10-K 1 wal1231201410k.htm 10-K WAL 12.31.2014 10K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-K
 
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
Commission file number: 001-32550
 
 
 
WESTERN ALLIANCE BANCORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
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)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Name of each exchange on which registered
Common Stock, $0.0001 Par Value
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ý    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  ý
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
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.

Large accelerated filer
 
ý
 
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The aggregate market value of the registrant’s voting stock held by non-affiliates was approximately $1.32 billion based on the June 30, 2014 closing price of said stock on the New York Stock Exchange ($23.80 per share).
As of February 11, 2015, Western Alliance Bancorporation had 88,937,807 shares of common stock outstanding.
Portions of the registrant’s definitive proxy statement for its 2015 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.



INDEX
 
 
 
Page
 
 
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
 
 
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
 
 
 
 
 
Item 15.
 
 
 
 


2


PART I
Forward-Looking Statements
Certain statements contained in this Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (this “Form 10-K”) are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). Statements that constitute forward-looking statements within the meaning of the Reform Act are generally identified through the inclusion of words such as “aim,” “anticipate,” “believe,” “drive,” “estimate,” “expect,” “expressed confidence,” “forecast,” “future,” “goals,” “guidance,” “intend,” “may,” “opportunity,” “plan,” “position,” “potential,” “project,” “ seek,” “should,” “strategy,” “target,” “will,” “would” or similar statements or variations of such words and other similar expressions. All statements other than historical fact are “forward-looking statements” within the meaning of the Reform Act, 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 that are not historical facts. These forward-looking statements 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. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, but are not limited to, those described in “Risk Factors” in Item 1A of this Form 10-K. Forward-looking statements speak only as of the date they are made and we undertake no obligation to publicly update or revise any forward-looking statements included in this Form 10-K or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise, except to the extent required by federal securities laws. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Form 10-K might not occur, and you should not put undue reliance on any forward-looking statements.
Purpose
The following discussion is designed to provide insight on the financial condition and results of operations of Western Alliance Bancorporation and its subsidiaries. This discussion should be read in conjunction with the Company’s Consolidated Financial Statements and notes to the Consolidated Financial Statements, herein referred to as “the Consolidated Financial Statements.” These Consolidated Financial Statements are presented in Item 8 of this Form 10-K.

3


GLOSSARY OF ENTITIES AND TERMS
The acronyms and abbreviations identified below are used in various sections of this Form 10-K, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," in Item 7 and the Consolidated Financial Statements and the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K.
ENTITIES:
AAB
Alliance Association Bank
TPB
Torrey Pines Bank
ABA
Alliance Bank of Arizona
WAB or Bank
Western Alliance Bank
BON
Bank of Nevada
WACF
Western Alliance Corporate Finance
BWN
Bank West of Nevada
WAEF
Western Alliance Equipment Finance
Centennial
Centennial Bank
WAL or Parent
Western Alliance Bancorporation
Company
Western Alliance Bancorporation and Subsidiaries
WAPF
Western Alliance Public Finance
FIB
First Independent Bank
WARF
Western Alliance Resort Finance
LVSP
Las Vegas Sunset Properties
WAWL
Western Alliance Warehouse Lending
MRA
Miller/Russell & Associates, Inc.
Western Liberty
Western Liberty Bancorp
Shine
Shine Investment Advisory Services, Inc.
 
 
TERMS:
AFS
Available-for-Sale
GAAP
U.S. Generally Accepted Accounting Principles
ALCO
Asset and Liability Management Committee
GLBA
Gramm-Leach-Bliley Act of 1999
AMT
Alternative Minimum Tax
GSE
Government-Sponsored Enterprise
AOCI
Accumulated Other Comprehensive Income
HMDA
Home Mortgage Disclosure Act
APR
Annual Percentage Rate
HOEPA
Home Ownership and Protection Act of 1994
ARPS
Adjustable-Rate Preferred Stock
HTM
Held-to-Maturity
ASC
Accounting Standards Codification
ICS
Insured Cash Sweep Service
ASU
Accounting Standards Update
Incentive Plan
2005 Stock Incentive Plan, as amended
ATM
At-the-Market
IRC
Internal Revenue Code
BHCA
Bank Holding Company Act of 1956
IRS
Internal Revenue Service
BOD
Board of Directors
ISDA
International Swaps and Derivatives Association
BOLI
Bank Owned Life Insurance
LIBOR
London Interbank Offered Rate
BSA
Bank Secrecy Act of 1970
LIHTC
Low-Income Housing Tax Credit
CBLs
Central Business Lines
MBS
Mortgage-Backed Securities
CCO
Chief Credit Officer
MLC
Management Loan Committee
CDARS
Certificate Deposit Account Registry Service
MOU
Memorandum of Understanding
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
CFPB
Consumer Financial Protection Bureau
OCI
Other Comprehensive Income
CMO
Collateralized Mortgage Obligations
OFAC
Office of Foreign Assets Control
COSO
Committee of Sponsoring Organizations of the Treadway Commission
OREO
Other Real Estate Owned
CPP
TARP Capital Purchase Program
OTTI
Other-than-Temporary Impairment
CRA
Community Reinvestment Act
PCI
Purchased Credit Impaired
CRE
Commercial Real Estate
RESPA
Real Estate Settlement Procedures Act
DIF
FDIC's Deposit Insurance Fund
SBIC
Small Business Investment Company
EPS
Earnings per share
SBLF
Small Business Lending Fund
EVE
Economic Value of Equity
SEC
Securities and Exchange Commission
Exchange Act
Securities Exchange Act of 1934, as amended
SLC
Senior Loan Committee
FASB
Financial Accounting Standards Board
SSAE
Statement on Standards for Attestation Engagements
FCRA
Fair Credit Reporting Act of 1971
SOX
Sarbanes-Oxley Act of 2002
FDIC
Federal Deposit Insurance Corporation
TARP
Troubled Asset Relief Program
FHA
Fair Housing Act
TDR
Troubled Debt Restructuring
FHLB
Federal Home Loan Bank
TEB
Tax Equivalent Basis
FICO
The Financing Corporation
TILA
Truth in Lending Act
FRB
Federal Reserve Bank
WALCC
Western Alliance Bancorporation's Credit Committee
FVO
Fair Value Option
XBRL
eXtensible Business Reporting Language

4


Item 1.
Business.
Organization Structure and Description of Services
WAL is a bank holding company headquartered in Phoenix, Arizona, incorporated under the laws of the state of Delaware. WAL provides a full spectrum of deposit, lending, treasury management, and online banking products and services through its wholly-owned banking subsidiary, WAB. The Bank operates the following full-service banking divisions: ABA in Arizona, FIB in Northern Nevada, BON in Southern Nevada, and TPB in California. The Company also serves business customers through a robust national platform of specialized financial services including AAB, WACF, WAEF, WAPF, WARF, and WAWL. On July 1, 2014, all of the outstanding shares of common stock of WAEF, which was previously a subsidiary of WAL, were contributed to WAB by WAL and it is now a subsidiary of the Bank. In addition, the Company has one non-bank subsidiary, LVSP, which holds and manages certain non-performing loans and OREO.
WAL also has six unconsolidated subsidiaries used as business trusts in connection with issuance of trust-preferred securities as described in "Note 9. Junior Subordinated Debt" in Item 8 of this Form 10-K.
Bank Subsidiary
At December 31, 2014, WAL has the following bank subsidiary:
Bank Name
 
Headquarters
 
Number of
Locations
 
Location Cities
 
Total
Assets
 
Net
Loans
 
Deposits
 
 
 
 
 
 
 
 
(in millions)
Western Alliance Bank
 
Phoenix,
Arizona
 
40
 
Arizona: Chandler, Flagstaff, Mesa, Phoenix, Sedona, Scottsdale, and Tucson
 
$
10,476.4

 
$
8,243.5

 
$
8,942.9

Nevada: Carson City, Fallon, Reno, Sparks, Henderson, Las Vegas, Mesquite, and North Las Vegas
California: Beverly Hills, Carlsbad, La Mesa, Los Altos, Los Angeles, Oakland, and San Diego
WAB also has the following wholly-owned subsidiaries:
WAB Investments, Inc., BON Investments, Inc., and TPB Investments, Inc. - each hold certain investment securities, municipal loans, and leases.
BW Real Estate, Inc. - operates as a real estate investment trust and holds certain real estate loans and related securities.
BW Nevada Holdings, LLC - owns the 2700 West Sahara Avenue, Las Vegas, Nevada office building.
WAEF - offers equipment finance services nationwide.
Organizational Structure    
On December 31, 2013, the Company consolidated its three bank subsidiaries into one bank, WAB, chartered in Arizona. Our former bank subsidiaries, BON and TPB, began operating as divisions of WAB on January 1, 2014 along with ABA and FIB. The former subsidiaries of BON and TPB are now subsidiaries of WAB. On January 30, 2015, WAB became a member of the Federal Reserve system and, as a consequence, is now regulated as a "state member bank," under Federal Reserve Board Regulation H (12 C.F.R. Part 208).
Market Segments
As a result of the consolidation of the Company's three bank subsidiaries into one bank on December 31, 2013, the Company redefined its operating segments to reflect the new organizational and internal reporting structure. This resulted in significant differences from the prior segmentation methodology and these changes were not retrospective. Accordingly, the Company determined that recasting prior year segment information to conform to the new segmentation methodology would be impracticable and presentation of current period information under the prior segmentation methodology would not be beneficial to the reader. Please refer to "Note 21. Segments" in our Consolidated Financial Statements for financial information regarding segment reporting.

5


Beginning January 1, 2014, 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 although operations may not be domiciled in these states. The Company's CBL segment provides banking services to niche markets. These CBLs are managed centrally and are broader in geographic scope, though still predominately within the Company's core market areas. Corporate & Other primarily relates to our Treasury division and also includes other corporate-related items, income and expense items not allocated to 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" in Item 8. All intercompany transactions are eliminated for reporting consolidated results of operations. Loan and deposit accounts are assigned 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. Any excess equity not allocated to segments based on risk is assigned to the Corporate & Other segment.
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 of a reportable segment includes a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Using this funds transfer pricing methodology, liquidity is transferred between users and providers. Net income amounts for each reportable segment are 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. 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.
Lending Activities
Through WAB and its banking divisions and operating subsidiaries, the Company provides a variety of financial services to customers, including CRE loans, construction and land development loans, commercial loans, and consumer loans. The Company’s lending has focused primarily on meeting the needs of business customers.
Commercial and Industrial: Commercial and industrial loans include working capital lines of credit, inventory and accounts receivable lines, mortgage warehouse lines, equipment loans and leases, and other commercial loans. Loans to tax exempt municipalities and not-for-profit organizations are categorized as commercial and industrial loans.
CRE: Loans to finance the purchase or refinancing of CRE and loans to finance inventory and working capital that are additionally secured by CRE make up the majority of our loan portfolio. These CRE loans are secured by apartment buildings, professional offices, industrial facilities, retail centers and other commercial properties. As of December 31, 2014 and 2013, 46%, of our CRE loans were owner-occupied. Owner-occupied CRE loans are loans secured by owner-occupied nonfarm nonresidential properties for which the primary source of repayment (more than 50%) is the cash flow from the ongoing operations and activities conducted by the borrower who owns the property. Non-owner-occupied CRE loans are CRE loans for which the primary source of repayment is nonaffiliated rental income associated with the collateral property.
Construction and Land Development: Construction and land development loans include multi-family apartment projects, industrial/warehouse properties, office buildings, retail centers and medical facilities. These loans are primarily originated to experienced local developers with whom the Company has a satisfactory lending history. An analysis of each construction project is performed as part of the underwriting process to determine whether the type of property, location, construction costs and contingency funds are appropriate and adequate. Loans to finance commercial raw land are primarily to borrowers who plan to initiate active development of the property within two years.
Residential real estate: In 2010, the Company discontinued residential mortgage real estate loan origination as a business line, but continues to hold a small number of previously originated (or acquired) mortgage loans.
Consumer: Limited types of consumer loans are offered to meet customer demand and to respond to community needs. Consumer loans are generally offered at a higher rate and shorter term than residential mortgages. Examples of our consumer loans include: home equity loans and lines of credit, home improvement loans and personal lines of credit.

6


At December 31, 2014, our loan portfolio totaled $8.40 billion, or approximately 79% of total assets. The following table sets forth the composition of our loan portfolio as of the periods presented: 
 
 
December 31,
 
 
2014
 
2013
 
 
Amount
 
Percent
 
Amount
 
Percent
 
 
(in thousands)
Commercial and industrial
 
$
3,327,629

 
39.5
%
 
$
2,236,740

 
32.8
%
Commercial real estate - non-owner occupied
 
2,058,620

 
24.5

 
1,843,415

 
27.1

Commercial real estate - owner occupied
 
1,734,617

 
20.6

 
1,561,862

 
22.9

Construction and land development
 
754,154

 
9.0

 
537,231

 
7.9

Residential real estate
 
298,872

 
3.6

 
350,312

 
5.1

Commercial leases
 
204,270

 
2.4

 
235,968

 
3.5

Consumer
 
32,633

 
0.4

 
45,153

 
0.7

Total loans
 
8,410,795

 
100.0
%
 
6,810,681

 
100.0
%
Net deferred loan fees and costs
 
(12,530
)
 
 
 
(9,266
)
 
 
Total loans, net of deferred loan fees and costs
 
$
8,398,265

 
 
 
$
6,801,415

 
 
For additional information concerning loans, see "Note 3. Loans, Leases and Allowance for Credit Losses" of the Consolidated Financial Statements contained herein or "Management Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition – Loans discussions" in Item 7 of this Form 10-K.
General
The Company adheres to a specific set of credit standards within its banking subsidiary that are intended to ensure the proper management of credit risk. Furthermore, the Bank's senior management team plays an active role in monitoring compliance with such standards.
Loan originations are subject to a process that includes the credit evaluation of borrowers, utilizing established lending limits, analysis of collateral, and procedures for continual monitoring and identification of credit deterioration. Loan officers actively monitor their individual credit relationships in order to report suspected risks and potential downgrades as early as possible. The WAB BOD approves all changes to loan policy, as well as lending limit authorities. Our lending policies generally incorporate consistent underwriting standards across all geographic regions that the Bank operates in, customized as necessary to conform to state law and local market conditions. Our credit culture has enabled us to identify troubled credits early, allowing us to take corrective action when necessary.
Loan Approval Procedures and Authority
Our loan approval procedures are executed through a tiered loan limit authorization process, which is structured as follows:
Individual Authorities. The CCO of each region sets the authorization levels for individual loan officers on a case-by-case basis. Generally, the more experienced a loan officer, the higher the authorization level. The maximum approval authority for any loan officer is $1.0 million. Certain members of executive management or credit administration may have higher approval authority.
Management Loan Committees. Credits in excess of individual loan limits are submitted to the appropriate region’s MLC. The MLCs consist of members of the senior management team of each region and are chaired by each region’s CCO. The MLCs have approval authority up to $7.0 million.
Credit Administration. Credits in excess of the MLC authority are submitted to the WAB SLC. The SLC has approval authority up to established house concentration limits, which range from $15.0 million to $50.0 million, depending on risk grade. SLC approval is also required for new relationships of $12.5 million or greater to borrowers within market footprint, and $5.0 million or greater outside market footprint. The SLC reviews all other loan approvals to any one borrower of $5.0 million or greater. The SLC is chaired by the WAB CCO and includes the Company’s CEO. Current policy states that over house limit exceptions require unanimous approval of the SLC.
The Company’s credit administration department works independent of loan production.

7


Loans to One Borrower. In addition to the limits set forth above, subject to certain exceptions, state banking laws generally limit the amount of funds that a bank may lend to a single borrower. Under Arizona law, the obligations of one borrower to a bank generally may not exceed 20% of the bank’s capital, plus an additional 10% of its capital if the additional amounts are fully secured by readily marketable collateral.
Concentrations of Credit Risk. Our lending policies also establish customer and product concentration limits to control single customer and product exposures. Our lending policies have several different measures to limit concentration exposures. Set forth below are the primary segmentation limits and actual measures as of December 31, 2014:
 
 
Percent of Total Capital
 
 
Policy Limit
 
Actual
CRE
 
435
%
 
356
%
Commercial and industrial
 
370

 
334

Construction and land development
 
80

 
69

Residential real estate
 
55

 
28

Consumer
 
10

 
3

Asset Quality
General
To measure asset quality, the Company has instituted a loan grading system consisting of nine different categories. The first five are considered “satisfactory.” The other four grades range from a “special mention” category to a “loss” category and are consistent with the grading systems used by Federal banking regulators. All loans are assigned a credit risk grade at the time they are made, and each originating loan officer reviews the credit with his or her immediate supervisor on a quarterly basis to determine whether a change in the credit risk grade is warranted. In addition, the grading of our loan portfolio is reviewed on a regular basis by our internal Loan Review Department.
Collection Procedure
If a borrower fails to make a scheduled payment on a loan, Bank personnel attempt to remedy the deficiency by contacting the borrower and seeking payment. Contacts generally are made within 15 business days after the payment becomes past due. The Bank maintains regional Special Assets Departments, which generally services and collects loans rated substandard or worse. Each division's CCO is responsible for monitoring activity that may indicate an increased risk rating, including, but not limited to, past-dues, overdrafts and loan agreement covenant defaults. Loans deemed uncollectible are proposed for charge-off and all charge-offs in excess of $100,000 are reported to the WAB BOD.
Nonperforming Assets
Nonperforming assets include loans past due 90 days or more and still accruing interest, non-accrual loans, TDR loans, and repossessed assets, including OREO. In general, loans are placed on non-accrual status when we determine ultimate collection of principal and interest to be in doubt due to the borrower’s financial condition, collateral value, and collection efforts. 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. Other repossessed assets resulted from loans where we have received title or physical possession of the borrower’s assets. The Company generally re-appraises OREO and collateral dependent impaired loans every twelve months. The net gain on sales / valuations of repossessed and other assets was $5.4 million and $2.4 million for the years ended December 31, 2014 and 2013, respectively. Losses may be experienced in future periods.
Criticized Assets
Federal bank regulators require banks to classify its assets on a regular basis. In addition, in connection with their examinations of the Bank, examiners have authority to identify problem assets and, if appropriate, re-classify them. Loan grades six through nine of our internal loan grading system are utilized to identify potential problem assets.
The following describes the potential problem assets using our internal loan grading system definitions:
"Special Mention:” Generally these are assets that possess weaknesses that deserve management's close attention. These loans may involve borrowers with adverse financial trends, higher debt to equity ratios, or weaker liquidity

8


positions, but not to the degree of being considered a “problem loan” where risk of loss may be apparent. Loans in this category are usually performing as agreed, although there may be non-compliance with financial covenants.
“Substandard:” These assets are characterized by well-defined credit weaknesses and carry the distinct possibility that the Company will sustain some loss if such weakness or deficiency is not corrected. We believe that these loans generally are adequately secured and in the event of a foreclosure action or liquidation, the Company should be protected from loss. All loans 90 days or more past due and all loans on non-accrual are considered at least “substandard,” unless extraordinary circumstances would suggest otherwise.
“Doubtful:” These assets have all the weaknesses inherent in those classified as "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, but because of certain known factors which may work to the advantage and strengthening of the asset (for example, capital injection, perfecting liens on additional collateral and refinancing plans), classification as an estimated loss is deferred until a more precise status may be determined.
“Loss:” These assets are considered uncollectible and having such little recoverable value that it is not practical to defer writing off the asset. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practicable or desirable to defer writing off the asset, even though partial recovery may be achieved in the future.
Allowance for Credit Losses
Like other financial institutions, the Company must maintain an adequate allowance for credit losses. The allowance for credit losses is established through a provision for credit losses charged to expense. Loans are charged against the allowance for credit losses when management believes that collectability of the contractual principal or interest is unlikely. Subsequent recoveries, if any, are credited to the allowance. The allowance is an amount believed adequate to absorb probable losses on existing loans that may become uncollectable, based on evaluation of the collectability of loans and prior credit loss experience, together with the other factors. For a detailed discussion of the Company’s methodology see “Management’s Discussion and Analysis and Financial Condition – Critical Accounting Policies – Allowance for Credit Losses” in Item 7 of this Form 10-K.
Investment Activities
Our banking subsidiary and holding company have an investment policy, which was approved by the Bank's and Company's BOD. This policy dictates that investment decisions be made based on the safety of the investment, liquidity requirements of the bank and holding company, potential returns, cash flow targets, and consistency with our interest rate risk management. The Bank’s ALCO is responsible for making securities portfolio decisions in accordance with established policies. The CFO and Treasurer have the authority to purchase and sell securities within specified guidelines. All transactions for the Bank and for our holding company were reviewed by the ALCO and/or BOD.
Generally, our investment policy limits securities investments to securities backed by the full faith and credit of the U.S. government, including U.S. treasury bills, notes, and bonds, and direct obligations of Ginnie Mae; MBS or CMO issued by a GSE, such as Fannie Mae or Freddie Mac; debt securities issued by a GSE, such as Fannie Mae, Freddie Mac, and the FHLB; municipal securities with a rating of “Single-A” or higher; ARPS where the issuing company is rated “BBB” or higher; corporate debt with a rating of “Single-A” or better; investment grade corporate bond mutual funds; private label collateralized mortgage obligations with a single rating of “AA” or higher; commercial mortgage backed securities with a rating of “AAA”; and mandatory purchases of equity securities of the FRB and FHLB. ARPS holdings are limited to no more than 10% of the Bank’s tier 1 common equity; municipal securities are limited to no more than 5% of the Bank's assets; investment grade corporate bond mutual funds are limited to no more than 5% of the Bank's total capital; corporate debt holdings are limited to no more than 2.5% of the bank’s assets; and commercial mortgage backed securities are limited to an aggregate purchase limit of $50 million.
The Company no longer purchases (although we may continue to hold previously acquired) CDOs. Our policies also govern the use of derivatives, and provide that the Company prudently use derivatives in accordance with applicable regulations as a risk management tool to reduce the overall exposure to interest rate risk, and not for speculative purposes.
As of December 31, 2014, all of our investment securities are classified as AFS or measured at fair value (“trading”) pursuant to ASC Topic 320, Investments and ASC Topic 825, Financial Instruments. AFS securities are reported at fair value in accordance with Topic 820, Fair Value Measurements and Disclosures.

9


As of December 31, 2014, the Company had an investment securities portfolio of $1.52 billion, representing approximately 14.4% of our total assets, with the majority of the portfolio invested in AAA/AA+-rated securities. The average duration of our investment securities was 3.4 years as of December 31, 2014.
The following table summarizes the investment securities portfolio as of December 31, 2014 and 2013:
 
 
December 31,
 
 
2014
 
2013
 
 
Amount
 
Percent
 
Amount
 
Percent
 
 
(dollars in millions)
U.S. government sponsored agency securities
 
$
18.4

 
1.2
%
 
$
47.0

 
2.8
%
Municipal obligations
 
299.0

 
19.7

 
299.2

 
18.1

Preferred stock
 
82.6

 
5.4

 
61.5

 
3.7

Mutual funds
 
37.7

 
2.5

 
36.5

 
2.2

Residential MBS issued by GSEs
 
893.1

 
58.8

 
1,024.5

 
61.9

Commercial MBS issued by GSEs
 
2.2

 
0.1

 

 

Private label residential MBS
 
70.2

 
4.6

 
36.1

 
2.2

Private label commercial MBS
 
5.2

 
0.3

 
5.4

 
0.3

Trust preferred securities
 
25.5

 
1.7

 
23.8

 
1.4

CRA investments
 
24.3

 
1.6

 
24.9

 
1.5

Collateralized debt obligations
 
11.4

 
0.7

 
0.1

 

Corporate debt securities
 
52.5

 
3.4

 
97.8

 
5.9

Total
 
$
1,522.1

 
100.0
%
 
$
1,656.8

 
100.0
%
As of December 31, 2014 and 2013, the Company had an investment in BOLI of $142.0 million and $140.6 million, respectively. The BOLI was purchased to help offset employee benefit costs. For additional information concerning investments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Investments” in Item 7 of this Form 10-K.
Deposit Products
The Company offers a variety of deposit products, including checking accounts, savings accounts, money market accounts, and other types of deposit accounts, including fixed-rate, fixed maturity retail certificates of deposit. The Company has historically focused on growing its lower cost core customer deposits. As of December 31, 2014, the deposit portfolio was comprised of 26% non-interest bearing deposits and 74% interest-bearing deposits.
The competition for deposits in our markets is strong. The Company has historically been successful in attracting and retaining deposits due to several factors, including: 1) our high quality of customer service; 2) our experienced relationship bankers who have strong relationships within their communities; 3) the broad selection of cash management services we offer; and 4) incentives to employees for business development. The Company intends to continue its focus on attracting deposits from our business lending relationships in order to maintain our low cost of funds and improve our net interest margin. The loss of low-cost deposits could negatively impact future profitability.
Deposit balances are generally influenced by national and local economic conditions, changes in prevailing interest rates, internal pricing decisions, perceived stability of financial institutions and competition. The Company’s deposits are primarily obtained from communities surrounding its branch offices. In order to attract and retain quality deposits, we rely on providing quality service and introducing new products and services that meet the needs of our customers.
In 2014, the Bank's deposit rates were determined through an internal oversight process under the direction of its asset and liability committee. The Bank considered a number of factors when determining deposit rates, including:
current and projected national and local economic conditions and the outlook for interest rates;
local competition;
loan and deposit positions and forecasts, including any concentrations in either; and
FHLB advance rates and rates charged on other funding sources.

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The following table shows our deposit composition: 
 
 
December 31,
 
 
2014
 
2013
 
 
Amount
 
Percent
 
Amount
 
Percent
 
 
(in thousands)
Non-interest-bearing demand
 
$
2,288,048

 
25.6
%
 
$
2,199,983

 
28.1
%
Interest-bearing demand
 
854,935

 
9.6

 
709,841

 
9.1

Savings and money market
 
3,869,699

 
43.3

 
3,310,369

 
42.2

Certificate of deposit ($250,000 or more)
 
1,339,238

 
15.0

 
511,430

 
6.5

Other time deposits
 
579,123

 
6.5

 
1,106,582

 
14.1

Total deposits
 
$
8,931,043

 
100.0
%
 
$
7,838,205

 
100.0
%
In addition to our deposit base, we have access to other sources of funding, including FHLB and FRB advances, repurchase agreements and unsecured lines of credit with other financial institutions. Previously, we have also accessed the capital markets through trust preferred offerings. For additional information concerning our deposits, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Balance Sheet Analysis – Deposits” in Item 7 of this Form 10-K.
Financial Products and Services
In addition to traditional commercial banking activities, the Company offers other financial services to its customers, including: internet banking, wire transfers, electronic bill payment, lock box services, courier, and cash management services.
Customer, Product and Geographic Concentrations
Approximately 54% and 58% of our loan portfolio at December 31, 2014 and 2013, respectively, consisted of CRE-secured loans, including CRE loans, and construction and land development loans. The Company’s business is concentrated in the Las Vegas, Los Angeles, San Francisco, Phoenix, Reno, San Diego and Tucson metropolitan areas. Consequently, the Company is dependent on the trends of these regional economies. The Company is not dependent upon any single or limited number of customers, the loss of which would have a material adverse effect on the Company. No material portion of the Company’s business is seasonal.
Foreign Operations
The Company has no significant foreign operations. We provide loans, letters of credit, and other trade-related services to commercial enterprises that conduct business outside the U.S.
Customer Concentration
Neither the Company nor any of its reportable segments has any customer relationships that individually account for 10% or more of consolidated or segment revenues, respectively.
Competition
The financial services industry is highly competitive. Many of our competitors are much larger in total assets and capitalization, have greater access to capital markets, and offer a broader range of financial services than we can offer, and may have lower cost structures.
This increasingly competitive environment is primarily a result of long-term changes in regulation that made mergers and geographic expansion easier; changes in technology and product delivery systems and web-based tools; the accelerating pace of consolidation among financial services providers; and the flight of deposit customers to greater perceived safety. We compete for loans, deposits, and customers with other banks, credit unions, securities, and brokerage companies, mortgage companies, insurance companies, finance companies, and other non-bank financial services providers. This strong competition for deposit and loan products directly affects the interest rates on those products and the terms on which they are offered to consumers.
Technological innovation continues to contribute to greater competition in domestic and international financial services markets.

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Mergers between financial institutions have placed additional pressure on banks to consolidate their operations, reduce expenses and increase revenues to remain competitive. The competitive environment is also significantly impacted by federal and state legislation that makes it easier for non-bank financial institutions to compete with the Company.
Employees
As of December 31, 2014, the Company had 1,131 full-time equivalent employees. The Company’s employees are not represented by a union or covered by a collective bargaining agreement. Management believes that its employee relations are good.
Recent Developments and Company Response
The global and U.S. economies, and the economies of the local communities in which we operate, experienced a rapid decline in 2008. The financial markets and the financial services industry in particular suffered unprecedented disruption, causing many major institutions to fail or require government intervention to avoid failure. These conditions were brought about largely by the erosion of U.S. and global credit markets, including a significant and rapid deterioration of the mortgage lending and related real estate markets. While conditions have improved, these markets and economies have not fully recovered to pre-crisis levels. Despite these conditions, in 2014, we continued to grow net interest income to $384.9 million, up 16% from $332.9 million in 2013. As a result of the improved real estate market, we had a net gain on sales / valuations of other repossessed and other assets of $5.4 million, compared to a gain of $2.4 million in 2013. As a result, our net interest income after provision for credit losses in 2014 was $380.2 million, up 19% from $319.7 million in 2013.
The U.S., state and foreign governments took extraordinary actions in an attempt to deal with this worldwide financial crisis and the severe decline in the economy that followed. On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, into law. The Dodd-Frank Act has had, and will continue to have, a broad impact on the financial services industry. The SEC and the Federal banking agencies, including the FRB and FDIC, have issued a number of requests for public comment, proposed rules and final regulations to implement the requirements of the Dodd-Frank Act. The following items provide a brief description of the impact of the Dodd-Frank Act on the operations and activities, both currently and prospectively, of the Company and its subsidiaries:
Deposit Insurance. The Dodd-Frank Act and implementing final rules from the FDIC make permanent the $250,000 deposit insurance limit for insured deposits. The assessment base against which an insured depository institution’s deposit insurance premiums paid to the DIF has been revised to use the institution’s average consolidated total assets less its average equity rather than its deposit base. Although we do not expect these provisions to have a material effect on our deposit insurance premium expense, in the future, the FDIC deposit insurance premiums we pay could increase.
Increased Capital Standards and Enhanced Supervision. The federal banking agencies are required to establish minimum leverage and risk-based capital requirements for banks and bank holding companies. These new standards will be no lower than existing regulatory capital and leverage standards applicable to insured depository institutions and may, in fact, be higher when established by the agencies. Compliance with heightened capital standards may reduce our ability to generate or originate revenue-producing assets and thereby restrict revenue generation from banking and non-banking operations. The changes to the capital requirements, effective January 1, 2015, are outlined in Capital Standards on page 67 and are expected to reduce our regulatory ratios by 0.20%. The Dodd-Frank Act also increases regulatory oversight, supervision and examination of banks, bank holding companies and their respective subsidiaries by the appropriate regulatory agency. Compliance with new regulatory requirements and expanded examination processes could increase our cost of operations.
Trust Preferred Securities. Under the increased capital standards established by the Dodd-Frank Act, bank holding companies are prohibited from including in their regulatory Tier 1 capital hybrid debt and equity securities issued on or after May 19, 2010. Among the hybrid debt and equity securities included in this prohibition are trust preferred securities, which the Company has used in the past as a tool for raising additional Tier 1 capital and otherwise improving its regulatory capital ratios. Based on guidance issued by the FRB on July 8, 2013, there will not be a Tier 1 phase out of grandfathered trust preferred securities for banks with assets of less than $15 billion. As a result, our securities continue to qualify as Tier 1 Capital.
Consumer Financial Protection Bureau. The Dodd-Frank Act creates a new, independent CFPB within the Federal Reserve that is tasked with establishing and implementing rules and regulations under certain federal consumer protection laws. These consumer protection laws govern the manner in which we offer many of our financial products and services. On July 21, 2011, the rulemaking and certain enforcement authority for enumerated federal consumer financial protection laws were transferred to the CFPB. As a result of this transfer, the CFPB now has significant

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interpretive and enforcement authority with respect to many of the federal laws and regulations under which we operate. In accordance with this authority, the CFPB has officially transferred many of the regulations formerly maintained by the Federal Reserve and the U.S. Department of Housing and Urban Development, to a new chapter of Title 12 of the Code of Federal Regulations maintained by the CFPB, many of which deal with consumer credit, account disclosures and residential mortgage lending. Although the CFPB did not make significant or substantive changes to the rules during this transfer, it now has authority to promulgate guidance and interpretations of these rules and regulations in a manner that could differ from prior interpretations from other federal regulatory bodies.
State Enforcement of Consumer Financial Protection Laws. The Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are stricter than those regulations promulgated by the CFPB. State attorneys general are permitted to enforce consumer protection rules adopted by the CFPB against certain state-chartered institutions. Although consumer products and services represent a relatively small part of our business, compliance with any such new regulations would increase our cost of operations and, as a result, could limit our ability to expand these products and services.
Transactions with Affiliates and Insiders. The Dodd-Frank Act enhances the requirements for certain transactions with affiliates under Section 23A and 23B of the Federal Reserve Act, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained. Additionally, limitations on transactions with insiders are expanded through the 1) strengthening on loan restrictions to insiders; and 2) expansion of the types of transactions subject to the various limits, including derivative transactions, repurchase agreements, reverse repurchase agreements and securities lending or borrowing transactions. Restrictions are also placed on certain asset sales to and from an insider to an institution, including requirements that such sales be on market terms and, in certain circumstances, approved by the institution’s board of directors.
Corporate Governance. The Dodd-Frank Act addresses many corporate governance and executive compensation matters that have affected or will affect most U.S. publicly traded companies, including us. The Dodd-Frank Act: 1) grants stockholders of U.S. publicly-traded companies an advisory vote on executive compensation; 2) adds disclosure and voting requirements for golden parachute compensation that is payable to named executive officers in connection with sale transactions; 3) enhances independence requirements for compensation committee members; 4) requires compensation committees to select compensation consultants, counsel or other advisers only after considering certain factors that affect their independence; 5) will require companies listed on national securities exchanges to adopt incentive-based compensation claw-back policies for executive officers; 6) will require U.S. publicly-traded companies to disclose information that shows the relationship between executive compensation and financial performance and the ratio of the compensation of the CEO to the median compensation of employees; and 7) provides the SEC with authority to issue rules requiring companies to include stockholder nominees for director in their proxy materials and to adopt procedures for companies to comply with these new rules. The SEC has adopted final implementing rules regarding the stockholder advisory vote on compensation, golden parachute payments, compensation committee independence and advisers, and has proposed rules on CEO-to-median employee pay ratio disclosure. The SEC also promulgated rules, which would have required public companies, under certain circumstances, to include stockholder-nominated candidates for director in their proxy statements. These proxy access rules were subsequently invalidated by a federal appeals court decision, though the SEC could propose new rules in the future. In addition, the SEC amended an existing rule, which is unaffected by the federal appeals court’s decision, that may require companies to include in their proxy materials stockholder proposals that seek to adopt procedures for including stockholder director nominees in future company proxy materials.
Debit Interchange Fees and Routing. The so-called Durbin Amendment, and the Federal Reserve’s implementing regulations, require that, unless exempt, bank issuers may only receive an interchange fee from merchants that is reasonable and proportional to the cost of clearing the transaction. This limitation applies to banks with total assets, when aggregated or consolidated with the assets of all their affiliates, of $10 billion or more. In 2014, the Company earned $2.0 million in debit card interchange fees. In addition, other provisions of the Durbin Amendment and the Federal Reserve’s regulations also require that banks enable all debit cards with two or more unaffiliated payment networks. Moreover, banks are prohibited from placing restrictions or limiting a merchant’s ability to route an electronic debit transaction initiated through a debit card through any enabled network. These rules became effective on October 1, 2011. For further discussion on the impact to the Company, see the risk factor discussed on page 23.
Additional regulations called for in the Dodd-Frank Act, include regulations dealing with the risk retention requirements for assets transferred in a securitization and implementing restrictions on a banking organization’s proprietary trading and sponsorship or ownership of private equity funds or hedge funds. While our current assessment is that the Dodd-Frank Act and its implementing regulations will not have a materially greater effect on the Company than the rest of the industry, given the

13


uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented, the full extent of the impact such requirements will have on our operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements or limit our growth or expansionary activities. Failure to comply with the new requirements would negatively impact our results of operations and financial condition. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to our investors.
The Company was a participant in programs established by the U.S. Treasury Department under the authority contained in the Emergency Economic Stabilization Act of 2008 (enacted on October 3, 2008) and the American Recovery and Reinvestment Act of 2009 (enacted on February 17, 2009). Among other matters, these laws:
provide for the government to invest additional capital into banks and otherwise facilitate bank capital formation (commonly referred to as the TARP);
increase the limits on federal deposit insurance; and
provide for various forms of economic stimulus, including assisting homeowners in restructuring and lowering mortgage payments on qualifying loans.
During 2008, in addition to two private offerings raising a total of approximately $80 million in capital, the Company also took advantage of TARP Capital Purchase Program or the CPP to raise $140 million of new capital and strengthen its balance sheet.
Enacted into law as part of the Small Business Jobs Act of 2010, the SBLF is a dedicated investment fund that encourages lending to small businesses by providing capital to qualified community banks, with assets of less than $10 billion. Under the SBLF, Treasury makes a capital investment into community banks the dividend payment on which is adjusted depending on the growth in the bank’s qualifying small business lending. On September 27, 2011, as part of the SBLF program, the Company sold $141 million of Non-Cumulative Perpetual Preferred Stock, Series B, to the Secretary of the Treasury, and used approximately $140.8 million of these proceeds to redeem the 140,000 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, issued in 2008 to the Treasury under the CPP, plus the accrued and unpaid dividends owed. As a result of its redemption of the CPP preferred stock, the Company is no longer subject to the limits on executive compensation and other restrictions stipulated under CPP. The Company will be subject to all terms, conditions and other requirements for participation in SBLF for as long as any SBLF Preferred Stock remains outstanding. Initially established at 5%, the dividend rate can vary from as low as 1% to 9% in part depending upon the Company’s success in qualified small business lending. During the years ended December 31, 2014 and 2013, the Company's dividend rate was locked in at 1% until the first quarter of 2016, at which time, the dividend rate will rise to 9% if not redeemed.
On December 19, 2014, the Company redeemed 70,500 of its 141,000 shares of non-cumulative perpetual preferred stock, Series B. The shares were redeemed at their liquidation value of $1,000 per share plus accrued dividends for a total redemption price of $70.7 million. Following this partial redemption, the Company has 70,500 outstanding shares of its Series B preferred stock as of December 31, 2014.
Supervision and Regulation
The Company and its subsidiaries are extensively regulated and supervised under both federal and state laws. A summary description of the laws and regulations which relate to the Company’s operations are discussed in Item 7 of this Form 10-K.
Additional Available Information
The Company maintains an Internet website at http://www.westernalliancebancorp.com. The Company makes available its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act and other information related to the Company free of charge, through this site as soon as reasonably practicable after it electronically files those documents with, or otherwise furnishes them to the SEC. The SEC maintains an Internet site, http://www.sec.gov, in which all forms filed electronically may be accessed. The Company’s internet website and the information contained therein are not intended to be incorporated in this Form 10-K.
In addition, copies of the Company’s annual report will be made available, free of charge, upon written request. 

14


Item 1A.
Risk Factors.
Investing in our common stock involves various risks, many of which are specific to the Company. Several of these risks and uncertainties, are discussed below and elsewhere in this report. This listing should not be considered as all-inclusive. These factors represent risks and uncertainties that could have a material adverse effect on our business, results of operations and financial condition. Other risks that we do not know about now, or that we do not currently believe are significant, could negatively impact our business or the trading price of our securities. In addition to common business risks such as theft, loss of market share and disasters, the Company is subject to special types of risk due to the nature of its business. See additional discussions about credit, interest rate, market and litigation risks in "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" and additional information regarding legislative and regulatory risks in the "Supervision and Regulation" section therein.
Risks Relating to Our Business
Our financial performance may be adversely affected by conditions in the financial markets and economic conditions generally and at other financial institutions.
Our financial performance generally, and, in particular, the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, is highly dependent upon the business environment in the markets where we operate and in the U.S. as a whole. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence, limitations on the availability or increases in the cost of credit and capital, increases in inflation or interest rates, natural disasters, terrorist attacks, or a combination of these or other factors.
In the U.S. financial services industry, the commercial soundness of financial institutions is closely interrelated as a result of credit, trading, clearing or other relationships between the institutions. As a result, concerns about, or a default or threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other institutions. This is sometimes referred to as “systemic risk” and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges, with which we interact on a daily basis, and therefore could adversely affect us.
Following the financial crisis in 2008, the financial services industry and the securities markets were materially and adversely affected by significant declines in the values of nearly all asset classes and by a serious lack of liquidity, leading to substantially increased volatility in global markets and an overall loss of investor confidence. These market conditions led to the failure or merger of a number of prominent financial institutions. Financial institution failures or near-failures resulted in further losses as a consequence of defaults on securities issued by them and defaults under contracts entered into with such entities as counterparties. Furthermore, declining asset values, defaults on mortgages and consumer loans, and the lack of market and investor confidence, as well as other factors, combined to increase credit default swap spreads and to cause rating agencies to lower credit ratings in prior years. Despite recent stabilization in asset prices, and economic performance, and historically low Federal Reserve borrowing rates, there remains a risk of continued asset and economic deterioration, which may increase the cost and decrease the availability of liquidity. Additionally, some banks and other lenders suffered significant losses during the financial crisis and are now less willing and/or able to lend, even on a secured basis, because of capital and other regulatory limitations, potentially increased risks of default and the impact of declining asset values on collateral. The foregoing has significantly weakened the strength and liquidity of some financial institutions worldwide.
It is possible that the business environment in the U.S. will continue to be relatively weak for the foreseeable future. There can be no assurance that these conditions will improve in the near term. Such conditions could adversely affect the credit quality of our loans, our results of operations and our financial condition.
The Company is highly dependent on real estate and events that negatively impact the real estate market will hurt our business and earnings.
The Company is located in areas in which economic growth is largely dependent on the real estate market, and a substantial majority of our loan portfolio is secured by or otherwise dependent on real estate. A decline in real estate activity, even if less severe than occurred in 2009 and 2008, would likely cause a decline in asset and deposit growth and negatively impact our earnings and financial condition.

15


The Company’s high concentration of CRE, construction and land development and commercial and industrial loans expose us to increased lending risks.
CRE, construction and land development and commercial and industrial loans (including municipal and non-profit loans), comprised approximately 94% of our total loan portfolio as of December 31, 2014, exposed the Company to a greater risk of loss than residential real estate and consumer loans, which comprised a smaller percentage of the total loan portfolio at December 31, 2014. CRE, land development, and commercial and industrial loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential loans. Consequently, an adverse development with respect to one commercial loan or one credit relationship exposes us to a significantly greater risk of loss compared to an adverse development with respect to one residential mortgage loan. In addition, real estate construction, acquisition and development loans have certain risks that are not present in other types of loans. The primary credit risks associated with real estate construction, acquisition and development loans are underwriting, project risks and market risks. Project risks include cost overruns, borrower credit risk, project completion risk, general contractor credit risk and environmental and other hazard risks. Market risks are risks associated with the sale of completed residential and commercial units. Such risks include affordability, which means the risk that borrowers cannot obtain affordable financing, product design risk, and risks posed by competing projects. Real estate construction, acquisition and development loans also involve additional risks because funds are advanced upon the security of the project, which is of uncertain value prior to its completion, and costs may exceed realizable values in declining real estate markets.
Because of the uncertainties inherent in estimating construction costs and the realizable market value of completed projects and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. As a result, real estate construction, acquisition and development loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property, rather than the ability of the borrower or guarantor to repay principal and interest. If our appraisal of the value of the completed project proves to be overstated or market values or rental rates decline, we may have inadequate security for the repayment of the loan upon completion of construction of the project. If we are forced to foreclose on a project prior to or at completion due to a default, there can be no assurance that we will be able to recover all of the unpaid balance and accrued interest on the loan as well as related foreclosure and holding costs. In addition, we may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time while we attempt to dispose of it. The adverse effects of the foregoing matters upon our real estate construction, acquisition and development portfolio could lead to an increase in non-performing loans related to this portfolio and these non-performing loans may result in a material level of charge-offs, which may have a material adverse effect on our financial condition and results of operations.
Actual credit losses may exceed the losses that we expect in our loan portfolio, which could require us to raise additional capital. If we are unable to raise additional capital, our financial condition, results of operations and capital could be materially and adversely affected.
Credit losses are inherent in the business of making loans. We make various assumptions and judgments about the collectability of our consolidated loan portfolio and maintain an allowance for estimated credit losses based on a number of factors, including the size of the portfolio, asset classifications, economic trends, industry experience and trends, industry and geographic concentrations, estimated collateral values, management’s assessment of the credit risk inherent in the portfolio, historical loan loss experience and loan underwriting policies. In addition, the Company evaluates all loans identified as problem loans and augments the allowance based upon its estimation of the potential loss associated with those problem loans. Additions to the allowance for credit losses recorded through the Company's provision for credit losses decrease the Company's net income. If such assumptions and judgments are incorrect, the Company's actual credit losses may exceed our allowance for credit losses.
At December 31, 2014, our allowance for credit losses was $110.2 million. Deterioration in the real estate market and/or general economic conditions could affect the ability of our loan customers to service their debt, which could result in additional loan provisions and increases in our allowance for credit losses. Any increases in the provision or allowance for credit losses will result in a decrease in our net income and, potentially, capital, and may have a material adverse effect on our financial condition and results of operations. Moreover, because future events are uncertain and because we may not successfully identify all deteriorating loans in a timely manner, there may be loans that deteriorate in an accelerated time frame. If actual credit losses materially exceed our allowance for credit losses, we may be required to raise additional capital, which may not be available to us on acceptable terms or at all. Our inability to raise additional capital on acceptable terms when needed could materially and adversely affect our financial condition, results of operations and capital.
In addition, we may be required to increase our allowance for credit losses based on changes in economic and real estate market conditions, new information regarding existing loans, input from regulators in connection with their review of our allowance, changes in regulatory guidance regulations or accounting standards, identification of additional problem loans and

16


other factors, both within and outside of our management’s control. Increases to our allowance for credit losses could negatively affect our financial condition and earnings.
Because of the geographic concentration of our assets, our business is highly susceptible to local economic conditions.
Our business is primarily concentrated in selected markets in Arizona, California and Nevada. As a result of this geographic concentration, our financial condition and results of operations depend largely upon economic conditions in these market areas. Deterioration in economic conditions in these markets could result in one or more of the following: an increase in loan delinquencies; an increase in problem assets and foreclosures; a decrease in the demand for our products and services; or a decrease in the value of collateral for loans, especially real estate, in turn reducing customers’ borrowing power, the value of assets associated with problem loans and collateral coverage.
The downgrade of the U.S. government’s sovereign credit rating, any similar rating agency action in the future, debt crises in Europe and other countries, and downgrades of the sovereign credit ratings of several European nations could negatively impact our business, financial condition and results of operations.
The impact of downgrades to the U.S. government’s sovereign credit rating by rating agencies, as well as any perceived credit weakness of U.S. government-related obligations, is inherently unpredictable and could adversely affect the U.S. and global financial markets and economic conditions and have a material adverse effect on our business, financial condition and results of operation.
In addition, while we don’t have direct foreign exposure, certain European nations and other countries continue to experience varying degrees of financial stress. Risks related to European economic conditions have had, and are likely to continue to have, a negative impact on global economic activity and the financial markets. If these conditions persist, our financial condition and results of operations could be materially adversely affected.
The Company’s financial instruments expose it to certain market risks and may increase the volatility of reported earnings.
The Company holds certain financial instruments measured at fair value. For those financial instruments measured at fair value, the Company is required to recognize the changes in the fair value of such instruments in earnings. Therefore, any increases or decreases in the fair value of these financial instruments have a corresponding impact on reported earnings. Fair value can be affected by a variety of factors, many of which are beyond our control, including our credit position, interest rate volatility, capital markets volatility and other economic factors. Accordingly, our earnings are subject to mark-to-market risk and the application of fair value accounting may cause our earnings to be more volatile than would be suggested by our underlying performance.
If the Company lost a significant portion of its core deposits or its cost of funding deposits increased significantly, it could negatively impact our liquidity and/or profitability.
The Company’s profitability depends in part on successfully attracting and retaining a stable base of relatively low-cost deposits. While we generally do not believe these core deposits are sensitive to interest rate fluctuations, the competition for these deposits in our markets is strong and, as economic conditions improve, customers may demand higher interest rates on their deposits or seek other investments offering higher rates of return. A reduction in our deposit balances would require us to borrow from other sources at higher rates, which could adversely impact our liquidity and profitability. The Company is a member of the Promontory Interfinancial Network, and offers its reciprocal deposit products, such as CDARS and ICS, to customers seeking federal insurance for deposit amounts that exceed the applicable deposit insurance limit at a single institution. Any event or circumstance that interferes with or limits our ability to offer these products to customers that require greater security for their deposits, such as a significant regulatory enforcement action or a significant decline in capital levels at our bank subsidiary, could negatively impact our ability to attract and retain deposits. For further discussion of CDARS and ICS, see "Note 7. Deposits" to the Consolidated Financial Statements included in this Form 10-K. If the Company were to lose a significant portion of its low-cost deposits, it would negatively impact its liquidity and profitability.
From time to time, the Company has been dependent on borrowings from the FHLB and the FRB, and there can be no assurance these programs will be available as needed.
As of December 31, 2014, the Company has borrowings from the FHLB of San Francisco of $307.1 million and no borrowings from the FRB. In the past, the Company has been reliant on such borrowings to satisfy its short-term liquidity needs. The Company’s borrowing capacity is generally dependent on the value of the Company’s collateral pledged to these entities. These lenders could reduce the borrowing capacity of the Company or eliminate certain types of collateral and could otherwise modify or even terminate its loan programs. Any change or termination could have an adverse effect on the Company’s liquidity and profitability.

17


The business may be adversely affected by internet fraud.
The Company is inherently exposed to many types of operational risk, including those caused by the use of computer, internet and telecommunications systems. These risks may manifest themselves in the form of fraud by employees, by customers, other outside entities targeting us and/or our customers that use our internet banking, electronic banking or some other form of our telecommunications systems. Although we devote substantial resources to maintaining secure systems and to preventing such incidents, given the increasing sophistication of possible perpetrators, and the growing use of electronic, internet-based and networked systems to conduct business directly or indirectly with our clients, fraud losses may occur regardless of the preventative and detection systems in place or if those systems fail or prove to be inadequate.
We may experience interruptions or breaches in our information system security.
We rely heavily on communications and information systems to conduct our business, and have devoted substantial resources in recent years to improving the security of these systems. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of these information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or security breaches of these information systems could damage our reputation, result in direct financial losses or a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.
A failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors and other service providers, including as a result of cyber attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses.
As a financial institution, we are susceptible to theft and fraudulent activity that may be committed against us or our clients, which may result in financial losses to us or our clients, privacy breaches against our clients, or damage to our reputation. Such activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, and other dishonest acts. In recent periods, there has been a rise in electronic theft and fraudulent activity within the financial services industry, especially in the commercial banking sector, due to cyber criminals targeting commercial bank accounts. Consistent with industry trends, we have also experienced an increase in attempted electronic fraudulent activity in recent periods.
In addition, our operations rely on the secure processing, storage and transmission of confidential and other information on our computer systems and networks. Although we take numerous protective measures to maintain the confidentiality, integrity and availability of our and our clients’ information across all geographic and product lines, and endeavor to modify these protective measures as circumstances warrant, the nature of the threats continues to evolve. As a result, our computer systems, software and networks and those of our customers may be vulnerable to unauthorized access, loss or destruction of data (including confidential client information), account takeovers, unavailability of service, computer viruses or other malicious code, cyber attacks and other events that could have an adverse security impact and result in significant losses by us and/or our customers. Despite the defensive measures we take to manage our internal technological and operational infrastructure, these threats may originate externally from third parties, such as foreign governments, organized criminal groups and other hackers, and outsource or infrastructure-support providers and application developers, or the threats may originate from within our organization. Given the increasingly high volume of our transactions, certain errors may be repeated or compounded before they can be discovered and rectified.
We also face the risk of operational disruption, failure, termination or capacity constraints of any of the third parties that facilitate our business activities, including vendors, exchanges, clearing agents, clearing houses or other financial intermediaries. Such parties could also be the source or cause of an attack on, or breach of, our operational systems, data or infrastructure. In addition, we may be at risk of an operational failure with respect to our clients’ systems. Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, the outsourcing of some of our business operations, and the continued uncertain global economic environment. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.
We maintain insurance policies that we believe provide reasonable coverage at a manageable expense for an institution of our size and scope with similar technological systems. However, we cannot assure that these policies will afford coverage for all possible losses or would be sufficient to cover all financial losses, damages, penalties, including lost revenues, should we experience any one or more of our or a third party’s systems failing or experiencing an attack.

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We rely on other companies to provide key components of our business infrastructure.
We have become increasingly dependent on third parties to provide key components for our business operations, such as data processing and storage, recording and monitoring transactions, online banking interfaces and services, Internet connections and network access. While we select these third-party vendors carefully, we do not control their actions. Any problems caused by these third parties, including those resulting from disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, cyber-attacks and security breaches at a vendor, failure of a vendor to provide services for any reason or poor performance of services, could adversely affect our ability to deliver products and services to our customers and otherwise conduct our business. Financial or operational difficulties of a third-party vendor could also hurt our operations if those difficulties interfere with the vendor's ability to serve us. Furthermore, our vendors could also be sources of operational and information security risk to us, including from breakdowns or failures of their own systems or capacity constraints. Replacing these third party vendors also could create significant delays and expense. Accordingly, use of such third parties creates an unavoidable inherent risk to our business operations.
A change in the Company’s or Bank's credit worthiness could increase our cost of funding or adversely affect our liquidity.
Market participants regularly evaluate the creditworthiness of the Company and its long-term debt based on a number of factors, including our financial strength as well as factors not entirely within our control, including conditions affecting the financial services industry generally. There can be no assurance that we will not be subject to changes in our perceived credit worthiness. Changes could adversely affect the cost and other terms upon which we are able to obtain funding and our access to the capital markets, and could increase our cost of capital. Likewise, any loss of or decline in the credit rating assigned to WAB could impair its ability to attract deposits or to obtain other funding sources, or increase its cost of funding.
The Company’s expansion strategy may not prove to be successful and our market value and profitability may suffer.
The Company continually evaluates expansion through acquisitions of banks and other financial businesses, the organization of new banks and the expansion of our existing banks through establishment of new branches. Any future acquisitions will be accompanied by the risks commonly encountered in acquisitions. These risks include, among other things: 1) difficulty of integrating the operations and personnel; 2) potential disruption of our ongoing business; 3) failure to retain key personnel at the acquired business; and 4) inability of our management to maximize our financial and strategic position by the successful implementation of uniform product offerings and the incorporation of uniform technology into our product offerings and control systems.
The economic crisis in 2008 also highlighted risks that are unique to acquisitions of financial institutions and banks and that are difficult to assess, including the risk that the acquired institution has troubled, illiquid, or bad assets or an unstable base of deposits or assets under management. The Company expects that competition for suitable acquisition candidates may be significant. We may compete with other banks or financial service companies with similar acquisition strategies, many of which are larger and have greater financial and other resources. The Company cannot assure that we will be able to successfully identify and acquire suitable acquisition targets on acceptable terms and conditions.
In addition to the acquisition of existing financial institutions, the Company may consider the organization of new banks in new market areas, although we do not have any current plans to organize a new bank. Any acquisition of an existing business or the organization of a new bank carries with it numerous risks, including the following:
the inability to obtain any required regulatory approvals;
significant costs and anticipated operating losses during the application and organizational phases, and the first years of operation of the new bank;
the inability to secure or retain the services of qualified senior management;
the local market may not accept the services of a bank owned and managed by a bank holding company headquartered outside of the market area of the bank;
the inability to obtain attractive locations within a new market at a reasonable cost; and
the additional strain on management resources and internal systems and controls.
The Company cannot provide any assurance that it will be successful in overcoming these risks or any other problems encountered in connection with acquisitions or the organization of new banks. Potential regulatory enforcement actions, like a MOU, also may adversely affect our ability to engage in certain expansionary activities. The Company’s inability to provide

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resources necessary for its subsidiary banks to meet the requirements of any regulatory action or otherwise to overcome these risks could have an adverse effect on the achievement of our business strategy and maintenance of our market value.
The Company’s future success will depend on our ability to compete effectively in a highly competitive market.
The Company faces substantial competition in all phases of our operations from a variety of different competitors. Our competitors, including large commercial banks, community banks, thrift institutions, mutual savings banks, credit unions, finance companies, insurance companies, securities dealers, brokers, mortgage bankers, investment advisors, money market mutual funds and other financial institutions, compete with lending and deposit-gathering services offered by us. Increased competition in our markets may result in reduced loans and deposits or less favorable pricing.
There is competition for financial services in the markets in which we conduct our businesses, including from many local commercial banks as well as numerous national and regionally based commercial banks. In particular, we have experienced intense price and terms competition in some of the lending lines of business in recent years. Many of these competing institutions have much greater financial and marketing resources than we have. Due to their size, larger competitors can achieve economies of scale and may offer a broader range of products and services or more attractive pricing than us. If we are unable to offer competitive products and services, our business may be negatively affected.
Some of the financial services organizations with which we compete are not subject to the same degree of regulation as is imposed on bank holding companies and federally insured depository institutions. As a result, these non-bank competitors have certain advantages over us in accessing funding and in providing various services. The banking business in our primary market areas is very competitive, and the level of competition facing us may increase further, which may limit our asset growth and financial results.
The success of the Company is dependent upon its ability to recruit and retain qualified employees, especially seasoned relationship bankers.
The Company’s business plan includes and is dependent upon hiring and retaining highly qualified and motivated executives and employees at every level. In particular, our relative success to date has been partly the result of our management’s ability to identify and retain highly qualified employees with expertise in certain specialty areas or that have long-standing relationships in their communities. These professionals bring with them valuable customer relationships and have been an integral part of our ability to attract deposits and to expand our market share. From time to time, the Company recruits or utilizes the services of employees who are subject to restrictions on their ability to use confidential information of a prior employer, to freely compete with that employer, or to solicit customers of that employer. If the Company is unable to hire or retain qualified employees, or if new employees are subject to these types of restrictions, it may not be able to successfully execute its business strategy. If the Company or its employee is found to have violated any non-solicitation or other restrictions applicable to it or its employee, the Company or its employee could become subject to litigation or other proceedings.
The Company could be harmed if it lost the services of key members of its senior management team or senior relationship bankers.
We believe that our success to date has been substantially dependent on our senior management team, including, but not limited to, Robert Sarver, Chairman and CEO; Dale Gibbons, CFO; Robert R. McAuslan, CCO; John Guedry, Executive Vice President-Southern Nevada Administration; James Lundy, Executive Vice President-Arizona Administration; and Gerald Cady, Executive Vice President-California Administration. We also believe that our prospects for success in the future are dependent on retaining our senior management team and senior relationship bankers. In addition to their skills and experience as bankers, these persons provide us with extensive community ties upon which our competitive strategy is based. Our ability to retain these persons may be hindered by the fact that we have not entered into employment agreements with any of them. The loss of the services of any of these persons, particularly Mr. Sarver, could have an adverse effect on our business if we cannot replace them with equally qualified persons who are also familiar with our market areas.
Mr. Sarver’s involvement in outside business interests requires substantial time and attention and may adversely affect the Company’s ability to achieve its strategic plan.
Mr. Sarver joined the Company in December 2002 and is an integral part of our business. He has substantial business interests that are unrelated to us, including his position as managing partner of the Phoenix Suns National Basketball Association franchise. Mr. Sarver’s other business interests demand significant time commitments, the intensity of which may vary throughout the year. Mr. Sarver’s other commitments may reduce the amount of time he has available to devote to our business. We believe that Mr. Sarver spends the substantial majority of his business time on matters related to our company. However, a significant reduction in the amount of time Mr. Sarver devotes to our business may adversely affect our ability to achieve our strategic plan.

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Terrorist attacks and threats of war or actual war may impact all aspects of our operations, revenues, costs and stock price in unpredictable ways.
Terrorist attacks in the U.S., as well as future events occurring in response or in connection to them including, without limitation, future terrorist attacks against U.S. targets, rumors or threats of war, actual conflicts involving the U.S. or its allies or military or trade disruptions, may impact our operations. Any of these events could cause consumer confidence and savings to decrease or result in increased volatility in the U.S. and worldwide financial markets and economy. Any of these occurrences could have an adverse impact on the Company’s operating results, revenues and costs and may result in the volatility of the market price for our securities, including our common stock, and impair their future price.
Our risk management practices may prove to be inadequate or not fully effective.
Our risk management framework seeks to mitigate risk and appropriately balance risk and return. We have established policies and procedures intended to identify, monitor and manage the types of risk to which we are subject, including credit risk, market risk, liquidity risk, operational risk and reputational risk. In addition, as required by the Dodd-Frank Act, we created a new BOD-level risk committee in April of 2014, which approves and reviews the Company's risk management policies and oversees operation of our risk management framework. Although we have devoted significant resources to developing our risk management policies and procedures and expect to continue to do so in the future, these policies and procedures, as well as our risk management techniques, may not be fully effective. In addition, as regulations and markets in which we operate continue to evolve, our risk management framework may not always keep sufficient pace with those changes. If our risk management framework does not effectively identify or mitigate our risks, we could suffer unexpected losses and could be materially adversely affected. Management of our risks in some cases depends upon the use of analytical and/or forecasting models. If the models we use to mitigate these risks are inadequate, we may incur increased losses. In addition, there may be risks that exist, or that develop in the future, that we have not appropriately anticipated, identified or mitigated.
There are substantial risks and uncertainties associated with the introduction or expansion of lines of business or new products and services within existing lines of business.
From time to time, we may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services, we may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible.
Risks Related to the Banking Industry
We operate in a highly regulated environment and the laws and regulations that govern our operations, corporate governance, executive compensation and accounting principles, or changes in them, or our failure to comply with them, may adversely affect us.
The Company is subject to extensive regulation, supervision, and legislation that govern almost all aspects of our operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Supervision and Regulation” included in this Form 10-K. Intended to protect customers, depositors and the DIF, these laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on the business activities in which we can engage, limit the dividends or distributions that our banking subsidiary can pay to the Company or the Company can pay to its stockholders, restrict the ability of affiliates to guarantee the Company’s debt, impose certain specific accounting requirements on us that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than GAAP, among other things. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose significant additional compliance costs. Further, an alleged failure by us to comply with these laws and regulations, even if we acted in good faith or the alleged failure reflects a difference in interpretation, could subject the Company to additional restrictions on its business activities (including mergers, acquisitions and new branches), fines and other penalties, any of which could adversely affect our results of operations, capital base and the price of our securities.
On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, into law. The Dodd-Frank Act has had, and will continue to have, a broad impact on the financial services industry, including significant regulatory and compliance changes. Many of the requirements called for in the Dodd-Frank Act have been implemented through regulations issued by the SEC and Federal banking agencies, such as the FDIC and Federal Reserve, and the Company has had to take, and will need to continue to take, various actions, including the creation and implementation of compliance policies and procedures and other internal controls, by these rules' various compliance deadlines. Given the relatively recent vintage of our design and implementation of the compliance systems required to meet the requirements of the Dodd-Frank Act and its implementing regulations, the full extent of the impact of conducting business under this new

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compliance regime on our operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. In particular, the potential impact of the Dodd-Frank Act on our operations and activities, both currently and prospectively, may include, among others:
a reduction in our ability to generate or originate revenue-producing assets as a result of compliance with heightened capital standards;
an increased cost of operations due to greater regulatory oversight, supervision and examination of banks and bank holding companies, and higher deposit insurance premiums;
the limitation on our ability to raise qualifying regulatory capital through the use of trust preferred securities as these securities may no longer be included in Tier 1 capital going forward; and
the limitations on our ability to offer certain consumer products and services due to anticipated stricter consumer protection laws and regulations.
Examples of these provisions include, but are not limited to:
creation of the Financial Stability Oversight Council that may recommend to the Federal Reserve increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity;
application of the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies, such as the Company;
changes to the assessment base used by the FDIC to assess insurance premiums from insured depository institutions and increases to the minimum reserve ratio for the DIF, from 1.15% to not less than 1.35%, with provisions to require institutions with total consolidated assets of $10 billion or more to bear a greater portion of the costs associated with increasing the DIF’s reserve ratio;
repeal of the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts;
establishment of the CFPB with broad authority to implement new consumer protection regulations and, for banks and bank holding companies with $10 billion or more in assets, to examine and enforce compliance with federal consumer financial protection laws;
implementation of risk retention rules for loans (excluding qualified residential mortgages) that are sold by a bank; and
amendment of the Electronic Fund Transfer Act to, among other things, give the Federal Reserve the authority to issue rules that limit debit-card interchange fees.
While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to our investors.
During 2014, WAB and the Company each increased their respective total consolidated assets above $10 billion, and both will be subject to new regulations and oversight not applicable in the past.
During the second quarter of 2014, WAB and the Company increased total consolidated assets to over $10 billion. The CFPB is tasked with establishing and implementing rules and regulations under certain federal consumer protection laws with respect to the conduct of providers of certain consumer financial products and services. The CFPB has rulemaking authority over many of the statutes governing products and services offered to bank consumers. Importantly, for banking organizations with assets of $10 billion or more like WAB and the Company, the CFPB has exclusive rulemaking and examination authority, and primary enforcement authority for most federal consumer financial services laws. In addition, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are stricter than those regulations promulgated by the CFPB. Compliance with any such new regulations would increase our cost of operations, and the Company will be subject to new examinations conducted by the CFPB. Failure to comply with these new requirements or receiving adverse examination findings from the CFPB, among other things, may negatively impact our results of operations and financial condition.
Other Dodd-Frank Act requirements will also be applicable to WAB and the Company. For example, the Company must conduct annual stress tests using various scenarios established by the Federal Reserve, including a baseline, adverse and severely adverse economic conditions. The stress test is designed to determine whether our capital planning, assessment of

22


capital adequacy and risk management practices adequately protect the Company and its affiliates in the event of an economic downturn. The Company must establish adequate internal controls, documentation, policies and procedures to ensure the annual stress adequately meets these objectives. The BOD must review our policies and procedures at least annually. We will be required to report the results of our annual stress to the Federal Reserve and we must consider the results of our stress test as part of our capital planning and risk management practices.
With respect to deposit-taking activities, banks with assets in excess of $10 billion are subject to two changes. First, these institutions are subject to a deposit assessment based on a new scorecard issued by the FDIC. This scorecard considers, among other things, the Bank’s CAMELS rating, results of asset-related stress testing and funding-related stress, as well our use of core deposits, among other things. Depending on the results of the bank’s performance under that scorecard, the total base assessment rate is between 2.5 to 45 basis points. Additionally, banks with over $10 billion in total assets are no longer exempt from the requirements of the Federal Reserve’s rules on interchange transaction fees for debit cards. This means that, beginning on July 1, 2015, WAB will be limited to receiving only a "reasonable" interchange transaction fee for any debit card transactions processed using debit cards issued by the bank to its customers. The Federal Reserve has determined that it is unreasonable for a bank with more than $10 billion in total assets to receive more than $0.21 plus 5 basis points of the transaction plus a $0.01 fraud adjustment for an interchange transaction fee for debit card transactions.
The Company may expend additional resources necessary to comply with these new regulatory requirements. Increased deposit insurance assessments may result in an increased expense related to our use of deposits as a funding source. Likewise, a reduction in the amount of interchange fees we receive for electronic debit interchange will reduce our revenues. In 2014, the Company earned $2.0 million in debit card interchange fees. Finally, failure to meet the enhanced prudential standards and stress testing requirements could limit, among other things, our ability to engage in expansionary activities or make dividend payments to our shareholders.
State and federal banking agencies periodically conduct examinations of our business, including for compliance with laws and regulations, and our failure to comply with any supervisory actions to which we are or become subject as a result of such examinations may adversely affect us.
State and federal banking agencies periodically conduct examinations of our business, including for compliance with laws and regulations. If, as a result of an examination, an agency were to determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that any of our banks or their management was in violation of any law or regulation, federal banking agencies may take a number of different remedial or enforcement actions it deems appropriate to remedy such a deficiency. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in the bank’s capital, to restrict the bank’s growth, to assess civil monetary penalties against the bank’s officers or directors, to remove officers and directors and, if the FDIC concludes that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate the bank’s deposit insurance. Under Arizona law, the state banking supervisory authority has many of the same enforcement powers with respect to its state-chartered banks. Finally, the CFPB has the authority to examine and supervise us and has authority to take enforcement actions, including the issuance of cease-and-desist orders or civil monetary penalties against us if it finds that we offer consumer financial products and services in violation of federal consumer financial protection laws or in an unfair, deceptive or abusive manner.
If we were unable to comply with regulatory directives in the future, or if we were unable to comply with the terms of any future supervisory requirements to which we may become subject, then we could become subject to a variety of supervisory actions and orders, including cease and desist orders, prompt corrective actions, MOUs, and/or other regulatory enforcement actions. If our regulators were to take such supervisory actions, then we could, among other things, become subject to greater restrictions on our ability to develop any new business, as well as restrictions on our existing business, and we could be required to raise additional capital, dispose of certain assets and liabilities within a prescribed period of time, or both. Failure to implement the measures in the time frames provided, or at all, could result in additional orders or penalties from federal and state regulators, which could result in one or more of the remedial actions described above. In the event WAB was ultimately unable to comply with the terms of a regulatory enforcement action, it could ultimately fail and be placed into receivership by the chartering agency. The terms of any such supervisory action and the consequences associated with any failure to comply therewith could have a material negative effect on our business, operating flexibility and financial condition.

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Changes in interest rates and increased rate competition could adversely affect our profitability, business and prospects.
Most of the Company’s assets and liabilities are monetary in nature, which subjects us to significant risks from changes in interest rates and can impact our net income and the valuation of our assets and liabilities. Increases or decreases in prevailing interest rates could have an adverse effect on our business, asset quality and prospects. The Company’s operating income and net income depend to a great extent on our net interest margin. Net interest margin is the difference between the interest yields we receive on loans, securities and other earning assets and the interest rates we pay on interest bearing deposits, borrowings and other liabilities. These rates are highly sensitive to many factors beyond our control, including competition, general economic conditions and monetary and fiscal policies of various governmental and regulatory authorities, including the Federal Reserve. If the rate of interest we pay on our interest bearing deposits, borrowings and other liabilities increases more than the rate of interest we receive on loans, securities and other earning assets increases, our net interest income, and therefore our earnings, would be adversely affected. The Company’s earnings also could be adversely affected if the rates on our loans and other investments fall more quickly than those on our deposits and other liabilities. We have recently experienced increased competition for loans on the basis of interest rates.
In addition, loan volumes are affected by market interest rates on loans. Rising interest rates generally are associated with a lower volume of loan originations, while lower interest rates are usually associated with higher loan originations. Conversely, in rising interest rate environments, loan repayment rates will decline and in falling interest rate environments, loan repayment rates will increase. The Company cannot guarantee that it will be able to minimize interest rate risk. In addition, an increase in the general level of interest rates may adversely affect the ability of certain borrowers to pay the interest on and principal of their obligations.
Interest rates also affect how much money the Company can lend. When interest rates rise, the cost of borrowing increases. Accordingly, changes in market interest rates could materially and adversely affect our net interest spread, asset quality, loan origination volume, business, financial condition, results of operations and cash flows.
The Company is exposed to risk of environmental liabilities with respect to properties to which we obtain title.
Approximately 63% of the Company’s loan portfolio at December 31, 2014 was secured by real estate. In the course of our business, the Company may foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These costs and claims could be substantial and adversely affect our business and prospects.
Risks Related to our Common Stock
The price of our common stock has increased substantially in the past several years and may fluctuate significantly in the future, which may make it difficult for you to resell shares of common stock owned by you at times or at prices you find attractive.
The price of our common stock on New York Stock Exchange constantly changes, and has increased substantially the past three years. We expect that the market price of our common stock will continue to fluctuate and there can be no assurances about the market prices for our common stock.
Our stock price may fluctuate as a result of a variety of factors, many of which are beyond our control. These factors include:
sales of our equity securities;
our financial condition, performance, creditworthiness and prospects;
quarterly variations in our operating results or the quality of our assets;
operating results that vary from the expectations of management, securities analysts and investors;
changes in expectations as to our future financial performance;
announcements of strategic developments, acquisitions and other material events by us or our competitors;
the operating and securities price performance of other companies that investors believe are comparable to us;

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the credit, mortgage and housing markets, the markets for securities relating to mortgages or housing, and developments with respect to financial institutions generally;
changes in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, stock, commodity or real estate valuations or volatility and other geopolitical, regulatory or judicial events; and
our past and future dividend practices.
There may be future sales or other dilution of our equity, which may adversely affect the market price of our common stock.
We are not restricted from issuing additional common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. We also grant a significant number of shares of common stock to employees and directors under our Incentive Plan each year. The issuance of any additional shares of our common stock or preferred stock or securities convertible into, exchangeable for or that represent the right to receive common stock or the exercise of such securities could be substantially dilutive to stockholders of our common stock. Holders of our common stock have no preemptive rights that entitle such holders to purchase their pro rata share of any offering of shares of any class or series. Because our decision to issue securities in any future offering will depend on market conditions and other factors, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing the market price of our common stock and diluting their stock holdings in us.
Offerings of debt, which would be senior to our common stock upon liquidation, and/or preferred equity securities which may be senior to our common stock for purposes of dividend distributions or upon liquidation, may adversely affect the market price of our common stock.
We may from time to time issue debt securities, borrow money through other means, or issue preferred stock. On August 25, 2010, the Company completed a public offering of $75 million in principal Senior Notes due in 2015. In 2011, we issued preferred stock to the federal government under the SBLF program, and from time to time we have borrowed money from the FRB, the FHLB, other financial institutions and other lenders. All of these securities or borrowings have priority over the common stock in a liquidation, which could affect the market price of our stock. The SBLF preferred stock also may restrict our ability to pay dividends on our common stock under certain circumstances.
Our BOD is authorized to issue one or more classes or series of preferred stock from time to time without any action on the part of the stockholders. Our BOD also has the power, without stockholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights, and preferences over our common stock with respect to dividends or upon our dissolution, winding-up and liquidation and other terms. If we issue preferred stock in the future that has a preference over our common stock with respect to the payment of dividends or upon our liquidation, dissolution, or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of holders of our common stock or the market price of our common stock could be adversely affected.
Anti-takeover provisions could negatively impact our stockholders.
Provisions of Delaware law and provisions of our Certificate of Incorporation and our Bylaws, as amended, could make it more difficult for a third party to acquire control of us or have the effect of discouraging a third party from attempting to acquire control of us. Additionally, our Certificate of Incorporation, as amended, authorizes our BOD to issue additional series of preferred stock and such preferred stock could be issued as a defensive measure in response to a takeover proposal. These provisions could make it more difficult for a third party to acquire us even if an acquisition might be in the best interest of our stockholders.

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Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
At December 31, 2014, the Company and WAB are headquartered at One E. Washington Street in Phoenix, Arizona. In addition, the Company owns and occupies a 36,000 square foot operations facility in Las Vegas, Nevada, has 5 executive and administrative facilities, three of which are owned and are located in Las Vegas, Nevada; San Diego, California; Oakland, California; Phoenix, Arizona and Reno, Nevada.
At December 31, 2014, the Company operated 40 domestic branch locations, of which 19 are owned and 21 are leased. See "Item 1. Business” for location cities. For information regarding rental payments, see "Note 4. Premises and Equipment" of the Consolidated Financial Statements included in this Form 10-K.
The Company continually evaluates the suitability and adequacy of its offices. Management believes that the existing facilities are adequate for present and anticipated future use.
Item 3.
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. See the “Supervision and Regulation” section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K for additional information. From time to time, we are involved in a variety of litigation matters in the ordinary course of our business and anticipate that we will become involved in new litigation matters in the future.
Item 4.
Mine Safety Disclosures
Not applicable.


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PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
The Company’s common stock began trading on the New York Stock Exchange under the symbol “WAL” on June 30, 2005. The Company has filed, without qualifications, its 2014 Domestic Company Section 303A CEO Certification regarding its compliance with the NYSE’s corporate governance listing standards. The following table presents the high and low sales prices of the Company’s common stock for each quarterly period for the last two years as reported by The NASDAQ Global Select Market: 
 
 
2014 Quarters
 
2013 Quarters
 
 
Fourth
 
Third
 
Second
 
First
 
Fourth
 
Third
 
Second
 
First
Range of stock prices:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High
 
$
28.31


$
25.21


$
25.75


$
25.72

 
$
24.74

 
$
19.01

 
$
16.26

 
$
14.51

Low
 
21.43


22.01


20.76


20.56

 
18.64

 
15.95

 
13.32

 
10.77

Holders
At December 31, 2014, there were approximately 1,298 stockholders of record. This number does not include stockholders who hold shares in the name of brokerage firms or other financial institutions. The Company is not provided the exact number of or identities of these stockholders. There are no other classes of common equity outstanding.
Dividends
WAL is a legal entity separate and distinct from WAB and the non-bank subsidiary. As a holding company with limited significant assets other than the capital stock of our subsidiaries, WAL's ability to pay dividends depends primarily upon the receipt of dividends or other capital distributions from our subsidiaries. Our subsidiaries’ ability to pay dividends to WAL is subject to, among other things, their individual earnings, financial condition and need for funds, as well as federal and state governmental policies and regulations applicable to WAL and each of those subsidiaries, which limit the amount that may be paid as dividends without prior approval. See the additional discussion in the “Supervision and Regulation” section of this report for information regarding restrictions on the ability to pay cash dividends. In addition, the terms and conditions of other securities we issue may restrict our ability to pay dividends to holders of our common stock. For example, if any required payments on outstanding trust preferred securities or our SBLF preferred stock are not made, WAL would be prohibited from paying cash dividends on our common stock. WAL has never paid a cash dividend on its common stock and does not anticipate paying any cash dividends in the foreseeable future.
Sale of Unregistered Securities
None.
Share Repurchases
There were no shares repurchased during 2014 or 2013.

27


Performance Graph
The following graph summarizes a five year comparison of the cumulative total returns for the Company’s common stock, the Standard & Poor’s 500 stock index and the KBW Regional Banking Total Return Index, each of which assumes an initial value of $100.00 on December 31, 2009 and reinvestment of dividends.
Item 6.
Selected Financial Data
The following selected financial data have been derived from the Company’s consolidated financial condition and results of operations, as of and for the years ended December 31, 2014, 2013, 2012, 2011, and 2010, and should be read in conjunction with the Consolidated Financial Statements and the related notes included elsewhere in this report: 
 
 
Year Ended December 31,
 
 
2014

2013

2012

2011

2010
 
 
(in thousands, except per share data)
Results of Operations:
 
 
 
 
 
 
 
 
 
 
Interest income
 
$
416,379

 
$
362,655

 
$
318,295

 
$
296,591

 
$
281,813

Interest expense
 
31,486

 
29,760

 
28,032

 
38,923

 
49,260

Net interest income
 
384,893

 
332,895

 
290,263

 
257,668

 
232,553

Provision for credit losses
 
4,726

 
13,220

 
46,844

 
46,188

 
93,211

Net interest income after provision for credit losses
 
380,167

 
319,675

 
243,419

 
211,480

 
139,342

Non-interest income
 
25,441

 
22,247

 
46,505

 
34,457

 
46,836

Non-interest expense
 
208,109

 
196,266

 
188,860

 
195,598

 
196,758

Income (loss) from continuing operations before provision for income taxes
 
197,499

 
145,656

 
101,064

 
50,339

 
(10,580
)
Income tax expense (benefit)
 
48,390

 
29,830

 
25,935

 
16,849

 
(6,410
)
Income (loss) from continuing operations
 
149,109

 
115,826

 
75,129

 
33,490

 
(4,170
)
Loss from discontinued operations, net of tax
 
(1,158
)
 
(861
)
 
(2,490
)
 
(1,996
)
 
(3,025
)
Net income (loss)
 
$
147,951

 
$
114,965

 
$
72,639

 
$
31,494

 
$
(7,195
)
The Company adopted the amended guidance in ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects, beginning on January 1, 2014. As a result, prior period financial information has been adjusted to conform to the amended guidance. See "Note 14. Income Taxes," for further discussion of the impact of these changes on the prior period Consolidated Financial Statements.

28


 
 
Year Ended December 31,
 
 
2014
 
2013
 
2012
 
2011
 
2010
 
 
(in thousands, except per share data)
Per Share Data:
 
 
 
 
 
 
 
 
 
 
Earnings (loss) per share applicable to common stockholders--basic
 
$
1.69

 
$
1.33

 
$
0.84

 
$
0.19

 
$
(0.23
)
Earnings (loss) per share applicable to common stockholders--diluted
 
1.67

 
1.31

 
0.83

 
0.19

 
(0.23
)
Earnings (loss) per share from continuing operations--basic
 
1.70

 
1.34

 
0.87

 
0.21

 
(0.19
)
Earnings (loss) per share from continuing operations--diluted
 
1.69

 
1.32

 
0.86

 
0.21

 
(0.19
)
Book value per common share
 
10.49

 
8.20

 
7.15

 
6.02

 
5.77

Shares outstanding at period end
 
88,691

 
87,186

 
86,465

 
82,362

 
81,669

Weighted average shares outstanding--basic
 
86,693

 
85,682

 
82,285

 
80,909

 
75,083

Weighted average shares outstanding--diluted
 
87,506

 
86,541

 
82,912

 
81,183

 
75,083

Selected Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
164,396

 
$
305,514

 
$
204,625

 
$
154,995

 
$
216,746

Investment securities and other
 
1,522,546

 
1,659,370

 
1,236,648

 
1,490,501

 
1,273,098

Loans, net of deferred loan fees and costs
 
8,398,265

 
6,801,415

 
5,709,318

 
4,780,069

 
4,240,542

Allowance for credit losses
 
110,216

 
100,050

 
95,427

 
99,170

 
110,699

Total assets
 
10,600,498

 
9,307,342

 
7,622,442

 
6,844,541

 
6,193,883

Total deposits
 
8,931,043

 
7,838,205

 
6,455,177

 
5,658,512

 
5,338,441

Other borrowings
 
390,263

 
341,096

 
193,717

 
353,321

 
72,964

Junior subordinated debt, at fair value
 
40,437

 
41,858

 
36,218

 
36,985

 
43,034

Total stockholders' equity
 
1,000,928

 
855,498

 
759,421

 
636,683

 
602,174

Selected Other Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
9,891,109

 
$
8,500,324

 
$
7,193,425

 
$
6,486,396

 
$
6,030,609

Average earning assets
 
9,270,465

 
7,887,584

 
6,685,107

 
5,964,056

 
5,526,521

Average stockholders' equity
 
964,131

 
798,497

 
691,004

 
631,361

 
601,412

Selected Financial and Liquidity Ratios:
 
 
 
 
 
 
 
 
 
 
Return on average assets
 
1.50
 %
 
1.35
%
 
1.01
%
 
0.49
%
 
(0.12
)%
Return on average tangible common equity
 
18.52

 
18.28

 
13.97

 
6.89

 
(1.67
)
Net interest margin
 
4.42

 
4.39

 
4.49

 
4.37

 
4.23

Loan to deposit ratio
 
94.04

 
86.77

 
88.45

 
84.48

 
79.43

Capital Ratios:
 
 
 
 
 
 
 
 
 
 
Leverage ratio
 
9.7
 %
 
9.8
%
 
10.1
%
 
9.8
%
 
9.5
 %
Tier 1 risk-based capital ratio
 
10.5

 
11.1

 
11.3

 
11.3

 
12.0

Total risk-based capital ratio
 
11.7

 
12.4

 
12.6

 
12.6

 
13.2

Average equity to average assets
 
9.7

 
9.4

 
9.6

 
9.7

 
10.0

Selected Asset Quality Ratios:
 
 
 
 
 
 
 
 
 
 
Non-accrual loans to gross loans
 
0.81
 %
 
1.11
%
 
1.83
%
 
1.89
%
 
2.76
 %
Non-accrual loans and repossessed assets to total assets
 
1.18

 
1.53

 
2.39

 
2.62

 
3.63

Loans past due 90 days or more and still accruing to total loans
 
0.06

 
0.02

 
0.02

 
0.05

 
0.03

Allowance for credit losses to total loans
 
1.31

 
1.47

 
1.67

 
2.07

 
2.61

Allowance for credit losses to non-accrual loans
 
162.90

 
132.20

 
91.13

 
109.71

 
94.62

Net (recoveries) charge-offs to average loans
 
(0.07
)
 
0.14

 
0.99

 
1.32

 
2.22



29


Item 7.
Management's Discussions and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with “Item 8. Financial Statements and Supplementary Data.” This discussion and analysis contains forward-looking statements that involve risk, uncertainties and assumptions. Certain risks, uncertainties and other factors, including, but not limited to, those set forth under “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this Form 10-K, may cause actual results to differ materially from those projected in the forward-looking statements.
Financial Overview and Highlights
WAL is a bank holding company headquartered in Phoenix, Arizona, incorporated under the laws of the state of Delaware. WAL provides a full spectrum of deposit, lending, treasury management, and online banking products and services through its wholly-owned banking subsidiary, WAB. The Bank operates the following full-service banking divisions: ABA in Arizona, FIB in Northern Nevada, BON in Southern Nevada, and TPB in California. The Company also serves business customers through a robust national platform of specialized financial services including AAB, WACF, WAEF, WAPF, WARF, and WAWL. On July 1, 2014, all of the outstanding shares of common stock of WAEF, which was previously a subsidiary of WAL, were contributed to WAB by WAL and it is now a subsidiary of the Bank. In addition, the Company has one non-bank subsidiary, LVSP, which holds and manages certain non-performing loans and OREO.
Financial Result Highlights of 2014
Net income available to common stockholders for the Company was $146.6 million, or $1.67 per diluted share for 2014, compared to $113.6 million, or $1.31 per diluted share for 2013.
The significant factors impacting earnings of the Company during 2014 were:
Pre-tax, pre-provision operating earnings (see Non-GAAP Financial Measures beginning on page 32) increased $34.3 million to $195.5 million, compared to $161.2 million for 2013.
The Company experienced loan growth of $1.60 billion to $8.40 billion at December 31, 2014 from $6.80 billion at December 31, 2013.
During 2014, the Company increased deposits by $1.09 billion to $8.93 billion at December 31, 2014 from $7.84 billion at December 31, 2013.
Other assets acquired through foreclosure declined by $9.5 million to $57.2 million at December 31, 2014 from $66.7 million at December 31, 2013.
Provision for credit losses for 2014 decreased by $8.5 million to $4.7 million compared to $13.2 million for 2013 as net charge-offs also declined by $14.0 million to net recoveries of $5.4 million in 2014 compared to net charge-offs of$8.6 million in 2013.
Key asset quality ratios improved for 2014 compared to 2013. Non-accrual loans and repossessed assets to total assets improved to 1.18% from 1.53% in 2013 and non-accrual loans to gross loans improved to 0.81% at the end of 2014 compared to 1.11% at the end of 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 year ended December 31, 2014. As a bank holding company, management focuses on key ratios in evaluating the Company's financial condition and results of operations.


30


Results of Operations and Financial Conditions
A summary of our results of operations, financial condition, and select metrics are included in the following tables: 
 
 
Year Ended December 31,
 
 
2014
 
2013
 
2012
 
 
(in thousands, except per share amounts)
Net income available to common stockholders
 
$
146,564

 
$
113,555

 
$
68,846

Earnings per share applicable to common stockholders - basic
 
1.69

 
1.33

 
0.84

Earnings per share applicable to common stockholders - diluted
 
1.67

 
1.31

 
0.83

Net interest margin
 
4.42
%
 
4.39
%
 
4.49
%
Return on average assets
 
1.50

 
1.35

 
1.01

Return on average tangible common equity
 
18.52

 
18.28

 
13.97

 
 
December 31,
 
 
2014
 
2013
 
 
(in thousands)
Total assets
 
$
10,600,498

 
$
9,307,342

Loans, net of deferred loan fees and costs
 
8,398,265

 
6,801,415

Total deposits
 
8,931,043

 
7,838,205

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 non-accrual 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: 
 
 
Year Ended December 31,
 
 
2014
 
2013
 
2012
 
 
(in thousands)
Non-accrual loans
 
$
67,659

 
$
75,680

 
$
104,716

Non-performing assets
 
214,661

 
233,509

 
267,960

Non-accrual loans to gross loans
 
0.81
 %
 
1.11
%
 
1.83
%
Net (recoveries) charge-offs to average loans
 
(0.07
)
 
0.14

 
0.99

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 $10.60 billion at December 31, 2014 from $9.31 billion at December 31, 2013. Total loans, net of deferred loan fees and costs, increased by $1.60 billion, or 23.5%, to $8.40 billion as of December 31, 2014, compared to $6.80 billion as of December 31, 2013. Total deposits increased $1.09 billion, or 13.9%, to $8.93 billion as of December 31, 2014 from $7.84 billion as of December 31, 2013.

31


RESULTS OF OPERATIONS
The following table sets forth a summary financial overview for the comparable periods:  
 
 
Year Ended December 31,
 
Increase
 
Year Ended December 31,
 
Increase
 
 
2014
 
2013
 
(Decrease)
 
2013
 
2012
 
(Decrease)
 
 
(in thousands, except per share amounts)
Consolidated Statement of Operations Data:
 
 
 
 
 
 
 
 
 
 
Interest income
 
$
416,379

 
$
362,655

 
$
53,724

 
$
362,655

 
$
318,295

 
$
44,360

Interest expense
 
31,486

 
29,760

 
1,726

 
29,760

 
28,032

 
1,728

Net interest income
 
384,893

 
332,895

 
51,998

 
332,895

 
290,263

 
42,632

Provision for credit losses
 
4,726

 
13,220

 
(8,494
)
 
13,220

 
46,844

 
(33,624
)
Net interest income after provision for credit losses
 
380,167

 
319,675

 
60,492

 
319,675

 
243,419

 
76,256

Non-interest income
 
25,441

 
22,247

 
3,194

 
22,247

 
46,505

 
(24,258
)
Non-interest expense
 
208,109

 
196,266

 
11,843

 
196,266

 
188,860

 
7,406

Income from continuing operations before income taxes
 
197,499

 
145,656

 
51,843

 
145,656

 
101,064

 
44,592

Income tax expense
 
48,390

 
29,830

 
18,560

 
29,830

 
25,935

 
3,895

Income from continuing operations
 
149,109

 
115,826

 
33,283

 
115,826

 
75,129

 
40,697

Loss from discontinued operations, net of tax
 
(1,158
)
 
(861
)
 
297

 
(861
)
 
(2,490
)
 
(1,629
)
Net income
 
$
147,951

 
$
114,965

 
$
32,986

 
$
114,965

 
$
72,639

 
$
42,326

Net income available to common stockholders
 
$
146,564

 
$
113,555

 
$
33,009

 
$
113,555

 
$
68,846

 
$
44,709

Earnings per share applicable to common stockholders - basic
 
$
1.69

 
$
1.33

 
$
0.36

 
$
1.33

 
$
0.84

 
$
0.49

Earnings per share applicable to common stockholders - diluted
 
$
1.67

 
$
1.31

 
$
0.36

 
$
1.31

 
$
0.83

 
$
0.48

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 and liabilities measured at fair value as well as other items to adjust income available to common stockholders for certain significant activities or transactions that, in management's opinion, do not reflect recurring period-to-period comparisons of the Company's performance. Management believes presentation of these non-GAAP financial measures provides useful supplemental information that is essential to a complete understanding of the operating results of the Company's core businesses. Since the presentation of these non-GAAP performance measures and their impact differ between companies, 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 earnings power and ability to generate capital to cover credit losses.

32


The following table shows the components of pre-tax, pre-provision operating earnings for the years ended December 31, 2014 and 2013:
 
Year Ended December 31,
 
2014
 
2013
 
2012
 
(in thousands)
Total non-interest income
$
25,441

 
$
22,247

 
$
46,505

Less:
 
 
 
 
 
Gain (loss) on sales of investment securities, net
757

 
(1,195
)
 
3,949

Unrealized gains (losses) on assets and liabilities measured at fair value, net
1,212

 
(6,483
)
 
653

Bargain purchase gain from acquisition

 
10,044

 
17,562

Loss on extinguishment of debt
(502
)
 
(1,387
)
 

Gain on sale of subsidiary/non-controlling interest

 

 
892

Mutual fund gains

 

 
483

Legal settlements

 
38

 
879

Total operating non-interest income
23,974

 
21,230

 
22,087

Add: net interest income
384,893

 
332,895

 
290,263

Net operating revenue
$
408,867

 
$
354,125

 
$
312,350

Total non-interest expense
$
208,109

 
$
196,266

 
$
188,860

Less:
 
 
 
 
 
Net (gain) loss on sales / valuations of repossessed and other assets
(5,421
)
 
(2,387
)
 
4,207

Goodwill and intangible impairment

 

 
3,435

Merger / restructure expenses
198

 
5,752

 
2,819

Total operating non-interest expense
$
213,332

 
$
192,901

 
$
178,399

Pre-tax, pre-provision operating earnings
$
195,535

 
$
161,224

 
$
133,951



33


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, goodwill, and preferred stock. Management believes that tangible common equity financial measures are useful in evaluating the Company's capital strength, financial condition, and ability to manage potential losses. In addition, management believes that these measures improve comparability to other institutions that have not engaged in acquisitions that resulted in recorded goodwill and other intangibles.
 
December 31,
 
2014
 
2013
 
(dollars and shares in thousands)
Total stockholders' equity
$
1,000,928

 
$
855,498

Less: goodwill and intangible assets
25,913

 
27,374

Total tangible stockholders' equity
975,015

 
828,124

Less: preferred stock
70,500

 
141,000

Total tangible common equity
904,515

 
687,124

Add: deferred tax - attributed to intangible assets
1,006

 
1,452

Total tangible common equity, net of tax
$
905,521

 
$
688,576

 
 
 
 
Total assets
$
10,600,498

 
$
9,307,342

Less: goodwill and intangible assets, net
25,913

 
27,374

Tangible assets
10,574,585

 
9,279,968

Add: deferred tax - attributed to intangible assets
1,006

 
1,452

Total tangible assets, net of tax
$
10,575,591

 
$
9,281,420

 
 
 
 
Tangible equity ratio
9.2
%
 
8.9
%
Tangible common equity ratio
8.6

 
7.4

Common shares outstanding
88,691

 
87,186

Tangible book value per share, net of tax
$
10.21

 
$
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:
 
Year Ended December 31,
 
2014
 
2013
 
2012
 
(dollars in thousands)
 
 
Total operating non-interest expense
$
213,332

 
$
192,901

 
$
178,399

 
 
 
 
 
 
Divided by: total net interest income
$
384,893

 
$
332,895

 
$
290,263

Add:
 
 
 
 
 
Tax equivalent interest adjustment
24,571

 
13,312

 
9,738

Operating non-interest income
23,974

 
21,230

 
22,087

Net operating revenue - TEB
433,438

 
367,437

 
322,088

 
 
 
 
 
 
Efficiency ratio - TEB
49.2
%
 
52.5
%
 
55.4
%


34


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 financial condition and capital adequacy using this same basis. In addition, management believes that the classified assets to Tier 1 capital plus allowance measure is an important regulatory metric for assessing asset quality.
 
December 31,
 
2014
 
2013
 
(dollars in thousands)
Stockholders' equity
$
1,000,928

 
$
855,498

Less:
 
 
 
Accumulated other comprehensive income (loss)
16,639

 
(21,546
)
Non-qualifying goodwill and intangibles
24,907

 
25,991

Disallowed unrealized losses on equity securities
296

 
8,059

Add: qualifying trust preferred securities
48,192

 
48,485

Tier 1 capital (regulatory)
1,007,278

 
891,479

Less:
 
 
 
Qualifying trust preferred securities
48,192

 
48,485

Preferred stock
70,500

 
141,000

Tier 1 common equity
$
888,586

 
$
701,994

Divided by:
 
 
 
Risk-weighted assets (regulatory)
$
9,555,390

 
$
8,016,500

Tier 1 common equity ratio
9.3
%
 
8.8
%
 
December 31,
 
2014
 
2013
 
(dollars in thousands)
Classified assets
$
225,739

 
$
270,375

Divide:
 
 
 
Tier 1 capital (regulatory)
1,007,278

 
891,479

Plus: Allowance for credit losses
110,216

 
100,050

Total Tier 1 capital plus allowance for credit losses
$
1,117,494

 
$
991,529

Classified assets to Tier 1 capital plus allowance
20
%
 
27
%


35


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 TEB and interest expense for the periods indicated:
 
 
Twelve Months Ended December 31,
 
 
2014
 
2013
 
 
Average
Balance
 
Interest
 
Average
Yield / Cost
 
Average
Balance
 
Interest
 
Average
Yield / Cost
 
 
(dollars in thousands)
Interest earning assets
 
 
 
 
 
 
 
 
 
 
 
 
Loans (1), (2), (3)
 
$
7,432,087

 
$
370,922

 
5.23
%
 
$
6,136,217

 
$
326,714

 
5.43
%
Securities (1)
 
1,607,709

 
43,209

 
3.10

 
1,341,959

 
34,403

 
3.07

Federal funds sold and other
 
230,669

 
2,248

 
0.97

 
409,408

 
1,538

 
0.38

Total interest earnings assets
 
9,270,465

 
416,379

 
4.76

 
7,887,584

 
362,655

 
4.77

Non-interest earning assets
 
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
 
133,739

 
 
 
 
 
128,481

 
 
 
 
Allowance for credit losses
 
(106,100
)
 
 
 
 
 
(97,537
)
 
 
 
 
Bank owned life insurance
 
141,885

 
 
 
 
 
139,754

 
 
 
 
Other assets
 
451,120

 
 
 
 
 
442,042

 
 
 
 
Total assets
 
$
9,891,109

 
 
 
 
 
$
8,500,324

 
 
 
 
Interest-bearing liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
 
Interest bearing transaction accounts
 
$
793,118

 
$
1,522

 
0.19
%
 
$
640,062

 
$
1,334

 
0.21
%
Savings and money market
 
3,616,829

 
10,852

 
0.30

 
2,936,122

 
8,553

 
0.29

Time certificates of deposits
 
1,758,342

 
7,638

 
0.43

 
1,488,017

 
6,448

 
0.43

Total interest-bearing deposits
 
6,168,289

 
20,012

 
0.32

 
5,064,201

 
16,335

 
0.32

Short-term borrowings
 
173,228

 
2,336

 
1.35

 
202,755

 
1,279

 
0.63

Long-term debt
 
265,828

 
7,384

 
2.78

 
323,119

 
10,323

 
3.19

Junior subordinated debt
 
42,297

 
1,754

 
4.15

 
38,099

 
1,823

 
4.78

Total interest-bearing liabilities
 
6,649,642

 
31,486

 
0.47

 
5,628,174

 
29,760

 
0.53

Non-interest-bearing liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing demand deposits
 
2,153,686

 
 
 
 
 
1,954,248

 
 
 
 
Other liabilities
 
123,650

 
 
 
 
 
119,405

 
 
 
 
Stockholders’ equity
 
964,131

 
 
 
 
 
798,497

 
 
 
 
Total liabilities and stockholders' equity
 
$
9,891,109

 
 
 
 
 
$
8,500,324

 
 
 
 
Net interest income and margin (4)
 
 
 
$
384,893

 
4.42
%
 
 
 
$
332,895

 
4.39
%
Net interest spread (5)
 
 
 
 
 
4.29
%
 
 
 
 
 
4.24
%
(1)
Yields on loans and securities have been adjusted to a TEB. The taxable-equivalent adjustment was $24.6 million and $13.3 million for 2014 and 2013, respectively.
(2)
Net loan fees of $18.7 million and $15.9 million are included in the yield computation for 2014 and 2013, respectively.
(3)
Includes non-accrual 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.


36


 
 
Twelve Months Ended December 31,
 
 
2013