WESTERN ALLIANCE BANCORPORATION - Quarter Report: 2014 March (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)




ý		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the quarterly period ended March 31, 2014 or

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the transition period from__________ to __________

Commission file number: 001-32550

WESTERN ALLIANCE BANCORPORATION

(Exact name of registrant as specified in its charter)



Nevada		88-0365922
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



One E. Washington Street Suite 1400, Phoenix, AZ		85004
(Address of principal executive offices)		(Zip Code)

(602) 389-3500

(Registrant’s telephone number, including area code)

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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý 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 the definitions of “large accelerated filer,” "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

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

Common stock issued and outstanding: 87,588,436 shares as of April 25, 2014.

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INDEX



		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets	4
	Consolidated Income Statements	5
	Consolidated Statements of Comprehensive Income	7
	Consolidated Statements of Stockholders’ Equity	8
	Consolidated Statements of Cash Flows	9
	Notes to Unaudited Consolidated Financial Statements	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	51
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	71
Item 4.	Controls and Procedures	73

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	74
Item 1A.	Risk Factors	74
Item 6.	Exhibits	74

SIGNATURES		75

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PART I. FINANCIAL INFORMATION

GLOSSARY OF ENTITIES AND TERMS

The acronyms and abbreviations identified below are used in various sections of this Form 10-Q, including the Consolidated Financial Statements and the Notes to Unaudited Consolidated Financial Statements in Item 1 and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in Item 2 of this Form 10-Q.



ENTITIES:
AAB	Alliance Association Bank	Parent	WAL Holding Company
ABA	Alliance Bank of Arizona	TPB	Torrey Pines Bank
Company	Western Alliance Bancorporation and Subsidiaries	WAB	Western Alliance Bank
BON	Bank of Nevada	WAEF	Western Alliance Equipment Finance
FIB	First Independent Bank	WAL	Western Alliance Bancorporation
LVSP	Las Vegas Sunset Properties
TERMS:
AFS	Available-for-Sale	FVO	Fair Value Option
AMT	Alternative Minimum Tax	GAAP	U.S. Generally Accepted Accounting Principles
ALCO	Asset and Liability Management Committee	GSE	Government-Sponsored Enterprise
AOCI	Accumulated Other Comprehensive Income	HTM	Held-to-Maturity
ARPS	Adjustable-Rate Preferred Stock	ICS	Insured Cash Sweep Service
ASC	Accounting Standards Codification	IRC	Internal Revenue Code
ASU	Accounting Standards Update	LIBOR	London Interbank Offered Rate
BOLI	Bank Owned Life Insurance	LIHTC	Low-Income Housing Tax Credit
CDARS	Certificate Deposit Account Registry Service	MBS	Mortgage-Backed Securities
CDO	Collateralized Debt Obligation	NOL	Net Operating Loss
CEO	Chief Executive Officer	NPV	Net Present Value
CFO	Chief Financial Officer	NUBILs	Net Unrealized Built In Losses
CMO	Collateralized Mortgage Obligations	OCI	Other Comprehensive Income
Company	Western Alliance Bancorporation	OREO	Other Real Estate Owned
CRA	Community Reinvestment Act	OTTI	Other-than-Temporary Impairment
CRE	Commercial Real Estate	Parent	WAL Holding Company
FASB	Financial Accounting Standards Board	PCI	Purchased Credit Impaired
FDIC	Federal Deposit Insurance Corporation	SEC	Securities and Exchange Commission
FHLB	Federal Home Loan Bank	TDR	Troubled Debt Restructuring
Form 10-Q	Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2014	TEB	Tax Equivalent Basis
FRB	Federal Reserve Bank	XBRL	eXtensible Business Reporting Language

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Item 1.	Financial Statements.

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



	March 31, 2014			December 31, 2013
	(Unaudited)
	(in thousands, except per share amounts)
Assets:
Cash and due from banks	$	161,302		$	134,906
Securities purchased under agreement to resell	111,085			—
Interest-bearing deposits in other financial institutions	193,538			170,608
Cash and cash equivalents	465,925			305,514
Money market investments	851			2,632
Investment securities—measured at fair value	2,943			3,036
Investment securities—AFS, at fair value; amortized cost of $1,384,219 at March 31, 2014 and $1,404,048 at December 31, 2013	1,366,433			1,370,696
Investment securities—HTM, at amortized cost; fair value of $281,483 at March 31, 2014 and $281,704 at December 31, 2013	275,738			283,006
Investments in restricted stock, at cost	25,275			30,186
Loans, net of deferred loan fees and costs	7,108,599			6,801,415
Less: allowance for credit losses	(103,899		)	(100,050		)
Total loans	7,004,700			6,701,365
Premises and equipment, net	106,579			105,565
Other assets acquired through foreclosure, net	56,450			66,719
Bank owned life insurance	141,511			140,562
Goodwill	23,224			23,224
Other intangible assets, net	3,553			4,150
Deferred tax assets, net	78,322			80,688
Prepaid expenses	4,660			4,778
Other assets	190,460			185,221
Total assets	$	9,746,624		$	9,307,342
Liabilities:
Deposits:
Non-interest-bearing demand	$	2,093,604		$	2,199,983
Interest-bearing	6,055,369			5,638,222
Total deposits	8,148,973			7,838,205
Customer repurchase agreements	57,407			71,192
Securities sold short	109,793			—
Other borrowings	342,816			341,096
Junior subordinated debt, at fair value	42,836			41,858
Other liabilities	149,994			159,493
Total liabilities	8,851,819			8,451,844
Commitments and contingencies (Note 6)
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 March 31, 2014 and December 31, 2013	141,000			141,000
Common stock - par value $0.0001; 200,000,000 authorized; 87,553,976 shares issued and outstanding at March 31, 2014 and 87,186,403 at December 31, 2013	9			9
Additional paid in capital	795,306			797,146
Accumulated deficit	(30,379		)	(61,111		)
Accumulated other comprehensive loss	(11,131		)	(21,546		)
Total stockholders’ equity	894,805			855,498
Total liabilities and stockholders’ equity	$	9,746,624		$	9,307,342

See accompanying Notes to Unaudited Consolidated Financial Statements.

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WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS (Unaudited)



	Three Months Ended March 31,
	2014			2013
	(in thousands, except per share amounts)
Interest income:
Loans, including fees	$	86,804		$	74,725
Investment securities	10,226			6,961
Dividends	1,099			1,197
Other	572			225
Total interest income	98,701			83,108
Interest expense:
Deposits	4,665			3,732
Other borrowings	2,819			2,672
Junior subordinated debt	421			466
Customer repurchase agreements	19			35
Total interest expense	7,924			6,905
Net interest income	90,777			76,203
Provision for credit losses	3,500			5,439
Net interest income after provision for credit losses	87,277			70,764
Non-interest income:
Service charges and fees	2,530			2,534
Income from bank owned life insurance	949			1,036
Gain on sales of investment securities, net	366			147
Unrealized losses on assets / liabilities measured at fair value, net	(1,276		)	(471		)
Other fee revenue	1,108			957
Other income	1,158			596
Total non-interest income	4,835			4,799
Non-interest expense:
Salaries and employee benefits	29,555			26,574
Occupancy	4,682			4,846
Legal, professional and directors’ fees	3,639			3,023
Data processing	2,674			1,865
Insurance	2,393			2,370
Loan and repossessed asset expenses	1,234			1,596
Customer service	620			643
Marketing	559			667
Net (gain) loss on sales / valuations of repossessed and other assets	(2,547		)	519
Intangible amortization	597			597
Merger / restructure expenses	157			195
Other expense	6,186			4,034
Total non-interest expense	49,749			46,929
Income from continuing operations before provision for income taxes	42,363			28,634
Income tax expense	10,624			7,787
Income from continuing operations	31,739			20,847
(Loss) gain from discontinued operations, net of tax	(654		)	38
Net income	31,085			20,885
Dividends on preferred stock	353			353
Net income available to common shareholders	$	30,732		$	20,532

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	Three Months Ended March 31,
	2014			2013
	(in thousands, except per share amounts)
Earnings per share from continuing operations:
Basic	$	0.36		$	0.24
Diluted	0.36			0.24
Loss per share from discontinued operations:
Basic	(0.01		)	—
Diluted	(0.01		)	—
Earnings per share applicable to common shareholders:
Basic	0.35			0.24
Diluted	0.35			0.24
Weighted average number of common shares outstanding:
Basic	86,256			85,324
Diluted	87,123			85,980
Dividends declared per common share	$	—		$	—

See accompanying Notes to Unaudited Consolidated Financial Statements.

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WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)



	Three Months Ended March 31,
	2014			2013
	(in thousands)
Net income	$	31,085		$	20,885
Other comprehensive income (loss), net:
Unrealized gain (loss) on AFS securities, net of tax effect of $(6,365) and $459, respectively	10,644			(890		)
Unrealized loss on cash flow hedge, net of tax effect of $0 and $18, respectively	—			(34		)
Realized gain on sale of AFS securities included in income, net of tax effect of $137 and $50, respectively	(229		)	(97		)
Net other comprehensive income (loss)	10,415			(1,021		)
Comprehensive income	$	41,500		$	19,864

See accompanying Notes to Unaudited Consolidated Financial Statements.

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WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)



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

	Shares	Amount		Shares	Amount
					(in thousands)
December 31, 2012 (1)	141	$	141,000	86,465	$	9	$	784,852		$	8,226		$	(174,666	)	$	759,421
Net income	—	—		—	—		—			—			20,885			20,885
Exercise of stock options	—	—		156	—		1,118			—			—			1,118
Stock-based compensation	—	—		59	—		803			—			—			803
Restricted stock grants, net	—	—		399	—		168			—			—			168
Other	—	—		—	—					—			—			—
Dividends on preferred stock	—	—		—	—		—			—			(353		)	(353		)
Other comprehensive income, net	—	—		—	—		—			(1,021		)	—			(1,021		)
Balance, March 31, 2013	141	$	141,000	87,079	$	9	$	786,941		$	7,205		$	(154,134	)	$	781,021

December 31, 2013	141	$	141,000	87,186	$	9	$	797,146		$	(21,546	)	$	(61,111	)	$	855,498
Net income	—	—		—	—		—			—			31,085			31,085
Exercise of stock options	—	—		64	—		703			—			—			703
Stock-based compensation	—	—		37	—		854			—			—			854
Restricted stock grants, net	—	—		267	—		(3,397		)	—			—			(3,397		)
Dividends on preferred stock	—	—		—	—		—			—			(353		)	(353		)
Other comprehensive income, net	—	—		—	—		—			10,415			—			10,415
Balance, March 31, 2014	141	$	141,000	87,554	$	9	$	795,306		$	(11,131	)	$	(30,379	)	$	894,805


(1)	As adjusted, see "Note 10. Income Taxes" to the Unaudited Consolidated Financial Statements.

See accompanying Notes to Unaudited Consolidated Financial Statements.

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WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



	Three Months Ended March 31,
	2014			2013
	(in thousands)
Cash flows from operating activities:
Net income	$	31,085		$	20,885
Adjustments to reconcile net income to cash provided by operating activities:
Provision for credit losses	3,500			5,439
Depreciation and amortization	2,044			2,153
Stock-based compensation	332			971
Deferred income taxes and income taxes receivable	(1,696		)	(1,754		)
Net amortization of discounts and premiums for investment securities	2,050			2,577
Accretion and amortization of fair market value adjustments due to acquisitions	(3,305		)	(3,288		)
Income from bank owned life insurance	(949		)	(1,036		)
(Gains) / losses on:
Sales of securities, AFS	(366		)	(147		)
Other assets acquired through foreclosure, net	(1,168		)	(455		)
Valuation adjustments of other repossessed assets, net	35			1,017
Sale of premises and equipment and other assets, net	(1,411		)	(43		)
Changes in:
Other assets	3,191			18,475
Other liabilities	5,359			828
Fair value of assets and liabilities measured at fair value	1,276			471
Net cash provided by operating activities	39,977			46,093
Cash flows from investing activities:
Investment securities - measured at fair value
Principal pay downs and maturities	112			279
Investment securities - AFS
Purchases	(24,082		)	(124,909		)
Principal pay downs and maturities	38,332			51,196
Proceeds from sales	4,196			4,072
Investment securities - HTM
Principal pay downs and maturities	6,600			—
Purchase of investment tax credits	(10,529		)	(5,084		)
Sale / (purchase) of money market investments, net	1,781			(132		)
Liquidation of restricted stock	4,911			1,169
Loan fundings and principal collections, net	(322,640		)	(124,390		)
Sale and purchase of premises and equipment, net	(1,103		)	(761		)
Proceeds from sale of other real estate owned and repossessed assets, net	13,512			5,343
Net cash used in investing activities	(288,910		)	(193,217		)

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	Three Months Ended March 31,
	2014			2013
	(in thousands)
Cash flows from financing activities:
Net increase in deposits	310,939			279,737
Net increase in borrowings	98,055			218,272
Proceeds from exercise of common stock options	703			1,118
Cash dividends paid on preferred stock	(353		)	(353		)
Net cash provided by financing activities	409,344			498,774
Net increase in cash and cash equivalents	160,411			351,650
Cash and cash equivalents at beginning of year	305,514			204,625
Cash and cash equivalents at end of period	$	465,925		$	556,275
Supplemental disclosure:
Cash paid during the period for:
Interest	$	5,916		$	7,132
Income taxes	2,501			1,450
Non-cash investing and financing activity:
Transfers to other assets acquired through foreclosure, net	2,110			6,609
Unfunded commitments to purchase investment tax credits	12,298			46,582
Change in unrealized gain (loss) on AFS securities, net of tax	10,415			(1,021		)
Change in unrealized loss on cash flow hedge, net of tax	—			(34		)
Change in unfunded obligations	16,625			35,451

See accompanying Notes to Unaudited Consolidated Financial Statements.

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WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of operation

WAL, 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 wholly-owned subsidiary bank: WAB, doing business as ABA in Arizona, as FIB in Northern Nevada, as AAB throughout the U.S., as BON in Southern Nevada, and as TPB in California. In addition, the Company has two non-bank subsidiaries, WAEF, which offers equipment finance services nationwide, and LVSP, which holds and manages certain non-performing loans and OREO.

Basis of presentation

The accounting and reporting policies of the Company are in accordance with GAAP and conform to practices within the financial services industry. The accounts of the Company and its consolidated subsidiaries are included in the unaudited Consolidated Financial Statements.

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; estimated cash flows related to PCI loans; fair value determinations related to acquisitions; and determination of the valuation allowance related to deferred tax assets. Although management believes these estimates to be reasonably accurate, actual amounts may differ. In the opinion of management, all adjustments considered necessary have been reflected in the unaudited Consolidated Financial Statements during their preparation.

Principles of consolidation

On December 31, 2013, the Company consolidated its three bank subsidiaries under one bank charter, WAB. As the subsidiary bank mergers did not meet the definition of a business combination under the guidance of FASB ASC 805, Business Combinations, the entities were combined in a method similar to a pooling of interests.

WAL has nine wholly-owned subsidiaries: WAB, WAEF, LVSP and six unconsolidated subsidiaries used as business trusts in connection with issuance of trust-preferred securities.

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

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

Reclassifications

Certain amounts in the consolidated financial statements as of December 31, 2013 and for the three months ended March 31, 2013 have been reclassified to conform to the current presentation. The reclassifications have no effect on net income or stockholders’ equity as previously reported.

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Interim financial information

The accompanying unaudited Consolidated Financial Statements as of and for the three months ended March 31, 2014 and 2013 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 audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.

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.

Investment securities

Investment securities may be classified as HTM, AFS or trading. The appropriate classification is initially decided at the time of purchase. Securities classified as HTM are those debt securities the Company has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or general economic conditions. These securities are carried at amortized cost. The sale of a security within three months of its maturity date or after 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 as an asset on the Consolidated Balance Sheets at their estimated fair value. As the fair value of AFS securities changes, the changes are reported net of income tax as an element of OCI, except for impaired securities. When AFS securities are sold, the unrealized gain or loss is reclassified from OCI to non-interest income. The changes in the fair values of trading securities are reported in non-interest income. Securities classified as AFS are both equity and debt securities the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as AFS would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, decline in credit quality, and regulatory capital considerations.

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

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

Declines in the fair value of individual debt securities AFS that are deemed to be other than temporary are reflected in earnings when identified. The fair value of the debt security then becomes the new cost basis. For individual debt securities where the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, the other than temporary decline in fair value of the debt security related to 1) credit loss is recognized in earnings; and 2) market or other factors is recognized in other comprehensive income or loss. Credit loss is recorded if the present value of cash flows is less than amortized cost.

For individual debt securities where the Company intends to sell the security or more likely than not will not recover all of its amortized cost, the 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.

Loans, interest and fees from loans

The Company generally holds loans for investment and has the intent and ability to hold loans until their maturity. Therefore, they are reported at book value. Net loans are stated at the amount of unpaid principal, reduced by unearned loan fees and allowance for credit losses. Purchased loans are recorded at estimated fair value on the date of purchase.

The Company may acquire loans through a business combination or in a purchase for which differences may exist between the contractual cash flows and the cash flows expected to be collected due, at least in part, to credit quality. Loans are evaluated individually to determine if there is credit deterioration since origination. Such loans may then be aggregated and accounted for

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as a pool of loans based on common characteristics. When the Company acquires such loans, the yield that may be accreted (accretable yield) is limited to the excess of the Company’s estimate of undiscounted cash flows expected to be collected over the Company’s initial investment in the loan. The excess of contractual cash flows over the cash flows expected to be collected may not be recognized as an adjustment to yield, loss, or a valuation allowance. Subsequent increases in cash flows expected to be collected generally are recognized prospectively through adjustment of the loan’s yield over the remaining life. Subsequent decreases to cash flows expected to be collected are recognized as impairment. The Company may not “carry over” or create a valuation allowance in the initial accounting for loans acquired under these circumstances. For additional information, see "Note 3. Loans, Leases and Allowance for Credit Losses" of these Notes to Unaudited Consolidated Financial Statements.

Interest income on loans is accrued daily using the effective interest method and recognized over the terms of the loans. Loan fees collected for the origination of loans less direct loan origination costs (net deferred loan fees) are amortized over the contractual life of the loan through interest income. If the loan has scheduled payments, the amortization of the net deferred loan fee is calculated using the interest method over the contractual life of the loan. If the loan does not have scheduled payments, such as a line of credit, the net deferred loan fee is recognized as interest income on a straight-line basis over the contractual life of the loan commitment. Commitment fees based on a percentage of a customer’s unused line of credit and fees related to standby letters of credit are recognized over the commitment period.

When loans are repaid, any remaining unamortized balances of unearned fees, deferred fees and costs and premiums and discounts paid on purchased loans are accounted for though interest income.

Nonaccrual loans: For all loan types except credit cards, when a borrower discontinues making payments as contractually required by the note, the Company must determine whether it is appropriate to continue to accrue interest. Generally, the Company places loans in a nonaccrual status and ceases recognizing interest income when the loan has become delinquent by more than 90 days or when management determines that the full repayment of principal and collection of interest is unlikely. The Company may decide to continue to accrue interest on certain loans more than 90 days delinquent if they are well secured by collateral and in the process of collection. Credit card loans and other personal loans are typically charged off no later than 180 days delinquent.

For all loan types, when a loan is placed on nonaccrual status, all interest accrued but uncollected is reversed against interest income in the period in which the status is changed. Subsequent payments received from the customer are applied to principal and no further interest income is recognized until the principal has been paid in full or until circumstances have changed such that payments are again consistently received as contractually required. The Company occasionally recognizes income on a cash basis for non-accrual loans in which the collection of the remaining principal balance is not in doubt.

Impaired loans: A loan is identified as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the original loan agreement. Generally, impaired loans are classified as nonaccrual. However, in certain instances, impaired loans may continue on an accrual basis, such as loans classified as impaired due to doubt regarding collectability according to contractual terms, that are both fully secured by collateral and are current in their interest and principal payments. Impaired loans are measured for reserve requirements in accordance with 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 FDIC may from time to time direct the Company to modify loan grades, loan impairment calculations or loan impairment methodology.

Troubled Debt Restructured Loans: A TDR 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 TDR 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 TDR in years subsequent to the restructuring if it is performing based on the terms specified by the restructuring agreement.

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

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

The Company uses an appraised value method to determine the need for a reserve on impaired, collateral dependent loans and further discounts the appraisal for disposition costs. Generally, the Company obtains independent collateral valuation analysis for each loan every twelve months.

The general allowance covers all non-impaired loans and is based on historical loss experience adjusted for the various qualitative and quantitative factors listed above.

Off-balance sheet instruments

In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the consolidated financial statements when they are funded. They involve, to varying degrees, elements of credit risk in excess of amounts recognized in the consolidated balance sheets. Losses would be experienced when the Company is contractually obligated to make a payment under these instruments and must seek repayment from the borrower, which may not be as financially sound in the current period as they were when the commitment was originally made. 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.

As with outstanding loans, the Company applies qualitative factors and utilization rates to its off-balance sheet obligations in determining an estimate of losses inherent in these contractual obligations. The estimate for credit losses on off-balance sheet

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instruments is included within other liabilities and the charge to income that establishes this liability is included in non-interest expense.

Other assets acquired through foreclosure

Business combinations

Business combinations are accounted for under the acquisition method of accounting in accordance with FASB ASC 805, Business Combinations. Under the acquisition method the acquiring entity in a business combination recognizes all of the acquired assets and assumed liabilities at their estimated fair values as of the date of acquisition. Any excess of the purchase price over the fair value of net assets and other identifiable intangible assets acquired is recorded as goodwill. To the extent the fair value of net assets acquired, including identified intangible assets, exceeds the purchase price, a bargain purchase gain is recognized. Assets acquired and liabilities assumed from contingencies must also be recognized at fair value, if the fair value can be determined during the measurement period. Results of operations of an acquired business are included in the statement of earnings from the date of acquisition. Acquisition-related costs, including conversion and restructuring charges, are expensed as incurred.

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. 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 non-interest income in the Consolidated Income Statement. For a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded in 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.

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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.

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 carryovers and deferred tax liabilities are recognized for taxable temporary differences. A temporary difference is the difference between the reported amount of an asset or liability and its tax basis. A deferred tax asset is 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. FASB 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, FASB ASC 820 requires the Company

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to make assumptions regarding the assumptions that market participants would use to estimate the fair value of the financial instrument at the measurement date.

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

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent limitations in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at March 31, 2014 and December 31, 2013. The estimated fair value amounts for March 31, 2014 and December 31, 2013 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" in these Notes to Unaudited Consolidated Financial Statements 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 debt securities, 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 values 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 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 third party quotes adjusted based on assumptions regarding the adjustments a market participant would assume necessary for each specific security. As a result of the lack of an active market, the resulting fair values have been categorized as Level 3 in the fair value hierarchy.

Restricted stock

WAB is a member of the FHLB system and maintains an investment in capital stock of the FHLB. WAB also maintains an investment in its 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 certain loans disclosed in "Note 11. Fair Value Accounting" of these Notes to Unaudited Consolidated Financial Statements is categorized as Level 2 in the fair value hierarchy, excluding impaired loans that are categorized as Level 3.

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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 Sheets 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.

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" of these Notes to Unaudited Consolidated Financial Statements 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 an index relative to the ten year treasury rate 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 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. The adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements.

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 did not have a material impact on the Company’s Consolidated Financial Statements.

In January 2014, the FASB issued guidance within ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects. The amendments in ASU 2014-01 to Topic 323, Equity Investments and Joint Ventures, provide guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable

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housing projects that qualify for the low-income housing tax credit. The amendments permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments are effective for fiscal years, and interim periods within those years, beginning after December 31, 2014 and should be applied retrospectively to all periods presented, with early adoption permitted. All of the Company's LIHTC investments are within the scope of this guidance and the Company has adopted this amended guidance beginning on January 1, 2014. As a result, prior period financial information has been adjusted to conform to the amended guidance. See "Note 10. Income Taxes" for the impact that adoption had on the Company's financial condition and results of operations as well as additional disclosures required under these amendments. The adoption of this amended guidance did not have a significant impact on the Company's cash flows.

In January 2014, the FASB issued guidance within ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The objective of the amendments in ASU 2014-04 to Topic 310, Receivables - Troubled Debt Restructurings by Creditors, is to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 31, 2014. An entity can elect to adopt the amendments using either a modified retrospective transition method or a prospective transition method. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.

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2. INVESTMENT SECURITIES

Carrying amounts and fair values of investment securities at March 31, 2014 and December 31, 2013 are summarized as follows:



	March 31, 2014
Held-to-maturity	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
	(in thousands)
Collateralized debt obligations	$	50	$	4,869	$	—		$	4,919
Corporate debt securities	97,776		821		(3,156		)	95,441
Municipal obligations	177,912		4,490		(1,279		)	181,123
Total HTM securities	$	275,738	$	10,180	$	(4,435	)	$	281,483



Available-for-sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
	(in thousands)
U.S. Government-sponsored agency securities	$	59,112	$	—	$	(1,440	)	$	57,672
Municipal obligations	121,242		1,048		(3,412		)	118,878
Preferred stock	75,902		1,313		(3,268		)	73,947
Mutual funds	37,422		256		(435		)	37,243
Residential MBS issued by GSEs	989,705		5,799		(8,097		)	987,407
Commercial MBS issued by GSEs	2,088		—		(54		)	2,034
Private label residential MBS	37,611		30		(2,026		)	35,615
Private label commercial MBS	5,225		187		—			5,412
Trust preferred securities	32,000		—		(7,272		)	24,728
CRA investments	23,912		—		(415		)	23,497
Total AFS securities	$	1,384,219	$	8,633	$	(26,419	)	$	1,366,433

Securities measured at fair value
Residential MBS issued by GSEs								$	2,460
Private label residential MBS								483
Total securities measured at fair value								$	2,943

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	December 31, 2013
Held-to-maturity	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
	(in thousands)
Collateralized debt obligations	$	50	$	1,346	$	—		$	1,396
Corporate debt securities	97,777		775		(3,826		)	94,726
Municipal obligations	183,579		2,773		(2,370		)	183,982
CRA investments	1,600		—		—			1,600
Total HTM securities	$	283,006	$	4,894	$	(6,196	)	$	281,704



Available-for-sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
	(in thousands)
U.S. Government-sponsored agency securities	$	49,110	$	—	$	(2,135	)	$	46,975
Municipal obligations	121,671		316		(6,322		)	115,665
Preferred stock	68,110		853		(7,479		)	61,484
Mutual funds	37,423		93		(984		)	36,532
Residential MBS issued by GSEs	1,028,402		5,567		(12,548		)	1,021,421
Private label residential MBS	38,250		—		(2,151		)	36,099
Private label commercial MBS	5,252		181		—			5,433
Trust preferred securities	32,000		—		(8,195		)	23,805
CRA investments	23,830		—		(548		)	23,282
Total AFS securities	$	1,404,048	$	7,010	$	(40,362	)	$	1,370,696

Securities measured at fair value
Residential MBS issued by GSEs								$	3,036

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" of these Notes to Unaudited Consolidated Financial Statements.

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, taking into account the severity and duration of the decline. Another potential indication of OTTI is a downgrade below investment grade. In determining whether an impairment is OTTI, the Company considers the length of time and the extent to which the market value has been below cost, recent events specific to the issuer, including investment downgrades by rating agencies and economic conditions of its industry, and the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. For marketable equity securities, the Company also considers the issuer’s financial condition, capital strength and near-term prospects.

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

The Company has reviewed securities on which there is an unrealized loss in accordance with its accounting policy for OTTI described above and determined that there were no impairment charges for the three months ended March 31, 2014 and 2013.

The Company does not consider any securities to be other-than-temporarily impaired as of March 31, 2014 and December 31, 2013. No assurance can be made that additional OTTI will not occur in future periods.

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Information pertaining to securities with gross unrealized losses at March 31, 2014 and December 31, 2013, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:



	March 31, 2014
	Less Than Twelve Months				More Than Twelve Months				Total
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
	(in thousands)
Held-to-maturity
Corporate debt securities	$	—	$	—	$	3,156	$	71,844	$	3,156	$	71,844
Municipal obligations	480		17,233		799		8,486		1,279		25,719
Total HTM securities	$	480	$	17,233	$	3,955	$	80,330	$	4,435	$	97,563

Available-for-sale
U.S. government sponsored agency securities	$	298	$	40,117	$	1,142	$	17,555	$	1,440	$	57,672
Preferred stock	3,268		36,712		—		—		3,268		36,712
Mutual funds	435		25,648		—		—		435		25,648
Residential MBS issued by GSEs	7,247		489,288		850		13,788		8,097		503,076
Commercial MBS issued by GSEs	54		2,034		—		—		54		2,034
Municipal obligations	1,290		46,367		2,122		20,761		3,412		67,128
Private label residential MBS	1,986		29,349		40		3,393		2,026		32,742
Trust preferred securities	—		—		7,272		24,728		7,272		24,728
CRA investments	415		23,442		—		—		415		23,442
Total AFS securities	$	14,993	$	692,957	$	11,426	$	80,225	$	26,419	$	773,182



	December 31, 2013
	Less Than Twelve Months				Over Twelve Months				Total
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
	(in thousands)
Held-to-maturity
Corporate debt securities	$	163	$	9,837	$	3,663	$	71,337	$	3,826	$	81,174
Municipal obligations	1,624		50,740		746		5,102		2,370		55,842
Total HTM securities	$	1,787	$	60,577	$	4,409	$	76,439	$	6,196	$	137,016

Available-for-sale
U.S. government sponsored agency securities	$	2,135	$	46,976	$	—	$	—	$	2,135	$	46,976
Preferred stock	7,479		44,637		—		—		7,479		44,637
Mutual funds	984		30,101		—		—		984		30,101
Residential MBS issued by GSEs	11,934		601,756		614		8,984		12,548		610,740
Municipal obligations	3,545		72,300		2,777		17,923		6,322		90,223
Private label residential MBS	2,009		32,517		142		3,583		2,151		36,100
Trust preferred securities	—		—		8,195		23,807		8,195		23,807
Other	548		23,823		—		—		548		23,823
Total AFS securities	$	28,634	$	852,110	$	11,728	$	54,297	$	40,362	$	906,407

At March 31, 2014 and December 31, 2013, the Company’s unrealized losses relate primarily to interest rate fluctuations, credit spread widening and reduced liquidity in applicable markets. The total number of securities in an unrealized loss position at March 31, 2014 was 192, compared to 252 at December 31, 2013. In analyzing an issuer’s financial condition, management

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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 in the foreseeable future, none of the securities described in the above table or in this paragraph were deemed to be other than temporarily impaired.

At March 31, 2014, the net unrealized loss on trust preferred securities classified as AFS was $7.3 million, compared with $8.2 million at December 31, 2013. The Company actively monitors its debt and other structured securities portfolios classified as AFS for declines in fair value. At March 31, 2014, the gross unrealized loss on corporate bond portfolio classified as HTM was $3.2 million, compared to $3.8 million at December 31, 2013. The FRB continues to express 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.

The amortized cost and fair value of securities as of March 31, 2014, by contractual maturities, are shown below. The actual maturities of the MBS may differ from their contractual maturities because the loans underlying the securities may be repaid without any penalties due to borrowers that have the right to call or prepay obligations with or without call or prepayment penalties. Therefore, these securities are listed separately in the maturity summary.



	March 31, 2014
	Amortized Cost		Estimated Fair Value
	(in thousands)
Held-to-Maturity
Due in one year or less	$	3,608	$	3,673
After one year through five years	17,596		18,191
After five years through ten years	146,688		145,735
After ten years	107,846		113,884
Total HTM	$	275,738	$	281,483

Available-for-Sale
Due in one year or less	$	66,543	$	65,949
After one year through five years	16,920		17,513
After five years through ten years	64,404		63,021
After ten years	201,723		189,482
Mortgage backed securities	1,034,629		1,030,468
Total AFS	$	1,384,219	$	1,366,433

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The following tables summarize the carrying amounts of the Company’s investment ratings position as March 31, 2014 and December 31, 2013:



	As of March 31, 2014
	AAA		Split-rated AAA/AA+		AA+ to AA-		A+ to A-		BBB+ to BBB-		BB+ and below		Totals
	(in thousands)
Municipal obligations	$	7,928	$	—	$	131,355	$	150,004	$	7,288	$	215	$	296,790
Residential MBS issued by GSEs	—		989,867		—		—		—		—		989,867
Commercial MBS issued by GSEs	—		2,034		—		—		—		—		2,034
Private label residential MBS	23,343		—		107		4,143		5,028		3,477		36,098
Private label commercial MBS	5,412		—		—		—		—		—		5,412
Mutual funds (3)	—		—		—		—		37,243		—		37,243
U.S. government sponsored agency	—		57,672		—		—		—		—		57,672
Preferred stock	—		—		—		—		46,452		19,385		65,837
Trust preferred securities	—		—		—		—		24,728		—		24,728
Collateralized debt obligations	—		—		—		—		—		50		50
Corporate debt securities	—		—		2,698		25,098		69,980		—		97,776
Total (1) (2)	$	36,683	$	1,049,573	$	134,160	$	179,245	$	190,719	$	23,127	$	1,613,507


(1)	The Company used the average credit rating of the combination of S&P, Moody’s and Fitch in the above table where ratings differed.


(2)	Securities values are shown at carrying value as of March 31, 2014. Unrated securities consist of CRA investments with a carrying value of $23.5 million and preferred stock with a carrying value of $8.1 million.


(3)	At least 80% of mutual funds are investment grade corporate debt securities.



	December 31, 2013
	AAA		Split-rated AAA/AA+		AA+ to AA-		A+ to A-		BBB+ to BBB-		BB+ and below		Totals
	(in thousands)
Municipal obligations	$	7,965	$	—	$	129,810	$	153,949	$	7,305	$	215	$	299,244
Residential MBS issued by GSEs	—		1,024,457		—		—		—		—		1,024,457
Private label residential MBS	23,646		—		125		4,101		4,625		3,602		36,099
Private label commercial MBS	5,433		—		—		—		—		—		5,433
Mutual funds (3)	—		—		—		—		36,532		—		36,532
U.S. government sponsored agency	—		46,975		—		—		—		—		46,975
Preferred stock	—		—		—		—		45,847		13,244		59,091
Trust preferred securities	—		—		—		—		23,805		—		23,805
Collateralized debt obligations	—		—		—		—		—		50		50
Corporate debt securities	—		—		2,697		35,102		59,978		—		97,777
Total (1) (2)	$	37,044	$	1,071,432	$	132,632	$	193,152	$	178,092	$	17,111	$	1,629,463


(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, 2013. Unrated securities consist of CRA investments with a carrying value of $23.3 million, one ARPS with a carrying value of $2.4 million and an other investment of $1.6 million.


(3)	At least 80% of mutual funds are investment grade corporate debt securities.

Securities with carrying amounts of approximately $739.2 million and $662.5 million at March 31, 2014 and December 31, 2013, respectively, were pledged for various purposes as required or permitted by law.

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The following table presents gross gains and losses on sales of investment securities:



	Three Months Ended March 31,
	2014		2013
	(in thousands)
Gross gains	$	366	$	200
Gross losses	—		(53		)
Net gains	$	366	$	147

3. LOANS, LEASES AND ALLOWANCE FOR CREDIT LOSSES

The composition of the Company’s loan portfolio is as follows:



	March 31, 2014			December 31, 2013
	(in thousands)
Commercial and industrial	$	2,501,499		$	2,236,740
Commercial real estate - non-owner occupied	1,849,211			1,843,415
Commercial real estate - owner occupied	1,606,243			1,561,862
Construction and land development	553,655			537,231
Residential real estate	344,859			350,312
Commercial leases	221,916			235,968
Consumer	38,330			45,153
Deferred fees and costs	(7,114		)	(9,266		)
Loans, net of deferred fees and costs	7,108,599			6,801,415
Allowance for credit losses	(103,899		)	(100,050		)
Total	$	7,004,700		$	6,701,365

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



	March 31, 2014
	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	$	1,597,539	$	4,416	$	996	$	3,292	$	8,704	$	1,606,243
Non-owner occupied	1,651,963		17,824		1,548		6,454		25,826		1,677,789
Multi-family	171,422		—		—		—		—		171,422
Commercial and industrial
Commercial	2,499,734		651		216		898		1,765		2,501,499
Leases	221,916		—		—		—		—		221,916
Construction and land development
Construction	310,599		479		—		—		479		311,078
Land	241,234		—		—		1,343		1,343		242,577
Residential real estate	330,550		2,764		4,286		7,259		14,309		344,859
Consumer	37,882		270		11		167		448		38,330
Total loans	$	7,062,839	$	26,404	$	7,057	$	19,413	$	52,874	$	7,115,713

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	December 31, 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	$	1,555,210	$	1,759	$	406	$	4,487	$	6,652	$	1,561,862
Non-owner occupied	1,627,062		8,774		4,847		15,767		29,388		1,656,450
Multi-family	186,965		—		—		—		—		186,965
Commercial and industrial
Commercial	2,232,186		1,868		233		2,453		4,554		2,236,740
Leases	235,618		—		—		350		350		235,968
Construction and land development
Construction	291,883		—		—		—		—		291,883
Land	243,741		264		1,343		—		1,607		245,348
Residential real estate	339,566		2,423		1,368		6,955		10,746		350,312
Consumer	44,018		466		155		514		1,135		45,153
Total loans	$	6,756,249	$	15,554	$	8,352	$	30,526	$	54,432	$	6,810,681

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



	March 31, 2014								December 31, 2013
	Non-accrual loans						Loans past due 90 days or more and still accruing		Non-accrual loans						Loans past due 90 days or more and still accruing
	Current		Past Due/ Delinquent		Total Non-accrual		Loans past due 90 days or more and still accruing		Current		Past Due/ Delinquent		Total Non-accrual		Loans past due 90 days or more and still accruing
	(in thousands)
Commercial real estate
Owner occupied	$	6,663	$	4,460	$	11,123	$	—	$	9,330	$	3,600	$	12,930	$	887
Non-owner occupied	15,454		22,306		37,760		—		17,930		23,996		41,926		—
Multi-family	—		—		—		—		—		—		—		—
Commercial and industrial
Commercial	1,534		1,104		2,638		—		622		2,682		3,304		125
Leases	432		—		432		—		99		350		449		—
Construction and land development
Construction	—		—		—		—		—		—		—		—
Land	2,277		1,341		3,618		—		3,133		1,392		4,525		—
Residential real estate	2,751		12,051		14,802		—		5,067		7,413		12,480		47
Consumer	28		—		28		167		27		39		66		475
Total	$	29,139	$	41,262	$	70,401	$	167	$	36,208	$	39,472	$	75,680	$	1,534

The reduction in interest income associated with loans on nonaccrual status was approximately $1.0 million and $1.2 million for the three months ended March 31, 2014 and 2013, 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, or risk rated eight, have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The final rating of Loss covers loans considered uncollectible and having such little recoverable value that it is not practical to defer writing off the asset. Loans that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that deserve

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management’s close attention, are deemed to be Special Mention. Risk ratings are updated, at a minimum, quarterly. The following tables present gross loans by risk rating:



	March 31, 2014
	Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(in thousands)
Commercial real estate
Owner occupied	$	1,525,617	$	33,638	$	46,355	$	633	$	—	$	1,606,243
Non-owner occupied	1,539,862		53,132		84,795		—		—		1,677,789
Multi-family	170,948		—		474		—		—		171,422
Commercial and industrial
Commercial	2,474,755		9,249		17,495		—		—		2,501,499
Leases	217,460		4,024		432		—		—		221,916
Construction and land development
Construction	310,599		479		—		—		—		311,078
Land	208,513		13,509		20,555		—		—		242,577
Residential real estate	317,513		3,044		24,302		—		—		344,859
Consumer	37,515		339		476		—		—		38,330
Total	$	6,802,782	$	117,414	$	194,884	$	633	$	—	$	7,115,713



	March 31, 2014
	Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(in thousands)
Current (up to 29 days past due)	$	6,800,191	$	115,223	$	146,792	$	633	$	—	$	7,062,839
Past due 30 - 59 days	2,472		2,090		21,842		—		—		26,404
Past due 60 - 89 days	119		101		6,837		—		—		7,057
Past due 90 days or more	—		—		19,413		—		—		19,413
Total	$	6,802,782	$	117,414	$	194,884	$	633	$	—	$	7,115,713



	December 31, 2013
	Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(in thousands)
Commercial real estate
Owner occupied	$	1,483,190	$	33,065	$	44,649	$	958	$	—	$	1,561,862
Non-owner occupied	1,498,500		64,588		93,362		—		—		1,656,450
Multi-family	186,479		—		486		—		—		186,965
Commercial and industrial
Commercial	2,208,947		10,058		16,231		1,504		—		2,236,740
Leases	231,344		4,175		449		—		—		235,968
Construction and land development
Construction	291,402		481		—		—		—		291,883
Land	210,615		13,762		20,971		—		—		245,348
Residential real estate	323,333		3,037		23,942		—		—		350,312
Consumer	43,516		799		838		—		—		45,153
Total	$	6,477,326	$	129,965	$	200,928	$	2,462	$	—	$	6,810,681

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	December 31, 2013
	Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(in thousands)
Current (up to 29 days past due)	$	6,471,951	$	129,208	$	154,441	$	649	$	—	$	6,756,249
Past due 30 - 59 days	4,205		602		10,747		—		—		15,554
Past due 60 - 89 days	1,123		155		7,074		—		—		8,352
Past due 90 days or more	47		—		28,666		1,813		—		30,526
Total	$	6,477,326	$	129,965	$	200,928	$	2,462	$	—	$	6,810,681

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



	March 31, 2014			December 31, 2013
	(in thousands)
Impaired loans with a specific valuation allowance under FASB ASC 310	$	22,127		$	25,754
Impaired loans without a specific valuation allowance under FASB ASC 310	149,135			152,623
Total impaired loans	$	171,262		$	178,377
Valuation allowance related to impaired loans	$	(3,925	)	$	(5,280	)

The following table presents the impaired loans by class:



	March 31, 2014		December 31, 2013
	(in thousands)
Commercial real estate
Owner occupied	$	35,329	$	37,902
Non-owner occupied	68,756		73,152
Multi-family	—		—
Commercial and industrial
Commercial	15,233		449
Leases	432		16,892
Construction and land development
Construction	—		—
Land	22,012		23,069
Residential real estate	29,026		26,376
Consumer	474		537
Total	$	171,262	$	178,377

A valuation allowance is established for an impaired loan when the fair value of the loan is less than the recorded investment. In certain cases, portions of impaired loans 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 FASB ASC 310.” The valuation allowance disclosed above is included in the allowance for credit losses reported in the Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013.

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



	Three Months Ended March 31,
	2014		2013
	(in thousands)
Commercial real estate
Owner occupied	$	36,748	$	60,065
Non-owner occupied	70,039		52,986
Multi-family	—		230
Commercial and industrial
Commercial	15,583		15,088
Leases	439		1,028
Construction and land development
Construction	—		—
Land	22,586		29,362
Residential real estate	26,799		37,040
Consumer	502		705
Total	$	172,696	$	196,504

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



	Three Months Ended March 31,
	2014		2013
	(in thousands)
Commercial real estate
Owner occupied	$	391	$	420
Non-owner occupied	373		404
Multi-family	—		—
Commercial and industrial
Commercial	193		150
Leases	—		—
Construction and land development
Construction	—		—
Land	261		259
Residential real estate	157		5
Consumer	11		8
Total	$	1,386	$	1,246

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

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The following table summarizes nonperforming assets:



	March 31, 2014		December 31, 2013
	(in thousands)
Nonaccrual loans	$	70,401	$	75,680
Loans past due 90 days or more on accrual status	167		1,534
Troubled debt restructured loans	89,524		89,576
Total nonperforming loans	160,092		166,790
Other assets acquired through foreclosure, net	56,450		66,719
Total nonperforming assets	$	216,542	$	233,509

Loans Acquired with Deteriorated Credit Quality

Changes in the accretable yield for loans acquired with deteriorated credit quality are as follows:



	Three Months Ended March 31,
	2014			2013
	(in thousands)
Balance, at beginning of period	$	28,164		$	7,072
Reclassification from non-accretable to accretable yield	1,466			—
Accretion to interest income	(2,404		)	(2,079		)
Reversal of fair value adjustments upon disposition of loans	(395		)	—
Balance, at end of period	$	26,831		$	4,993

The primary drivers of reclassification from non-accretable 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:



	Three Months Ended March 31,
	Construction and Land Development			Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer			Total
	(in thousands)
2014
Beginning Balance	$	14,519		$	32,064		$	11,640		$	39,657		$	2,170		$	100,050
Charge-offs	—			(171		)	(406		)	(1,478		)	(12		)	(2,067		)
Recoveries	211			560			553			922			170			2,416
Provision	1,970			2,400			(490		)	392			(772		)	3,500
Ending balance	$	16,700		$	34,853		$	11,297		$	39,493		$	1,556		$	103,899
2013
Beginning Balance	$	10,554		$	34,982		$	15,237		$	32,860		$	1,794		$	95,427
Charge-offs	(614		)	(2,887		)	(2,493		)	(1,770		)	(275		)	(8,039		)
Recoveries	701			942			569			441			14			2,667
Provision	398			1,864			1,282			2,654			(759		)	5,439
Ending balance	$	11,039		$	34,901		$	14,595		$	34,185		$	774		$	95,494

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The following table presents impairment method information related to loans and allowance for credit losses by loan portfolio segment:



	Commercial Real Estate- Owner Occupied		Commercial Real Estate- Non-Owner Occupied		Commercial and Industrial		Residential Real Estate		Construction and Land Development		Commercial Leases		Consumer		Total Loans
	(in thousands)
Loans as of March 31, 2014:
Recorded Investment:
Impaired loans with an allowance recorded	$	1,462	$	13,503	$	940	$	6,111	$	—	$	83	$	28	$	22,127
Impaired loans with no allowance recorded	33,867		55,253		14,293		22,915		22,012		349		446		149,135
Total loans individually evaluated for impairment	35,329		68,756		15,233		29,026		22,012		432		474		171,262
Loans collectively evaluated for impairment	1,548,059		1,691,360		2,486,004		313,376		531,615		221,484		37,856		6,829,754
Loans acquired with deteriorated credit quality	22,855		89,095		262		2,457		28		—		—		114,697
Total loans	$	1,606,243	$	1,849,211	$	2,501,499	$	344,859	$	553,655	$	221,916	$	38,330	$	7,115,713
Unpaid Principal Balance
Impaired loans with an allowance recorded	$	1,462	$	13,503	$	1,153	$	6,260	$	—	$	83	$	28	$	22,489
Impaired loans with no allowance recorded	39,398		58,050		14,859		28,567		23,117		501		459		164,951
Total loans individually evaluated for impairment	40,860		71,553		16,012		34,827		23,117		584		487		187,440
Loans collectively evaluated for impairment	1,548,059		1,691,360		2,486,004		313,376		531,615		221,484		37,856		6,829,754
Loans acquired with deteriorated credit quality	30,841		120,728		870		3,709		100		—		—		156,248
Total loans	$	1,619,760	$	1,883,641	$	2,502,886	$	351,912	$	554,832	$	222,068	$	38,343	$	7,173,442
Related Allowance for Credit Losses
Impaired loans with an allowance recorded	$	450	$	803	$	666	$	1,938	$	—	$	65	$	3	$	3,925
Impaired loans with no allowance recorded	—		—		—		—		—		—		—		—
Total loans individually evaluated for impairment	450		803		666		1,938		—		65		3		3,925
Loans collectively evaluated for impairment	13,563		18,625		36,155		9,359		16,700		2,607		1,553		98,562
Loans acquired with deteriorated credit quality	—		1,412		—		—		—		—		—		1,412
Total loans	$	14,013	$	20,840	$	36,821	$	11,297	$	16,700	$	2,672	$	1,556	$	103,899

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	Commercial Real Estate- Owner Occupied		Commercial Real Estate- Non-Owner Occupied		Commercial and Industrial		Residential Real Estate		Construction and Land Development		Commercial Leases		Consumer		Total Loans
	(in thousands)
Loans as of December 31, 2013:
Recorded Investment:
Impaired loans with an allowance recorded	$	1,092	$	17,932	$	1,907	$	4,580	$	118	$	99	$	26	$	25,754
Impaired loans with no allowance recorded	36,810		55,220		14,985		21,796		22,951		350		511		152,623
Total loans individually evaluated for impairment	37,902		73,152		16,892		26,376		23,069		449		537		178,377
Loans collectively evaluated for impairment	1,500,740		1,678,242		2,219,500		321,683		513,681		235,519		44,616		6,513,981
Loans acquired with deteriorated credit quality	23,220		92,021		348		2,253		481		—		—		118,323
Total loans	$	1,561,862	$	1,843,415	$	2,236,740	$	350,312	$	537,231	$	235,968	$	45,153	$	6,810,681
Unpaid Principal Balance
Impaired loans with an allowance recorded	$	1,092	$	19,273	$	2,120	$	4,729	$	118	$	99	$	27	$	27,458
Impaired loans with no allowance recorded	43,537		58,322		15,731		27,550		24,137		502		523		170,302
Total loans individually evaluated for impairment	44,629		77,595		17,851		32,279		24,255		601		550		197,760
Loans collectively evaluated for impairment	1,500,740		1,678,242		2,219,500		321,683		513,681		235,519		44,616		6,513,981
Loans acquired with deteriorated credit quality	34,951		130,279		1,403		3,728		804		—		—		171,165
Total loans	$	1,580,320	$	1,886,116	$	2,238,754	$	357,690	$	538,740	$	236,120	$	45,166	$	6,882,906
Related Allowance for Credit Losses
Impaired loans with an allowance recorded	$	402	$	2,121	$	702	$	1,896	$	85	$	70	$	4	$	5,280
Impaired loans with no allowance recorded	—		—		—		—		—		—		—		—
Total loans individually evaluated for impairment	402		2,121		702		1,896		85		70		4		5,280
Loans collectively evaluated for impairment	12,158		17,061		36,344		9,744		14,434		2,541		2,166		94,448
Loans acquired with deteriorated credit quality	—		322		—		—		—		—		—		322
Total loans	$	12,560	$	19,504	$	37,046	$	11,640	$	14,519	$	2,611	$	2,170	$	100,050

For the first quarter of 2013, the baseline historical loss rates were computed using a weighted ratio of the 1-year and 5-year historical loss rates. As the market environment improved throughout 2013 and shorter-term loss rates compressed below longer-term levels, the Company determined during the fourth quarter of 2013 that the 5-year historical loss rates were a better representation of longer-term expectations for probable losses. Accordingly, the allowance calculation for the quarter ended March 31, 2014 continues to apply a 100% weight to the 5-year historical loss rate (per loan category).

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Troubled Debt Restructurings

A TDR 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 TDR 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 TDR loans by class for the periods presented:



	Three Months Ended March 31, 2014
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Forgiven Principal Balance		Lost Interest Income		Post-Modification Outstanding Recorded Investment		Waived Fees and Other Expenses
	(dollars in thousands)
Commercial real estate
Owner occupied	1	$	798	$	378	$	117	$	303	$	33
Non-owner occupied	—	—		—		—		—		—
Multi-family	—	—		—		—		—		—
Commercial and industrial
Commercial	1	63		—		—		63		3
Leases	—	—		—		—		—		—
Construction and land development
Construction	—	—		—		—		—		—
Land	—	—		—		—		—		—
Residential real estate	1	405		166		37		202		—
Consumer	—	—		—		—		—		—
Total	3	$	1,266	$	544	$	154	$	568	$	36



	Three Months Ended March 31, 2013
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Forgiven Principal Balance		Lost Interest Income		Post-Modification Outstanding Recorded Investment		Waived Fees and Other Expenses
	(dollars in thousands)
Commercial real estate
Owner occupied	5	$	2,686	$	—	$	54	$	2,632	$	—
Non-owner occupied	4	10,318		1,030		63		9,225		7
Multi-family	—	—		—		—		—		—
Commercial and industrial
Commercial	5	1,846		—		10		1,836		8
Leases	—	—		—		—		—		—
Construction and land development
Construction	—	—		—		—		—		—
Land	2	286		—		—		286		1
Residential real estate	1	40		—		6		34		3
Consumer	1	39		—		—		39		3
Total	18	$	15,215	$	1,030	$	133	$	14,052	$	22

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The following table presents TDR loans by class for which there was a payment default during the period:



	Three Months Ended March 31,
	2014			2013
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
	(dollars in thousands)
Commercial real estate
Owner occupied	1	$	303	3	$	2,506
Non-owner occupied	—	—		1	160
Multi-family	—	—		—	—
Commercial and industrial
Commercial	1	63		2	782
Leases	—	—		—	—
Construction and land development
Construction	—	—		—	—
Land	—	—		2	330
Residential real estate	1	202		2	655
Consumer	—	—		—	—
Total	3	$	568	10	$	4,433

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. Payment defaults, along with other qualitative indicators, are considered by management in the determination of the allowance for credit losses.

At March 31, 2014 and December 31, 2013, there were no loan commitments outstanding on TDR loans.

Loan Purchases and Sales

For the three months ended March 31, 2014 and 2013, the Company had secondary market loan purchases of $15.6 million and $43.0 million, respectively. For 2014 and 2013, these purchased loans consisted of commercial and industrial 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 2014 or 2013.

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4. OTHER ASSETS ACQUIRED THROUGH FORECLOSURE

The following table represents the changes in other assets acquired through foreclosure:



	Three Months Ended March 31,
	2014
	Gross Balance			Valuation Allowance			Net Balance
	(in thousands)
Balance, beginning of the period	$	88,421		$	(21,702	)	$	66,719
Transfers to other assets acquired through foreclosure, net	2,110			—			2,110
Proceeds from sale of other real estate owned and repossessed assets, net	(19,473		)	5,961			(13,512		)
Valuation adjustments, net	—			(35		)	(35		)
Gains, net (1)	1,168			—			1,168
Balance, end of period	$	72,226		$	(15,776	)	$	56,450

	2013
Balance, beginning of the period	$	113,474		$	(36,227	)	$	77,247
Transfers to other assets acquired through foreclosure, net	6,609			—			6,609
Proceeds from sale of other real estate owned and repossessed assets, net	(12,120		)	6,747			(5,373		)
Valuation adjustments, net	—			(1,017		)	(1,017		)
Gains, net (1)	455			—			455
Balance, end of period	$	108,418		$	(30,497	)	$	77,921


(1)	Includes gains related to initial transfers to other assets of zero and $0.3 million during the three months ended March 31, 2014 and 2013, respectively, pursuant to accounting guidance.

At March 31, 2014 and 2013, the majority of the Company’s repossessed assets consisted of properties located in Nevada.

5. OTHER BORROWINGS

The following table summarizes the Company’s borrowings as of March 31, 2014 and December 31, 2013:



	March 31, 2014		December 31, 2013
	(in thousands)
Short-Term:
Revolving line of credit	$	5,000	$	3,000
FHLB advances	56,324		25,906
Total short-term borrowings	$	61,324	$	28,906
Long-Term:
FHLB advances	$	217,166	$	247,973
Other long term debt	64,326		64,217
Total long-term borrowings	$	281,492	$	312,190

WAL maintains other lines of credit totaling $70.0 million, of which $25.0 million is secured by pledged securities and $45.0 million is unsecured. As of March 31, 2014, the Company had outstanding advances on the $25.0 million secured line of credit totaling $5.0 million at an interest rate of 1.75%. There were no amounts outstanding on the unsecured lines of credit. In addition, the bank has entered into Fed Funds agreements with other financial institutions under which it can borrow up to $120.0 million on an unsecured basis. There were no amounts outstanding on these lines of credit as of March 31, 2014. The lending institutions will determine the interest rate charged on borrowings at the time of the borrowing.

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. At March 31, 2014, there was $56.3 million of FHLB advances classified as short-term, with a weighted average interest rate of 2.91%. At December 31, 2013, short-term FHLB advances had a weighted average interest rate of 2.90%.

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At March 31, 2014, there was $217.2 million of FHLB advances classified as long-term and $64.9 million of outstanding Senior Note principal, whose carrying value of $64.3 million reflects a discount of $0.6 million. The weighted average rate on all long-term debt was 3.16% and 3.65% for the three months ended March 31, 2014 and 2013, respectively.

As of March 31, 2014 and December 31, 2013, the Company had additional available credit with the FHLB of approximately $1.03 billion and $1.39 billion, respectively, and with the FRB of approximately $1.00 billion and $588.2 million, respectively.

6. 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 potential 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:



	March 31, 2014		December 31, 2013
	(in thousands)
Commitments to extend credit, including unsecured loan commitments of $221,669 at March 31, 2014 and $237,063 at December 31, 2013	$	1,840,740	$	1,878,340
Credit card commitments and financial guarantees	33,932		33,632
Standby letters of credit, including unsecured letters of credit of $5,957 at March 31, 2014 and $4,896 at December 31, 2013	38,501		31,271
Total	$	1,913,173	$	1,943,243

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 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 3. Loans, Leases and Allowance for Credit Losses" of the Unaudited Consolidated Financial Statements and are accounted for as a separate loss contingency. This loss contingency for unfunded loan commitments and letters of credit was $2.1 million and $2.0 million as of March 31, 2014 and December 31, 2013, respectively. Changes to this liability are adjusted through non-interest expense.

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Concentrations of Lending Activities

The Company’s lending activities are driven in large part by the customers served in the market areas where the Company has branch offices in the states of Arizona, Nevada and California. Despite the geographic concentration of lending activities, the Company does not have a single external customer from which it derives 10% or more of its revenues. 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 CRE market of these areas. As of March 31, 2014 and December 31, 2013, CRE related loans accounted for approximately 56% and 58% of total loans, respectively, and approximately 1% and 2%, respectively, of CRE related loans are secured by undeveloped land. Substantially all of these loans are secured by first liens with an initial loan to value ratio of generally not more than 75%. Approximately 47% and 46% of these CRE loans, excluding construction and land loans, were owner occupied at March 31, 2014 and December 31, 2013, respectively. In addition, approximately 3% and 4% of total loans were unsecured as of March 31, 2014 and December 31, 2013, respectively.

Contingencies

The Company is involved in various lawsuits of a routine nature that are being handled and defended in the ordinary course of the Company’s business. Expenses are being incurred in connection with these lawsuits, but in the opinion of management, based in part on consultation with outside 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 $1.6 million and $1.9 million was included in occupancy expenses for the three months ended March 31, 2014 and 2013, respectively.

7. STOCKHOLDERS’ EQUITY

For the three months ended March 31, 2014, 376,175 shares of restricted stock were granted to Company employees that vest over three years and 64,000 shares were granted to non-employee WAL and WAB directors that vest over six months. The Company estimates the compensation cost for restricted stock grants based upon the grant date fair value. The aggregate grant date fair value for the restricted stock issued in the three month period ended March 31, 2014 was $10.5 million.

There were approximately 1,161,743 and 1,204,216 restricted shares outstanding at March 31, 2014 and December 31, 2013, respectively. For the three months ended March 31, 2014, the Company recognized $0.3 million in stock-based compensation expense related to restricted stock grants, compared to $1.0 million in expense for the three months ended March 31, 2013. Other restricted stock components causing the reduction of $3.4 million to APIC during the three months ended March 31, 2014 include shares withheld on cashless exercises and forfeitures.

As of March 31, 2014 and December 31, 2013, there were 0.8 million and 1.0 million, respectively, of stock options outstanding.

8. ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table summarizes the changes in accumulated other comprehensive loss by component, net of tax, for the periods indicated:



	Three Months Ended March 31,
	2014								2013
	Unrealized holding gains (losses) on AFS securities			Impairment loss on securities		Total			Unrealized holding gains (losses) on AFS securities			Unrealized gain on cash flow hedge			Total
	(in thousands)
Beginning balance	$	(21,690	)	$	144	$	(21,546	)	$	8,209		$	17		$	8,226
Other comprehensive income (loss) before reclassifications	10,644			—		10,644			(890		)	(34		)	(924		)
Amounts reclassified from accumulated other comprehensive loss	(229		)	—		(229		)	(97		)	—			(97		)
Net current-period other comprehensive income (loss)	10,415			—		10,415			(987		)	(34		)	(1,021		)
Ending balance	$	(11,275	)	$	144	$	(11,131	)	$	7,222		$	(17	)	$	7,205

The following table presents reclassifications out of accumulated other comprehensive loss:



	Amount reclassified from accumulated other comprehensive income
Details about accumulated other	Three Months Ended March 31,						Affected line item in the statement
comprehensive loss components	2014			2013			where net income is presented
	(in thousands)
Unrealized gains and losses on AFS
	$	366		$	147		Gain on sales of investment securities, net
	(137		)	(50		)	Income tax expense
	$	229		$	97		Net of tax

9. 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.

The following table presents the calculation of basic and diluted earnings per share for the three months ended March 31, 2014 and 2013.



	Three Months Ended March 31,
	2014		2013
	(in thousands, except per share amounts)
Weighted average shares - basic	86,256		85,324
Dilutive effect of stock awards	867		656
Weighted average shares - diluted	87,123		85,980
Net income available to common shareholders	$	30,732	$	20,532
Earnings per share - basic	0.35		0.24
Earnings per share - diluted	0.35		0.24

The Company had 4,000 and 163,300 stock options outstanding as of March 31, 2014 and December 31, 2013, respectively, that were not included in the computation of diluted earnings per common share because their effect would be anti-dilutive.

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10. 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.

For the three months ended March 31, 2014, the net deferred tax assets decreased $2.4 million to $78.3 million. This overall decrease in the net deferred tax asset was primarily the result of increases to deferred tax assets from AMT credit carryovers along with a release of valuation allowance, which were more than offset by the decreases to deferred tax assets from exercises and forfeitures of equity compensation, changes in the fair market value of AFS securities and fair market value adjustments related to acquired loans.

Although realization is not assured, the Company believes that the realization of the recognized deferred tax asset of $78.3 million at March 31, 2014 is more likely than not based on expectations as to future taxable income and based on available tax planning strategies within the meaning of FASB ASC 740 that could be implemented if necessary to prevent a carryover from expiring.

At March 31, 2014 and December 31, 2013, the Company had a $4.6 million and a $5.6 million deferred tax valuation allowance, respectively. As of March 31, 2014, $3.2 million relates to net capital loss carryovers from ARPS securities sales and the remaining valuation allowance of $1.4 million relates to Arizona state NOL carryovers and Section 382 of the IRC limitations associated with the Company's acquisition of Western Liberty Bancorp.

The deferred tax asset related to federal and state net operating loss carryovers outstanding at March 31, 2014 available to reduce tax liability in future years totaled $9.8 million. This is comprised of $8.3 million of tax benefits from federal net operating loss carryovers (subject to an annual limitation imposed by section 382 of the IRC as discussed below) and $1.5 million of tax benefits from Arizona state net operating loss carryovers that began to expire in 2013. The Company’s ability to use federal NOLs, as well as its ability to use certain future tax deductions called NUBILs associated with the Company's acquisitions of Western Liberty Bancorp and Centennial Bank, will be subject to separate annual limitations of $1.8 million and $1.6 million of deductions from taxable income, respectively. In management’s opinion, it is more likely than not that the results of future operations will generate sufficient taxable income to realize all but $1.4 million of the deferred tax benefits related to these net operating loss carryovers and NUBILs.

The Company's effective tax rate was 25.08% and 27.19% for the three months ended March 31, 2014 and 2013, respectively. The decrease in the effective tax rate from the first quarter 2013 compared to the first quarter 2014 is primarily due to increased benefits received from qualified affordable housing projects and an increase to the expected amount of tax exempt interest income for the year, which were not fully offset by rate detriments from a decrease in the projected amount of BOLI income.

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Investments in LIHTC

The Company invests in LIHTC funds that are designed to generate a return primarily through the realization of federal tax credits.

The Company adopted the amendments to FASB ASC 323-740 as of January 1, 2014, which revises the accounting for investments in qualified affordable housing projects. As a result, the Company has adjusted its prior period financial statements to apply the proportional amortization methodology in accounting for these investments. This impacted the balance of tax credit investments and related current and deferred tax items on the Consolidated Balance Sheets. In accordance with FASB ASC 323-740, the tax credit investment amortization is now presented as a component of income tax expense. Previously, the amortization expense was included as a component of non-interest income.

The following table summarizes the impact of the change in the Consolidated Financial Statements for the periods indicated:



	December 31, 2013
	(in thousands)
Consolidated Balance Sheet:
Deferred tax assets, net
As previously reported	$	79,374
As reported under new guidance	80,688
Other assets
As previously reported (1)	186,288
As reported under new guidance	185,221
Stockholders' Equity
As previously reported	855,251
As reported under new guidance	855,498


(1)	Includes a $14.6 million reclassification from premises and equipment, net.

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	Three Months Ended March 31, 2013
	(in thousands)
Consolidated Income Statement:
Non-interest income
As previously reported	$	3,899
As reported under new guidance	4,799
Income tax expense
As previously reported	6,808
As reported under new guidance	7,787
Income from continuing operations
As previously reported	20,926
As reported under new guidance	20,847
Net income
As previously reported	20,964
As reported under new guidance	20,885
Net income available to common shareholders
As previously reported	20,611
As reported under new guidance	20,532
Earnings per share applicable to common shareholders--basic
As previously reported	0.24
As reported under new guidance	0.24
Earnings per share applicable to common shareholders--diluted
As previously reported	0.24
As reported under new guidance	0.24

The cumulative effect of adoption of this guidance at December 31, 2013 was an increase to stockholders' equity of $0.2 million and a decrease to stockholder's equity of $0.2 million at December 31, 2012.

Investments in LIHTC and unfunded LIHTC obligations are included as part of other assets and other liabilities, respectively, in the Consolidated Balance Sheet and total $129.3 million and $68.3 million, respectively, as of March 31, 2014. For the three months ended March 31, 2014, $3.0 million of amortization related to LIHTC investments was recognized as a component of income tax expense.

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. FASB ASC 825 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 825 are described in "Note 1. Summary of Significant Accounting Policies" of these Notes to Unaudited Consolidated Financial Statements.

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

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differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth below. Transfers between levels in the fair value hierarchy are recognized at the end of the reporting period.

Under FASB ASC 825, the Company elected the 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 FASB 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 on the balance sheet entitled “securities measured at fair value.”

For the three months ended March 31, 2014 and 2013, 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 Fair Value Option
Description	Unrealized Gain/(Loss) on Assets and Liabilities Measured at Fair Value, Net			Interest Income on Securities		Interest Expense on Junior Subordinated Debt			Total Changes Included in Current-Period Earnings
	(in thousands)
Three Months Ended March 31, 2014
Securities measured at fair value	$	18		$	1	$	—		$	19
Junior subordinated debt	(978		)	—		(421		)	(1,399		)
Total	$	(960	)	$	1	$	(421	)	$	(1,380	)
Three Months Ended March 31, 2013
Securities measured at fair value	$	(2	)	$	2	$	—		$	—
Junior subordinated debt	(469		)	—		(466		)	(935		)
Total	$	(471	)	$	2	$	(466	)	$	(935	)

The following table presents the portion of trading securities losses related to trading securities still held at the reporting date:



	March 31,
	2014		2013
	(in thousands)
Net gains and (losses) for the period on trading securities included in earnings	$	18	$	(2	)
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	$	18	$	(2	)

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. For mortgage-backed securities, estimates of prepayments are considered in the constant yield calculations. Interest expense on junior subordinated debt is also determined under a constant yield calculation.

Fair value on a recurring basis

Financial assets and financial liabilities measured at fair value on a recurring basis include the following:

AFS Securities: ARPS securities, trust 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.

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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: Our independent pricing service provides pricing information on Level 1, 2 and 3 securities, and represents the pricing source for the majority of the portfolio. Management independently evaluates fair value measurements received from our 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, among other things, and makes an expectation on changes to the securities valuations from the previous quarter. Then management obtains market values from additional sources. 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. Last, management selects a sample of investment securities and compares the values provided by our primary third party pricing service to the market values obtained from secondary sources and evaluates those with notable variances.

Annually, the Company receives an 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. During 2013, the Company established and continues to use the BB 20-Year Index adjusted for a credit risk spread. The Company estimated the discount rate at 5.692%, which is a 546 basis point spread over 3 month LIBOR (0.231% as of March 31, 2014). As of December 31, 2013, the Company estimated the discount rate at 5.861%, which was a 562 basis point spread over 3 month LIBOR 0.246%.

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The fair value of assets and liabilities measured at fair value on a recurring basis 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 Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
	(in thousands)
March 31, 2014
Assets:
Measured at fair value
Residential MBS issued by GSEs	$	—	$	2,460	$	—	$	2,460
Private label residential MBS	—		483		—		483
Total securities measured at fair value	$	—	$	2,943	$	—	$	2,943
Available-for-sale
U.S. government sponsored agency securities	$	—	$	57,672	$	—	$	57,672
Municipal obligations	—		118,878		—		118,878
Preferred stock	73,947		—		—		73,947
Mutual funds	37,243		—		—		37,243
Residential MBS issued by GSEs	—		987,407		—		987,407
Commercial MBS issued by GSEs	—		2,034		—		2,034
Private label residential MBS	—		35,615		—		35,615
Private label commercial MBS	—		5,412		—		5,412
Trust preferred	—		24,728		—		24,728
CRA Investments	23,497		—		—		23,497
Total AFS	$	134,687	$	1,231,746	$	—	$	1,366,433
Positive NPVs on interest rate swaps	$	—	$	14,650	$	—	$	14,650
Liabilities:
Junior subordinated debt	$	—	$	—	$	42,836	$	42,836
Negative NPVs on interest rate swaps	$	—	$	15,553	$	—	$	15,553

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	Fair Value Measurements at the End of the Reporting Period Using:
	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)
December 31, 2013
Assets:
Measured at fair value
Residential MBS issued by GSEs	$	—	$	3,036	$	—	$	3,036
Available-for-sale
U.S. government sponsored agency securities	$	—	$	46,975	$	—	$	46,975
Municipal obligations	—		115,665		—		115,665
Preferred stock	61,484		—		—		61,484
Mutual funds	36,532		—		—		36,532
Residential MBS issued by GSEs	—		1,021,421		—		1,021,421
Private label residential MBS	—		36,099		—		36,099
Private label commercial MBS	—		5,433		—		5,433
Trust preferred	—		23,805		—		23,805
CRA Investments	23,282		—		—		23,282
Total AFS	$	121,298	$	1,249,398	$	—	$	1,370,696
Positive NPVs on interest rate swaps	$	—	$	2,783	$	—	$	2,783
Liabilities:
Junior subordinated debt	$	—	$	—	$	41,858	$	41,858
Negative NPVs on interest rate swaps	$	—	$	4,168	$	—	$	4,168

For the three months ended March 31, 2014 and 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 March 31,
	2014			2013
	(in thousands)
Opening balance	$	(41,858	)	$	(36,218	)
Total losses for the period
Included in earnings (and changes in net assets) (a)	(978		)	(469		)
Closing balance	$	(42,836	)	$	(36,687	)
Change in unrealized losses for the three month period included in earnings (and changes in net assets)	$	(978	)	$	(469	)


(a)	Total losses for the period are included in the non-interest income line, unrealized losses on assets / liabilities measured at fair value, net.

For Level 3 liabilities measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013, the significant unobservable inputs used in the fair value measurements were as follows:



	Fair Value at March 31, 2014		Valuation Technique	Significant Unobservable Inputs	Input Value
	(dollars in thousands)
Junior subordinated debt	$	42,836	Discounted cash flow	BB Corporate Bond over Treasury Index with comparable credit spread	5.692	%

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	Fair Value at December 31, 2013		Valuation Technique	Significant Unobservable Inputs	Input Value
	(dollars in thousands)
Junior subordinated debt	$	41,858	Discounted cash flow	BB Corporate Bond over Treasury Index with comparable credit spread	5.861	%

The significant unobservable inputs used in the fair value measurement of the Company’s junior subordinated debt 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.

Fair value on a nonrecurring basis

Certain assets are measured at fair value on a nonrecurring basis. That is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents such assets carried on the balance sheet by caption and by level within the FASB 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 March 31, 2014:
Impaired loans with specific valuation allowance	$	18,202	$	—	$	—	$	18,202
Impaired loans without specific valuation allowance	91,925		—		—		91,925
Other assets acquired through foreclosure	56,450		—		—		56,450
December 31, 2013
Impaired loans with specific valuation allowance	$	20,474	$	—	$	—	$	20,474
Impaired loans without specific valuation allowance	95,695		—		—		95,695
Other assets acquired through foreclosure	66,719		—		—		66,719

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 $22.1 million and $25.8 million, respectively, at March 31, 2014 and December 31, 2013. Specific reserves in the allowance for loan losses for these loans were $3.9 million and $5.3 million, respectively, at March 31, 2014 and December 31, 2013.

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 and 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 six to 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 $56.5 million of such assets at March 31, 2014. 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 appraisal, 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.

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Credit vs. non-credit losses

Under the provisions of FASB ASC 320, OTTI is separated into the amount of total impairment related to the credit loss and the amount of the total impairment related to all other factors. The amount of the total OTTI related to the credit loss is recognized in earnings. The amount of the total impairment related to all other factors is recognized in other comprehensive income.

For the three months ended March 31, 2014 and 2013, the Company determined that no securities experienced credit losses.

The following table presents a rollforward of the amount related to impairment credit losses recognized in earnings for the three months ended March 31, 2014 and 2013:



	Private Label Mortgage- Backed Securities
	Three Months Ended
	2014		2013
	(in thousands)
Beginning balance of impairment losses held in other comprehensive income	$	—	$	(1,811	)
Current period OTTI credit losses recognized through earnings	—		—
Reductions for securities sold during the period	—		—
Additions or reductions in credit losses due to change of intent to sell	—		—
Reductions for increases in cash flows to be collected on impaired securities	—		—
Ending balance of net unrealized 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:



	March 31, 2014
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets:
Investment securities:
HTM	$	275,738	$	10,781	$	270,694	$	8	$	281,483
AFS	1,366,433		134,687		1,231,746		—		1,366,433
Trading	2,943		—		2,943		—		2,943
Positive NPVs on interest rate swaps	14,650		—		14,650		—		14,650
Loans, net	7,004,700		—		6,358,264		110,127		6,468,391
Financial liabilities:
Deposits	8,148,973		—		8,152,956		—		8,152,956
Customer repurchases	57,407		—		57,407		—		57,407
Securities sold short	109,793		109,793		—		—		109,793
FHLB and FRB advances	273,490		—		273,490		—		273,490
Other borrowed funds	69,326		5,000		—		71,683		76,683
Junior subordinated debt	42,836		—		—		42,836		42,836
Negative NPVs on interest rate swaps	15,553		—		15,553		—		15,553

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	December 31, 2013
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets:
Investment securities:
HTM	$	283,006	$	22,200	$	259,496	$	8	$	281,704
AFS	1,370,696		121,298		1,249,398		—		1,370,696
Trading	3,036		—		3,036		—		3,036
Positive NPVs on interest rate swaps	2,783		—		2,783		—		2,783
Loans, net	6,701,365		—		6,090,962		116,169		6,207,131
Financial liabilities:
Deposits	7,838,205		—		7,842,014		—		7,842,014
Customer repurchases	71,192		—		71,192		—		71,192
FHLB and FRB advances	273,879		—		273,879		—		273,879
Other borrowed funds	67,217		3,000		—		71,475		74,475
Junior subordinated debt	41,858		—		—		41,858		41,858
Negative NPVs on interest rate swaps	4,168		—		4,168		—		4,168

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 our change in net portfolio value and net interest income resulting from hypothetical changes in interest rates. If potential changes to net portfolio value and net interest income resulting from hypothetical interest rate changes are not within the limits established by the Board of Directors, the Board may direct management to adjust the asset and liability mix to bring interest rate risk within Board-approved limits. As of March 31, 2014, the Company’s interest rate risk profile was within Board-approved limits.

WAB has an ALCO charged with managing interest rate risk within the Board of Directors approved limits. Limits are structured to prohibit an interest rate risk profile that is unacceptable to both management and Board of Directors risk tolerances. There is also an ALCO at the holding company level that reviews interest rate risk for the Company.

Fair value of commitments

The estimated fair value of standby letters of credit outstanding at March 31, 2014 and December 31, 2013 was insignificant. Loan commitments on which the committed interest rates were less than the current market rate are also insignificant at March 31, 2014 and December 31, 2013.

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12. DISPOSITIONS

PartnersFirst Discontinued Operations

The Company has discontinued its affinity credit card business, PartnersFirst, and has presented these activities as discontinued operations. The following table summarizes the operating results of the discontinued operations for the periods indicated:



	Three Months Ended March 31,
	2014			2013
	(in thousands)
Operating revenue	$	(144	)	$	1,139
Non-interest expenses	(858		)	(1,074		)
(Loss) income before income taxes	(1,002		)	65
Income tax (benefit) expense	(348		)	27
Net (loss) income	$	(654	)	$	38

13. SEGMENTS

On December 31, 2013, the Company consolidated its three bank subsidiaries under one charter, Western Alliance Bank. As a result, the Company has redefined its operating segments to reflect the new organizational and internal reporting structure. Prior year segment information has not been recast to conform to the new segmentation methodology due to the impracticability of restating segments because of the change in legal structure at December 31, 2013. The new operating segments are as follows: Arizona, Nevada, California, Specialty Finance and Corporate & Other.

The Company's reportable segments are aggregated primarily based on geographic location, services offered and markets served. The Arizona, Nevada and California segments provide full service banking and related services to their respective markets. The Company's Specialty Finance segment provides banking services to niche markets. These Specialty Finance businesses are broader in geographic scope and are managed centrally. Corporate & Other consists of corporate-related items, income and expense items not allocated to our other reportable segments and inter-segment eliminations.

The accounting policies of the reported segments are the same as those of the Company as described in "Note 1. Summary of Significant Accounting Policies" of these Notes to Unaudited Consolidated Financial Statements.

The Company's segment reporting process begins with the assignment of all loan and deposit accounts directly to the segments where these products are originated and/or serviced. Equity capital is assigned to each segment based on the risk profile of their assets and liabilities, with a funds credit provided for the use of this equity as a funding source.

Net interest income, provision for credit losses and non-interest expense amounts are recorded in their respective segment to the extent that the amounts are directly attributable to those segments. Net interest income is recorded in each segment on a TEB with a corresponding increase in income tax expense. Further, net interest income of a reportable segment includes a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics.

Net income amounts for each reportable segment is further derived by the use of expense allocations. Certain expenses not directly attributable to a specific segment are allocated across all segments based on key metrics, such as number of employees, average loan balances and average deposit balances. These types of expenses include information technology, operations, human resources, finance, risk management, credit administration, legal and marketing.

Income taxes are applied to each segment based on the effective tax rate for the geographic location of the segment. Any difference in the corporate tax rate and the aggregate effective tax rates in the segments are adjusted in the Corporate & Other segment.

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The following is a summary of selected operating segment information as of and for the three months ended March 31, 2014:



	Arizona			Nevada			California			Specialty Finance			Corporate & Other			Consolidated Company
	(dollars in millions)
At March 31, 2014
Assets:
Cash, cash equivalents and investment securities	$	3.3		$	7.0		$	2.6		$	0.5		$	2,123.8		$	2,137.2
Gross loans and deferred fees, net	2,032.3			1,723.8			1,663.1			1,621.2			68.2			7,108.6
Less: allowance for credit losses	(29.7		)	(25.2		)	(24.3		)	(23.7		)	(1.0		)	(103.9		)
Loans, net	2,002.6			1,698.6			1,638.8			1,597.5			67.2			7,004.7
Other repossessed assets	11.9			21.9			0.3			—			22.0			56.1
Goodwill and intangible assets, net	2.4			24.4			—			—			—			26.8
Other assets	33.8			67.8			25.5			18.0			376.7			521.9
Total assets	$	2,054.0		$	1,819.7		$	1,667.2		$	1,616.0		$	2,589.7		$	9,746.6
Liabilities:
Deposits	$	2,166.0		$	3,024.6		$	1,867.3		$	845.1		$	246.0		$	8,149.0
Borrowings	—			—			—			—			342.8			342.8
Other liabilities	21.7			48.3			9.8			20.4			259.8			360.0
Total liabilities	2,187.7			3,072.9			1,877.1			865.5			848.6			8,851.8
Allocated equity	219.4			207.9			178.7			123.2			165.6			894.8
Liabilities and stockholders' equity	$	2,407.1		$	3,280.8		$	2,055.8		$	988.7		$	1,014.2		$	9,746.6
Excess funds provided (used)	353.1			1,461.1			388.6			(627.3		)	(1,575.5		)	—



	(in thousands)
Three Months Ended March 31, 2014:
Net interest income (expense)	$	26,608		$	28,595		$	22,792		$	13,964		$	(1,182	)	$	90,777
Provision for credit losses	1,558			(884		)	655			2,170			1			3,500
Net interest income (expense) after provision for credit losses	25,050			29,479			22,137			11,794			(1,183		)	87,277
Non-interest income	820			2,289			1,250			82			394			4,835
Non-interest expense	(13,304		)	(15,236		)	(13,043		)	(6,508		)	(1,658		)	(49,749		)
Income (loss) from continuing operations before income taxes	12,566			16,532			10,344			5,368			(2,447		)	42,363
Income tax expense (benefit)	4,929			5,787			4,350			2,013			(6,455		)	10,624
Income from continuing operations	7,637			10,745			5,994			3,355			4,008			31,739
Loss from discontinued operations, net	—			—			—			—			(654		)	(654		)
Net income	$	7,637		$	10,745		$	5,994		$	3,355		$	3,354		$	31,085

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Item 2.	Management's Discussions 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, 2013 and the interim unaudited Consolidated Financial Statements and Notes to Unaudited Consolidated Financial Statements 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

Certain statements contained in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements be covered by the safe harbor provisions for forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including statements that are related to or are dependent on estimates or assumptions relating to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.

The forward-looking statements contained in this Form 10-Q reflect our current views about future events and financial performance and involve certain risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from historical results and those expressed in any forward-looking statement, including those risks discussed under the heading “Risk Factors” in this Form 10-Q. Risks and uncertainties include those set forth in our filings with the SEC and the following factors that could cause actual results to differ materially from those presented: 1) financial market and economic conditions adversely effecting financial performance; 2) dependency on real estate and events that negatively impact real estate; 3) high concentration of commercial real estate, construction and development and commercial and industrial loans; 4) actual credit losses may exceed expected losses in the loan portfolio; 5) the geographic concentrations of our assets increases the risks related to local economic conditions; 6) sovereign credit rating downgrades; 7) exposure of financial instruments to certain market risks may cause volatility in earnings; 8) dependence on low-cost deposits; 9) ability to borrow from the FHLB or the FRB; 10) events that further impair goodwill; 11) a change in the our creditworthiness; 12) expansion strategies may not be successful; 13) risk associated with the recent consolidation of our bank subsidiaries; 14) our ability to compete in a highly competitive market; 15) our ability to recruit and retain qualified employees, especially seasoned relationship bankers and senior management; 16) the effects of terrorist attacks or threats of war; 17) perpetration of internet fraud; 18) information security breaches; 19) reliance on other companies' infrastructure; 20) risk management policies not fully effective; 21) risks associated with new lines of businesses; 22) risk of operating in a highly regulated industry and our ability to remain in compliance; 23) failure to comply with state and federal banking agency laws and regulations; 24) changes in interest rates and increased rate competition; 25) exposure to environmental liabilities related to the properties to which we acquire title; and 26) risks related to ownership and price of our common stock.

For more information regarding risks that may cause our actual results to differ materially from any forward-looking statements, see “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013.

Financial Overview and Highlights

WAL is a bank holding company headquartered in Phoenix, Arizona that provides comprehensive business banking and related financial services through its wholly-owned banking subsidiary bank: WAB, doing business as ABA in Arizona, as FIB in Northern Nevada, as AAB throughout the U.S., as BON in Southern Nevada, and as TPB in California. In addition, the Company has two non-bank subsidiaries, WAEF, which offers equipment finance services nationwide, and LVSP, which holds and manages certain non-performing loans and OREO.

Financial Result Highlights for the First Quarter of 2014

Net income available to common stockholders for the Company of $30.7 million, or $0.35 per diluted share, for the first quarter of 2014, compared to $20.5 million, or $0.24 per diluted share, for 2013.

The significant factors impacting earnings of the Company during the first quarter of 2014 were:


•	Pre-tax, pre-provision operating earnings (see Non-GAAP Financial Measures beginning on page 53) for the first quarter of 2014 increased $9.3 million to $44.4 million, compared to $35.1 million for the first quarter of 2013.

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•	The Company experienced loan growth of $307.2 million to $7.11 billion at March 31, 2014 from $6.80 billion at December 31, 2013.


•	During the first quarter of 2014, the Company increased deposits by $310.8 million to $8.15 billion at March 31, 2014 from $7.84 billion at December 31, 2013.


•	Other assets acquired through foreclosure declined by $10.2 million to $56.5 million at March 31, 2014 from $66.7 million at December 31, 2013.


•	Provision for credit losses for the first quarter of 2014 decreased by $1.9 million to $3.5 million, compared to $5.4 million for the first quarter of 2013, as net charge-offs also declined by $5.7 million to net recoveries of $0.3 million in the first quarter of 2014, compared to net charge-offs of $5.4 million the first quarter of 2013.


•	Net interest margin increased to 4.41%, compared to 4.36% for the first quarter of 2013.


•	Key asset quality ratios improved for the first quarter of 2014 compared to 2013. Nonaccrual loans and repossessed assets to total assets improved to 1.30% from 2.10% in the first quarter of 2013 and nonaccrual loans to gross loans improved to 0.99% at the end of the first quarter of 2014 compared to 1.60% at the end of the first quarter 2013.

The impact to the Company from these items, and others of both a positive and negative nature, are discussed in more detail below as they pertain to the Company’s overall comparative performance for the three months ended March 31, 2014.

Results of Operations and Financial Conditions

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



	Three Months Ended March 31,
	2014			2013
	(in thousands, except per share amounts)
Net income available to common stockholders	$	30,732		$	20,532
Earnings per share applicable to common shareholders--basic	0.35			0.24
Earnings per share applicable to common shareholders--diluted	0.35			0.24
Net interest margin	4.41		%	4.36		%
Return on average assets	1.35			1.07
Return on average tangible common equity	17.55			13.93



	Mar 31, 2014		Dec 31, 2013
	(in thousands)
Total assets	$	9,746,624	$	9,307,342
Loans, net of deferred loan fees and costs	7,108,599		6,801,415
Total deposits	8,148,973		7,838,205

As a bank holding company, management focuses on key ratios in evaluating the Company’s financial condition and results of operations.

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Asset Quality

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



	Mar 31, 2014			Dec 31, 2013
	(in thousands)
Non-accrual loans	$	70,401		$	75,680
Non-performing assets	216,542			233,509
Non-accrual loans to gross loans	0.99		%	1.11		%
Net (recoveries) charge-offs to average loans - annualized	(0.02		)	0.13

Asset and Deposit Growth

The Company’s assets and liabilities are comprised primarily of loans and deposits; therefore, the ability to originate new loans and attract new deposits is fundamental to the Company’s growth. Total assets increased to $9.75 billion at March 31, 2014 from $9.31 billion at December 31, 2013. Total loans, net of deferred fees and costs, increased by $307.2 million, or 4.5%, to $7.11 billion as of March 31, 2014, compared to $6.80 billion as of December 31, 2013. Total deposits increased $310.8 million, or 4.0%, to $8.15 billion as of March 31, 2014 from $7.84 billion as of December 31, 2013.

RESULTS OF OPERATIONS

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



	Three Months Ended March 31,					Increase
	2014			2013		(Decrease)
	(in thousands, except per share amounts)
Consolidated Income Statement Data:
Interest income	$	98,701		$	83,108	$	15,593
Interest expense	7,924			6,905		1,019
Net interest income	90,777			76,203		14,574
Provision for credit losses	3,500			5,439		(1,939		)
Net interest income after provision for credit losses	87,277			70,764		16,513
Non-interest income	4,835			4,799		36
Non-interest expense	49,749			46,929		2,820
Net income from continuing operations before income taxes	42,363			28,634		13,729
Income tax provision	10,624			7,787		2,837
Income from continuing operations	31,739			20,847		10,892
(Loss) gain from discontinued operations, net of tax benefit	(654		)	38		(692		)
Net income	$	31,085		$	20,885	$	10,200
Net income available to common stockholders	$	30,732		$	20,532	$	10,200
Earnings per share applicable to common shareholders—basic	$	0.35		$	0.24	$	0.11
Earnings per share applicable to common shareholders—diluted	$	0.35		$	0.24	$	0.11

Non-GAAP Financial Measures

The following discussion and analysis contains financial information determined by methods other than those prescribed by GAAP. The Company's management uses these non-GAAP financial measures in their analysis of the Company's performance. These measurements typically adjust GAAP performance measures to exclude the effects of unrealized gains (losses) on assets/liabilities measured at fair value as well as to adjust income available to common shareholders for certain significant activities or transactions that, in management's opinion, do not reflect recurring period-to-period comparisons of the Company's performance. Since the presentation of these GAAP performance measures and their impact differ between companies,

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management believes presentation of these non-GAAP financial measures provide useful supplemental information that is essential to a complete understanding of the operating results of the Company's core businesses. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Pre-Tax, Pre-Provision Operating Earnings

Pre-tax, pre-provision operating earnings adjusts the level of earnings to exclude the impact of income taxes, provision for credit losses and non-recurring or other items not considered part of the Company's core operations. Management believes that eliminating the effects of these items makes it easier to analyze underlying performance trends and enables investors to assess the Company's ability to generate capital to cover credit losses.

The following table shows the components of pre-tax, pre-provision operating earnings for the three months ended March 31, 2014 and 2013:



	Three Months Ended March 31,
	2014			2013
	(in thousands)
Total non-interest income	$	4,835		$	4,799
Less:
Unrealized losses on assets / liabilities measured at fair value, net	(1,276		)	(471		)
Legal settlements	—			38
Gains on sales of investment securities, net	366			147
Total operating non-interest income	5,745			5,085
Add: net interest income	90,777			76,203
Net operating revenue	$	96,522		$	81,288
Total non-interest expense	$	49,749		$	46,929
Less:
Net (gain) loss on sales and valuations of repossessed and other assets	(2,547		)	519
Merger / restructure expense	157			195
Total operating non-interest expense	$	52,139		$	46,215
Pre-tax, pre-provision operating earnings	$	44,383		$	35,073

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Tangible Common Equity

The following table presents financial measures related to tangible common equity. Tangible common equity represents total stockholders' equity less identifiable intangible assets and goodwill and preferred stock. Management believes that tangible common equity financial measures are useful in evaluating the Company's capital strength and ability to manage potential losses.



	March 31, 2014			December 31, 2013
	(dollars and shares in thousands)
Total stockholders' equity	$	894,805		$	855,498
Less:
Goodwill and intangible assets	26,777			27,374
Total tangible stockholders' equity	868,028			828,124
Less:
Preferred stock	141,000			141,000
Total tangible common equity	727,028			687,124
Add:
Deferred tax - attributed to intangible assets	1,243			1,452
Total tangible common equity, net of tax	$	728,271		$	688,576
Total assets	$	9,746,624		$	9,307,342
Less:
Goodwill and intangible assets	26,777			27,374
Tangible assets	9,719,847			9,279,968
Add:
Deferred tax - attributed to intangible assets	1,243			1,452
Total tangible assets, net of tax	$	9,721,090		$	9,281,420
Tangible equity ratio	8.9		%	8.9		%
Tangible common equity ratio	7.5			7.4
Return on tangible common equity	17.3			18.1
Common shares outstanding	87,554			87,186
Tangible book value per share, net of tax	$	8.32		$	7.90

Efficiency Ratio

The following table shows the components used in the calculation of the efficiency ratio, which management uses as a metric for assessing cost efficiency:



	March 31,
	2014			2013
	(dollars in thousands)
Total operating non-interest expense	$	52,139		$	46,215
Divided by:
Total net interest income	$	90,777		$	76,203
Add:
Tax equivalent interest adjustment	5,705			3,382
Operating non-interest income	5,745			5,085
Net operating revenue - tax equivalent basis	$	102,227		$	84,670
Efficiency ratio - tax equivalent basis	51.0		%	54.6		%

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Tier 1 Common Equity

The following tables present certain financial measures related to Tier 1 common equity, which is a component of Tier 1 risk-based capital. The FRB and other banking regulators have used Tier 1 common equity as a basis for assessing a bank's capital adequacy; therefore, management believes it is useful to assess capital adequacy using this same basis.



	March 31, 2014			December 31, 2013
	(dollars and shares in thousands)
Stockholders' equity	$	894,805		$	855,498
Less:
Accumulated other comprehensive (loss) income	(11,131		)	(21,546		)
Non-qualifying goodwill and intangibles	26,008			25,991
Other non-qualifying assets	—			—
Disallowed unrealized losses on equity securities	2,550			8,059
Add:
Qualifying trust preferred securities	49,120			48,485
Tier 1 capital (regulatory)	926,498			891,479
Less:
Qualifying trust preferred securities	49,120			48,485
Preferred stock	141,000			141,000
Tier 1 common equity	$	736,378		$	701,994
Divided by:
Risk-weighted assets (regulatory)	$	8,338,965		$	8,016,500
Tier 1 common equity ratio	8.8		%	8.8		%



	March 31, 2014			December 31, 2013
	(dollars in thousands)
Classified assets	$	251,851		$	270,375
Divide:
Tier 1 capital (regulatory)	926,498			891,479
Plus: Allowance for credit losses	103,899			100,050
Total Tier 1 capital plus allowance for credit losses	$	1,030,397		$	991,529
Classified assets to Tier 1 capital plus allowance	24.4		%	27.3		%

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Net Interest Margin

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



	Three Months Ended March 31,
	2014							2013
	Average Balance			Interest		Average Yield/ Cost		Average Balance			Interest		Average Yield/ Cost
	(dollars in thousands)
Interest earning assets
Loans (1)	$	6,893,248		$	86,804	5.27	%	$	5,610,432		$	74,725	5.42	%
Securities (1)	1,651,670			11,325		3.15		1,283,378			8,158		3.21
Federal funds sold and other	210,263			572		1.09		404,776			225		0.22
Total interest earning assets	8,755,181			98,701		4.77		7,298,586			83,108		4.74
Non-interest earning assets
Cash and due from banks	137,516							126,429
Allowance for credit losses	(101,154		)					(96,859		)
Bank owned life insurance	140,895							138,694
Other assets	433,084							421,873
Total assets	$	9,365,522						$	7,888,723
Interest-bearing liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts	$	765,036		$	384	0.20	%	$	608,663		$	301	0.20	%
Savings and money market	3,452,333			2,562		0.30		2,620,874			1,911		0.29
Time certificates of deposit	1,619,564			1,719		0.42		1,449,535			1,520		0.42
Total interest-bearing deposits	5,836,933			4,665		0.32		4,679,072			3,732		0.32
Short-term borrowings	163,339			130		0.32		176,445			214		0.49
Long-term debt	301,826			2,708		3.59		272,882			2,493		3.65
Junior subordinated debt	41,869			421		4.02		36,224			466		5.15
Total interest-bearing liabilities	6,343,967			7,924		0.50		5,164,623			6,905		0.53
Non-interest-bearing liabilities
Non-interest-bearing demand deposits	2,054,125							1,855,070
Other liabilities	81,134							90,669
Stockholders’ equity	886,296							778,361
Total liabilities and stockholders' equity	$	9,365,522						$	7,888,723
Net interest income and margin				$	90,777	4.41	%				$	76,203	4.36	%
Net interest spread						4.27	%						4.21	%


(1)	Yields on loans and securities have been adjusted to a tax equivalent basis. The taxable-equivalent adjustment was $5.7 million and $3.4 million for the three months ended March 31, 2014 and 2013, respectively.


(2)	Net loan fees of $0.5 million and $2.6 million are included in the yield computation for the three months ended March 31, 2014 and 2013, 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.

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	Three Months Ended March 31,
	2014 versus 2013
	Increase (Decrease) Due to Changes in ⁽¹⁾
	Volume			Rate			Total
	(in thousands)
Interest income:
Loans	$	16,154		$	(4,075	)	$	12,079
Interest on investment securities	2,525			642			3,167
Federal funds sold and other	(530		)	877			347
Total interest income	18,149			(2,556		)	15,593

Interest expense:
Interest bearing transaction accounts	79			4			83
Savings and money market	617			34			651
Time deposits	180			19			199
Short-term borrowings	(10		)	(74		)	(84		)
Long-term debt	260			(45		)	215
Junior subordinated debt	57			(102		)	(45		)
Total interest expense	1,183			(164		)	1,019

Net increase (decrease)	$	16,966		$	(2,392	)	$	14,574


(1)	Changes due to both volume and rate 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 March 31, 2014 was $98.7 million, an increase of 18.8%, compared to $83.1 million for the three months ended March 31, 2013. This increase was primarily the result of interest income from loans, which increased by $12.1 million for the three months ended March 31, 2014 compared to the same period in 2013. Interest income on investment securities increased $3.2 million and other interest income increased by $0.3 million for the comparable period. Average yield on interest earning assets increased 3 basis points for three months ended March 31, 2014 compared to the same period in 2013, which was primarily the result of a change in investment mix and was partially offset by a decrease in loan yield due to a decline in payoffs of acquired loans, which resulted in lower accretion for the quarter.

Interest expense for the three months ended March 31, 2014 was $7.9 million, compared to $6.9 million in 2013, an increase of $1.0 million, or 14.8%. This increase was primarily driven by the increase in average interest bearing deposits of $1.16 billion. Despite this increase, the average cost of interest bearing deposits remained flat at 0.32%, compared to the three months ended March 31, 2013. Interest paid on short-term borrowings, long-term debt and junior subordinated debt decreased by 17 and 6 and 113 basis points, respectively, for the three months ended March 31, 2014 compared to the same period in 2013.

Net interest income was $90.8 million for the three months ended March 31, 2014, compared to $76.2 million in the same period in 2013, an increase of $14.6 million, or 19.1%. The increase in net interest income reflects a $1.46 billion increase in average earning assets, offset by a $1.18 billion increase in average interest bearing liabilities. The increase in net interest margin of 5 basis points was mostly due to an increase in our average yield on interest earning assets and a decrease in the average cost of funds related to short-term borrowings, long-term debt and junior subordinated debt.

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 $1.9 million, to $3.5 million for the three months ended March 31, 2014, compared with $5.4 million for the three months ended March 31, 2013. The provision decrease for the three months ended March 31, 2014 compared to the same period in 2013, was primarily due to an improvement in credit quality period over period. The Company may establish an additional allowance for credit losses for the PCI loans through a charge to provision for loan losses when impairment is determined as a result of lower than expected cash flows. As of

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March 31, 2014 and December 31, 2013, the allowance for credit losses on PCI loans was $1.4 million and $0.3 million, respectively.

Non-interest Income

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



	Three Months Ended March 31,
	2014			2013			Increase (Decrease)
	(in thousands)
Service charges and fees	$	2,530		$	2,534		$	(4	)
Income from bank owned life insurance	949			1,036			(87		)
Gain on sales of investment securities, net	366			147			219
Unrealized losses on assets / liabilities measured at fair value, net	(1,276		)	(471		)	(805		)
Other fee revenue	1,108			957			151
Other	1,158			596			562
Total non-interest income	$	4,835		$	4,799		$	36

Total non-interest income for the three months ended March 31, 2014, compared to the same period in 2013 increased by 0.8%. The increase relates to the increase in the gain on sale of investment securities of $0.2 million, other fee revenue of $0.2 million, and other non-interest income of $0.6 million. The increase in the gain on sales of investment securities relates to market conditions, the increase in other fee revenue is due to greater miscellaneous fees, and the increase in other revenue is due to enhanced other operating lease income. The increase was offset by the decrease in unrealized losses on assets / liabilities measured at fair value, net of $0.8 million, which primarily relates to the trust preferred securities fair value adjustment loss of $1.0 million as of March 31, 2014, compared to $0.5 million as of March 31, 2013.

Non-interest Expense

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



	Three Months Ended March 31,
	2014			2013		Increase (Decrease)
	(in thousands)
Salaries and employee benefits	$	29,555		$	26,574	$	2,981
Occupancy	4,682			4,846		(164		)
Legal, professional and directors’ fees	3,639			3,023		616
Data processing	2,674			1,865		809
Insurance	2,393			2,370		23
Loan and repossessed asset expenses	1,234			1,596		(362		)
Customer service	620			643		(23		)
Marketing	559			667		(108		)
Net (gain) loss on sales / valuations of repossessed and other assets	(2,547		)	519		(3,066		)
Intangible amortization	597			597		—
Merger / restructure expenses	157			195		(38		)
Other expense	6,186			4,034		2,152
Total non-interest expense	$	49,749		$	46,929	$	2,820

Total non-interest expense for the three months ended March 31, 2014, compared to the same period in 2013 increased $2.8 million, or 6.0%. This increase is primarily caused by increases in salaries and employee benefits of $3.0 million, legal, professional and directors' fees of $0.6 million, data processing of $0.8 million, and other non-interest expenses of $2.2 million. The increase in the salaries and employee benefits is due to employment growth. The legal, professional, directors' fees, and data processing increase relates primarily to information technology initiatives. The increase in other non-interest expense primarily relates to higher operating lease depreciation, office expenses, business development, and off-balance sheet provision

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for unfunded loans. These increases are offset by the decrease in loan and repossessed asset expenses of $0.4 million and net (gain) loss on sales / valuations of repossessed and other assets, net of $3.1 million, which primarily relates to the sale of two properties during the first quarter of 2014.

Discontinued Operations



	Three Months Ended March 31,
	2014			2013
	(in thousands)
Operating revenue	$	(144	)	$	1,139
Non-interest expenses	(858		)	(1,074		)
(Loss) income before income taxes	(1,002		)	65
Income tax (benefit) expense	(348		)	27
Net (loss) income	$	(654	)	$	38

Business Segment Results

Arizona reported net income of $7.6 million for the three months ended March 31, 2014. During the first quarter of 2014, total loans grew $7.6 million to $2.03 billion at March 31, 2014. In addition, during the same period, total deposits grew by $77.8 million to $2.17 billion at March 31, 2014.

Nevada reported net income of $10.7 million for the three months ended March 31, 2014. During the first quarter of 2014, total loans decreased $30.6 million to $1.72 billion at March 31, 2014. In addition, during the same period, total deposits grew by $127.1 million to $3.02 billion at March 31, 2014.

California reported net income of $6.0 million for the three months ended March 31, 2014. During the first quarter of 2014, total loans increased by $47.9 million to $1.66 billion at March 31, 2014. In addition, in during the same period, total deposits decreased by $30.4 million to $1.87 billion at March 31, 2014.

Specialty Finance reported net income of $3.4 million for the three months ended March 31, 2014. During the first quarter of 2014, total loans increased by $271.2 million to $1.62 billion at March 31, 2014. In addition, in during the same period, total deposits increased by $92.8 million to $845.1 million at March 31, 2014.

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BALANCE SHEET ANALYSIS

Total assets increased $439.3 million, or 4.7%, to $9.75 billion at March 31, 2014, compared to $9.31 billion at December 31, 2013. The increase in assets primarily relates to the increase in loans of $307.2 million, or 4.5%, to $7.11 billion and the increase in cash and cash equivalents of $160.4 million, or 52.5%, due to securities purchased under agreement to resell of $111.1 million at March 31, 2014, compared to zero at December 31, 2013.

Total liabilities increased $400.0 million, or 4.7%, to $8.85 billion at March 31, 2014, compared to $8.45 billion at December 31, 2013. The increase in liabilities is due to the increase in total deposits of $310.8 million, or 4.0%, to $8.15 billion and the increase in securities sold short of $109.8 million.

Total stockholders’ equity increased by $39.3 million or 4.6%, to $894.8 million at March 31, 2014, compared to $855.5 million at December 31, 2013. The increase in stockholders' equity is due to a decrease in accumulated deficit of $30.7 million as a result of net income available to common shareholders for the three months ended March 31, 2014, in addition to the decrease in unrealized losses on AFS securities included in AOCI.

Investment securities

Investment securities are classified at the time of acquisition as either HTM, AFS, or trading based upon various factors, including asset/liability management 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 asset/liability management decisions. Investment securities identified as AFS are carried at fair value. Unrealized gains or losses on AFS securities are recorded as AOCI in stockholders’ equity. Amortization of premiums or accretion of discounts on MBS 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 following table summarizes the carrying value of the investment securities portfolio at March 31, 2014 and December 31, 2013:



	March 31, 2014		December 31, 2013
	(in thousands)
U.S. government sponsored agency securities	$	57,672	$	46,975
Municipal obligations	296,790		299,244
Preferred stock	73,947		61,484
Mutual funds	37,243		36,532
Residential MBS issued by GSEs	989,867		1,024,457
Commercial MBS issued by GSEs	2,034		—
Private label residential MBS	36,098		36,099
Private label commercial MBS	5,412		5,433
Trust preferred securities	24,728		23,805
CRA investments	23,497		24,882
Collateralized debt obligations	50		50
Corporate debt securities	97,776		97,777
Total investment securities	$	1,645,114	$	1,656,738

Gross unrealized losses at March 31, 2014 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 securities described in "Note 2. Investment Securities" to the Consolidated Financial Statements contained herein. There were no impairment charges recorded during the three months ended March 31, 2014 and 2013.

The Company does not consider any securities to be other-than-temporarily impaired as of March 31, 2014 and December 31, 2013. However, the Company cannot guarantee that additional OTTI will not occur in future periods.

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Loans

The table below summarizes the distribution of the Company’s loans at the end of each of the periods indicated:



	March 31, 2014			December 31, 2013
	(in thousands)
Commercial and industrial	$	2,501,499		$	2,236,740
Commercial real estate - non-owner occupied	1,849,211			1,843,415
Commercial real estate - owner occupied	1,606,243			1,561,862
Construction and land development	553,655			537,231
Residential real estate	344,859			350,312
Commercial leases	221,916			235,968
Consumer	38,330			45,153
Net deferred loan fees	(7,114		)	(9,266		)
Loans, net of deferred fees and costs	7,108,599			6,801,415
Less: allowance for credit losses	(103,899		)	(100,050		)
Total loans, net	$	7,004,700		$	6,701,365

Concentrations of Lending Activities

The Company’s lending activities are driven in large part by the customers served in the market areas where the Company has branch offices in the states of Arizona, Nevada and California. The Company monitors concentrations within five broad categories: geography, industry, product, call report classifications, 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 CRE market of these areas. As of March 31, 2014 and December 31, 2013, CRE related loans accounted for approximately 56% and 58% of total loans and approximately 1% and 2%, respectively, of CRE related loans are secured by undeveloped land. Substantially all of these loans are secured by first liens with an initial loan to value ratio of generally not more than 75%. Approximately 47% and 46% of these CRE loans, excluding construction and land loans, were owner occupied at March 31, 2014 and December 31, 2013, respectively. In addition, approximately 3% and 4% of total loans were unsecured as of March 31, 2014 and December 31, 2013, 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, that are both fully secured by collateral and are current in their interest and principal payments. Impaired loans are measured for reserve requirements in accordance with 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.

Total nonaccrual loans and loans past due 90 days or more and still accruing decreased by $6.6 million, or 8.6%, at March 31, 2014 to $70.6 million from $77.2 million at December 31, 2013.

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	March 31, 2014			December 31, 2013
	(dollars in thousands)
Total nonaccrual loans	$	70,401		$	75,680
Loans past due 90 days or more on accrual status	167			1,534
Total nonperforming loans	70,568			77,214
Troubled debt restructured loans	89,524			89,576
Other impaired loans	11,170			11,587
Total impaired loans	$	171,262		$	178,377
Other assets acquired through foreclosure, net	$	56,450		$	66,719
Nonaccrual loans to gross loans	0.99		%	1.11		%
Loans past due 90 days or more on accrual status to total loans	—			0.02
Interest income received on nonaccrual loans	$	606		$	626
Interest income that would have been recorded under the original terms of nonaccrual loans	1,048			1,626

The composition of nonaccrual loans was as follows as of the dates indicated:



	At March 31, 2014						At December 31, 2013
	Nonaccrual Balance		%		Percent of Total Loans		Nonaccrual Balance		%		Percent of Total Loans
	(dollars in thousands)
Commercial and industrial	$	3,070	4.36	%	0.04	%	$	3,753	4.96	%	0.06	%
Commercial real estate	48,883		69.43		0.69		54,856		72.48		0.80
Construction and land development	3,618		5.14		0.05		4,525		5.98		0.07
Residential real estate	14,802		21.03		0.21		12,480		16.49		0.18
Consumer	28		0.04		—		66		0.09		—
Total nonaccrual loans	$	70,401	100.00	%	0.99	%	$	75,680	100.00	%	1.11	%

As of March 31, 2014 and December 31, 2013, nonaccrual loans totaled $70.4 million and $75.7 million, respectively. Nonaccrual loans by segment at March 31, 2014 were $30.4 million for Arizona, $17.6 million for Nevada, $4.2 million for California and $18.2 million for Corporate & Other. Nonaccrual loans as a percentage of total gross loans were 0.99% and 1.11% at March 31, 2014 and December 31, 2013, respectively. Nonaccrual loans as a percentage of each segment's total gross loans at March 31, 2014 were 1.50% for Arizona, 1.02% for Nevada, 0.25% for California and 26.70% for Corporate & Other.

Troubled Debt Restructured Loans

A TDR loan is a loan, for reasons related to a borrower’s financial difficulties, granted a concession that the lender 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 TDR loan is also considered impaired. Generally, a loan that is modified at an effective market rate of interest is no longer be disclosed as a TDR in years subsequent to the restructuring if it is performing based on the terms specified by the restructuring agreement.

As of March 31, 2014 and December 31, 2013, the aggregate amount of loans classified as impaired was $171.3 million and $178.4 million, respectively, a net decrease of 4.0%. The total specific allowance for loan losses related to these loans was $3.9 million and $5.3 million at March 31, 2014 and December 31, 2013, respectively. As of March 31, 2014 and 2013, the Company had $89.5 million and $89.6 million, respectively, in loans classified as accruing restructured loans. Impaired loans by segment at March 31, 2014 were $49.0 million for Arizona, $61.4 million for Nevada and $13.9 million for California. Additionally, Corporate & Other held $46.9 million impaired loans at March 31, 2014.

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



	March 31, 2014
	Impaired Balance		Percent		Percent of Total Loans		Reserve Balance		Percent		Percent of Total Allowance
	(dollars in thousands)
Commercial and industrial	$	15,665	9.15	%	0.22	%	$	731	18.62	%	0.70	%
Commercial real estate	104,085		60.77		1.46		1,253		31.92		1.21
Construction and land development	22,012		12.85		0.31		—		—		—
Residential real estate	29,026		16.95		0.41		1,938		49.38		1.87
Consumer	474		0.28		0.01		3		0.08		—
Total impaired loans	$	171,262	100.00	%	2.41	%	$	3,925	100.00	%	3.78	%



	December 31, 2013
	Impaired Balance		Percent		Percent of Total Loans		Reserve Balance		Percent		Percent of Total Allowance
	(dollars in thousands)
Commercial and industrial	$	17,341	9.72	%	0.25	%	$	772	14.62	%	0.77	%
Commercial real estate	111,054		62.26		1.63		2,523		47.78		2.52
Construction and land development	23,069		12.93		0.34		85		1.61		0.08
Residential real estate	26,376		14.79		0.39		1,896		35.91		1.90
Consumer	537		0.30		0.01		4.00		0.08		—
Total impaired loans	$	178,377	100.00	%	2.62	%	$	5,280	100.00	%	5.27	%

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Allowance for Credit Losses

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



	Three Months Ended March 31,
	2014			2013
	(dollars in thousands)
Allowance for credit losses:
Balance at beginning of period	$	100,050		$	95,427
Provisions charged to operating expenses:
Commercial and industrial	392			2,654
Commercial real estate	2,400			1,864
Construction and land development	1,970			398
Residential real estate	(490		)	1,282
Consumer	(772		)	(759		)
Total Provision	3,500			5,439
Recoveries of loans previously charged-off:
Commercial and industrial	922			441
Commercial real estate	560			942
Construction and land development	211			701
Residential real estate	553			569
Consumer	170			14
Total recoveries	2,416			2,667
Loans charged-off:
Commercial and industrial	(1,478		)	(1,770		)
Commercial real estate	(171		)	(2,887		)
Construction and land development	—			(614		)
Residential real estate	(406		)	(2,493		)
Consumer	(12		)	(275		)
Total charged-off	(2,067		)	(8,039		)
Net recoveries (charge-offs)	349			(5,372		)
Balance at end of period	$	103,899		$	95,494
Net recoveries (charge-offs) to average loans outstanding-annualized	0.02		%	(0.38		)%
Allowance for credit losses to gross loans	1.46			1.63

The following table summarizes the allocation of 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.



	March 31, 2014						December 31, 2013
	Amount		% of Total Allowance for Credit Losses		% of Loans to Gross Loans		Amount		% of Total Allowance for Credit Losses		% of Loans to Gross Loans
	(dollars in thousands)
Commercial and industrial	$	39,493	38.0	%	38.3	%	$	39,657	39.7	%	36.3	%
Commercial real estate	34,853		33.5		48.6	%	32,064		32.0		50.0
Construction and land development	16,700		16.1		7.8	%	14,519		14.5		7.9
Residential real estate	11,297		10.9		4.8	%	11,640		11.6		5.1
Consumer	1,556		1.5		0.5	%	2,170		2.2		0.7
Total	$	103,899	100.0	%	100.0	%	$	100,050	100.0	%	100.0	%

The allowance for credit losses as a percentage of total loans decreased to 1.46% at March 31, 2014 from 1.47% at December 31, 2013. The total balance of the allowance for credit losses has increased due to the increase in the size of its loan portfolio; however, the increase in the allowance is not proportional to the increase in the portfolio as the Company has experienced improved credit quality in its portfolio as well as a change in portfolio mix toward higher rated credits.

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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 "Item 1. Business” of the Company's Annual Report Form 10-K for the year ended December 31, 2013. The following table presents information regarding potential problem loans, consisting of loans graded special mention, substandard, doubtful, and loss, but still performing, and excluding acquired loans:



	March 31, 2014
	Number of Loans	Loan Balance		Percent		Percent of Total Loans
	(dollars in thousands)
Commercial and industrial	66	$	16,912	14.30	%	0.24	%
Commercial real estate	67	79,160		66.95		1.11
Construction and land development	6	13,666		11.56		0.19
Residential real estate	19	7,919		6.70		0.11
Consumer	11	584		0.49		0.01
Total	169	$	118,241	100.00	%	1.66	%



	At December 31, 2013
	Number of Loans	Loan Balance		Percent		Percent of Total Loans
	(dollars in thousands)
Commercial and industrial	68	$	15,532	14.05	%	0.23	%
Commercial real estate	63	71,390		64.55		1.05
Construction and land development	7	13,357		12.08		0.20
Residential real estate	20	8,988		8.13		0.13
Consumer	17	1,317		1.19		0.02
Total	175	$	110,584	100.00	%	1.63	%

Total potential problem loans are primarily secured by real estate.

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Other Assets Acquired Through Foreclosure

The following table represents the changes in other assets acquired through foreclosure:



	Three Months Ended March 31,
	2014
	Gross Balance			Valuation Allowance			Net Balance
	(in thousands)
Balance, beginning of the period	$	88,421		$	(21,702	)	$	66,719
Transfers to other assets acquired through foreclosure, net	2,110			—			2,110
Proceeds from sale of other real estate owned and repossessed assets, net	(19,473		)	5,961			(13,512		)
Valuation adjustments, net	—			(35		)	(35		)
Gains, net (1)	1,168			—			1,168
Balance, end of period	$	72,226		$	(15,776	)	$	56,450

	2013
Balance, beginning of the period	$	113,474		$	(36,227	)	$	77,247
Transfers to other assets acquired through foreclosure, net	6,609			—			6,609
Proceeds from sale of other real estate owned and repossessed assets, net	(12,120		)	6,747			(5,373		)
Valuation adjustments, net	—			(1,017		)	(1,017		)
Gains, net (1)	455			—			455
Balance, end of period	$	108,418		$	(30,497	)	$	77,921


(1)	Includes gains related to initial transfers to other assets of zero and $0.3 million during the three months ended March 31, 2014 and 2013, respectively, 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 (primarily repossessed assets formerly leased) are classified as OREO 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 $56.5 million and $66.7 million of such assets at March 31, 2014 and December 31, 2013, respectively. At March 31, 2014, the Company held approximately 63 OREO properties, compared to 70 at December 31, 2013. 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.

Goodwill and Other Intangible Assets

Goodwill represents the excess consideration paid for net assets acquired in a business combination over their fair value and is subsequently evaluated for impairment at least annually. The Company has goodwill of $23.2 million and other intangibles, which consist primarily of core deposit intangibles, of $3.6 million as of March 31, 2014. The Company performs its annual goodwill and intangibles impairment test as of October 1 each year, or more often if events or circumstances indicate that the carrying value may not be recoverable. During the three months ended March 31, 2014, there were no events or circumstances that indicated an interim impairment test of goodwill or other intangible assets was necessary.

Deferred Tax Asset

Western Alliance Bancorporation and its subsidiaries, other than BW Real Estate, Inc., file a consolidated federal tax return. Due to tax regulations, several items of income and expense are recognized in different periods for tax return purposes than for financial reporting purposes. These items represent temporary differences. Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and tax credit carryovers and deferred tax liabilities are recognized for taxable temporary differences. A temporary difference is the difference between the reported amounts of an asset or liability and its tax basis. A deferred tax asset is 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 asset 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.

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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 within the meaning of FASB ASC 740 that could be implemented if necessary to prevent a carryover from expiring.

See "Note 10. Income Taxes" to the Consolidated Financial Statements for further discussion on income taxes.

Deposits

Deposits are the primary source for funding the Company's asset growth. At March 31, 2014, total deposits were $8.15 billion, compared to $7.84 billion at December 31, 2013. Total deposit growth of $310.8 million, or 4.0%, was primarily driven by an increase in savings and money market deposits of $362.0 million. WAB is a member of CDARS and ISC, which provide mechanisms for obtaining FDIC insurance on large deposits. At March 31, 2014, the Company had $538.2 million of CDARS deposits and $371.1 million of ICS deposits. At December 31, 2013, the Company had $518.0 million of CDARS deposits and $355.3 million of ICS deposits. At March 31, 2014 and December 31, 2013, the Company had $258.4 million and $174.2 million of wholesale brokered deposits, respectively.

The average balances and weighted average rates paid on deposits are presented below:



	Three Months Ended March 31,
	2014				2013
	Average Balance		Rate		Average Balance		Rate
	(dollars in thousands)
Interest checking (NOW)	$	765,036	0.20	%	$	608,663	0.20	%
Savings and money market	3,452,333		0.30		2,620,874		0.29
Time	1,619,564		0.42		1,449,535		0.42
Total interest-bearing deposits	5,836,933		0.32		4,679,072		0.32
Noninterest bearing demand deposits	2,054,125		—		1,855,070		—
Total deposits	$	7,891,058	0.24	%	$	6,534,142	0.23	%

Securities Sold Short

During the first quarter of 2014, the Company entered into a Treasury short transaction to mitigate the interest rate risk profile of floating-rate loans that are currently priced at their floor rate. The Company sold short fixed-rate Treasury securities and invested the proceeds in a short-term repurchase agreement. The balance was $109.8 million at March 31, 2014.

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 with the 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 March 31, 2014, total short-term borrowed funds consisted of $57.4 million of customer repurchases, a revolving line of credit of $5.0 million and FHLB advances of $56.3 million. At December 31, 2013, total short-term borrowed funds consisted of $71.2 million of customer repurchases, a revolving line of credit of $3.0 million and FHLB advances of $25.9 million.

Long-Term Debt

Junior Subordinated Debt

The Company measures the balance of junior subordinated debt at fair value, which was $42.8 million at March 31, 2014 and $41.9 million at December 31, 2013.

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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 From 10-K for the fiscal year ended December 31, 2013, 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. Our 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, we project 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 Fed Funds lines of credits with correspondent banks totaling $120.0 million and other lines of credit with correspondent banks totaling $70.0 million, of which $25.0 million is secured and $45.0 million is unsecured. As of March 31, 2014, there was $5.0 million drawn on the secured line of credit and no amounts drawn on the Fed Funds line of credit. In addition, loans and securities are pledged to the FHLB, providing $1.50 billion in borrowing capacity, with outstanding borrowings and letters of credit of $272.2 million and $199.1 million, respectively, leaving $1.03 billion in available credit as of March 31, 2014. Loans and securities pledged to the FRB discount window provided $1.00 billion in borrowing capacity. As of March 31, 2014, there were no outstanding borrowings from the FRB, thus our available credit totaled $1.00 billion.

The Company has a formal liquidity policy and, in the opinion of management, our liquid assets are considered adequate to meet cash flow needs for loan funding and deposit cash withdrawals for the next 90-120 days. At March 31, 2014, there was $1.20 billion in liquid assets, comprised of $355.7 million in cash and cash equivalents and $846.8 million in unpledged marketable securities. At December 31, 2013, the Company maintained $1.25 billion in liquid assets, comprised of $309.7 million of cash and cash equivalents and $938.0 million of unpledged marketable securities.

The holding company maintains additional liquidity that would be sufficient to fund its operations and certain non-bank affiliate operations for an extended period should funding from normal sources be disrupted. Since deposits are taken by the bank operating subsidiary and not by the parent company, parent company liquidity is not dependent on the bank operating subsidiary's deposit balances. In our analysis of parent company liquidity, we assume 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 make nondiscretionary payments 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 non-bank 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. WAB maintains 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 March 31, 2014, our 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 provision for credit losses, investment and other amortization and depreciation. For

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the three months ended March 31, 2014 and 2013, net cash provided by operating activities was $40.0 million and $46.1 million, respectively.

Our primary investing activities are the origination of real estate and commercial loans and purchase and sale of securities. Our net cash provided by and used in investing activities has been primarily influenced by our loan and securities activities. The net increase in loans for the three months ended March 31, 2014 and 2013, was $322.6 million and $124.4 million, respectively. The increase from purchases or pay downs of securities, net for the three months ended March 31, 2014 and 2013 was $25.2 million and $69.4 million, respectively.

Net cash provided by financing activities has been impacted significantly by increased deposit levels. During the three months ended March 31, 2014 and 2013, deposits increased $310.9 million and $279.7 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, a program that allows 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 March 31, 2014, we had $538.2 million of CDARS and $371.1 million of ICS deposits.

As of March 31, 2014, we had $258.4 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 laws and regulations place 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.

Federal and state banking regulations place certain restrictions on dividends paid. The total amount of dividends which may be paid at any date is generally limited to the retained earnings of the bank. Dividends paid by WAB to the Company would be prohibited if the effect thereof would cause the bank’s capital to be reduced below applicable minimum capital requirements. WAB, LVSP and WAEF paid dividends to the Company in the amount of $16.0 million, $2.0 million and $1.5 million during the three months ended March 31, 2014, respectively.

Capital Resources

The Company and the bank 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 financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and WAB 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 WAB to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets, and of Tier I leverage to average assets. As of March 31, 2014 and December 31, 2013, the Company and WAB met all capital adequacy requirements to which they are subject.

As of March 31, 2014 and December 31, 2013, the Company and its bank met the minimum capital ratio requirements necessary to be classified as well-capitalized, as defined by the banking agencies. To be categorized as well-capitalized, the WAB must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table below.

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 March 31, 2014, the Company and WAB met the requirements necessary to be classified as well-capitalized under the proposed regulation.

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The actual capital amounts and ratios for the Company are presented in the following tables as of the periods indicated:



	Actual				Adequately-Capitalized Requirements				Minimum For Well-Capitalized Requirements
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(dollars in thousands)
March 31, 2014
Total Capital (to Risk Weighted Assets)	$	1,031,371	12.4	%	$	665,401	8.0	%	$	831,751	10.0	%
Tier 1 Capital (to Risk Weighted Assets)	926,498		11.1		333,873		4.0		500,810		6.0
Leverage Ratio (to Average Assets)	926,498		9.9		374,343		4.0		467,928		5.0
December 31, 2013
Total Capital (to Risk Weighted Assets)	$	991,461	12.4	%	$	639,652	8.0	%	$	799,565	10.0	%
Tier 1 Capital (to Risk Weighted Assets)	891,232		11.1		321,165		4.0		481,747		6.0
Leverage Ratio (to Average Assets)	891,232		9.8		363,768		4.0		454,710		5.0


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 match 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 the 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 the bank’s 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.

Net Interest Income Simulation. In order to measure interest rate risk at March 31, 2014, 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 actions taken by management to mitigate interest rate changes or secondary factors such as changes to our credit risk profile as interest rates change.

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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 March 31, 2014, our net interest income exposure for the next twelve months related to these hypothetical changes in market interest rates was within our current guidelines.

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	$	382,888		$	389,645	$	419,660		$	456,597		$	496,029		$	536,066
Interest Expense	38,726			38,882		67,088			95,385			123,669			151,922
Net Interest Income	344,162			350,763		352,572			361,212			372,360			384,144
% Change	(1.9		)%			0.5		%	3.0		%	6.2		%	9.5		%

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 March 31, 2014, 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 March 31, 2014:

Economic Value of Equity



	Interest Rate Scenario (change in basis points from Base)
	Down 100			Base		Up 100			Up 200			Up 300			Up 400
Present Value (000’s)
Assets	$	9,960,462		$	9,854,087	$	9,654,380		$	9,467,117		$	9,291,542		$	9,127,199
Liabilities	8,616,470			8,465,725		8,244,799			8,067,695			7,893,008			7,718,861
Net Present Value	1,343,992			1,388,362		1,409,581			1,399,422			1,398,534			1,408,338
% Change	(3.2		)%			1.5		%	0.8		%	0.7		%	1.4		%

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 March 31, 2014 and December 31, 2013:

Outstanding Derivatives Positions



March 31, 2014					December 31, 2013
Notional		Net Value		Weighted Average Term (Yrs)	Notional		Net Value		Weighted Average Term (Yrs)
(dollars in thousands)
$	516,672	$	10,013	18.3	$	287,947	$	1,709	17.2

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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, as amended) 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, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission 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 March 31, 2014, which have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION


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.


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, 2013.


Item 6.	Exhibits.

EXHIBITS



31.1*		CEO Certification Pursuant Rule 13a-14(a)/15d-14(a).

31.2*		CFO Certification Pursuant 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.

101.SCH*		XBRL Taxonomy Extension Schema Document.

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.

* Filed herewith.

**Furnished herewith.

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SIGNATURES

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

April 30, 2014	By:	/s/ Robert Sarver
		Robert Sarver
		Chairman of the Board and
		Chief Executive Officer

April 30, 2014	By:	/s/ Dale Gibbons
		Dale Gibbons
		Executive Vice President and
		Chief Financial Officer

April 30, 2014	By:	/s/ J. Kelly Ardrey Jr.
		J. Kelly Ardrey Jr.
		Senior Vice President and
		Chief Accounting Officer