, 2013: |
||||||||||||||||||||||||
|
Net interest income (expense) |
$ | 92,920 | $ | 91,821 | $ | 62,435 | $ | (4,262 | ) | $ | — | $ | 242,914 | |||||||||||
|
Provision for (recovery of) credit losses |
9,921 | (5,514 | ) | 3,219 | 1,294 | — | 8,920 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net interest income (expense) after provision for credit losses |
82,999 | 97,335 | 59,216 | (5,556 | ) | — | 233,994 | |||||||||||||||||
|
Non-interest income |
14,520 | 9,383 | 1,312 | 4,325 | (12,154 | ) | 17,386 | |||||||||||||||||
|
Non-interest expense |
(45,688 | ) | (52,724 | ) | (35,876 | ) | (23,001 | ) | 12,154 | (145,135 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Income (loss) from continuing operations before income taxes |
51,831 | 53,994 | 24,652 | (24,232 | ) | — | 106,245 | |||||||||||||||||
|
Income tax expense (benefit) |
13,066 | 14,292 | 7,898 | (12,343 | ) | — | 22,913 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Income (loss) from continuing operations |
38,765 | 39,702 | 16,754 | (11,889 | ) | — | 83,332 | |||||||||||||||||
|
Loss from discontinued operations, net |
— | — | — | (160 | ) | — | (160 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net income (loss) |
$ | 38,765 | $ | 39,702 | $ | 16,754 | $ | (12,049 | ) | $ | — | $ | 83,172 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| * | Excludes discontinued operations. |
47
Western Alliance Bancorporation and Subsidiaries
Operating Segment Results
Unaudited
| Inter- | ||||||||||||||||||||||||
| segment | Consoli- | |||||||||||||||||||||||
| Western | Bank | Torrey | elimi- | dated | ||||||||||||||||||||
| Alliance Bank | of Nevada | Pines Bank* | Other | nations | Company | |||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||
|
At September 30, 2012 |
||||||||||||||||||||||||
|
Assets |
$ | 2,429.8 | $ | 2,918.0 | $ | 1,888.7 | $ | 961.3 | $ | (794.2 | ) | $ | 7,403.6 | |||||||||||
|
Gross loans and deferred fees, net |
1,871.4 | 2,061.0 | 1,430.6 | 12.8 | (42.9 | ) | 5,332.9 | |||||||||||||||||
|
Less: Allowance for credit losses |
(20.4 | ) | (59.5 | ) | (17.5 | ) | — | — | (97.4 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Loans, net |
1,851.0 | 2,001.5 | 1,413.1 | 12.8 | (42.9 | ) | 5,235.5 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Goodwill and intangible assets |
— | 23.2 | — | — | — | 23.2 | ||||||||||||||||||
|
Deposits |
2,150.5 | 2,408.5 | 1,613.8 | — | (10.8 | ) | 6,162.0 | |||||||||||||||||
|
Borrowings |
— | 110.0 | 40.0 | — | 150.0 | |||||||||||||||||||
|
Stockholders’ equity |
217.3 | 339.1 | 168.4 | 702.3 | (729.1 | ) | 698.0 | |||||||||||||||||
|
No. of branches |
16 | 11 | 12 | — | — | 39 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
Three Months Ended September 30, 2012: |
||||||||||||||||||||||||
|
Net interest income (expense) |
$ | 24,449 | $ | 27,717 | $ | 21,795 | $ | (2,015 | ) | $ | — | $ | 71,946 | |||||||||||
|
Provision for credit losses |
1,112 | 6,618 | 1,202 | — | — | 8,932 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net interest income (expense) after provision for credit losses |
23,337 | 21,099 | 20,593 | (2,015 | ) | — | 63,014 | |||||||||||||||||
|
Non-interest income |
1,173 | 3,259 | 855 | 4,647 | (2,952 | ) | 6,982 | |||||||||||||||||
|
Non-interest expense |
(11,980 | ) | (16,467 | ) | (11,082 | ) | (10,966 | ) | 2,952 | (47,543 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Income (loss) from continuing operations before income taxes |
12,530 | 7,891 | 10,366 | (8,334 | ) | — | 22,453 | |||||||||||||||||
|
Income tax expense (benefit) |
3,768 | 2,055 | 3,958 | (3,029 | ) | — | 6,752 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Income (loss) from continuing operations |
8,762 | 5,836 | 6,408 | (5,305 | ) | — | 15,701 | |||||||||||||||||
|
Loss from discontinued operations, net |
— | — | — | (243 | ) | — | (243 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net income (loss) |
$ | 8,762 | $ | 5,836 | $ | 6,408 | $ | (5,548 | ) | $ | — | $ | 15,458 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
Nine Months Ended September 30, 2012: |
||||||||||||||||||||||||
|
Net interest income (expense) |
$ | 71,564 | $ | 83,054 | $ | 64,406 | $ | (6,216 | ) | $ | — | $ | 212,808 | |||||||||||
|
Provision for credit losses |
1,215 | 28,846 | 5,282 | — | — | 35,343 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net interest income (expense) after provision for credit losses |
70,349 | 54,208 | 59,124 | (6,216 | ) | — | 177,465 | |||||||||||||||||
|
Non-interest income |
5,021 | 11,132 | 3,111 | 8,539 | (7,540 | ) | 20,263 | |||||||||||||||||
|
Noninterest expense |
(35,986 | ) | (53,437 | ) | (33,492 | ) | (24,496 | ) | 7,540 | (139,871 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Income (loss) from continuing operations before income taxes |
39,384 | 11,903 | 28,743 | (22,173 | ) | — | 57,857 | |||||||||||||||||
|
Income tax expense (benefit) |
13,031 | 1,341 | 11,255 | (9,175 | ) | — | 16,452 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Income (loss) from continuing operations |
26,353 | 10,562 | 17,488 | (12,998 | ) | — | 41,405 | |||||||||||||||||
|
Loss from discontinued operations, net |
— | — | — | (686 | ) | — | (686 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net income (loss) |
$ | 26,353 | $ | 10,562 | $ | 17,488 | $ | (13,684 | ) | $ | — | $ | 40,719 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| * | Excludes discontinued operations. |
48
14. SUBSEQUENT EVENTS
On October 1, 2013, the Company completed the sale of certain receivables related to its discontinued affinity credit card business, PartnersFirst. These receivables were classified as held for sale and totaled $25.4 million as of September 30, 2013. No significant gain or loss was recognized as a result of this transaction.
Management has reviewed events occurring through the date the financial statements were available to be issued and other than the subsequent event disclosed above, no other subsequent events have occurred that would require accrual or disclosure.
49
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This discussion is designed to provide insight into Management’s assessment of significant trends related to the Company’s consolidated financial condition, results of operations, liquidity, capital resources and interest rate sensitivity. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 and unaudited interim Consolidated Financial Statements and notes hereto and financial information appearing elsewhere in this report. Unless the context requires otherwise, the terms “Company,” “we,” and “our” refer to Western Alliance Bancorporation and its wholly owned subsidiaries on a consolidated basis.
Forward-Looking Information
This report contains certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. These statements may include statements that expressly or implicitly predict future results, performance or events. Statements other than statements of historical fact are forward-looking statements. In addition, the words “anticipates,” “expects,” “believes,” “estimates” and “intends” or the negative of these terms or other comparable terminology constitute “forward-looking statements.” Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Except as required by law, the Company disclaims any obligation to update any such forward-looking statements or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.
Forward-looking statements contained in this Quarterly Report on Form 10-Q involve substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company and may cause our actual results to differ significantly from historical results and those expressed in any forward-looking statement. Risks and uncertainties include those set forth in our filings with the Securities and Exchange Commission and the following factors that could cause actual results to differ materially from those presented:
| • |
conditions in the financial markets and the economy may adversely impact financial performance; |
| • |
dependency on real estate and events that negatively impact real estate; |
| • |
high concentration of commercial real estate, construction and development and commercial and industrial loans; |
| • |
actual credit losses may exceed expected losses in the loan portfolio; |
| • |
the geographic concentrations of our assets increase risks related to economic conditions; |
| • |
the effects of interest rates and interest rate policy; |
| • |
exposure of financial instruments to certain market risks may cause volatility in earnings; |
| • |
dependence on low-cost deposits; |
| • |
ability to borrow from Federal Home Loan Bank (“FHLB”) or Federal Reserve Bank (“FRB”); |
| • |
events that further impair goodwill; |
| • |
increase in the cost of funding as a result of changes to our credit rating; |
| • |
expansion strategies may not be successful; |
| • |
our ability to control costs; |
| • |
risk associated with changes in internal controls and processes; |
| • |
our ability to compete in a highly competitive market; |
| • |
our ability to recruit and retain qualified employees, especially seasoned relationship bankers; |
| • |
the effects of terrorist attacks or threats of war; |
| • |
perpetration of internal fraud; |
| • |
risk of operating in a highly regulated industry and our ability to remain in compliance; |
| • |
possible need to revalue our deferred tax assets if stock transactions result in limitations on deductibility of net operating losses or loan losses; |
| • |
exposure to environmental liabilities related to the properties we acquire title; |
| • |
legislative and regulatory changes including Emergency Economic Stabilization Act of 2008, or EESA, the American Recovery and Reinvestment Act of 2009, or ARRA, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations that might be promulgated thereunder; |
| • |
cyber security risks; and |
| • |
risks related to ownership and price of our common stock. |
For additional information regarding risks that may cause our actual results to differ materially from any forward-looking statements, see “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012.
50
Financial Overview and Highlights
Western Alliance Bancorporation is a multi-bank holding company headquartered in Phoenix, Arizona that provides full service banking and lending through its subsidiaries.
Financial Result Highlights for the Third Quarter of 2013
Net income for the Company of $28.2 million, or $0.32 per diluted share, for the third quarter of 2013, compared to net income of $15.5 million, or $0.18 per diluted share, for the third quarter of 2012.
The significant factors impacting earnings of the Company during the third quarter of 2013 were:
| • |
Net income available to common shareholders of $27.8 million for the third quarter of 2013, compared to $15.1 million for the third quarter 2012. |
| • |
Net interest income increased by 17.5% to $84.6 million for the third quarter of 2013, compared to $71.9 million for the third quarter of 2012. |
| • |
Net interest margin for the third quarter of 2013 remained flat at 4.41%, compared to the third quarter of 2012. |
| • |
Provision for credit losses decreased to zero for the third quarter of 2013, compared to $8.9 million for the third quarter of 2012. |
| • |
Net loan growth in the third quarter of 2013 of $104.8 million to $6.52 billion. Total loans increased $1.18 billion over the last twelve months from $5.33 billion at September 30, 2012. |
| • |
Total deposits increased during the quarter by $274.0 million to $7.28 billion at September 30, 2013. Deposits increased $1.11 billion over the last twelve months from $6.16 billion at September 30, 2012. |
| • |
Net recoveries (annualized) to average loans outstanding were 0.10% in the third quarter of 2013, compared to net charge-offs of 0.70% in the third quarter of 2012. |
| • |
Nonperforming assets (nonaccrual loans and assets acquired through foreclosure) decreased to 1.7% of total assets from 2.7% in the third quarter 2012. |
| • |
Other assets acquired through foreclosure declined to $76.5 million at September 30, 2013 from $78.2 million at September 30, 2012. |
The impact to the Company from these items, and others of both a positive and negative nature, will be discussed in more detail as they pertain to the Company’s overall comparative performance for the three and nine months ended September 30, 2013 throughout the analysis sections of this report.
A summary of our results of operations and financial condition and select metrics is included in the following table:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||
|
Net income available to common stockholders |
$ | 27,840 | $ | 15,106 | $ | 82,114 | $ | 37,279 | ||||||||
|
Basic earnings per share |
0.32 | 0.18 | 0.96 | 0.46 | ||||||||||||
|
Diluted earnings per share |
0.32 | 0.18 | 0.95 | 0.45 | ||||||||||||
|
Total assets |
$ | 8,921,429 | $ | 7,403,603 | ||||||||||||
|
Gross loans |
$ | 6,516,283 | $ | 5,332,932 | ||||||||||||
|
Total deposits |
$ | 7,275,311 | $ | 6,161,976 | ||||||||||||
|
Net interest margin |
4.41 | % | 4.41 | % | 4.38 | % | 4.47 | % | ||||||||
|
Return on average assets |
1.30 | % | 0.85 | % | 1.35 | % | 0.77 | % | ||||||||
|
Return on average stockholders’ equity |
13.63 | % | 8.95 | % | 14.01 | % | 8.09 | % | ||||||||
51
Asset Quality
For all banks and bank holding companies, asset quality plays a significant role in the overall financial condition of the institution and results of operations. The Company measures asset quality in terms of nonaccrual loans as a percentage of gross loans, and net charge-offs as a percentage of average loans. Net charge-offs are calculated as the difference between charged-off loans and recovery payments received on previously charged-off loans. The following table summarizes these asset quality metrics:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| (in thousands) | ||||||||||||||||
|
Non-accrual loans |
$ | 76,641 | $ | 121,238 | ||||||||||||
|
Non-performing assets |
245,959 | 294,517 | ||||||||||||||
|
Non-accrual loans to gross loans |
1.18 | % | 2.27 | % | ||||||||||||
|
Net (recoveries) charge-offs to average loans—annualized |
(0.10 | )% | 0.70 | % | 0.22 | % | 0.99 | % | ||||||||
Asset and Deposit Growth
The ability to originate new loans and attract new deposits is fundamental to the Company’s asset growth. The Company’s assets and liabilities are comprised primarily of loans and deposits. Total assets increased to $8.92 billion at September 30, 2013 from $7.62 billion at December 31, 2012. Total gross loans, including net deferred fees and unearned income, increased by $807.0 million, or 14%, to $6.52 billion as of September 30, 2013, compared to $5.71 billion at December 31, 2012. Total deposits increased $820.1 million, or 13%, to $7.28 billion as of September 30, 2013 from $6.46 billion as of December 31, 2012.
RESULTS OF OPERATIONS
The following table sets forth a summary financial overview for the comparable three and nine months ended September 30, 2013 and 2012:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 30, | Increase | September 30, | Increase | |||||||||||||||||||||
| 2013 | 2012 | (Decrease) | 2013 | 2012 | (Decrease) | |||||||||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||||||||||
|
Consolidated Income Statement Data: |
||||||||||||||||||||||||
|
Interest income |
$ | 92,680 | $ | 78,669 | $ | 14,011 | $ | 265,073 | $ | 233,952 | $ | 31,121 | ||||||||||||
|
Interest expense |
8,121 | 6,723 | 1,398 | 22,159 | 21,144 | 1,015 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net interest income |
84,559 | 71,946 | 12,613 | 242,914 | 212,808 | 30,106 | ||||||||||||||||||
|
Provision for credit losses |
— | 8,932 | (8,932 | ) | 8,920 | 35,343 | (26,423 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net interest income after provision for credit losses |
84,559 | 63,014 | 21,545 | 233,994 | 177,465 | 56,529 | ||||||||||||||||||
|
Non-interest income |
2,625 | 6,982 | (4,357 | ) | 17,386 | 20,263 | (2,877 | ) | ||||||||||||||||
|
Non-interest expense |
49,675 | 47,543 | 2,132 | 145,135 | 139,871 | 5,264 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net income from continuing operations before income taxes |
37,509 | 22,453 | 15,056 | 106,245 | 57,857 | 48,388 | ||||||||||||||||||
|
Income tax provision |
9,288 | 6,752 | 2,536 | 22,913 | 16,452 | 6,461 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Income from continuing operations |
28,221 | 15,701 | 12,520 | 83,332 | 41,405 | 41,927 | ||||||||||||||||||
|
Loss from discontinued operations, net of tax benefit |
(29 | ) | (243 | ) | 214 | (160 | ) | (686 | ) | 526 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net income |
$ | 28,192 | $ | 15,458 | $ | 12,734 | $ | 83,172 | $ | 40,719 | $ | 42,453 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net income available to common stockholders |
$ | 27,840 | $ | 15,106 | $ | 12,734 | $ | 82,114 | $ | 37,279 | $ | 44,835 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Income per share—basic |
$ | 0.32 | $ | 0.18 | $ | 0.14 | $ | 0.96 | $ | 0.46 | $ | 0.50 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Income per share—diluted |
$ | 0.32 | $ | 0.18 | $ | 0.14 | $ | 0.95 | $ | 0.45 | $ | 0.50 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net Interest Margin
The net interest margin is reported on a tax equivalent basis. A tax equivalent adjustment is added to reflect interest earned on certain municipal securities and loans that are exempt from Federal income tax. The following tables set forth the average balances and interest income on a tax equivalent basis and tax expense for the periods indicated:
52
| Three Months Ended September 30, | ||||||||||||||||||||||||
| 2013 | 2012 | |||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
|
Average
Balance |
Interest |
Average
Yield/Cost (6), (7) |
Average
Balance |
Interest |
Average
Yield/Cost (6), (7) |
|||||||||||||||||||
|
Interest-Earning Assets |
||||||||||||||||||||||||
|
Securities: |
||||||||||||||||||||||||
|
Taxable |
$ | 955,263 | $ | 4,263 | 1.79 | % | $ | 1,062,835 | $ | 5,600 | 2.11 | % | ||||||||||||
|
Tax-exempt (1) |
348,055 | 4,023 | 6.37 | % | 309,543 | 3,434 | 6.83 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total securities |
1,303,318 | 8,286 | 3.01 | % | 1,372,378 | 9,034 | 3.17 | % | ||||||||||||||||
|
Loans (1) (2) (3) |
6,306,394 | 83,994 | 5.44 | % | 5,191,175 | 69,580 | 5.42 | % | ||||||||||||||||
|
Federal funds sold and other |
364,580 | 400 | 0.11 | % | 195,321 | 55 | 0.03 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total earnings assets |
7,974,292 | 92,680 | 4.81 | % | 6,758,874 | 78,669 | 4.81 | % | ||||||||||||||||
|
Nonearning Assets |
||||||||||||||||||||||||
|
Cash and due from banks |
119,209 | 120,128 | ||||||||||||||||||||||
|
Allowance for credit losses |
(96,672 | ) | (98,169 | ) | ||||||||||||||||||||
|
Bank-owned life insurance |
139,740 | 136,522 | ||||||||||||||||||||||
|
Other assets |
492,035 | 356,643 | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
|
Total assets |
$ | 8,628,604 | $ | 7,273,998 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
|
Interest-Bearing Liabilities |
||||||||||||||||||||||||
|
Sources of Funds |
||||||||||||||||||||||||
|
Interest-bearing deposits: |
||||||||||||||||||||||||
|
Interest checking |
$ | 641,695 | $ | 376 | 0.23 | % | $ | 510,462 | $ | 296 | 0.23 | % | ||||||||||||
|
Savings and money market |
2,828,113 | 2,172 | 0.31 | % | 2,414,194 | 1,990 | 0.33 | % | ||||||||||||||||
|
Time deposits |
1,675,482 | 1,684 | 0.40 | % | 1,286,512 | 1,688 | 0.52 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total interest-bearing deposits |
5,145,290 | 4,232 | 0.33 | % | 4,211,168 | 3,974 | 0.38 | % | ||||||||||||||||
|
Short-term borrowings |
182,683 | 2,420 | 5.30 | % | 382,064 | 275 | 0.29 | % | ||||||||||||||||
|
Long-term debt |
392,084 | 1,009 | 1.03 | % | 73,575 | 1,987 | 10.80 | % | ||||||||||||||||
|
Junior subordinated |
39,920 | 460 | 4.61 | % | 36,672 | 487 | 5.31 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total interest-bearing liabilities |
5,759,977 | 8,121 | 0.56 | % | 4,703,479 | 6,723 | 0.57 | % | ||||||||||||||||
|
Noninterest-Bearing Liabilities |
||||||||||||||||||||||||
|
Noninterest-bearing demand deposits |
1,931,127 | 1,813,050 | ||||||||||||||||||||||
|
Other liabilities |
114,750 | 70,702 | ||||||||||||||||||||||
|
Stockholders’ equity |
822,750 | 686,767 | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
|
Total Liabilities and Stockholders’ Equity |
$ | 8,628,604 | $ | 7,273,998 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Net interest income and margin (4) |
$ | 84,559 | 4.41 | % | $ | 71,946 | 4.41 | % | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
|
Net interest spread (5) |
4.25 | % | 4.24 | % | ||||||||||||||||||||
| (1) | Yields on loans and securities have been adjusted to a tax-equivalent basis. The tax-equivalent adjustments for the three months ended September 30, 2013 and 2012 were $3,272 and $2,655, respectively. |
| (2) | Net loan fees of $1.8 million are included in the yield computation for the each of the three month periods ended September 30, 2013 and 2012, respectively. |
| (3) | Includes nonaccrual loans. |
| (4) | Net interest margin is computed by dividing net interest income by total average earning assets. |
| (5) | Net interest spread represents average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. |
| (6) | Annualized. |
| (7) | Yields for 2013 and 2012 were calculated on a 30-day month 360 days per year. |
53
| Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2013 | 2012 | |||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
|
Average
Balance |
Interest |
Average
Yield/Cost (6), (7) |
Average
Balance |
Interest |
Average
Yield/Cost (6), (7) |
|||||||||||||||||||
|
Interest-Earning Assets |
||||||||||||||||||||||||
|
Securities: |
||||||||||||||||||||||||
|
Taxable |
$ | 945,316 | $ | 12,432 | 1.75 | % | $ | 1,123,340 | $ | 18,421 | 2.19 | % | ||||||||||||
|
Tax-exempt (1) |
348,957 | 11,834 | 6.55 | % | 280,810 | 9,587 | 7.00 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total securities |
1,294,273 | 24,266 | 3.05 | % | 1,404,150 | 28,008 | 3.15 | % | ||||||||||||||||
|
Loans (1) (2) (3) |
6,008,435 | 239,812 | 5.42 | % | 4,996,754 | 205,682 | 5.53 | % | ||||||||||||||||
|
Federal funds sold and other |
392,193 | 995 | 0.25 | % | 153,489 | 262 | 0.17 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total earnings assets |
7,694,901 | 265,073 | 4.76 | % | 6,554,393 | 233,952 | 4.90 | % | ||||||||||||||||
|
Nonearning Assets |
||||||||||||||||||||||||
|
Cash and due from banks |
130,258 | 115,677 | ||||||||||||||||||||||
|
Allowance for credit losses |
(97,238 | ) | (98,813 | ) | ||||||||||||||||||||
|
Bank-owned life insurance |
139,687 | 135,410 | ||||||||||||||||||||||
|
Other assets |
440,660 | 353,801 | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
|
Total assets |
$ | 8,308,268 | $ | 7,060,468 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
|
Interest-Bearing Liabilities |
||||||||||||||||||||||||
|
Sources of Funds |
||||||||||||||||||||||||
|
Interest-bearing deposits: |
||||||||||||||||||||||||
|
Interest checking |
$ | 625,830 | $ | 1,047 | 0.22 | % | 511,028 | 920 | 0.24 | % | ||||||||||||||
|
Savings and money market |
2,739,973 | 6,090 | 0.30 | % | 2,314,941 | 6,114 | 0.35 | % | ||||||||||||||||
|
Time deposits |
1,570,510 | 4,756 | 0.40 | % | 1,343,624 | 5,870 | 0.58 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total interest-bearing deposits |
4,936,313 | 11,893 | 0.32 | % | 4,169,593 | 12,904 | 0.41 | % | ||||||||||||||||
|
Short-term borrowings |
182,237 | 2,848 | 2.08 | % | 318,833 | 827 | 0.35 | % | ||||||||||||||||
|
Long-term debt |
343,809 | 6,037 | 2.34 | % | 73,470 | 5,955 | 10.81 | % | ||||||||||||||||
|
Junior subordinated |
37,636 | 1,381 | 4.89 | % | 36,974 | 1,458 | 5.26 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total interest-bearing liabilities |
5,499,995 | 22,159 | 0.54 | % | 4,598,870 | 21,144 | 0.61 | % | ||||||||||||||||
|
Noninterest-Bearing Liabilities |
||||||||||||||||||||||||
|
Noninterest-bearing demand deposits |
1,895,090 | 1,734,576 | ||||||||||||||||||||||
|
Other liabilities |
110,716 | 56,092 | ||||||||||||||||||||||
|
Stockholders’ equity |
802,467 | 670,930 | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
|
Total Liabilities and Stockholders’ Equity |
$ | 8,308,268 | $ | 7,060,468 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Net interest income and margin (4) |
$ | 242,914 | 4.38 | % | $ | 212,808 | 4.47 | % | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
|
Net interest spread (5) |
4.22 | % | 4.29 | % | ||||||||||||||||||||
| (1) | Yields on loans and securities have been adjusted to a tax-equivalent basis. The tax-equivalent adjustments for the nine months ended September 30, 2013 and 2012 were $9,583 and $6,726, respectively. |
| (2) | Net loan fees of $5.6 million and $4.9 million are included in the yield computation for the nine months ended September 30, 2013 and 2012, respectively. |
| (3) | Includes nonaccrual loans. |
| (4) | Net interest margin is computed by dividing net interest income by total average earning assets. |
| (5) | Net interest spread represents average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. |
| (6) | Annualized. |
| (7) | Yields for 2013 and 2012 were calculated on a 30-day month 360 days per year. |
54
The table below sets forth the relative impact on net interest income of changes in the volume of earning assets and interest-bearing liabilities and changes in rates earned and paid by the Company on such assets and liabilities. For purposes of this table, nonaccrual loans have been included in the average loan balances.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
| 2013 versus 2012 | 2013 versus 2012 | |||||||||||||||||||||||
| Increase (Decrease) | Increase (Decrease) | |||||||||||||||||||||||
| Due to Changes in (1)(2) | Due to Changes in (1)(2) | |||||||||||||||||||||||
| Volume | Rate | Total | Volume | Rate | Total | |||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||
|
Interest on investment securities: |
||||||||||||||||||||||||
|
Taxable |
$ | (632 | ) | $ | 647 | $ | 15 | $ | (2,570 | ) | $ | (2,135 | ) | $ | (4,705 | ) | ||||||||
|
Tax-exempt |
464 | (1,227 | ) | (763 | ) | 3,089 | (2,126 | ) | 963 | |||||||||||||||
|
Loans |
15,167 | (753 | ) | 14,414 | 41,012 | (6,882 | ) | 34,130 | ||||||||||||||||
|
Federal funds sold and other |
46 | 299 | 345 | 453 | 280 | 733 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total interest income |
15,045 | (1,034 | ) | 14,011 | 41,984 | (10,863 | ) | 31,121 | ||||||||||||||||
|
Interest expense: |
||||||||||||||||||||||||
|
Interest checking |
75 | 5 | 80 | 189 | (62 | ) | 127 | |||||||||||||||||
|
Savings and money market |
321 | (139 | ) | 182 | 954 | (978 | ) | (24 | ) | |||||||||||||||
|
Time deposits |
389 | (393 | ) | (4 | ) | 679 | (1,793 | ) | (1,114 | ) | ||||||||||||||
|
Short-term borrowings |
(2,642 | ) | 4,787 | 2,145 | (2,125 | ) | 4,146 | 2,021 | ||||||||||||||||
|
Long-term debt |
820 | (1,798 | ) | (978 | ) | 4,731 | (4,649 | ) | 82 | |||||||||||||||
|
Junior subordinated debt |
37 | (64 | ) | (27 | ) | 24 | (101 | ) | (77 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total interest expense |
(1,000 | ) | 2,398 | 1,398 | 4,452 | (3,437 | ) | 1,015 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net increase (decrease) |
$ | 16,045 | $ | (3,432 | ) | $ | 12,613 | $ | 37,532 | $ | (7,426 | ) | $ | 30,106 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| (1) | Changes due to both volume and rate have been allocated to volume changes. |
| (2) | Changes due to mark-to-market gains/losses under ASC 825 have been allocated to volume changes. |
Comparison of interest income, interest expense and net interest margin
The Company’s primary source of revenue is interest income. Interest income for the three months ended September 30, 2013 was $92.7 million, an increase of 18% when comparing interest income for the three months ended September 30, 2012. For the nine months ended September 30, 2013, interest income was $265.1 million, compared to $234.0 million for the nine months ended September 30, 2012. This increase was primarily from interest income from loans, as a result of an increase in the loan portfolio. Interest income from loans increased by $14.4 million for the three months ended September 30, 2013, compared to the three months ended September 30, 2012 and by $34.1 million for the nine months ended September 30, 2013, compared to the nine months ended September 30, 2012. This increase was a result of loan growth, including results from acquired loans. Interest income from investment securities decreased by $0.7 million to $8.3 million for the three month period ended September 30, 2013, compared to $9.0 million for the three months ended September 30, 2012. For the nine months ended September 30, 2013, interest income from investment securities decreased by $3.7 million to $24.3 million, compared to $28.0 million for the nine months ended September 30, 2012. Other interest income increased slightly by $0.3 million for the comparable three month periods and by $0.7 million for the comparable nine month periods. Despite the increased interest income, average yield on interest earning assets remained constant at 4.81% for the three months ended September 30, 2013, compared to the three months ended September 30, 2012, primarily the result of decreased yields on investment securities of 16 basis points, which was offset by increased yields on the loan portfolio and other interest earning assets of 10 basis points. For the nine months ended September 30, 2013, average yield dropped 14 basis points to 4.76%, compared to the nine months ended September 30, 2012, primarily as a result of the decreased yields on the loan portfolio of 11 basis points.
Interest expense for the three months ended September 30, 2013 compared to the three months ended September 30, 2012 increased by $1.4 million to $8.1 million from $6.7 million. Interest expense for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012 increased by $1.1 million to $22.2 million from $21.1 million. Average cost of interest bearing deposits decreased 9 basis points for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. Average cost of long-term debt decreased from 10.81% for the nine months ended September 30, 2012 to 2.34% in 2012.
Net interest income was $84.6 million for the three months ended September 30, 2013 compared to $71.9 million for the third quarter 2012, an increase of $12.7 million, or 18%. Net interest income was $242.9 million for the nine months ended September 30, 2013, compared to $212.8 million for the nine months ended September 30, 2012, an increase of $30.1 million, or 14%. The increase in net interest income reflects a $1.35 billion and $1.14 billion increase in average earning assets compared to the three and nine months ended September 30, 2012, respectively. This increase was offset by a $1.06 billion and $0.90 billion increase in average interest bearing liabilities compared to the three and nine months ended September 30, 2012, respectively. Net interest margin was 4.41% for the three months ended September 30, 2013 and 2012. Net interest margin was 4.38% for the nine months ended September 30, 2013, compared to 4.47% for the nine months ended September 30, 2012. The decreased net interest margin of 9 basis points for the nine months ended September 30, 2013 was mostly due to a decrease in yields on loans and investment securities, partially offset by a decrease in average cost of funds primarily as a result of downward repricing of deposits and reduced funding costs on long-term debt.
55
Provision for Credit Losses
The provision for credit losses in each period is reflected as a charge against earnings in that period. The provision is equal to the amount required to maintain the allowance for credit losses at a level that is adequate to absorb probable credit losses inherent in the loan portfolio. The provision for credit losses decreased by $8.9 million to $0 for the three months ended September 30, 2013, compared with $8.9 million for the three months ended September 30, 2012. For the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012, the provision for credit losses decreased by $26.4 million to $8.9 million compared to $35.3 million. The provision decrease for the three and nine month comparable periods was mostly due to loan recoveries of $533 thousand and $1.4 million on construction and land development loans, respectively, as well as recoveries of $278 thousand on commercial real estate loans for the three months ended September 30, 2013. The Company has been experiencing a downward trend in net charge-offs and overall improved credit quality, which released some reserves due to improved quantitative factors. The Company may establish an additional allowance for credit losses for loans acquired with deteriorated credit quality through a charge to provision for credit losses when impairment is determined as a result of lower than expected cash flows. As of September 30, 2013, the Company held an additional allowance for loans acquired with deteriorated credit quality of $1.4 million.
Non-Interest Income
The Company earned non-interest income primarily through fees related to services, services provided to loan and deposit customers, bank owned life insurance, investment securities gains, mark to market gains (losses) and other.
The following table presents a summary of non-interest income for the periods presented:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 30, |
Increase
(Decrease) |
September 30, |
Increase
(Decrease) |
|||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||
|
Service charges and fees |
$ | 2,425 | $ | 2,412 | $ | 13 | $ | 7,408 | $ | 7,014 | $ | 394 | ||||||||||||
|
Income from bank owned life insurance |
1,832 | 1,116 | 716 | 3,904 | 3,359 | 545 | ||||||||||||||||||
|
Amortization of affordable housing investments |
(1,504 | ) | (651 | ) | (853 | ) | (3,304 | ) | (710 | ) | (2,594 | ) | ||||||||||||
|
(Loss) Gain on sale of investment securities, net |
(1,679 | ) | 1,031 | (2,710 | ) | (1,537 | ) | 2,502 | (4,039 | ) | ||||||||||||||
|
Mark to market (losses) gains, net |
(7 | ) | 470 | (477 | ) | (3,865 | ) | 701 | (4,566 | ) | ||||||||||||||
|
Bargain purchase gain from acquisition |
— | — | — | 10,044 | — | 10,044 | ||||||||||||||||||
|
Other income |
1,558 | 2,604 | (1,046 | ) | 4,736 | 7,397 | (2,661 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total non-interest income |
$ | 2,625 | $ | 6,982 | $ | (4,357 | ) | $ | 17,386 | $ | 20,263 | $ | (2,877 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total non-interest income for the three months ended September 30, 2013 decreased by $4.4 million, or 62%, compared to the three months ended September 30, 2012. This decrease is primarily due to the change from a net gain on sale of investment securities of $1.0 million for the three months ended September 30, 2012, compared to a net loss of $1.7 million for the three months ended September 30, 2013. In addition, there was a decrease of $1.0 million in other non-interest income for the three months ended September 30, 2013, compared to the same period last year.
Total non-interest income for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012 declined by $2.9 million, or 14%. This decrease is attributable to the $2.6 million decrease in amortization of affordable housing investments, the change from a net gain on sale of investment securities to a net loss in 2013, resulting in a $4.0 million decrease, the change from a net mark to market gain to a net loss, causing a decrease of $4.6 million, and the decrease in other non-interest income of $2.7 million. These decreases were partially offset by the $10.0 million bargain purchase gain recognized during the nine months ended September 30, 2013 as a result of the Centennial acquisition.
56
Non-Interest Expense
The following table presents a summary of non-interest expenses for the periods indicated:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 30, |
Increase
(Decrease) |
September 30, |
Increase
(Decrease) |
|||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||
|
Salaries and employee benefits |
$ | 28,689 | $ | 25,500 | $ | 3,189 | $ | 83,363 | $ | 78,159 | $ | 5,204 | ||||||||||||
|
Occupancy |
4,901 | 4,655 | 246 | 14,500 | 14,046 | 454 | ||||||||||||||||||
|
Legal, professional and directors’ fees |
3,006 | 2,291 | 715 | 8,017 | 6,380 | 1,637 | ||||||||||||||||||
|
Data processing |
1,872 | 1,390 | 482 | 5,912 | 3,678 | 2,234 | ||||||||||||||||||
|
Insurance |
1,884 | 2,121 | (237 | ) | 6,350 | 6,323 | 27 | |||||||||||||||||
|
Marketing |
1,599 | 1,231 | 368 | 4,970 | 4,061 | 909 | ||||||||||||||||||
|
Loan and repossessed asset expense |
1,136 | 1,236 | (100 | ) | 3,453 | 4,573 | (1,120 | ) | ||||||||||||||||
|
Customer service |
677 | 653 | 24 | 2,037 | 1,926 | 111 | ||||||||||||||||||
|
Net loss (gain) on sales/valuations of repossesed assets and bank premises, net |
371 | 126 | 245 | (234 | ) | 3,678 | (3,912 | ) | ||||||||||||||||
|
Intangible amortization |
597 | 880 | (283 | ) | 1,791 | 2,660 | (869 | ) | ||||||||||||||||
|
Goodwill and intangible impairment |
— | 3,435 | (3,435 | ) | — | 3,435 | (3,435 | ) | ||||||||||||||||
|
Merger / restructure expenses |
1,018 | 113 | 905 | 3,833 | 113 | 3,720 | ||||||||||||||||||
|
Other expense |
3,925 | 3,912 | 13 | 11,143 | 10,839 | 304 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total non-interest expense |
$ | 49,675 | $ | 47,543 | $ | 2,132 | $ | 145,135 | $ | 139,871 | $ | 5,264 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total non-interest expense for the three months ended September 30, 2013 compared to the same period in 2012 increased by $2.1 million. The most significant changes for the third quarter 2013 compared to the third quarter 2012 were an increase in salaries and employee benefits of $3.2 million and merger / restructure expenses of $0.9 million. These increases were offset by the decrease in goodwill and intangible impairment of $3.4 million from the third quarter 2012.
Total non-interest expense for the nine months ended September 30, 2013 compared to the same period in 2012 increased by $5.3 million. The change primarily relates to the increases in salaries and employee benefits of $5.2 million, data processing costs of $2.2 million and merger / restructure expenses of $3.7 million. These increases were offset by the change from a net loss to a net gain on sales/valuations of repossessed assets and bank premises, generating a decrease of $3.9 million, and the decrease in goodwill and intangible impairment of $3.4 million from the nine months ended September 30, 2012.
Discontinued Operations
The Company has discontinued its affinity credit card business, PartnersFirst, and has presented these activities as discontinued operations. At September 30, 2013 and December 31, 2012, the outstanding credit card loans held for sale were $25.4 million and $31.1 million, respectively. No significant gain or loss was recognized as a result of this transaction.
The following table summarizes the operating results of the discontinued operations for the periods indicated:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| (in thousands) | ||||||||||||||||
|
Operating revenue |
$ | 1,105 | $ | 315 | $ | 3,376 | $ | 947 | ||||||||
|
Non-interest expenses |
(1,155 | ) | (734 | ) | (3,653 | ) | (2,130 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Loss before income taxes |
(50 | ) | (419 | ) | (277 | ) | (1,183 | ) | ||||||||
|
Income tax benefit |
(21 | ) | (176 | ) | (117 | ) | (497 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net loss |
$ | (29 | ) | $ | (243 | ) | $ | (160 | ) | $ | (686 | ) | ||||
|
|
|
|
|
|
|
|
|
|||||||||
Business Segment Results
The Company has three wholly owned subsidiary banks: Western Alliance Bank, Bank of Nevada, and Torrey Pines Bank. The Company has filed with the FDIC and state regulators an application to consolidate its three bank subsidiaries into one charter.
57
Western Alliance Bank, which consists of Alliance Bank of Arizona, operating in Arizona, and First Independent Bank, operating in Northern Nevada, reported net income of $9.8 million and $38.8 million for the three and nine months ended September 30, 2013, respectively, compared to $8.8 million and $26.4 million for the three and nine months ended September 30, 2012, respectively. The increase in net income of $12.4 million for the nine months ended September 30, 2013 compared to 2012 is mostly due to the $10.0 million bargain purchase gain on the Centennial acquisition. Total loans grew by $552.1 million to $2.59 billion at September 30, 2013, compared to $2.04 billion at December 30, 2012. In addition, total deposits increased by $607.8 million to $2.83 billion at September 30, 2013 from $2.22 billion at December 31, 2012.
Bank of Nevada reported net income of $16.3 million and $39.7 million for the three and nine months ended September 30, 2013, respectively, compared to net income of $5.8 million and $10.6 million for the three and nine months ended September 30, 2012, respectively. The $10.5 million increase in net income for the comparable three month periods was primarily due to decreased provision for credit losses of $13.5 million, resulting in a $6.9 million recovery for the three months ended September 30, 2013, as credit quality has improved and net interest income increased by $4.2 million, partially offset by increased income tax expense of $4.0 million and increased non-interest expense of $2.3 million. For the comparable nine month periods of 2013 to 2012, the increase was also due to similar factors. The provision for credit losses decreased $34.4 million, as credit quality improved and net interest income increased by $8.8 million, partially offset by increased income tax expense of $13.0 million. Total deposits at Bank of Nevada grew by $44.4 million to $2.61 billion at September 30, 2013, compared to $2.57 billion at December 31, 2012. Total loans increased by $203.8 million to $2.39 billion at September 30, 2013 from $2.18 billion at December 31, 2012, primarily due to net affiliate loan sales and participations.
Torrey Pines Bank, which excludes discontinued operations, reported net income for the three and nine months ended September 30, 2013 of $4.6 million and $16.8 million, respectively, compared to $6.4 million and $17.5 million for the three and nine months ended September 30, 2012, respectively. The decrease in net income of $1.8 million for the third quarter 2013 compared to 2012 was mostly due to increased provision for credit losses of $1.2 million and decreased non-interest income of $0.7 million. For the nine months ended September 30, 2013 compared to 2012, the $0.7 million decrease in net income was primarily the result of decreased net interest income of $2.0 million and decreased non-interest income of $1.8 million, offset by decreased provision for credit losses of $2.1 million. Total deposits at Torrey Pines Bank increased by $165.4 million to $1.84 billion at September 30, 2013, compared to $1.68 billion at December 31, 2012. Total loans increased by $15.9 million to $1.52 billion at September 30, 2013 from $1.51 billion at December 31, 2012.
The other business segment, which includes the holding company, Shine (until October 31, 2012), Western Alliance Equipment Finance, the discontinued operations related to the affinity credit card business, excluding loans held for sale (which are included in TPB), and Las Vegas Sunset Properties, reported a net loss of $2.5 million and $12.0 million for the three and nine months ended September 30, 2013, respectively, compared to a net loss of $5.5 million and $13.7 million for the three and nine months ended September 30, 2012, respectively. The decline in the net loss for the comparable three month periods of $3.0 million was primarily due to a recovery in credit losses of $1.7 million and decreased non-interest expense of $3.0 million, slightly offset by the decrease in non-interest income of $1.7 million. The decline in the net loss for the comparable nine month periods of $1.7 million is primarily due to increased income tax benefit of $3.2 million, slightly offset by increased provision for credit losses of $1.3 million.
Balance Sheet Analysis
Total assets increased $1.30 billion, or 17%, to $8.92 billion at September 30, 2013, compared to $7.62 billion at December 31, 2012. The increase primarily relates to increased loans held for investment of $812.7 million, increased deposits in other financial institutions of $175.5 million and the addition of securities purchased under agreement to resell of $128.1 million, as compared to December 31, 2012.
Total liabilities increased $1.24 billion, or 18%, to $8.10 billion at September 30, 2013 from $6.86 billion at December 31, 2012. The increase primarily relates to increased interest bearing deposits of $780.8 million and increased other borrowings of $200.4 million, as compared to December 31, 2012.
Total stockholders’ equity increased by $66.7 million, or 9%, to $826.3 million at September 30, 2013 from $759.6 million at December 31, 2012.
58
The following table shows the amounts of loans held for investment by type of loan at the end of each of the periods indicated.
| September 30, | December 31, | |||||||
| 2013 | 2012 | |||||||
| (in thousands) | ||||||||
|
Commercial and industrial |
$ | 1,990,568 | $ | 1,659,003 | ||||
|
Commercial real estate—non-owner occupied |
1,864,333 | 1,505,600 | ||||||
|
Commercial real estate—owner occupied |
1,551,187 | 1,396,797 | ||||||
|
Construction and land development |
459,764 | 394,319 | ||||||
|
Residential real estate |
358,962 | 407,937 | ||||||
|
Commercial leases |
244,312 | 288,747 | ||||||
|
Consumer |
29,850 | 31,836 | ||||||
|
Deferred fees and unearned income, net |
(8,106 | ) | (6,045 | ) | ||||
|
|
|
|
|
|||||
| 6,490,870 | 5,678,194 | |||||||
|
Allowance for credit losses |
(97,851 | ) | (95,427 | ) | ||||
|
|
|
|
|
|||||
|
Total |
$ | 6,393,019 | $ | 5,582,767 | ||||
|
|
|
|
|
|||||
Concentrations of Lending Activities
The Company’s lending activities are primarily driven by the customers served in the market areas where the Company has branch offices in the states of Nevada, California and Arizona. The Company monitors concentrations within five broad categories: geography, industry, product, call code, and collateral. The Company grants commercial, construction, real estate and consumer loans to customers through branch offices located in the Company’s primary markets. The Company’s business is concentrated in these areas and the loan portfolio includes significant credit exposure to the commercial real estate market in these areas. As of September 30, 2013 and December 31, 2012, commercial real estate related loans accounted for approximately 59% and 58% of total loans, respectively, and approximately 1% and 3% of these loans are secured by undeveloped land, respectively. Substantially all of these loans are secured by first liens with an initial loan to value ratio of generally not more than 75%. Approximately 40% and 48% of these commercial real estate loans, excluding construction and land loans, were owner occupied at September 30, 2013 and December 31, 2012, respectively. In addition, approximately 3% and 4% of total loans were unsecured as of September 30, 2013 and December 31, 2012, respectively.
Impaired Loans
A loan is identified as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the original loan agreement. Generally, impaired loans are classified as nonaccrual. However, in certain instances, impaired loans may continue on an accrual basis, such as loans classified as impaired due to doubt regarding collectability according to contractual terms, but which are both fully secured by collateral and are current in their interest and principal payments. Impaired loans are measured for reserve requirements in accordance with FASB ASC 310, Receivables, based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral less applicable disposition costs if the loan is collateral dependent. The amount of an impairment reserve, if any, and any subsequent changes are charged against the allowance for credit losses. In addition to our own internal loan review process, the Federal Deposit Insurance Corporation (“FDIC”) may from time to time direct the Company to modify loan grades, loan impairment calculations or loan impairment methodology.
Total nonaccrual loans and loans past due 90 days or more and still accruing decreased by $24.0 million, or 23%, at September 30, 2013 to $82.1 million from $106.1 million at December 31, 2012.
59
The following table summarizes nonperforming assets:
| September 30, | December 31, | |||||||
| 2013 | 2012 | |||||||
| (in thousands) | ||||||||
|
Nonaccrual loans |
$ | 76,641 | $ | 104,716 | ||||
|
Loans past due 90 days or more on accrual status |
5,456 | 1,388 | ||||||
|
Troubled debt restructured loans |
87,387 | 84,609 | ||||||
|
|
|
|
|
|||||
|
Total nonperforming loans |
169,484 | 190,713 | ||||||
|
Other assets acquired through foreclosure, net |
76,475 | 77,247 | ||||||
|
|
|
|
|
|||||
|
Total nonperforming assets |
$ | 245,959 | $ | 267,960 | ||||
|
|
|
|
|
|||||
The following table summarizes the loans for which the accrual of interest has been discontinued, loans past due 90 days or more and still accruing interest, restructured loans, and other impaired loans:
| September 30, | December 31, | |||||||
| 2013 | 2012 | |||||||
| (dollars in thousands) | ||||||||
|
Total nonaccrual loans |
$ | 76,641 | $ | 104,716 | ||||
|
Loans past due 90 days or more on accrual status |
5,456 | 1,388 | ||||||
|
|
|
|
|
|||||
|
Total nonperforming loans |
82,097 | 106,104 | ||||||
|
Troubled debt restructured loans |
87,387 | 84,609 | ||||||
|
Other impaired loans |
4,747 | 7,442 | ||||||
|
|
|
|
|
|||||
|
Total impaired loans |
$ | 174,231 | $ | 198,155 | ||||
|
|
|
|
|
|||||
|
Other assets acquired through foreclosure, net |
$ | 76,475 | $ | 77,247 | ||||
|
Nonaccrual loans to gross loans |
1.18 | % | 1.83 | % | ||||
|
Loans past due 90 days or more on accrual status to total loans |
0.08 | 0.02 | ||||||
|
Interest income received on nonaccrual loans |
$ | 260 | $ | 191 | ||||
|
Interest income that would have been recorded under the original terms of nonaccrual loans |
$ | 1,319 | $ | 5,469 | ||||
The composite of nonaccrual loans were as follows as of the dates indicated:
| At September 30, 2013 | At December 31, 2012 | |||||||||||||||||||||||
|
Nonaccrual
Balance |
% |
Percent of
Total Loans |
Nonaccrual
Balance |
% |
Percent of
Total Loans |
|||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
|
Construction and land development |
$ | 6,642 | 8.67 | % | 0.10 | % | $ | 11,093 | 10.59 | % | 0.19 | % | ||||||||||||
|
Residential real estate |
19,244 | 25.11 | % | 0.30 | % | 26,722 | 25.52 | % | 0.47 | % | ||||||||||||||
|
Commercial real estate |
46,259 | 60.35 | % | 0.71 | % | 59,975 | 57.28 | % | 1.05 | % | ||||||||||||||
|
Commercial and industrial |
4,468 | 5.83 | % | 0.07 | % | 6,722 | 6.42 | % | 0.12 | % | ||||||||||||||
|
Consumer |
28 | 0.04 | % | 0.00 | % | 204 | 0.19 | % | 0.00 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total nonaccrual loans |
$ | 76,641 | 100.00 | % | 1.18 | % | $ | 104,716 | 100.00 | % | 1.83 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
As of September 30, 2013 and December 31, 2012, nonaccrual loans totaled $76.6 million and $104.7 million, respectively. Nonaccrual loans by bank at September 30, 2013 were $35.4 million at Bank of Nevada, $14.8 million at Western Alliance Bank and $7.2 million at Torrey Pines Bank, compared to $73.5 million at Bank of Nevada, $23.6 million at Western Alliance Bank and $7.6 million at Torrey Pines Bank at December 31, 2012. Nonaccrual loans held at the parent and Las Vegas Sunset Properties were $19.3 million at September 30, 2013, compared to $0 at September 30, 2012. Nonaccrual loans as a percentage of total gross loans were 1.18% and 1.83% at September 30, 2013 and December 31, 2012, respectively. Nonaccrual loans as a percentage of each bank’s total loans at September 30, 2013 were 1.48% at Bank of Nevada, 0.57% at Western Alliance Bank, and 0.47% at Torrey Pines Bank, compared to 3.37% at Bank of Nevada, 1.16% at Western Alliance Bank and 0.51% at Torrey Pines Bank at December 31, 2012. Total lost interest on nonaccrual loans for the three and nine months ended September 30, 2013 was $1.3 million and $3.8 million, respectively, compared to $1.3 million and $4.1 million for the three and nine months ended September 30, 2012, respectively. The Company recognized $0.3 million and $1.3 million of cash interest on nonaccrual loans for the three and nine months ended September 30, 2013, respectively, compared to $30 thousand and $0.2 million for the three and nine months ended September 30, 2012.
60
Troubled Debt Restructured Loans
A troubled debt restructured loan is a loan on which the Company, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. The loan terms that have been modified or restructured due to a borrower’s financial situation include, but are not limited to, a reduction in the stated interest rate, an extension of the maturity or renewal of the loan at an interest rate below current market, a reduction in the face amount of the debt, a reduction in the accrued interest, extensions, deferrals, renewals and rewrites. A troubled debt restructured loan is also considered impaired. Generally, a loan that is modified at an effective market rate of interest may no longer be disclosed as a troubled debt restructuring in years subsequent to the restructuring if it is not impaired based on the terms specified by the restructuring agreement.
During the first quarter 2012, the FDIC conducted an annual safety and soundness examination of Bank of Nevada. As part of the exam, the FDIC reviewed the Company’s allowance for loan and lease losses and evaluated certain loans for which the net present value method was used to measure impairment. The FDIC recommended that the Company change from the net present value method to the collateral dependent method for certain loans which had adequate current cash flows to meet principal and interest debt service requirements, but which had collateral deficits relative to the principal amount of the loan obligation, and limited guarantor support. Following the exam and in the course of evaluating assets for impairment in the first quarter of 2012, the Company substituted the collateral dependent method with respect to the loans identified by the FDIC, which resulted in an increase to the allowance for credit losses of $4.1 million.
As of September 30, 2013 and December 31, 2012, the aggregate amount of loans classified as impaired was $174.2 million and $198.2 million, respectively, a net decrease of 12%. The total specific allowance for credit losses related to these loans was $5.9 million and $12.9 million at September 30, 2013 and December 31, 2012, respectively. As of September 30, 2013 and December 31, 2012, the Company had $87.4 million and $84.6 million, respectively, in loans classified as accruing restructured loans. The net decrease in impaired loans is primarily attributable to decreased commercial real estate, construction and land development and residential real estate impaired loans, by $11.0 million, $5.7 million and $5.0 million, respectively, compared to December 31, 2012. Impaired loans by bank (excluding loans acquired with deteriorated credit quality) at September 30, 2013 were $77.2 million at Bank of Nevada, $30.9 million at Western Alliance Bank, and $18.2 million at Torrey Pines Bank, compared to $123.4 million at Bank of Nevada, $43.4 million at Western Alliance Bank, and $18.8 million at Torrey Pines Bank at December 31, 2012. Additionally, Western Alliance Bancorporation held $47.9 million of impaired loans at September 30, 2013, compared to $12.7 million at December 31, 2012.
The following table includes the breakdown of total impaired loans and the related specific reserves:
| At September 30, 2013 | ||||||||||||||||||||||||
|
Impaired
Balance |
Percent |
Percent of
Total Loans |
Reserve
Balance |
Percent |
Percent of
Total Allowance |
|||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
|
Construction and land development |
$ | 26,748 | 15.35 | % | 0.41 | % | $ | 831 | 14.05 | % | 0.85 | % | ||||||||||||
|
Residential real estate |
32,811 | 18.83 | % | 0.50 | % | 2,594 | 43.90 | % | 2.65 | % | ||||||||||||||
|
Commercial real estate |
99,568 | 57.16 | % | 1.53 | % | 1,390 | 23.52 | % | 1.42 | % | ||||||||||||||
|
Commercial and industrial |
14,573 | 8.36 | % | 0.22 | % | 1,090 | 18.45 | % | 1.11 | % | ||||||||||||||
|
Consumer |
531 | 0.30 | % | 0.01 | % | 4 | 0.08 | % | 0.00 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total impaired loans |
$ | 174,231 | 100.00 | % | 2.67 | % | $ | 5,909 | 100.00 | % | 6.03 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
61
| At December 31, 2012 | ||||||||||||||||||||||||
| Impaired | Percent of | Reserve | Percent of | |||||||||||||||||||||
| Balance | Percent | Total Loans | Balance | Percent | Total Allowance | |||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
|
Construction and land development |
$ | 32,492 | 16.40 | % | 0.57 | % | $ | 284 | 2.21 | % | 0.30 | % | ||||||||||||
|
Residential real estate |
37,851 | 19.10 | % | 0.66 | % | 5,448 | 42.34 | % | 5.71 | % | ||||||||||||||
|
Commercial real estate |
110,538 | 55.78 | % | 1.94 | % | 4,417 | 34.33 | % | 4.63 | % | ||||||||||||||
|
Commercial and industrial |
16,510 | 8.33 | % | 0.29 | % | 2,552 | 19.84 | % | 2.67 | % | ||||||||||||||
|
Consumer |
764 | 0.39 | % | 0.01 | % | 165 | 1.28 | % | 0.17 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total impaired loans |
$ | 198,155 | 100.00 | % | 3.47 | % | $ | 12,866 | 100.00 | % | 13.48 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The following table summarizes the activity in our allowance for credit losses for the periods indicated.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
|
Allowance for credit losses: |
||||||||||||||||
|
Balance at beginning of period |
$ | 96,323 | $ | 97,512 | $ | 95,427 | $ | 99,170 | ||||||||
|
Provisions charged to operating expenses : |
||||||||||||||||
|
Commercial and industrial |
354 | 5,611 | 5,514 | 12,601 | ||||||||||||
|
Commercial real estate—non-owner occupied |
967 | 180 | 4,691 | 3,312 | ||||||||||||
|
Commercial real estate—owner occupied |
(1,245 | ) | 2,144 | (1,665 | ) | 9,003 | ||||||||||
|
Construction and land development |
(533 | ) | 18 | (1,442 | ) | 7,170 | ||||||||||
|
Residential real estate |
(247 | ) | (82 | ) | 1,748 | 643 | ||||||||||
|
Consumer |
704 | 1,061 | 74 | 2,614 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Provision |
— | 8,932 | 8,920 | 35,343 | ||||||||||||
|
Recoveries of loans previously charged-off: |
||||||||||||||||
|
Commercial and industrial |
2,242 | 501 | 4,440 | 2,695 | ||||||||||||
|
Commercial real estate—non-owner occupied |
273 | 27 | 867 | 1,030 | ||||||||||||
|
Commercial real estate—owner occupied |
149 | 606 | 1,130 | 1,867 | ||||||||||||
|
Construction and land development |
966 | 567 | 1,787 | 870 | ||||||||||||
|
Residential real estate |
430 | 153 | 1,548 | 765 | ||||||||||||
|
Consumer |
726 | 38 | 751 | 294 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total recoveries |
4,786 | 1,892 | 10,523 | 7,521 | ||||||||||||
|
Loans charged-off: |
||||||||||||||||
|
Commercial and industrial |
544 | 4,100 | 3,379 | 12,687 | ||||||||||||
|
Commercial real estate—non-owner occupied |
465 | 998 | 3,373 | 5,380 | ||||||||||||
|
Commercial real estate—owner occupied |
399 | 472 | 2,769 | 6,643 | ||||||||||||
|
Construction and land development |
— | 2,315 | 852 | 10,587 | ||||||||||||
|
Residential real estate |
1,138 | 2,242 | 5,641 | 5,756 | ||||||||||||
|
Consumer |
712 | 799 | 1,005 | 3,571 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total charged-off |
3,258 | 10,926 | 17,019 | 44,624 | ||||||||||||
|
Net loan (recoveries) charge-offs |
(1,528 | ) | 9,034 | 6,496 | 37,103 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Balance at end of period |
$ | 97,851 | $ | 97,410 | $ | 97,851 | $ | 97,410 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net (recoveries) charge-offs to average loans outstanding—annualized |
(0.10 | )% | 0.70 | % | 0.22 | % | 0.99 | % | ||||||||
|
Allowance for credit losses to gross loans |
1.50 | % | 1.83 | % | ||||||||||||
62
The following table summarizes the allowance for credit losses by loan type. However, allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories:
| Allowance for Credit Losses at September 30, 2013 | ||||||||||||
| (dollars in thousands) | ||||||||||||
| Amount |
% of Total
Allowance For Credit Losses |
% of Loans in Each
Category to Gross Loans |
||||||||||
|
Construction and land development |
$ | 10,047 | 10.27 | % | 7.07 | % | ||||||
|
Commercial real estate |
33,863 | 34.60 | % | 52.55 | % | |||||||
|
Residential real estate |
12,892 | 13.18 | % | 5.52 | % | |||||||
|
Commercial and industrial |
39,435 | 40.30 | % | 34.39 | % | |||||||
|
Consumer |
1,614 | 1.65 | % | 0.47 | % | |||||||
|
|
|
|
|
|
|
|||||||
|
Total |
$ | 97,851 | 100.00 | % | 100.00 | % | ||||||
|
|
|
|
|
|
|
|||||||
| Allowance for Credit Losses at December 31, 2012 | ||||||||||||
| (dollars in thousands) | ||||||||||||
| Amount |
% of Total
Allowance For Credit Losses |
% of Loans in Each
Category to Gross Loans |
||||||||||
|
Construction and land development |
$ | 10,554 | 11.06 | % | 6.90 | % | ||||||
|
Commercial real estate |
34,982 | 36.66 | % | 51.10 | % | |||||||
|
Residential real estate |
15,237 | 15.97 | % | 7.20 | % | |||||||
|
Commercial and industrial |
32,860 | 34.43 | % | 34.30 | % | |||||||
|
Consumer |
1,794 | 1.88 | % | 0.50 | % | |||||||
|
|
|
|
|
|
|
|||||||
|
Total |
$ | 95,427 | 100.00 | % | 100.00 | % | ||||||
|
|
|
|
|
|
|
|||||||
The allowance for credit losses as a percentage of total loans decreased to 1.50% at September 30, 2013 from 1.67% at December 31, 2012. The Company’s credit loss reserve at September 30, 2013 increased to $97.9 million from $95.4 million at December 31, 2012. Although the Company has increased the size of its loan portfolio, the total balance of the allowance for credit losses has stayed relatively flat due to improving credit quality.
Potential Problem Loans
The Company classifies loans consistent with federal banking regulations using a nine category grading system. These loan grades are described in further detail in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 under “Item 1. Business.” The following table presents information regarding potential problem loans, consisting of loans graded special mention, substandard, doubtful and loss, but still performing:
| At September 30, 2013 | ||||||||||||||||
| Number | Loan | Percent of | ||||||||||||||
| of Loans | Balance | Percent | Total Loans | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
|
Construction and land development |
6 | $ | 11,327 | 9.26 | % | 0.17 | % | |||||||||
|
Commercial real estate |
63 | 82,311 | 67.33 | % | 1.26 | % | ||||||||||
|
Residential real estate |
24 | 9,761 | 7.99 | % | 0.15 | % | ||||||||||
|
Commercial and industrial |
66 | 17,569 | 14.37 | % | 0.27 | % | ||||||||||
|
Consumer |
8 | 1,289 | 1.05 | % | 0.02 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
167 | $ | 122,257 | 100.00 | % | 1.87 | % | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
63
| At December 31, 2012 | ||||||||||||||||
| Number | Loan | Percent of | ||||||||||||||
| of Loans | Balance | Percent | Total Loans | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
|
Construction and land development |
8 | $ | 5,821 | 4.89 | % | 0.10 | % | |||||||||
|
Commercial real estate |
70 | 82,422 | 69.30 | % | 1.44 | % | ||||||||||
|
Residential real estate |
34 | 9,749 | 8.20 | % | 0.17 | % | ||||||||||
|
Commercial and industrial |
79 | 20,155 | 16.95 | % | 0.35 | % | ||||||||||
|
Consumer |
6 | 783 | 0.66 | % | 0.01 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
197 | $ | 118,930 | 100.00 | % | 2.07 | % | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Investment Securities
Investment securities are classified at the time of acquisition as either held-to-maturity (“HTM”), available-for-sale (“AFS”), or trading based upon various factors, including Management’s asset/liability strategies, liquidity and profitability objectives, and regulatory requirements. HTM securities are carried at amortized cost, adjusted for amortization of premiums or accretion of discounts. AFS securities are securities that may be sold prior to maturity based upon Management’s asset/liability decisions. Investment securities identified as available-for-sale are carried at fair value. Unrealized gains or losses on available-for-sale securities are recorded as accumulated other comprehensive income in stockholders’ equity. Amortization of premiums or accretion of discounts on mortgage-backed securities is periodically adjusted for estimated prepayments. Investment securities measured at fair value are reported at fair value, with unrealized gains and losses included in current period earnings.
The investment securities portfolio of the Company is utilized as collateral for borrowings, required collateral for public deposits and customer repurchase agreements and, to manage liquidity, capital and interest rate risk.
The carrying value of investment securities at September 30, 2013 and December 31, 2012 was as follows:
| September 30, | December 31, | |||||||
| 2013 | 2012 | |||||||
| (in thousands) | ||||||||
|
U.S. government sponsored agency securities |
$ | 27,377 | $ | — | ||||
|
Direct obligations and GSE residential mortgage-backed securities |
772,099 | 668,265 | ||||||
|
Private label residential mortgage-backed securities |
26,147 | 35,607 | ||||||
|
Municipal obligations |
295,225 | 265,073 | ||||||
|
Adjustable-rate preferred stock |
61,389 | 75,555 | ||||||
|
Mutual funds |
32,323 | 37,961 | ||||||
|
CRA investments |
24,900 | 25,816 | ||||||
|
Trust preferred securities |
23,834 | 24,135 | ||||||
|
Collateralized debt obligations |
50 | 50 | ||||||
|
Private label commercial mortgage-backed securities |
— | 5,741 | ||||||
|
Collateralized mortgage-backed securities |
5,493 | — | ||||||
|
Corporate bonds |
97,778 | 97,781 | ||||||
|
|
|
|
|
|||||
|
Total investment securities |
$ | 1,366,615 | $ | 1,235,984 | ||||
|
|
|
|
|
|||||
Gross unrealized losses at September 30, 2013 and December 31, 2012 are primarily caused by interest rate fluctuations, credit spread widening and reduced liquidity in applicable markets. The Company has reviewed investment securities on which there is an unrealized loss in accordance with its accounting policy for OTTI described in Note 3, “Investment Securities,” and determined there was no OTTI for the three and nine months ended September 30, 2013 and 2012.
The Company does not consider any securities, other than those impaired in prior periods, to be other-than-temporarily impaired as of September 30, 2013 and December 31, 2012. However, without recovery in the near term such that liquidity returns to the applicable markets and spreads return to levels that reflect underlying credit characteristics, additional OTTI may occur in future periods.
64
Goodwill and Intangibles
Goodwill is created when a company acquires a business. When a business is acquired, the purchased assets and liabilities are recorded at fair value and intangible assets are identified. Excess consideration paid to acquire a business over the fair value of the net assets is recorded as goodwill. The Company’s annual goodwill impairment test is performed as of October 1. The Company determined that there was no triggering event or other factor to indicate an interim test of goodwill impairment was necessary for the third quarter of 2013.
Deferred Tax Asset
WAL and its subsidiaries, other than BW Real Estate, Inc., file a consolidated federal tax return. Due to tax regulations, several items of income and expense are recognized in different periods for tax return purposes than for financial reporting purposes. These items represent “temporary differences.” Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of Management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.
Although realization is not assured, the Company believes that the realization of the net deferred tax asset is more likely than not based on expectations as to future taxable income and based on available tax planning strategies as defined in FASB ASC 740, Income Taxes (“ASC 740”), that could be implemented if necessary to prevent a carryforward from expiring.
See Note 12, “Income Taxes” to the Consolidated Financial Statements for further discussion on income taxes.
Deposits
Deposits have been the primary source for funding the Company’s asset growth. At September 30, 2013, total deposits were $7.28 billion, compared to $6.46 billion at December 31, 2012. The deposit growth of $820.1 million, or 13%, was primarily driven by increased interest-bearing demand deposits of $780.8 million. In addition, the bank subsidiaries are members of Certificate of Deposit Registry Service (“CDARS”) and Insured Cash Sweep Service (“ICS”). CDARS and ICS provide mechanisms for obtaining FDIC insurance on large deposits. At September 30, 2013, the Company had $459.2 million of CDARS deposits and $232.0 million of ICS deposits. At December 31, 2012, the Company had $386.3 million of CDARS deposits and $107.6 million ICS deposits. At September 30, 2013 and December 31, 2012, the Company had $229.7 million and $99.8 million, respectively, of wholesale brokered deposits.
The following table provides the average balances and weighted average rates paid on deposits:
| Three Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| 2013 | 2012 | |||||||||||||||
|
Average
Balance/Rate |
Average
Balance/Rate |
|||||||||||||||
| (dollars in thousands) | ||||||||||||||||
|
Interest checking (NOW) |
$ | 641,695 | 0.23 | % | $ | 510,462 | 0.23 | % | ||||||||
|
Savings and money market |
2,828,113 | 0.31 | 2,414,194 | 0.33 | ||||||||||||
|
Time |
1,675,482 | 0.40 | 1,286,512 | 0.52 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total interest-bearing deposits |
5,145,290 | 0.33 | 4,211,168 | 0.38 | ||||||||||||
|
Noninterest bearing demand deposits |
1,931,127 | — | 1,813,050 | — | ||||||||||||
|
|
|
|
|
|||||||||||||
|
Total deposits |
$ | 7,076,417 | 0.24 | % | $ | 6,024,218 | 0.27 | % | ||||||||
|
|
|
|
|
|||||||||||||
65
| Nine Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| 2013 | 2012 | |||||||||||||||
|
Average
Balance/Rate |
Average
Balance/Rate |
|||||||||||||||
| (dollars in thousands) | ||||||||||||||||
|
Interest checking (NOW) |
$ | 625,830 | 0.22 | % | $ | 511,028 | 0.24 | % | ||||||||
|
Savings and money market |
2,739,973 | 0.30 | 2,314,941 | 0.35 | ||||||||||||
|
Time |
1,570,510 | 0.40 | 1,343,624 | 0.58 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total interest-bearing deposits |
4,936,313 | 0.32 | 4,169,593 | 0.41 | ||||||||||||
|
Noninterest bearing demand deposits |
1,895,090 | — | 1,734,576 | — | ||||||||||||
|
|
|
|
|
|||||||||||||
|
Total deposits |
$ | 6,831,403 | 0.23 | % | $ | 5,904,169 | 0.29 | % | ||||||||
|
|
|
|
|
|||||||||||||
Other Assets Acquired Through Foreclosure
The following table presents the changes in other assets acquired through foreclosure:
| For the Three Months Ended September 30, | ||||||||||||||||||||||||
| 2013 | 2012 | |||||||||||||||||||||||
|
Gross
Balance |
Valuation
Allowance |
Net Balance | Gross Balance |
Valuation
Allowance |
Net Balance | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
Balance, beginning of the period |
$ | 102,923 | $ | (26,424 | ) | $ | 76,499 | $ | 120,391 | $ | (43,397 | ) | $ | 76,994 | ||||||||||
|
Transfers to other assets acquired through foreclosure, net |
2,737 | — | 2,737 | 10,807 | — | 10,807 | ||||||||||||||||||
|
Proceeds from sale of other real estate owned and repossessed assets, net |
(3,411 | ) | 1,055 | (2,356 | ) | (13,733 | ) | 4,335 | (9,398 | ) | ||||||||||||||
|
Valuation adjustments, net |
— | (697 | ) | (697 | ) | — | (781 | ) | (781 | ) | ||||||||||||||
|
Gains (losses), net (1) |
292 | — | 292 | 611 | — | 611 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Balance, end of period |
$ | 102,541 | $ | (26,066 | ) | $ | 76,475 | $ | 118,076 | $ | (39,843 | ) | $ | 78,233 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| (1) |
Included in gains (losses), net are gains related to transfers to other assets of $62 thousand during the quarter ended September 30, 2013 and $249 thousand during the quarter ended September 30, 2012 pursuant to accounting guidance. |
| For the Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2013 | 2012 | |||||||||||||||||||||||
|
Gross
Balance |
Valuation
Allowance |
Net
Balance |
Gross
Balance |
Valuation
Allowance |
Net
Balance |
|||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
|
Balance, beginning of the period |
$ | 113,474 | $ | (36,227 | ) | $ | 77,247 | $ | 135,148 | $ | (46,044 | ) | $ | 89,104 | ||||||||||
|
Transfers to other assets acquired through foreclosure, net |
14,010 | — | 14,010 | 19,522 | — | 19,522 | ||||||||||||||||||
|
Additions from acquisition of Centennial |
5,622 | — | 5,622 | — | — | — | ||||||||||||||||||
|
Proceeds from sale of other real estate owned and repossessed assets, net |
(32,953 | ) | 12,440 | (20,513 | ) | (36,911 | ) | 10,261 | (26,650 | ) | ||||||||||||||
|
Valuation adjustments, net |
— | (2,279 | ) | (2,279 | ) | — | (4,060 | ) | (4,060 | ) | ||||||||||||||
|
Gains (losses), net (1) |
2,388 | — | 2,388 | 317 | — | 317 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Balance, end of period |
$ | 102,541 | $ | (26,066 | ) | $ | 76,475 | $ | 118,076 | $ | (39,843 | ) | $ | 78,233 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| (1) |
Included in gains (losses), net are gains related to transfers to other assets of $407 thousand during the nine month period ended September 30, 2013 and $291 thousand during the nine month period ended September 30, 2012 pursuant to accounting guidance. |
Other assets acquired through foreclosure consist primarily of properties acquired as a result of, or in-lieu-of, foreclosure. Properties or other assets are classified as other real estate owned and other repossessed property and are reported at the lower of carrying value or fair value, less estimated costs to sell the property. Costs relating to the development or improvement of the assets are capitalized and costs relating to holding the assets are charged to expense. The Company had $76.5 million and $77.2 million, respectively, of such assets at September 30, 2013 and December 31, 2012. At September 30, 2013, the Company held approximately 73 other real estate owned properties, compared to 75 at December 31, 2012. When significant adjustments were based on unobservable inputs, such as when a current appraised value is not available or Management determines the fair value of the collateral is further impaired below appraised value and there is no observable market price, the resulting fair value measurement has been categorized as a Level 3 measurement.
66
Junior Subordinated Debt
The Company measures the balance of the junior subordinated debt at fair value, which was $39.4 million at September 30, 2013 and $36.2 million at December 31, 2012. The difference between the aggregate fair value of junior subordinated debt and the aggregate unpaid principal balance of $66.5 million was $27.1 million at September 30, 2013.
Short-Term Borrowed Funds
The Company from time to time utilizes short-term borrowed funds to support short-term liquidity needs generally created by increased loan demand. The majority of these short-term borrowed funds consist of advances from the FHLB and/or FRB, federal funds purchased and customer repurchase agreements. The Company’s borrowing capacity at FHLB and FRB is determined based on collateral pledged, generally consisting of securities and loans. In addition, the Company has borrowing capacity 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. At September 30, 2013, total short-term borrowed funds consisted of customer repurchases of $55.5 million, federal funds purchased of $13.3 million and a revolving line of credit of $32.5 million. At December 31, 2012, total short-term borrowed funds consisted of $79.0 million of customer repurchases and $120.0 million of FHLB advances. The decrease in short-term borrowed funds of $97.7 million was the result of increased liquidity from customer deposits and a change in funding duration to longer term to mitigate margin compression.
Long-Term Debt
In 2010, the Company completed a public offering of $75.0 million in principal Senior Notes due in 2015, bearing interest of 10%. At September 30, 2013, the net principal balance was $74.0 million. In the first quarter of 2013, the Company entered into a long-term fixed rate advance with the FHLB for $200.0 million at an interest rate of 1.04% due in January 2018.
Securities Sold Short
During the first quarter 2013, the Company entered into a Treasury short transaction to mitigate the Company’s modest liability sensitive interest rate risk profile. The Company sold short fixed rate Treasury securities and invested the proceeds in a short-term repurchase agreement. The balance was $126.7 million at September 30, 2013.
Other Liabilities
The increase of $105.2 million to $204.1 million at September 30, 2013 compared to $98.9 million at December 31, 2012 was primarily due to an increase in payables for committed, but unfunded transactions and the addition of unfunded investments in affordable housing credits.
Critical Accounting Policies
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. The critical accounting policies upon which the Company’s financial condition and results of operations depend, and which involve the most complex subjective decisions or assessments, are included in the discussion entitled “Critical Accounting Policies” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and all amendments thereto, as filed with the Securities and Exchange Commission. There were no material changes to the critical accounting policies disclosed in the Annual Report on Form 10-K.
Liquidity
Liquidity is the ongoing ability to accommodate liability maturities and deposit withdrawals, fund asset growth and business operations, and meet contractual obligations through unconstrained access to funding at reasonable market rates. Liquidity management involves forecasting funding requirements and maintaining sufficient capacity to meet the needs and accommodate fluctuations in asset and liability levels due to changes in our business operations or unanticipated events.
The ability to have readily available funds sufficient to repay fully maturing liabilities is of primary importance to depositors, creditors and regulators. The Company’s liquidity, represented by cash and amounts due from banks, federal funds sold and non-pledged marketable securities, is a result of our operating, investing and financing activities and related cash flows. In order to ensure funds are available when necessary, on at least a quarterly basis, the Company projects the amount of funds that will be required, and we strive to maintain relationships with a diversified customer base. Liquidity requirements can also be met through short-term borrowings or the disposition of short-term assets. The Company has unsecured borrowing lines at correspondent banks totaling $120.0 million. In addition, loans and securities are pledged to the FHLB providing $1.47 billion in borrowing capacity with outstanding borrowings and letters of credit of $272.2 million and $143.5 million, respectively, leaving $1.05 billion in available credit as of September 30, 2013. Loans and securities pledged to the FRB discount window provided $598.3 million in borrowing capacity. As of September 30, 2013, there were no outstanding borrowings from the FRB. Thus the Company’s available credit on this facility totaled $598.3 million.
67
The Company has a formal liquidity policy, and in the opinion of Management, the Company’s liquid assets are considered adequate to meet cash flow needs for loan funding and deposit cash withdrawals for the next 90 to 120 days. At September 30, 2013, there was $1.04 billion in liquid assets, comprised of $384.9 million in cash and cash equivalents and $659.5 million in unpledged marketable securities. At December 31, 2012, the Company maintained $702.7 million in liquid assets, comprised of $205.3 million of cash and cash equivalents and $445.6 million of unpledged marketable securities.
The holding company maintains additional liquidity that would be sufficient to fund its operations and certain nonbank affiliate operations for an extended period should funding from normal sources be disrupted. Since deposits are taken by the bank operating subsidiaries and not by the parent company, parent company liquidity is not dependent on the bank operating subsidiaries’ deposit balances. In the analysis of parent company liquidity, it is assumed that the parent company is unable to generate funds from additional debt or equity issuance, receives no dividend income from subsidiaries, and does not pay dividends to shareholders, while continuing to meet nondiscretionary uses needed to maintain operations and repayment of contractual principal and interest payments owed by the parent company and affiliated companies. Under this scenario, the amount of time the parent company and its nonbank subsidiaries can operate and meet all obligations before the current liquid assets are exhausted is considered as part of the parent company liquidity analysis. Management believes the parent company maintains adequate liquidity capacity to operate without additional funding from new sources for over 12 months. The Company’s subsidiary banks (collectively, “the Banks”) maintain sufficient funding capacity to address large increases in funding requirements, such as deposit outflows. This capacity is comprised of liquidity derived from a reduction in asset levels and various secured funding sources.
On a long-term basis, the Company’s liquidity will be met by changing the relative distribution of our asset portfolios, for example by reducing investment or loan volumes, or selling or encumbering assets. Further, the Company can increase liquidity by soliciting higher levels of deposit accounts through promotional activities and/or borrowing from correspondent banks, the FHLB of San Francisco and the FRB. At September 30, 2013, the Company’s long-term liquidity needs primarily relate to funds required to support loan originations and commitments and deposit withdrawals which can be met by cash flows from investment payments and maturities, and investment sales if necessary.
The Company’s liquidity is comprised of three primary classifications: (1) cash flows provided by operating activities; (2) cash flows used in investing activities; and (3) 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 amortization and depreciation. For the nine months ended September 30, 2013 and 2012, net cash provided by operating activities was $123.8 million and $124.9 million, respectively.
The Company’s primary investing activities are the origination of real estate, commercial and consumer loans and purchase and sale of securities. The Company’s net cash provided by and used in investing activities has been primarily influenced by the Company’s loan and securities activities. The net increase in loans for the nine months ended September 30, 2013 and 2012 was $388.3 million and $612.9 million, respectively.
Net cash provided by financing activities has been impacted significantly by increased deposit levels. During the nine months ended September 30, 2013 and 2012, deposits increased $482.0 million and $503.5 million, respectively.
Fluctuations in core deposit levels may increase our need for liquidity as certificates of deposit mature or are withdrawn before maturity and as non-maturity deposits, such as checking and savings account balances, are withdrawn. Additionally, we are exposed to the risk that customers with large deposit balances will withdraw all or a portion of such deposits, due in part to the FDIC limitations on the amount of insurance coverage provided to depositors. To mitigate the uninsured deposit risk, we have joined the CDARS and ICS, programs that allow customers to invest up to $50.0 million in certificates of deposit or money market accounts through one participating financial institution, with the entire amount being covered by FDIC insurance. As of September 30, 2013, we had $459.2 million of CDARS and $232.0 million of ICS deposits.
As of September 30, 2013, the Company had $229.7 million of wholesale brokered deposits outstanding. Brokered deposits are generally considered to be deposits that have been received from a third party that is acting on behalf of that party’s customer. Often, a broker will direct a customer’s deposits to the banking institution offering the highest interest rate available. Federal banking law and regulation places restrictions on depository institutions regarding brokered deposits because of the general concern that these deposits are at a greater risk of being withdrawn and placed on deposit at another institution offering a higher interest rate, thus posing liquidity risk for institutions that gather brokered deposits in significant amounts. The Company does not anticipate using brokered deposits as a significant liquidity source in the near future.
68
Federal and state banking regulations place certain restrictions on dividends paid by the Banks to the Company. 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 Bank’s capital to be reduced below applicable minimum capital requirements. In addition, the Memorandum of Understanding (“MOU”) at Bank of Nevada that was effective through the second quarter 2013 required prior regulatory approval of dividends to the Company. Bank of Nevada, Western Alliance Bank, Torrey Pines Bank, and Las Vegas Sunset Properties have paid dividends in the amount of $35.0 million, $7.0 million, $9.0 million and $4.5 million, respectively, over the past three quarters of 2013 to Western Alliance Bancorporation. Subsequent to September 30, 2013, Bank of Nevada paid a $16.0 million dividend to Western Alliance Bancorporation.
Capital Resources
The Company and the Banks are subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements could trigger certain mandatory or discretionary actions that, if undertaken, could have a direct material effect on the Company’s business and 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.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Banks to maintain minimum amounts and ratios of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I leverage (as defined) to average assets (as defined). As of September 30, 2013 and December 31, 2012, the Company and the Banks met all capital adequacy requirements to which they are subject.
As of September 30, 2013 and December 31, 2012, each of the capital ratios at each bank subsidiary and the Company exceeded the minimum capital ratio requirements necessary to be classified as well-capitalized. 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. Until recently, Bank of Nevada was subject to an MOU that required it to maintain a higher Tier 1 leverage ratio than otherwise required to be considered well-capitalized. At December 31, 2012, the capital levels at Bank of Nevada exceeded this elevated requirement. The MOU was terminated, effective as of July 9, 2013, and, therefore, Bank of Nevada is no longer subject to this requirement.
Federal banking regulators have proposed revisions to the bank capital requirement standards known as Basel III. Basel III strengthens bank capital requirements and introduces new regulatory requirements on bank liquidity and bank leverage. Based on the Company’s assessment of these proposed regulations, as of September 30, 2013 and December 31, 2012, the Company and each of the Banks met the requirements necessary to be classified as well-capitalized under the proposed regulation.
The actual capital amounts and ratios for the Company are presented in the following table:
| Adequately- | Minimum For | |||||||||||||||||||||||
| Actual | Capitalized | Well-Capitalized | ||||||||||||||||||||||
| Requirements | Requirements | |||||||||||||||||||||||
|
As of September 30, 2013 |
Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
|
Total Capital (to Risk Weighted Assets) |
$ | 951,656 | 12.5 | % | $ | 610,108 | 8.0 | % | $ | 762,635 | 10.0 | % | ||||||||||||
|
Tier I Capital (to Risk Weighted Assets) |
856,224 | 11.2 | 305,205 | 4.0 | 457,808 | 6.0 | ||||||||||||||||||
|
Leverage ratio (to Average Assets) |
856,224 | 10.0 | 344,107 | 4.0 | 430,134 | 5.0 | ||||||||||||||||||
| Adequately- | Minimum For | |||||||||||||||||||||||
| Actual | Capitalized | Well-Capitalized | ||||||||||||||||||||||
| Requirements | Requirements | |||||||||||||||||||||||
|
As of December 31, 2012 |
Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
|
Total Capital (to Risk Weighted Assets) |
$ | 856,199 | 12.6 | % | $ | 543,618 | 8.0 | % | $ | 679,523 | 10.0 | % | ||||||||||||
|
Tier I Capital (to Risk Weighted Assets) |
768,687 | 11.3 | 272,102 | 4.0 | 408,152 | 6.0 | ||||||||||||||||||
|
Leverage ratio (to Average Assets) |
768,687 | 10.1 | 304,430 | 4.0 | 380,538 | 5.0 | ||||||||||||||||||
69
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices and rates, foreign currency exchange rates, commodity prices and equity prices. Our market risk arises primarily from interest rate risk inherent in our lending, investing and deposit taking activities. To that end, Management actively monitors and manages our interest rate risk exposure. We generally manage our interest rate sensitivity by evaluating re-pricing opportunities on our earning assets to those on our funding liabilities.
Management uses various asset/liability strategies to manage the re-pricing characteristics of our assets and liabilities, all of which are designed to ensure that exposure to interest rate fluctuations is limited to within our guidelines of acceptable levels of risk-taking. Hedging strategies, including the terms and pricing of loans and deposits and management of the deployment of our securities, are used to reduce mismatches in interest rate re-pricing opportunities of portfolio assets and their funding sources.
Interest rate risk is addressed by each Bank’s respective Asset and Liability Management Committee, or ALCO (or its equivalent), which includes members of executive management, senior finance and operations. ALCO monitors interest rate risk by analyzing the potential impact on the net economic value of equity and net interest income from potential changes in interest rates, and considers the impact of alternative strategies or changes in balance sheet structure. We manage our balance sheet in part to maintain the potential impact on economic value of equity and net interest income within acceptable ranges despite changes in interest rates.
Our exposure to interest rate risk is reviewed on at least a quarterly basis by the ALCO. Interest rate risk exposure is measured using interest rate sensitivity analysis to determine our change in economic value of equity in the event of hypothetical changes in interest rates. If potential changes to net economic value of equity and net interest income resulting from hypothetical interest rate changes are not within the limits established by each Bank’s 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.
Net Interest Income Simulation. In order to measure interest rate risk at September 30, 2013, 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 an immediate increase and decrease in interest rates and a net interest income forecast using a flat market interest rate environment derived from spot yield curves typically used to price our assets and liabilities. The income simulation model includes various assumptions regarding the re-pricing relationships for each of our products. Many of our assets are floating rate loans, which are assumed to re-price immediately, and proportional to the change in market rates, depending on their contracted index. Some loans and investments include the opportunity of prepayment (embedded options), and accordingly the simulation model uses estimated market speeds to derive prepayments and reinvests proceeds at modeled yields. Our non-term deposit products re-price more slowly, usually changing less than the change in market rates and at our discretion.
This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions. It assumes the balance sheet remains static and that its structure does not change over the course of the year. It does not account for all factors that could impact our results, including changes by Management to mitigate interest rate changes or secondary factors such as changes to our credit risk profile as interest rates change.
Furthermore, loan prepayment rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan prepayment speeds that will differ from the market estimates incorporated in this analysis. Changes that vary significantly from the modeled assumptions may have significant effects on our actual net interest income.
This simulation model assesses the changes in net interest income that would occur in response to an instantaneous and sustained increase or decrease (shock) in market interest rates. At September 30, 2013, our net interest margin exposure for the next twelve months related to these hypothetical changes in market interest rates was within our current guidelines.
70
Sensitivity of Net Interest Income
| Interest Rate Scenario (change in basis points from Base) | ||||||||||||||||||||||||
| (in 000’s) | Down 100 | Base | Up 100 | Up 200 | Up 300 | Up 400 | ||||||||||||||||||
|
Interest Income |
$ | 353,338 | $ | 358,333 | $ | 380,419 | $ | 406,956 | $ | 436,106 | $ | 465,925 | ||||||||||||
|
Interest Expense |
$ | 31,625 | $ | 31,677 | $ | 51,762 | $ | 71,848 | $ | 91,934 | $ | 112,020 | ||||||||||||
|
Net Interest Income |
$ | 321,713 | $ | 326,656 | $ | 328,657 | $ | 335,108 | $ | 344,172 | $ | 353,905 | ||||||||||||
|
% Change |
(1.5 | )% | 0.6 | % | 2.6 | % | 5.4 | % | 8.3 | % | ||||||||||||||
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.
At September 30, 2013, 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 September 30, 2013.
Economic Value of Equity
| Down 100 | Base | Up 100 | Up 200 | Up 300 | Up 400 | |||||||||||||||||||
|
Present Value (000’s) |
||||||||||||||||||||||||
|
Assets |
$ | 9,168,034 | $ | 9,055,369 | $ | 8,855,476 | $ | 8,669,114 | $ | 8,495,260 | $ | 8,336,093 | ||||||||||||
|
Liabilities |
$ | 7,967,637 | $ | 7,832,059 | $ | 7,629,111 | $ | 7,458,913 | $ | 7,290,636 | $ | 7,122,640 | ||||||||||||
|
Net Present Value |
$ | 1,200,397 | $ | 1,223,310 | $ | 1,226,365 | $ | 1,210,201 | $ | 1,204,624 | $ | 1,213,453 | ||||||||||||
|
% Change |
(1.9 | )% | 0.2 | % | (1.1 | )% | (1.5 | )% | (0.8 | )% | ||||||||||||||
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.
Derivative Contracts. In the normal course of business, the Company uses derivative instruments to meet the needs of its customers and manage exposure to fluctuations in interest rates. The following table summarizes the aggregate notional amounts, market values and terms of the Company’s derivative positions with derivative market makers as of September 30, 2013.
Outstanding Derivatives Positions
| Weighted Average | ||||
|
Notional |
Net Value |
Maturity (in yrs) |
||
|
108,275,668 |
(2,148,234) | 17.0 |
71
The following table summarizes the aggregate notional amounts, market values and terms of the Company’s derivative positions with derivative market makers as of December 31, 2012:
Outstanding Derivatives Positions
| Weighted Average | ||||
|
Notional |
Net Value |
Term (in yrs) |
||
|
9,361,464 |
(777,703) | 2.9 |
72
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by the Company in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms. Additionally, our disclosure controls and procedures were also effective in ensuring that information required to be disclosed by the Company in the reports we file or subject under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2013, which have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
| ITEM 1. | LEGAL PROCEEDINGS |
There are no material pending legal proceedings to which the Company is a party or to which any of our properties are subject. There are no material proceedings known to us to be contemplated by any governmental authority. From time to time, we are involved in a variety of litigation matters in the ordinary course of our business and anticipate that we will become involved in new litigation matters in the future.
As previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, one of the Company’s banking subsidiaries, Bank of Nevada, operated under informal supervisory oversight by banking regulators in the form of an MOU. The MOU required enhanced management of such matters as asset quality, credit administration, repossessed property, information technology, and imposed a number of other requirements. The MOU was terminated, effective as of July 9, 2013.
| ITEM 1A. | RISK FACTORS |
There have not been any material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
Not applicable.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
| ITEM 5. | OTHER INFORMATION |
None.
| ITEM 6. | EXHIBITS |
| 31.1* | CEO Certification Pursuant to Rule 13a-14(a)/15d-14(a). | |
| 31.2* | CFO Certification Pursuant to Rule 13a-14(a)/15d-14(a). | |
| 32** | CEO and CFO Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes – Oxley Act of 2002. | |
| 101.INS | XBRL Instance Document | |
73
The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30,2013, formatted in Extensible Business Reporting Language (XBRL), include: (i) Consolidated Balance Sheets at September 30, 2013 and December 31, 2012 (ii) Consolidated Income Statements and Comprehensive Income for the three and nine months ended September 30, 2013 and 2012, (iii) Consolidated Statement of Stockholders’ Equity at September 30, 2013, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012, and (v) Notes to (unaudited) Condensed Consolidated Financial Statements***.
| * | Filed herewith. |
| ** | Furnished herewith. |
| *** | Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act, as amended, and otherwise are not subject to liability under those sections. |
74
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| WESTERN ALLIANCE BANCORPORATION | ||||||
| Date: October 31, 2013 | By: | /s/ Robert Sarver | ||||
| Robert Sarver | ||||||
| Chief Executive Officer | ||||||
| Date: October 31, 2013 | By: | /s/ Dale Gibbons | ||||
| Dale Gibbons | ||||||
| Executive Vice President and | ||||||
| Chief Financial Officer | ||||||
| Date: October 31, 2013 | By: | /s/ J. Kelly Ardrey Jr. | ||||
| J. Kelly Ardrey Jr. | ||||||
| Senior Vice President and | ||||||
| Chief Accounting Officer | ||||||
75
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
| FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
|---|
| DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
|---|
No information found
Customers
| Customer name | Ticker |
|---|---|
| Equity Residential | EQR |
No Suppliers Found
Price
Yield
| Owner | Position | Direct Shares | Indirect Shares |
|---|