10-K 1 wal1231201610-k.htm 10-K Document

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, 2016
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 $2.47 billion based on the June 30, 2016 closing price of said stock on the New York Stock Exchange ($32.65 per share).
As of February 21, 2017, Western Alliance Bancorporation had 105,330,934 shares of common stock outstanding.
Portions of the registrant’s definitive proxy statement for its 2017 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.
Item 16.
 
 
 
 
 



2


PART I
Forward-Looking Statements
Certain statements contained in this Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (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 the Company's current views about future events and financial performance and involve certain risks, uncertainties, assumptions, and changes in circumstances that may cause the Company's 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 the Company undertakes 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.

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 / DIVISIONS:
AAB
Alliance Association Bank
HFF
Hotel Franchise Finance
ABA
Alliance Bank of Arizona
LVSP
Las Vegas Sunset Properties
BON
Bank of Nevada
TPB
Torrey Pines Bank
Bridge
Bridge Bank
WA PWI, LLC
Western Alliance Public Welfare Investments, LLC
Company
Western Alliance Bancorporation and subsidiaries
WAB or Bank
Western Alliance Bank
FIB
First Independent Bank
WAL or Parent
Western Alliance Bancorporation
TERMS:
AFS
Available-for-Sale
GLBA
Gramm-Leach-Bliley Act
ALCO
Asset and Liability Management Committee
GSE
Government-Sponsored Enterprise
AOCI
Accumulated Other Comprehensive Income
HFI
Held for Investment
ASC
Accounting Standards Codification
HFS
Held for Sale
ASU
Accounting Standards Update
HTM
Held-to-Maturity
ATM
At-the-Market
ICS
Insured Cash Sweep Service
BHCA
Bank Holding Company Act of 1956
IRC
Internal Revenue Code
BOD
Board of Directors
ISDA
International Swaps and Derivatives Association
BOLI
Bank Owned Life Insurance
LIBOR
London Interbank Offered Rate
CAMELS
Capital Adequacy, Assets, Management Capability, Earnings, Liquidity, Sensitivity
LIHTC
Low-Income Housing Tax Credit
CCO
Chief Credit Officer
LTD
Long-Term Debt
CDARS
Certificate Deposit Account Registry Service
MBS
Mortgage-Backed Securities
CDO
Collateralized Debt Obligation
MLC
Management Loan Committee
CEO
Chief Executive Officer
MOU
Memorandum of Understanding
CET1
Common Equity Tier 1
NBL
National Business Lines
CFO
Chief Financial Officer
NOL
Net Operating Loss
CFPB
Consumer Financial Protection Bureau
NPV
Net Present Value
CLO
Collateralized Loan Obligation
NUBILs
Net Unrealized Built In Losses
CMO
Collateralized Debt Obligation
NYSE
New York Stock Exchange
COSO
Committee of Sponsoring Organizations of the Treadway Commission
OCC
Office of the Comptroller of the Currency
CRA
Community Reinvestment Act
OCI
Other Comprehensive Income
CRE
Commercial Real Estate
OFAC
Office of Foreign Asset Control
DIF
FDIC's Deposit Insurance Fund
OREO
Other Real Estate Owned
EPS
Earnings per share
OTTI
Other-than-Temporary Impairment
EVE
Economic Value of Equity
PCI
Purchased Credit Impaired
Exchange Act
Securities Exchange Act of 1934, as amended
SBA
Small Business Administration
FASB
Financial Accounting Standards Board
SBIC
Small Business Investment Company
FCRA
Fair Credit Reporting Act of 1971
SBLF
Small Business Lending Fund
FDIA
Federal Deposit Insurance Act
SEC
Securities and Exchange Commission
FDIC
Federal Deposit Insurance Corporation
SERP
Supplemental Executive Retirement Plan
FHLB
Federal Home Loan Bank
SLC
Senior Loan Committee
FICO
The Financing Corporation
SSAE
Statement on Standards for Attestation Engagements
FRA
Federal Reserve Act
TDR
Troubled Debt Restructuring
FRB
Federal Reserve Bank
TEB
Tax Equivalent Basis
FVO
Fair Value Option
XBRL
eXtensible Business Reporting Language
GAAP
U.S. Generally Accepted Accounting Principles
 
 

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, international banking, and online banking products and services through its wholly-owned banking subsidiary, WAB.
WAB operates the following full-service banking divisions: ABA, BON, Bridge, FIB, and TPB. The Company also serves business customers through a national platform of specialized financial services including AAB, Corporate Finance, Equity Fund Resources, HFF, Life Sciences Group, Mortgage Warehouse Lending, Public and Nonprofit Finance, Renewable Resource Group, Resort Finance, and Technology Finance. In addition, the Company has one non-bank subsidiary, LVSP, which holds and manages certain non-performing loans and OREO.
WAL also has eight unconsolidated subsidiaries used as business trusts in connection with issuance of trust-preferred securities as described in "Note 10. Qualifying Debt" in Item 8 of this Form 10-K.
Bank Subsidiary
At December 31, 2016, 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
 
48
 
Arizona: Chandler, Flagstaff, Mesa, Phoenix, Scottsdale, and Tucson
 
$
17,095.1

 
$
13,067.2

 
$
14,563.9

Nevada: Carson City, Fallon, Reno, Sparks, Henderson, Las Vegas, Mesquite, and North Las Vegas
California: Beverly Hills, Carlsbad, Costa Mesa, La Mesa, Los Angeles, Menlo Park, Oakland, Palo Alto, Pleasanton, San Diego, San Francisco, and San Jose
 
 
 
Other: Atlanta, Georgia; Boston, Massachusetts; Reston, Virginia
 
 
 
WAB also has the following significant wholly-owned subsidiaries:
WAB Investments, Inc., BON Investments, Inc., and TPB Investments, Inc. - each hold certain investment securities, municipal and non-profit loans, and leases. After the close of business on December 31, 2016, these subsidiaries were merged into a newly created entity called Western Alliance Business Trust.
WA PWI, LLC holds certain limited partnerships invested primarily in low income housing tax credits and small business investment corporations.
BW Real Estate, Inc. - operates as a real estate investment trust and holds certain real estate loans and related securities.
Market Segments
The Company’s reportable segments are aggregated primarily based on geographic location, services offered, and markets served. The Company's regional segments, which include Arizona, Nevada, Southern California, and Northern California, provide full service banking and related services to their respective markets. The Company's NBL segments provide specialized banking services to niche markets. These NBLs are managed centrally and are broader in geographic scope, though still predominately within the Company's core market areas. The Corporate & Other segment primarily relates to the Company's 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

5


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
General
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 technology companies, 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 for investors (non-owner occupied) or owner-occupants make up the majority of the Company's loan portfolio. These CRE loans are secured by multi-family residential properties, professional offices, industrial facilities, retail centers, hotels, and other commercial properties. As of December 31, 2016 and 2015, 36% and 48%, respectively, of the Company's CRE loans were owner-occupied. The decrease in the percentage of these loans from the prior year is due to the acquired HFF loans, which were primarily CRE, non-owner occupied loans. Owner-occupied CRE loans are loans secured by owner-occupied non-farm 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 single family and multi-family residential projects, industrial/warehouse properties, office buildings, retail centers, medical office facilities, and residential lot developments. 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.
Consumer: Limited types of consumer loans are offered to meet customer demand and to respond to community needs. Examples of these consumer loans include: home equity loans and lines of credit, home improvement loans, personal lines of credit, and loans to individuals for investment purposes.

6


At December 31, 2016, the Company's loan portfolio totaled $13.21 billion, including HFS loans, or approximately 77% of total assets. The following table sets forth the composition of the Company's HFI loan portfolio as of the periods presented: 
 
 
December 31,
 
 
2016
 
2015
 
 
Amount
 
Percent
 
Amount
 
Percent
 
 
(in thousands)

 
 
 
 
 
 
 
 
Commercial and industrial
 
$
5,755,021

 
43.6
%
 
$
5,114,257

 
46.1
%
Commercial real estate - non-owner occupied
 
3,543,956

 
26.9

 
2,283,536

 
20.6

Commercial real estate - owner occupied
 
2,013,276

 
15.2

 
2,083,285

 
18.7

Construction and land development
 
1,478,114

 
11.2

 
1,133,439

 
10.2

Residential real estate
 
259,432

 
2.0

 
322,939

 
2.9

Commercial leases
 
100,765

 
0.8

 
148,493

 
1.3

Consumer
 
38,963

 
0.3

 
26,905

 
0.2

Loans, net of deferred loan fees and costs
 
13,189,527

 
100.0
%
 
11,112,854

 
100.0
%
Allowance for credit losses
 
(124,704
)
 
 
 
(119,068
)
 
 
Total loans HFI
 
$
13,064,823

 
 
 
$
10,993,786

 
 
As of December 31, 2016 and 2015, the Company also has $18.9 million and $23.8 million, respectively, of HFS loans. For additional information concerning loans, see "Note 4. 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.
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. The Bank's 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. The Bank's credit culture has enabled management to identify troubled credits early, allowing management to take corrective action when necessary.
Loan Approval Procedures and Authority
The Company's loan approval procedures are executed through a tiered loan limit authorization process, which is structured as follows:
Individual Authorities. The authorization levels for individual loan officers are established 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. 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 new 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.
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

7


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. The Company's lending policies also establish customer and product concentration limits to control single customer and product exposures. The Company's 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, 2016:
 
 
Percent of Total Capital
 
 
Policy Limit
 
Actual
CRE
 
435
%
 
264
%
Commercial and industrial
 
400

 
278

Construction and land development
 
85

 
70

Residential real estate
 
20

 
12

Consumer
 
5

 
2

Asset Quality
General
To measure asset quality, the Company has instituted a loan grading system consisting of ten different categories. The first six 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 assigned 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 the Company's loan portfolio is reviewed on a regular basis by its 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 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.
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 the Company determines that ultimate collection of principal and interest is 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 the Company has 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 $0.1 million, $2.1 million, and $5.4 million for the years ended December 31, 2016, 2015, and 2014, 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. A loan grade of seven from the Company's internal loan grading system is utilized to identify potential problem assets and loans grades eight through ten are utilized to identify actual problem assets.
The following describes the potential and actual problem assets using the Company's internal loan grading system definitions:
"Special Mention" (Grade 7): Generally these are assets that possess weaknesses that warrant management's close attention. These loans may involve borrowers with adverse financial trends, higher debt to equity ratios, or weaker liquidity positions, but not to the degree of being considered a “problem loan” where risk of loss may be apparent. Loans in this category are usually performing as agreed, although there may be non-compliance with financial covenants.

8


“Substandard” (Grade 8): 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. The Company believes 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” (Grade 9): 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” (Grade 10): 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
The Company must maintain an adequate allowance for credit losses. The allowance for credit losses is established through a provision for credit losses and is reflected as a reduction in earnings. 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 reported at an amount believed adequate to absorb probable losses on existing loans that may become uncollectable, based on evaluation of the collectability of loans and prior credit loss experience, together with other factors. 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
WAB and WAL have an investment policy, which was approved by their respective BODs. 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 the Company's 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 the holding company were reviewed by the ALCO and BOD.
Generally, the Company's investment policy limits new securities investments to the following: securities backed by the full faith and credit of the U.S. government, including U.S. treasury bills, notes, and bonds, direct obligations of Ginnie Mae, USDA and SBA loans; 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; tax-exempt securities with a rating of “Single-A” or higher; preferred stock 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. Preferred stock holdings are limited to no more than 10% of the Bank’s Common Equity Tier 1; tax-exempt 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 Tier 1 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 it may continue to hold previously acquired) CDOs. The Company's 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, 2016, the majority of the Company's 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.
As of December 31, 2016, the Company's investment securities portfolio totals $2.70 billion, representing approximately 15.7% of the Company's total assets, with the majority of the portfolio invested in AAA/AA+ rated securities. The average duration of the Company's investment securities is 4.2 years as of December 31, 2016.

9


The following table summarizes the investment securities portfolio as of December 31, 2016 and 2015:
 
 
December 31,
 
 
2016
 
2015
 
 
Amount
 
Percent
 
Amount
 
Percent
 
 
(dollars in thousands)
Collateralized debt obligations
 
$
13,490

 
0.5
%
 
$
10,060

 
0.5
%
Commercial MBS issued by GSEs
 
117,792

 
4.4

 
19,114

 
1.0

Corporate debt securities
 
64,144

 
2.4

 
13,251

 
0.7

CRA investments
 
37,113

 
1.4

 
34,685

 
1.7

Preferred stock
 
94,662

 
3.5

 
111,236

 
5.6

Private label commercial MBS
 

 

 
4,691

 
0.2

Private label residential MBS
 
433,685

 
16.0

 
257,128

 
13.0

Residential MBS issued by GSEs
 
1,356,258

 
50.1

 
1,171,702

 
59.0

Tax-exempt
 
500,312

 
18.5

 
334,830

 
16.9

Trust preferred securities
 
26,532

 
1.0

 
24,314

 
1.2

U.S. government sponsored agency securities
 
56,022

 
2.1

 

 

U.S. treasury securities
 
2,502

 
0.1

 
2,993

 
0.2

Total investment securities
 
$
2,702,512

 
100.0
%
 
$
1,984,004

 
100.0
%
As of December 31, 2016 and 2015, the Company has an investment in BOLI of $164.5 million and $162.5 million, respectively. The BOLI is used 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 certificates of deposit. The Company has historically focused on growing its lower cost core customer deposits. As of December 31, 2016, the deposit portfolio was comprised of 39% non-interest bearing deposits and 61% interest-bearing deposits.
The competition for deposits in the Company's markets is strong. The Company has historically been successful in attracting and retaining deposits due to several factors, including its: 1) knowledgeable and empowered bankers committed to providing personalized and responsive service that translates into long-lasting relationships; 2) broad selection of cash management services offered; and 3) incentives to employees for business development and retention. The Company intends to continue its focus on attracting deposits from its business lending relationships in order to maintain its low cost of funds and improve its 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 offices. In order to attract and retain deposits, the Company relies on providing quality service and introducing new products and services that meet the needs of its customers.
In 2016, the Bank's deposit rates were determined through an internal oversight process under the direction of its ALCO. The Bank considers 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.
The following table shows the Company's deposit composition: 

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December 31,
 
 
2016
 
2015
 
 
Amount
 
Percent
 
Amount
 
Percent
 
 
(in thousands)
Non-interest-bearing demand deposits
 
$
5,632,926

 
38.7
%
 
$
4,093,976

 
34.0
%
Interest-bearing transaction accounts
 
1,346,718

 
9.3

 
1,028,073

 
8.5

Savings and money market accounts
 
6,120,877

 
42.0

 
5,296,921

 
44.1

Certificate of deposit ($250,000 or more)
 
609,678

 
4.2

 
626,718

 
5.2

Other time deposits
 
839,664

 
5.8

 
984,936

 
8.2

Total deposits
 
$
14,549,863

 
100.0
%
 
$
12,030,624

 
100.0
%
The Company does not pay interest to depositors of non-interest bearing accounts. However, earnings credits are awarded to some account holders, which offset charges incurred by account holders for deposit services that are utilized.
In addition to the Company's deposit base, it has access to other sources of funding, including FHLB and FRB advances, repurchase agreements, and unsecured lines of credit with other financial institutions. Previously, the Company has also accessed the capital markets through trust preferred, subordinated debt, and Senior Note offerings. For additional information concerning the Company's 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.
Other 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 53% and 49% of the Company's loan portfolio at December 31, 2016 and 2015, respectively, consisted of CRE-secured loans, including CRE loans, and construction and land development loans. The Company’s business is concentrated primarily in the Los Angeles, Phoenix, Las Vegas, Reno, San Francisco, San Jose, 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. Neither the Company nor any of its reportable segments have customer relationships that individually account for 10% or more of consolidated or segment revenues. No material portion of the Company’s business is seasonal.
Foreign Operations
The Company does not have significant foreign operations. The Company provides loans, letters of credit, foreign exchange, and other trade-related services to commercial enterprises that conduct business outside the U.S.
Competition
The financial services industry is highly competitive. Many of the Company's competitors are much larger in total assets and capitalization, have greater access to capital markets, and offer a broader range of financial services than the Company 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; and the accelerating pace of consolidation among financial services providers. The Company competes for loans, deposits, and customers with other banks, credit unions, 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.
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.

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Employees
As of December 31, 2016, the Company has 1,557 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.
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.westernalliancebancorporation.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 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. 


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Item 1A.
Risk Factors.
Investing in the Company’s common stock involves various risks, many of which are specific to the Company’s business. The discussion below addresses the material risks and uncertainties, of which the Company is currently aware, that could have a material adverse effect on the Company’s business, results of operations, and financial condition. Other risks that the Company does not know about now, or that the Company does not currently believe are significant, could negatively impact the Company’s business or the trading price of the Company’s securities. 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."
Risks Relating to the Company's Business
The Company’s financial performance may be adversely affected by conditions in the financial markets and economic conditions generally.
The Company’s financial performance is highly dependent upon the business environment in the markets where the Company operates and in the U.S. as a whole. 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, acts of war, or a combination of these or other factors. A worsening of business and economic conditions generally or specifically in the principal markets in which the Company conducts business could have adverse effects, including the following:
a decrease in deposit balances or the demand for loans and other products and services the Company offers;
an increase in the number of borrowers who become delinquent, file for protection under bankruptcy laws or default on their loans or other obligations to the Company, which could lead to higher levels of nonperforming assets, net charge-offs and provisions for credit losses;
a decrease in the value of loans and other assets secured by real estate;
a decrease in net interest income from the Company’s lending and deposit gathering activities;
an impairment of certain intangible assets such as goodwill; and
an increase in competition resulting from the increasing consolidation of financial services companies.
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 the Company interacts on a daily basis, and therefore could adversely affect the Company.
It is possible that the business environment in the U.S. will experience volatility in the future. There can be no assurance that these conditions will improve in the near term or that conditions will not worsen. Such conditions could adversely affect the Company’s business, results of operations, and financial condition.
The Company is highly dependent on real estate and events that negatively impact the real estate market will hurt the Company’s business and earnings.
The Company is located in areas in which economic growth is largely dependent on the real estate market, and a majority of the Company’s 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 the Company’s earnings and financial condition.
The Company’s loan portfolio consists primarily of CRE and commercial and industrial loans, which contain concentrations in specialty business lines that have unique risk characteristics and may expose the Company to increased lending risks.
The Company’s loan portfolio consists primarily of CRE and commercial and industrial loans, which contain concentrations in specialty business lines, such as mortgage warehouse, corporate finance, municipal and nonprofit loans, as well as loans in other business sectors such as technology and innovation. These loan concentrations present unique risks and involve specialized underwriting and management as these loans typically involve large loan balances to single borrowers or groups of

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related borrowers. Consequently, an adverse development with respect to one commercial loan or one credit relationship may adversely affect the Company. In addition, based on the nature of lending to these specialty markets, repayment of loans may be dependent upon borrowers receiving additional equity financing, or in some cases, a successful sale to a third party, public offering, or other form of liquidity event. Although each specialty business has dedicated teams in place with specialized skills, tools, and resources available to monitor and evaluate risk specific to the industry, unforeseen adverse events, changes in regulatory policy, or a general decline in the borrower's industry may have a material adverse effect on the Company’s financial condition and results of operations.
Due to the inherent risk associated with financial estimates, the Company’s allowance for loan losses may be insufficient, which could require the Company to raise additional capital or otherwise adversely affect the Company’s financial condition and results of operations.
Credit losses are inherent in the business of making loans. Management makes various assumptions and judgments about the collectability of the Company’s consolidated loan portfolio and maintains 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 decreases the Company’s net income. If such assumptions and judgments are incorrect, the Company’s actual credit losses may exceed the Company’s allowance for credit losses.
At December 31, 2016, the Company's allowance for credit losses is $124.7 million. Deterioration in the real estate market and/or general economic conditions could affect the ability of the Company’s loan customers to service their debt, which could result in additional loan provisions and increases in the Company’s allowance for credit losses. In addition, the Company may be required to record additional loan provisions or increase the Company’s allowance for credit losses based on new information regarding existing loans, input from regulators in connection with their review of the Company’s allowance, changes in regulatory guidance, regulations or accounting standards, identification of additional problem loans, and other factors, both within and outside of the Company’s management’s control. Moreover, because future events are uncertain and because the Company may not successfully identify all deteriorating loans in a timely manner, there may be loans that deteriorate in an accelerated time frame.
Any increases in the provision or allowance for credit losses will result in a decrease in the Company’s net income and, potentially, capital, and may have a material adverse effect on the Company’s financial condition and results of operations. If actual credit losses materially exceed the Company’s allowance for credit losses, the Company may be required to raise additional capital, which may not be available to the Company on acceptable terms or at all. The Company’s inability to raise additional capital on acceptable terms when needed could materially and adversely affect the Company’s financial condition, results of operations, and capital.
Because of the geographic concentration of the Company’s assets, changes in local economic conditions could adversely affect the Company’s business and results of operations.
The Company’s business is primarily concentrated in selected markets in Arizona, California, and Nevada. As a result of this geographic concentration, the Company’s 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 and charge-offs; an increase in problem assets and foreclosures; a decrease in the demand for the Company’s products and services; or a decrease in the value of collateral for loans, especially real estate.
The Company’s financial instruments expose the Company to certain market risks and may increase the volatility of AOCI.
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 AOCI each quarter. Therefore, any increases or decreases in the fair value of these financial instruments have a corresponding impact on reported AOCI. Fair value can be affected by a variety of factors, many of which are beyond the Company’s control, including the Company’s credit position, interest rate volatility, capital markets volatility, and other economic factors. Accordingly, the Company is subject to mark-to-market risk and the application of fair value accounting may cause the Company’s AOCI to be more volatile than would be suggested by the Company’s underlying performance.

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If the Company loses a significant portion of its core deposits or its cost of funding deposits increases significantly, the Company's liquidity and/or profitability would be adversely impacted.
The Company’s profitability depends in part on successfully attracting and retaining a stable base of relatively low-cost deposits. The competition for these deposits in the Company's markets is strong and customers may demand higher interest rates on their deposits or seek other investments offering higher rates of return. The Company is a participant in 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. The Company also from time to time offers other credit enhancements to depositors, such as FHLB letters of credit and, for certain deposits of public monies, pledges of collateral in the form of readily marketable securities. Any event or circumstance that interferes with or limits the Company's 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 the Company's bank subsidiary, could negatively impact the Company's ability to attract and retain deposits. For further discussion of CDARS and ICS, see "Note 8. 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, the Company would be required to borrow from other sources at higher rates and the Company's liquidity and profitability would be adversely impacted.
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, 2016, the Company has borrowings from the FHLB of San Francisco of $80.0 million and none from the FRB. In the past, the Company has been reliant on borrowings from the FHLB of San Francisco and the FRB to satisfy its short-term liquidity needs. The Company’s borrowing capacity is generally dependent on the value of its collateral pledged to these entities. These lenders could reduce the Company’s borrowing capacity or eliminate certain types of collateral and could otherwise modify or even terminate their loan programs. Any change or termination could have an adverse effect on the Company’s liquidity and profitability.
The business may be adversely affected by fraud.
As a financial institution, the Company is inherently exposed to operational risk in the form of theft and other fraudulent activity by employees, customers, and other third parties targeting the Company and/or the Company’s customers or data. Such activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts.
Although the Company devotes substantial resources to maintaining effective policies and internal controls to identify and prevent such incidents, given the increasing sophistication of possible perpetrators, the Company may experience financial losses or reputational harm as a result of fraud.
A failure in or breach of the Company’s operational or security systems or infrastructure, or those of the Company’s third party vendors and other service providers, including as a result of cyber-attacks, could disrupt the Company’s businesses, result in the disclosure or misuse of confidential or proprietary information, damage the Company’s reputation, increase the Company’s costs, and cause losses.
The Company’s operations rely on the secure processing, storage, and transmission of confidential and other information. Although the Company takes numerous protective measures to maintain the confidentiality, integrity, and availability of the Company’s and its customers’ information across all geographies and product lines, and endeavors to modify these protective measures as circumstances warrant, the nature of the threats continues to evolve. As a result, the Company’s computer systems, software, and networks and those of the Company’s customers and third party vendors 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 to the Company and/or its customers. These threats may originate externally from third parties, including foreign governments, organized criminal groups, and other hackers, and outsourced or infrastructure-support providers and application developers, or the threats may originate from within the Company’s organization.
The Company also faces the risk of operational disruption, failure, termination, or capacity constraints of any of the third parties that facilitate the Company’s 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, the Company’s operational systems, data or infrastructure. In addition, the Company may be at risk of an operational failure with respect to its customers’ systems. The Company’s risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, the outsourcing of some of the Company’s business operations, and the continued uncertain global economic environment. As cyber threats continue to evolve, the Company may be required to expend significant additional

15


resources to continue to modify or enhance its protective measures or to investigate and remediate any information security vulnerabilities.
The Company maintains insurance policies that it believes provide reasonable coverage at a manageable expense for an institution of the Company’s size and scope with similar technological systems. However, the Company 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 the Company experience any one or more of the its or a third party’s systems failing or experiencing an attack.
The Company relies on third parties to provide key components of its business infrastructure.
The Company relies on third parties to provide key components for its business operations, such as data processing and storage, recording and monitoring transactions, online banking interfaces and services, internet connections, and network access. While the Company selects these third-party vendors carefully, it does not control their actions. Any problems caused by these third parties, including those resulting from breakdowns or other 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 by a vendor, could adversely affect the Company’s ability to deliver products and services to its customers and otherwise conduct its business. Financial or operational difficulties of a third-party vendor could also hurt the Company’s operations if those difficulties interfere with the vendor's ability to serve the Company. Replacing these third party vendors also could create significant delays and expense that adversely affect the Company’s business and performance.
A change in the Company’s creditworthiness could increase the Company’s cost of funding or adversely affect its liquidity.
Market participants regularly evaluate the Company’s creditworthiness and the creditworthiness of the Company’s long-term debt based on a number of factors, some of which are not entirely within the Company’s control, including the Company’s financial strength and the financial services industry generally. There can be no assurance that the Company's perceived creditworthiness will remain the same. Changes could adversely affect the cost and other terms upon which the Company is able to obtain funding and its access to the capital markets, and could increase the Company’s 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 may not be able to keep pace with its growth by improving its controls and processes, and its reporting systems and procedures, which could cause it to experience compliance and operational problems or lose customers, or incur additional expenditures beyond current projections, any one of which could adversely affect the Company’s financial results.
The Company’s future success will depend on the ability of officers and other key employees to continue to implement and improve operational, credit, financial, management and other internal risk controls and processes, and improve reporting systems and procedures, while at the same time maintaining and growing existing businesses and client relationships. The Company may not successfully implement such changes or improvements in an efficient or timely manner, or it may discover deficiencies in its existing systems and controls that adversely affect the Company’s ability to grow its existing businesses and client relationships and could require the Company to incur additional expenditures to expand its administrative and operational infrastructure. If the Company is unable to maintain and implement improvements to its controls, processes, and reporting systems and procedures, the Company may lose customers, experience compliance and operational problems or incur additional expenditures beyond current projections, any one of which could adversely affect the Company’s financial results.
The Company’s expansion strategy may not prove to be successful and its market value and profitability may suffer.
The Company continually evaluates expansion through acquisitions of banks and other financial businesses, and the expansion of its existing banking divisions through establishment of new branches. In recent years, the Company completed the acquisition of Bridge Capital Holdings and GE’s domestic select-service hotel franchise finance loan business. These acquisitions were, and any future acquisitions will be, accompanied by the risks commonly encountered in such transactions. These risks include, among other things:
difficulty of integrating the operations and personnel;
potential disruption of the Company’s ongoing business;
failure to retain key personnel at the acquired business;

16


inability of the Company’s management to maximize its financial and strategic position by the successful implementation of uniform product offerings and the incorporation of uniform technology into the Company’s product offerings and control systems; and
failure to realize any expected revenue increases, cost savings, and other projected benefits from an acquisition.
The Company expects that competition for suitable acquisition candidates may be significant. The Company 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 it will be able to successfully identify and acquire suitable acquisition targets on acceptable terms and conditions, or that it will be able to obtain the regulatory approvals needed to complete any such transactions.
The Company cannot provide any assurance that it will be successful in overcoming these risks or any other problems encountered in connection with acquisitions. Potential regulatory enforcement actions, like a MOU, also may adversely affect the Company's ability to engage in certain expansionary activities. The Company’s inability to overcome the risks inherent in the successful completion and integration of acquisitions could have an adverse effect on the achievement of the Company's business strategy.
The Company’s future success depends on its ability to compete effectively in a highly competitive market.
The Company faces substantial competition in all phases of its operations from a variety of different competitors. The Company’s 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 the Company. Increased competition in the Company’s markets may result in reduced loans and deposits or less favorable pricing.
There is competition for financial services in the markets in which the Company conduct its businesses, including from many local commercial banks, as well as numerous national and regionally based commercial banks. In particular, the Company has 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 the Company has. 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 the Company. In addition, some of the financial services organizations with which the Company competes 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 the Company in accessing funding and in providing various services.
The banking business in the Company’s primary market areas is very competitive, and the level of competition facing the Company may increase further, which may limit its asset growth and financial results. In particular, the Company's predominate source of revenue is net interest income from its loan portfolio. Therefore, if the Company is unable to compete effectively, including sustaining loan growth at its historical levels, its business and results of operations may be adversely affected.
The Company’s success is dependent upon its ability to recruit and retain qualified employees.
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, the Company’s relative success to date has been partly the result of its management’s ability to identify and retain highly qualified employees in both administrative support roles, as well as those with expertise in certain specialty areas, or that have long-standing relationships in their communities. These professionals bring with them valuable knowledge and customer relationships and have been an integral part of the Company’s ability to attract deposits and to expand its market share. If the Company is unable to hire or retain qualified employees, it may not be able to successfully execute its business strategy or may incur additional costs to achieve its objectives.
The Company could be harmed if its succession planning is inadequate to mitigate the loss of key members of its senior management team.
The Company believes that its success to date has been substantially dependent on its 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; Don Garner, Executive Vice President-Arizona Administration; Daniel Myers, Executive Vice President-Northern California Administration; and Gerald Cady, Executive Vice President-Southern California Administration. The Company also believes that its prospects for success in the future are dependent on retaining its senior management team. In addition to their skills and experience as bankers, these persons provide the Company with strong relationships in the investment community, as well as extensive ties within local markets upon which the Company’s

17


competitive strategy is based. The Company’s ability to retain these persons may be hindered by the fact that it has 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 the Company’s business if the Company does not have an effective succession plan in place and cannot replace them with equally qualified persons who are also familiar with its 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 the Company’s business. He has substantial business interests that are unrelated to the Company, including his position as managing partner of the Phoenix Suns National Basketball Association franchise and his recent purchase of a Spanish soccer team, RCD Mallorca Football Club. 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 the Company’s business. The Company believes that Mr. Sarver spends the substantial majority of his business time on matters related to the Company. However, a significant reduction in the amount of time Mr. Sarver devotes to the Company’s business may adversely affect its ability to achieve the Company’s strategic plan.
The Company's risk management practices may prove to be inadequate or not fully effective.
The Company's risk management framework seeks to mitigate risk and appropriately balance risk and return. The Company has established policies and procedures intended to identify, monitor, and manage the types of risk to which it is subject, including credit risk, market risk, liquidity risk, operational risk, compliance risk, and reputational risk. A BOD level risk committee approves and reviews the Company's risk management policies and oversees operation of the Company's risk management framework. Although the Company has devoted significant resources to developing its risk management policies and procedures and expects to continue to do so in the future, these policies and procedures, as well as the Company's risk management techniques, may not be fully effective. In addition, as regulations and the markets in which the Company operates continue to evolve, the Company's risk management framework may not always keep sufficient pace with those changes. If the Company's risk management framework does not effectively identify or mitigate its risks, the Company could suffer unexpected losses and could be materially adversely affected. Management of the Company's risks in some cases depends upon the use of analytical and/or forecasting models. If the models the Company uses to mitigate these risks are inadequate, or are subject to ineffective governance policies, the Company may incur increased losses. In addition, there may be risks that exist, or that develop in the future, that the Company has not appropriately anticipated, identified, or mitigated.
The Company's internal controls and procedures may fail or be circumvented and the accuracy of the Company's judgments and estimates about financial and accounting matters may impact operating results and financial condition.
The Company's management regularly reviews and updates its internal control over financial reporting, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls and procedures, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met.  Any failure or circumvention of the Company's controls and procedures or failure to comply with regulations related to controls and procedures could result in materially inaccurate reported financial statements and/or have a material adverse effect on the Company's business, results of operations, and financial condition. Similarly, the Company's management makes certain estimates and judgments in preparing the Company's financial statements.  The quality and accuracy of those estimates and judgments will impact the Company's operating results and financial condition.
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, the Company 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, the Company 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 attainable. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of the Company’s system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on the Company’s business, results of operations, and financial condition.

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If the Company is unable to understand and adapt to technological change, the Company’s business could be adversely affected.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology can increase efficiency and enable financial institutions to better serve customers and to reduce costs. However, some new technologies needed to compete effectively result in incremental operating costs. The Company’s future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in operations. Many of the Company’s competitors, because of their larger size and available capital, have substantially greater resources to invest in technological improvements. The Company may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on the Company’s business and, in turn, its financial condition and results of operations.
The markets in which the Company operates are subject to the risk of earthquakes and other natural disasters.
The Company's acquisition of Bridge Capital Holdings in 2015 substantially increased the Company's presence in the State of California, and many of the real and personal properties securing the Company's loans are located in California. California is experiencing a long-term drought and is prone to earthquakes, brush fires, flooding, and other natural disasters. In addition to possibly sustaining damage to the Company's own properties, if there is a major earthquake, flood, or other natural disaster in California or any of its other markets, the Company faces the risk that many of its borrowers may experience uninsured property losses, or sustained job interruption and/or loss, which may materially impair their ability to meet the terms of their loan obligations. Therefore, the continuing drought in California, or an earthquake, flood, pandemic, or other natural disaster or catastrophic event, or a combination of these or other factors, in any of the Company's markets could have a material adverse effect on the Company's business, financial condition, results of operations, and cash flows.
Risks Related to the Banking Industry
The Company operates in a highly regulated environment and the laws and regulations that govern the Company’s operations, corporate governance, executive compensation, and accounting principles, or changes in them, or the Company’s failure to comply with them, may adversely affect the Company.
The Company is subject to extensive regulation, supervision, and legislation that govern almost all aspects of its operations. 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 the Company can engage, limit the dividends or distributions that WAB can pay to the Company or that the Company can pay to its stockholders, restrict the ability of affiliates to guarantee the Company’s debt, impose certain specific accounting requirements on the Company that may be more restrictive and may result in greater or earlier charges to earnings or reductions in the Company’s 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. To the extent the Company continues to grow larger and become more complex, regulatory oversight and risk and the cost of compliance will likely increase, which may adversely affect the Company. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Supervision and Regulation” included in this Form 10-K for a more detailed summary of the regulations and supervision to which the Company are subject.
Since the recent financial crisis, financial institutions generally have been subjected to increased scrutiny from regulatory authorities. Recent changes to the legal and regulatory framework governing the Company’s operations, including the passage and continued implementation of the Dodd-Frank Act, have drastically revised the laws and regulations under which the Company operates. These changes may result in increased costs of doing business, and decreased revenues and net income, and may reduce the Company’s ability to effectively compete in attracting and retaining customers. In general, bank regulators have increased their focus on risk management and regulatory compliance, and the Company expects this focus to continue. Additional compliance requirements are likely and can be costly to implement, may require additional compliance personnel, and may limit the Company’s ability to offer competitive products to its customers.
The Company is also subject to changes in federal and state law, as well as regulations and governmental policies, income tax laws, and accounting principles. Regulations affecting banks and other financial institutions are undergoing continuous review and frequently change, and the ultimate effect of such changes cannot be predicted. Regulations and laws may be modified at any time, and new legislation may be enacted that will affect the Company, WAB, and the Company’s other subsidiaries. Any changes in any federal and state law, as well as regulations and governmental policies, income tax laws, and accounting principles, could affect the Company in substantial and unpredictable ways, including ways that may adversely affect the Company’s business, financial condition, or results of operations. Failure to appropriately comply with any such laws,

19


regulations or principles or an alleged failure to comply, even if the Company acted in good faith or the alleged failure reflects a difference in interpretation, could result in sanctions by regulatory agencies, civil money penalties or damage to the Company’s reputation, all of which could adversely affect the Company’s business, financial condition, or results of operations.
State and federal banking agencies periodically conduct examinations of the Company’s business, including for compliance with laws and regulations, and the Company’s failure to comply with any supervisory actions to which the Company is or becomes subject as a result of such examinations may adversely affect the Company.
State and federal banking agencies periodically conduct examinations of the Company’s 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 the Company’s operations had become unsatisfactory, or that any of the Company’s 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 the Company and has authority to take enforcement actions, including the issuance of cease-and-desist orders or civil monetary penalties against the Company if it finds that the Company offers consumer financial products and services in violation of federal consumer financial protection laws or in an unfair, deceptive, or abusive manner.
If the Company were unable to comply with regulatory directives in the future, or if the Company were unable to comply with the terms of any future supervisory requirements to which the Company may become subject, then it 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 the Company’s regulators were to take such supervisory actions, then the Company could, among other things, become subject to greater restrictions on its ability to make acquisition and develop any new business, as well as restrictions on its existing business, and the Company 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 the Company’s business, operating flexibility, and financial condition.
Changes in interest rates and increased rate competition could adversely affect the Company’s profitability, business, and prospects.
Most of the Company’s assets and liabilities are monetary in nature, which subjects the Company to significant risks from changes in interest rates and can impact the Company’s net income and the valuation of its assets and liabilities. Increases or decreases in prevailing interest rates could have an adverse effect on the Company’s business, asset quality, and prospects. The Company’s operating income and net income depend to a great extent on its net interest margin. Net interest margin is the difference between the interest yields the Company receives on loans, securities, and other earning assets and the interest rates the Company pays on interest bearing deposits, borrowings, and other liabilities. These rates are highly sensitive to many factors beyond the Company’s control, including competition, general economic conditions, and monetary and fiscal policies of various governmental and regulatory authorities, including the FRB. If the rate of interest the Company pays on its interest bearing deposits, borrowings, and other liabilities increases more than the rate of interest the Company receives on loans, securities, and other earning assets increases, the Company’s net interest income, and therefore its earnings, would be adversely affected. The Company’s earnings also could be adversely affected if the rates on the Company’s loans and other investments fall more quickly than those on its deposits and other liabilities. The Company has 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.

20


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 the Company’s 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 the Company obtains title.
Approximately 55% of the Company’s loan portfolio at December 31, 2016 was secured by real estate. In the course of the Company’s business, the Company may foreclose on and take title to real estate, and could be subject to environmental liabilities with respect to these properties. The Company 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 the Company is the owner or former owner of a contaminated site, the Company 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 the Company’s business and prospects.
Risks Related to the Company's Common Stock
The price of the Company’s common stock has increased substantially since the U.S. Presidential Election in November 2016 and may fluctuate significantly in the future.
The price of the Company’s common stock on New York Stock Exchange constantly changes, and has increased substantially since the U.S. Presidential Election in November 2016 based on assumptions related to increased interest rates, tax policy, and deregulation in the financial services industry. The Company expects that the market price of its common stock will continue to fluctuate and there can be no assurances about the market price for its common stock.
The Company’s stock price may fluctuate as a result of a variety of factors, many of which are beyond the Company’s control. These factors include:
changes in the political climate;
sales of the Company’s equity securities;
the Company’s financial condition, performance, creditworthiness, and prospects;
quarterly variations in the Company’s operating results or the quality of its assets;
operating results that vary from the expectations of management, securities analysts, and investors;
changes in expectations as to the Company’s future financial performance;
announcements of strategic developments, acquisitions, and other material events by the Company or its competitors;
the operating and securities price performance of other companies that investors believe are comparable to the Company;
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
the Company’s past and future dividend practices.
There may be future sales or other dilution of the Company’s equity, which may adversely affect the market price of the Company’s common stock.
The Company is 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. The Company also grants a significant number of shares of common stock to employees and directors under the Company’s Incentive Plan each year. The issuance of any additional shares of the Company’s 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 the

21


Company’s common stock. Holders of the Company’s 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 the Company’s decision to issue securities in any future offering will depend on market conditions, its acquisition activity, and other factors, the Company cannot predict or estimate the amount, timing, or nature of its future offerings. Thus, the Company’s stockholders bear the risk of the Company’s future offerings reducing the market price of the Company’s common stock and diluting their stock holdings in the Company.
Offerings of debt, which would be senior to the Company’s common stock upon liquidation, and/or preferred equity securities which may be senior to the Company’s common stock for purposes of dividend distributions or upon liquidation, may adversely affect the market price of the Company’s common stock.
The Company may from time to time issue debt securities, borrow money through other means, or issue preferred stock. From time to time the Company borrows money from the FRB, the FHLB, other financial institutions, and other lenders. In June 2016, the Company issued $175,000,000 of subordinated debentures with a maturity date of July 1, 2056, at an interest rate of 6.25%. In June 2015, WAB issued $150,000,000 aggregate principal amount of 5.00% Fixed-to-Floating Rate Subordinated Notes due July 15, 2025. All of these securities or borrowings have priority over the common stock in a liquidation, which could affect the market price of the Company’s stock.
The Company’s 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. The Company’s 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 the Company’s common stock with respect to dividends or upon the Company’s dissolution, winding-up, and liquidation and other terms. If the Company issues preferred stock in the future that has a preference over its common stock, with respect to the payment of dividends or upon the Company’s liquidation, dissolution, or winding up, or if the Company issues preferred stock with voting rights that dilute the voting power of its common stock, the rights of holders of its common stock, the market price of its common stock could be adversely affected.
Anti-takeover provisions could negatively impact the Company’s stockholders.
Provisions of Delaware law and provisions of the Company’s Certificate of Incorporation, as amended, and its Amended and Restated Bylaws could make it more difficult for a third party to acquire control of the Company or have the effect of discouraging a third party from attempting to acquire control of the Company. Additionally, the Company’s Certificate of Incorporation, as amended, authorizes the Company’s 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 the Company even if an acquisition might be in the best interest of the Company’s stockholders.
Item 1B.
Unresolved Staff Comments
None.

22


Item 2.
Properties
At December 31, 2016, the Company and WAB are headquartered at One E. Washington Street in Phoenix, Arizona. WAB operates 40 domestic branch locations, which includes 6 executive and administrative offices, 18 of these locations are owned and 22 are leased.  The Company also has 8 loan production offices and 6 other leased locations. In addition, WAB owns and occupies a 36,000 square foot operations facility in Las Vegas, Nevada and has 2 locations under construction.  See "Item 1. Business” for location cities. For information regarding rental payments, see "Note 5. Premises and Equipment" of the Consolidated Financial Statements included in this Form 10-K.
Item 3.
Legal Proceedings
There are no material pending legal proceedings to which the Company is a party or to which any of its properties are subject. There are no material proceedings known to the Company 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, the Company is involved in a variety of litigation matters in the ordinary course of its business and anticipates that it will become involved in new litigation matters in the future.
Item 4.
Mine Safety Disclosures
Not applicable.

23


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 2016 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: 
 
 
2016 Quarters
 
2015 Quarters
 
 
Fourth
 
Third
 
Second
 
First
 
Fourth
 
Third
 
Second
 
First
Range of stock prices:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High
 
$
50.72

 
$
38.55

 
$
38.36

 
$
35.42

 
$
39.11

 
$
35.17

 
$
34.95

 
$
30.41

Low
 
35.56

 
30.69

 
29.72

 
26.60

 
29.12

 
28.42

 
28.91

 
24.52

Holders
At December 31, 2016, there were approximately 1,511 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 LVSP. As a holding company with limited significant assets other than the capital stock of its subsidiaries, WAL's ability to pay dividends depends primarily upon the receipt of dividends or other capital distributions from its subsidiaries. The Company's 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 the Company issues may restrict its ability to pay dividends to holders of the Company's common stock. For example, if any required payments on outstanding trust preferred securities are not made, WAL would be prohibited from paying cash dividends on its 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 2016 or 2015.

24


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, 2011 and reinvestment of dividends.
a10kchart.jpg


25


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, 2016, 2015, 2014, 2013, and 2012, and should be read in conjunction with the Consolidated Financial Statements and the related notes included elsewhere in this report: 
 
 
Year Ended December 31,
 
 
2016
 
2015
 
2014
 
2013
 
2012
 
 
(in thousands)
Results of Operations:
 
 
 
 
 
 
 
 
 
 
Interest income
 
$
700,506

 
$
525,144

 
$
416,379

 
$
362,655

 
$
318,295

Interest expense
 
43,293

 
32,568

 
31,486

 
29,760

 
28,032

Net interest income
 
657,213

 
492,576

 
384,893

 
332,895

 
290,263

Provision for credit losses
 
8,000

 
3,200

 
4,726

 
13,220

 
46,844

Net interest income after provision for credit losses
 
649,213

 
489,376

 
380,167

 
319,675

 
243,419

Non-interest income
 
42,915

 
29,768

 
24,651

 
22,197

 
46,505

Non-interest expense
 
330,949

 
260,606

 
207,319

 
196,216

 
188,860

Income from continuing operations before provision for income taxes
 
361,179

 
258,538

 
197,499

 
145,656

 
101,064

Income tax expense
 
101,381

 
64,294

 
48,390

 
29,830

 
25,935

Income from continuing operations
 
259,798

 
194,244

 
149,109

 
115,826

 
75,129

Loss from discontinued operations, net of tax
 

 

 
(1,158
)
 
(861
)
 
(2,490
)
Net income
 
$
259,798

 
$
194,244

 
$
147,951

 
$
114,965

 
$
72,639

On April 20, 2016, the Company completed its acquisition of GE Capital US Holdings, Inc.'s domestic select-service HFF loan portfolio. As a result, the results of operations from the HFF segment are included in the Company's results beginning on this date. See "Note 2. Mergers, Acquisitions and Dispositions" for further discussion of the impact of the acquisition on the Company's Consolidated Financial Statements.

26


 
 
Year Ended December 31,
 
 
2016
 
2015
 
2014
 
2013
 
2012
 
 
(in thousands, except per share data)
Per Share Data:
 
 
 
 
 
 
 
 
 
 
Earnings per share available to common stockholders - basic
 
$
2.52

 
$
2.05

 
$
1.69

 
$
1.33

 
$
0.84

Earnings per share available to common stockholders - diluted
 
2.50

 
2.03

 
1.67

 
1.31

 
0.83

Earnings per share from continuing operations - basic
 
2.52

 
2.05

 
1.70

 
1.34

 
0.87

Earnings per share from continuing operations - diluted
 
2.50

 
2.03

 
1.69

 
1.32

 
0.86

Book value per common share
 
18.00

 
15.44

 
10.49

 
8.20

 
7.15

Shares outstanding at period end
 
105,071

 
103,087

 
88,691

 
87,186

 
86,465

Weighted average shares outstanding - basic
 
103,042

 
94,570

 
86,693

 
85,682

 
82,285

Weighted average shares outstanding - diluted
 
103,843

 
95,219

 
87,506

 
86,541

 
82,912

Selected Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
284,491

 
$
224,640

 
$
164,396

 
$
305,514

 
$
204,625

Investment securities and money market investments
 
2,702,512

 
1,984,126

 
1,522,546

 
1,659,370

 
1,236,648

Loans, net of deferred loan fees and costs
 
13,208,436

 
11,136,663

 
8,398,265

 
6,801,415

 
5,709,318

Allowance for credit losses
 
124,704

 
119,068

 
110,216

 
100,050

 
95,427

Total assets
 
17,200,842

 
14,275,089

 
10,600,498

 
9,307,342

 
7,622,442

Total deposits
 
14,549,863

 
12,030,624

 
8,931,043

 
7,838,205

 
6,455,177

Other borrowings
 
80,000

 
150,000

 
390,263

 
341,096

 
193,717

Qualifying debt
 
367,937

 
210,328

 
40,437

 
41,858

 
36,218

Total stockholders' equity
 
1,891,529

 
1,591,502

 
1,000,928

 
855,498

 
759,421

Selected Other Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
16,134,263

 
$
12,420,803

 
$
9,891,109

 
$
8,500,324

 
$
7,193,425

Average earning assets
 
15,117,364

 
11,621,977

 
9,270,465

 
7,887,584

 
6,685,107

Average stockholders' equity
 
1,770,914

 
1,323,952

 
964,131

 
798,497

 
691,004

Selected Financial and Liquidity Ratios:
 
 
 
 
 
 
 
 
 
 
Return on average assets
 
1.61
%
 
1.56
 %
 
1.50
 %
 
1.35
%
 
1.01
%
Return on average tangible common equity
 
17.71

 
17.83

 
18.52

 
18.28

 
13.97

Net interest margin
 
4.58

 
4.51

 
4.42

 
4.39

 
4.49

Loan to deposit ratio
 
90.78

 
92.57

 
94.03

 
86.77

 
88.45

Capital Ratios:
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage ratio
 
9.9
%
 
9.8
 %
 
9.7
 %
 
9.8
%
 
10.1
%
Tier 1 capital ratio
 
10.5

 
10.2

 
10.5

 
11.1

 
11.3

Total capital ratio
 
13.2

 
12.2

 
11.7

 
12.4

 
12.6

Average equity to average assets
 
11.0

 
10.7

 
9.7

 
9.4

 
9.6

Selected Asset Quality Ratios:
 
 
 
 
 
 
 
 
 
 
Non-accrual loans to gross loans
 
0.31
%
 
0.44
 %
 
0.81
 %
 
1.11
%
 
1.83
%
Non-accrual loans and repossessed assets to total assets
 
0.51

 
0.65

 
1.18

 
1.53

 
2.39

Loans past due 90 days or more and still accruing to total loans
 
0.01

 
0.03

 
0.06

 
0.02

 
0.02

Allowance for credit losses to total loans
 
0.95

 
1.07

 
1.31

 
1.47

 
1.67

Allowance for credit losses to non-accrual loans
 
309.65

 
246.10

 
162.90

 
132.20

 
91.13

Net charge-offs (recoveries) to average loans
 
0.02

 
(0.06
)
 
(0.07
)
 
0.14

 
0.99


27


Item 7.
Management's Discussions and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis is designed to provide insight on the financial condition and results of operations of Western Alliance Bancorporation and its subsidiaries and 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 “Forward-Looking Statements” at the beginning of Part I of this Form 10-K and those discussed in Part I, Item 1A of this Form 10-K under the heading "Risk Factors," 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, international banking, and online banking products and services through its wholly-owned banking subsidiary, WAB.
WAB operates the following full-service banking divisions: ABA, BON, Bridge, FIB, and TPB. The Company also serves business customers through a national platform of specialized financial services including AAB, Corporate Finance, Equity Fund Resources, HFF, Life Sciences Group, Mortgage Warehouse Lending, Public and Nonprofit Finance, Renewable Resource Group, Resort Finance, and Technology Finance.
Financial Result Highlights of 2016
Net income available to common stockholders of $259.8 million for 2016, compared to $193.5 million for 2015
Diluted earnings per share of $2.50 for 2016, and $2.03 per share for 2015
Operating PPNR increased $112.5 million to $380.4 million, compared to $267.9 million in 20151
Net operating revenue of $699.1 million, constituting year-over-year growth of 34.0%, or $177.3 million, compared to an increase in operating non-interest expenses of 25.5%, or $64.8 million1
Net interest margin of 4.58% in 2016, compared to 4.51% in 2015
Efficiency ratio of 45.0% in 2016, compared to 47.0% in 2015
Operating efficiency ratio of 43.4% in 2016, compared to 45.8% in 20151 
Total loans of $13.21 billion, up $2.07 billion from December 31, 2015
Total deposits of $14.55 billion, up $2.52 billion from December 31, 2015
Nonperforming assets (nonaccrual loans and repossessed assets) decreased to 0.51% of total assets, from 0.65% at December 31, 2015
Net loan charge-offs (recoveries) to average loans outstanding of 0.02%, compared to (0.06)% at December 31, 2015
Tangible common equity ratio of 9.4%, compared to 9.2% at December 31, 20151
Stockholders' equity of $1.89 billion, an increase of $300.0 million from December 31, 2015
Book value per common share of $18.00, an increase of 16.6% from $15.44 at December 31, 2015
Tangible book value per share, net of tax, of $15.17, an increase of 21.0% from $12.54 at December 31, 20151
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, 2016.

1 See Non-GAAP Financial Measures section beginning on page 33.



28


Acquisition of GE Capital US Holdings, Inc. Loan Portfolio
On April 20, 2016, WAB completed its acquisition of GE Capital US Holdings, Inc.'s domestic select-service hotel franchise finance loan portfolio, paying cash of $1.27 billion. The acquisition was undertaken, in part, because it expands the Company's national reach and diversifies the Company's loan portfolio.
Effective April 20, 2016, the results of the acquired loan portfolio are reflected in the Company's newly created HFF NBL operating segment. Acquisition / restructure expenses related to the purchase total $4.3 million for the year ended December 31, 2016, of which approximately $0.6 million are acquisition related costs as defined by ASC 805. The transaction was accounted for under the acquisition method of accounting in accordance with ASC 805. Assets purchased and liabilities assumed were recorded at their respective acquisition date estimated fair values. The fair values of assets acquired and liabilities assumed are subject to adjustment during the first twelve months after the acquisition date if additional information becomes available to indicate a more accurate or appropriate value for an asset or liability. Although there have been no measurement period adjustments identified to date and any future adjustments are not expected to be significant, the fair values of loans is still preliminary as of December 31, 2016.
The recognized amounts of identifiable assets acquired and liabilities assumed are as follows:
 
April 20, 2016
 
(in thousands)
Assets:
 
Loans
$
1,280,997

Other assets
3,560

Total assets
$
1,284,557

Liabilities:
 
Other liabilities
$
12,559

Total liabilities
12,559

Net assets acquired
$
1,271,998

Consideration paid
 
Cash
$
1,272,187

Goodwill
$
189

Loans acquired consist of loans that are not considered impaired (non-PCI loans) and loans that have shown evidence of credit deterioration since origination (PCI loans) as of the acquisition date. All loans were recorded net of fair value adjustments (interest rate and credit marks), which were determined using discounted contractual cash flow models. The fair value of non-PCI loans acquired totals $1.19 billion, which is net of interest and credit marks of $43.3 million. The fair value of PCI loans totals $93.3 million, which is net of interest and credit marks of $17.0 million. See "Note 4. Loans, Leases and Allowance for Credit Losses" of the Notes to Consolidated Financial Statements for additional detail of the acquired loans.
Acquisition of Bridge Capital Holdings
On June 30, 2015, the Company completed its acquisition of Bridge Capital Holdings and its wholly-owned subsidiary, Bridge Bank, headquartered in San Jose, California. Under the terms of the acquisition, each outstanding share of Bridge common stock was exchanged for 0.8145 shares of WAL's common stock plus $2.39 in cash. The Company paid $36.5 million in cash and issued 12.5 million common shares for all equity interests in Bridge. The merger was undertaken, in part, because Bridge strengthens the Company's Northern California presence and provides new avenues for growth in technology and international services.
Bridge’s results of operations have been included in the Company’s results beginning July 1, 2015. Acquisition / restructure expenses related to the Bridge acquisition of $8.8 million for the year ended December 31, 2015, have been included in non-interest expense, of which approximately $0.9 million are acquisition related costs as defined by ASC 805. The acquisition was accounted for under the acquisition method of accounting in accordance with ASC 805. Assets purchased and liabilities assumed were recorded at their respective acquisition date estimated fair values.
The fair values of assets acquired and liabilities assumed are subject to adjustment during the first twelve months after the acquisition date if additional information becomes available to indicate a more accurate or appropriate value for an asset or liability. Due to early adoption of the amended guidance within ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, as discussed in "Note 1. Summary of Significant Accounting Policies," these adjustments to provisional amounts identified during the measurement period are recognized in the reporting period in which the adjustment amounts are

29


determined, rather than retrospectively adjusting the provisional amounts at the acquisition date. The Company identified net measurement period adjustments totaling $6.9 million since July 1, 2015, which have been reflected as an adjustment to increase goodwill. The significant measurement period adjustments relate to loans, net deferred tax assets, and other liabilities. The measurement period for the Bridge acquisition ended on June 30, 2016. Therefore, the fair value of these assets acquired and liabilities assumed were considered final effective June 30, 2016.
The following table shows the recognized amounts of identifiable assets acquired and liabilities assumed at their as adjusted acquisition date fair values, which include all measurement period adjustments identified and recognized since July 1, 2015:
 
As Adjusted
 
(in thousands)
Assets:
 
Cash and cash equivalents (1)
$
378,966

Investment securities - AFS
61,476

Investments in restricted stock
7,015

Loans
1,439,660

Premises and equipment
1,519

Other assets acquired through foreclosure
1,407

Bank owned life insurance
17,385

Investment in LIHTC
5,354

Intangible assets
14,997

Deferred tax assets, net
18,287

Other assets
19,178

Total assets
$
1,965,244

Liabilities:
 
Deposits
$
1,742,031

Qualifying debt
11,287

Other liabilities
10,910

Total liabilities
1,764,228

Net assets acquired
$
201,016

Consideration paid
 
Common stock (12,451,240 shares at $33.76 per share)
$
420,354

Fair value of equity awards related to pre-combination vesting
10,676

Cash
36,539

Fair value of total consideration
467,569

Goodwill
$
266,553

(1)
Cash and cash equivalents are net of a $6.2 million payment made by Bridge related to the cash out of vested, unexercised stock options at the date of closing. Cash acquired, less cash consideration paid of $36.5 million, resulted in net cash and cash equivalents increasing by $342.4 million
Loans acquired in the Bridge acquisition consist of loans that are not considered impaired (non-PCI loans) and loans that have shown evidence of credit deterioration since origination (PCI loans) as of the acquisition date. All loans were recorded net of fair value adjustments (interest rate and credit marks), which were determined using discounted contractual cash flow models. The fair value of non-PCI loans acquired totals $1.43 billion, which is net of interest and credit marks of $26.0 million. The fair value of PCI loans totals $10.6 million, which is net of interest and credit marks of $6.0 million. See "Note 4. Loans, Leases and Allowance for Credit Losses" of these Notes to Consolidated Financial Statements for additional detail of the acquired loans.
In connection with the Bridge acquisition, the Company acquired intangible assets of $15.0 million, consisting primarily of core deposit intangibles. The core deposit intangible asset balance has been allocated to the Northern California and Technology & Innovation segments based on their respective core deposit balances at June 30, 2015, and is being amortized over its estimated useful life of 10 years.
Goodwill related to the acquisition totaled $266.6 million, which includes net measurement period adjustments totaling $6.9 million, identified and recognized since July 1, 2015. Goodwill has been allocated to the Northern California and Technology & Innovation segments based on their proportionate loan and deposit balances as of June 30, 2015. Management believes this methodology allocates goodwill to the reporting units in a manner consistent with the expected synergies of the combination. None of the goodwill recognized as part of the acquisition is expected to be deductible for income tax purposes.

30


Qualifying debt assumed from Bridge is comprised of junior subordinated debt with a contractual balance of $17.5 million and is recorded net of a $6.2 million fair value mark that is being amortized over the remaining life of the trusts. See "Note 10. Qualifying Debt" of these Notes to Consolidated Financial Statements for further detail and discussion of the debt.
In connection with the acquisition, the Company assumed Bridge's SERP, an unfunded noncontributory defined benefit pension plan. The SERP provides retirement benefits to certain Bridge officers based on years of service and final average salary. Pursuant to the terms of the SERP agreements, if the officer's service is terminated by Bridge or by the officer for "good reason" (as defined in the SERP agreements) within 24 months following a change in control, such as the Bridge acquisition, the officer is entitled to full vesting of the normal benefit under the SERP agreement, and such SERP benefits will be made in installment payments commencing on the first business day of January of the year following the officer's attainment of age 55 or, if the officer is already age 55 as of such termination of employment, on the first business day of January of the year following the officer's termination of employment. As of June 30, 2015, a $7.1 million liability included in other liabilities was recorded in the Company's Consolidated Balance Sheet related to the SERP. A discount rate of 5.75% and an employee compensation rate increase of 4.00% were used in determining the SERP liability as of June 30, 2015. See "Note 19. Employee Benefit Plans" of these Notes to the Consolidated Financial Statements for further detail and discussion of the SERP.

31


As a bank holding company, management focuses on key ratios in evaluating the Company's financial condition and results of operations.
Results of Operations and Financial Condition
A summary of the Company's results of operations, financial condition, and selected metrics are included in the following tables: 
 
 
Year Ended December 31,
 
 
2016
 
2015
 
2014
 
 
(in thousands, except per share amounts)
Net income available to common stockholders
 
$
259,798

 
$
193,494

 
$
146,564

Earnings per share applicable to common stockholders - basic
 
2.52

 
2.05

 
1.69

Earnings per share applicable to common stockholders - diluted
 
2.50

 
2.03

 
1.67

Net interest margin
 
4.58
%
 
4.51
%
 
4.42
%
Return on average assets
 
1.61

 
1.56

 
1.50

Return on average tangible common equity
 
17.71

 
17.83

 
18.52

 
 
December 31,
 
 
2016
 
2015
 
 
(in thousands)
Total assets
 
$
17,200,842

 
$
14,275,089

Loans, net of deferred loan fees and costs
 
13,208,436

 
11,136,663

Total deposits
 
14,549,863

 
12,030,624

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 the Company's key asset quality metrics: 
 
 
At or for the Year Ended December 31,
 
 
2016
 
2015
 
2014
 
 
(in thousands)
Non-accrual loans
 
$
40,272

 
$
48,381

 
$
67,659

Non-performing assets
 
142,791

 
166,058

 
214,661

Non-accrual loans to gross loans
 
0.31
%
 
0.44
 %
 
0.81
 %
Net charge-offs (recoveries) to average loans
 
0.02
%
 
(0.06
)%
 
(0.07
)%
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 $17.20 billion at December 31, 2016 from $14.28 billion at December 31, 2015. The increase in total assets of $2.92 billion, or 20.5% relates primarily to the $1.28 billion in loans acquired from the HFF purchase on April 20, 2016, organic loan growth, and an increase in investment securities resulting from increased deposits. Total loans, including HFS loans, increased by $2.07 billion, or 18.6%, to $13.21 billion as of December 31, 2016, compared to $11.14 billion as of December 31, 2015. Total deposits increased $2.52 billion, or 20.9%, to $14.55 billion as of December 31, 2016 from $12.03 billion as of December 31, 2015.

32


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
 
 
2016
 
2015
 
(Decrease)
 
2015
 
2014
 
(Decrease)
 
 
(in thousands, except per share amounts)
Consolidated Income Statement Data:
 
 
 
 
 
 
 
 
 
 
Interest income
 
$
700,506

 
$
525,144

 
$
175,362

 
$
525,144

 
$
416,379

 
$
108,765

Interest expense
 
43,293

 
32,568

 
10,725

 
32,568

 
31,486

 
1,082

Net interest income
 
657,213

 
492,576

 
164,637

 
492,576

 
384,893

 
107,683

Provision for credit losses
 
8,000

 
3,200

 
4,800

 
3,200

 
4,726

 
(1,526
)
Net interest income after provision for credit losses
 
649,213

 
489,376

 
159,837

 
489,376

 
380,167

 
109,209

Non-interest income
 
42,915

 
29,768

 
13,147

 
29,768

 
24,651

 
5,117

Non-interest expense
 
330,949

 
260,606

 
70,343

 
260,606

 
207,319

 
53,287

Income from continuing operations before income taxes
 
361,179

 
258,538

 
102,641

 
258,538

 
197,499

 
61,039

Income tax expense
 
101,381

 
64,294

 
37,087

 
64,294

 
48,390

 
15,904

Income from continuing operations
 
259,798

 
194,244

 
65,554

 
194,244

 
149,109

 
45,135

Loss from discontinued operations, net of tax
 

 

 

 

 
(1,158
)
 
1,158

Net income
 
$
259,798

 
$
194,244

 
$
65,554

 
$
194,244

 
$
147,951

 
$
46,293

Net income available to common stockholders
 
$
259,798

 
$
193,494

 
$
66,304

 
$
193,494

 
$
146,564

 
$
46,930

Earnings per share applicable to common stockholders - basic
 
$
2.52

 
$
2.05

 
$
0.47

 
$
2.05

 
$
1.69

 
$
0.36

Earnings per share applicable to common stockholders - diluted
 
$
2.50

 
$
2.03

 
$
0.47

 
$
2.03

 
$
1.67

 
$
0.36

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 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.
Operating Pre-Provision Net Revenue
Operating PPNR is defined by the Federal Reserve in SR 14-3, which requires companies subject to the rule to project PPNR over the planning horizon for each of the economic scenarios defined annually by the regulators. Banking regulations define PPNR as net interest income plus non-interest income less non-interest expense. Management has further adjusted this metric to exclude any non-recurring or non-operational elements of non-interest income or non-interest expense, which are outlined in the table below. Management feels that this is an important metric as it illustrates the underlying performance of the Company, it enables investors and others to assess the Company's ability to generate capital to cover credit losses through the credit cycle, and provides consistent reporting with a key metric used by bank regulatory agencies.

33


The following table shows the components of operating PPNR for the years ended December 31, 2016, 2015, and 2014:
 
Year Ended December 31,
 
2016
 
2015
 
2014
 
(in thousands)
Total non-interest income
$
42,915

 
$
29,768

 
$
24,651

Less:
 
 
 
 
 
Gain (loss) on sales of investment securities, net (1)
1,059

 
615

 
757

Unrealized gains (losses) on assets and liabilities measured at fair value, net (1)
8

 
47

 
1,212

(Loss) on extinguishment of debt (1)

 
(81
)
 
(502
)
Total operating non-interest income
41,848

 
29,187

 
23,184

Plus: net interest income
657,213

 
492,576

 
384,893

Net operating revenue
$
699,061

 
$
521,763

 
$
408,077

Total non-interest expense
$
330,949

 
$
260,606

 
$
207,319

Less:
 
 
 
 
 
Net (gain) loss on sales / valuations of repossessed and other assets
(125
)
 
(2,070
)
 
(5,350
)
Acquisition / restructure expense
12,412

 
8,836

 
198

Total operating non-interest expense
$
318,662

 
$
253,840

 
$
212,471

Operating pre-provision net revenue (2)
$
380,399

 
$
267,923

 
$
195,606

Plus:
 
 
 
 
 
Non-operating revenue adjustments
1,067

 
581

 
1,467

Less:
 
 
 
 
 
Provision for credit losses
8,000

 
3,200

 
4,726

Non-operating expense adjustments
12,287

 
6,766

 
(5,152
)
Income from continuing operations before provision for income taxes
361,179

 
258,538

 
197,499

Income tax expense
101,381

 
64,294

 
48,390

Income from continuing operations
259,798

 
194,244

 
149,109

(Loss) from discontinued operations, net of tax

 

 
(1,158
)
Net income
$
259,798

 
$
194,244

 
$
147,951

 
 
 
 
 
 
(1) The operating PPNR non-GAAP performance metric is adjusted to exclude the effects of this non-operational item.
(2) There were no adjustments made for non-recurring items during the years ended December 31, 2016, 2015, and 2014.

34


Tangible Common Equity
The following table presents financial measures related to tangible common equity. Tangible common equity represents total stockholders' equity, less identifiable intangible assets and goodwill. 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 intangible assets.
 
December 31,
 
2016
 
2015
 
(dollars and shares in thousands)
Total stockholders' equity
$
1,891,529

 
$
1,591,502

Less: goodwill and intangible assets
302,894

 
305,354

Total tangible stockholders' equity
1,588,635

 
1,286,148

Plus: deferred tax - attributed to intangible assets
4,949

 
6,093

Total tangible common equity, net of tax
$
1,593,584

 
$
1,292,241

 
 
 
 
Total assets
$
17,200,842

 
$
14,275,089

Less: goodwill and intangible assets, net
302,894

 
305,354

Tangible assets
16,897,948

 
13,969,735

Plus: deferred tax - attributed to intangible assets
4,949

 
6,093

Total tangible assets, net of tax
$
16,902,897

 
$
13,975,828

 
 
 
 
Tangible equity ratio
9.4
%
 
9.2
%
Tangible common equity ratio
9.4

 
9.2

Common shares outstanding
105,071

 
103,087

Tangible book value per share, net of tax
$
15.17

 
$
12.54


35


Operating Efficiency Ratio
The following table shows the components used in the calculation of the operating efficiency ratio, which management uses as a metric for assessing cost efficiency:
 
Year Ended December 31,
 
2016
 
2015
 
2014
 
(dollars in thousands)
Total operating non-interest expense
$
318,662

 
$
253,840

 
$
212,471

 
 
 
 
 
 
Divided by:
 
 
 
 
 
Total net interest income
$
657,213

 
$
492,576

 
$
384,893

Plus:
 
 
 
 
 
Tax equivalent interest adjustment
34,902

 
31,883

 
24,571

Operating non-interest income
41,848

 
29,187

 
23,184

Net operating revenue - TEB
$
733,963

 
$
553,646

 
$
432,648

 
 
 
 
 
 
Operating efficiency ratio - TEB
43.4
%
 
45.8
%
 
49.1
%
Adjusted Allowance for Credit Losses
The adjusted allowance for credit losses to gross loans ratio includes an adjustment for the remaining credit marks on acquired performing and PCI loans. Under GAAP, the allowance for credit losses on acquired loans is not carried over in an acquisition as acquired loans are recorded at fair value, net of related interest rate and credit marks, which discounts the loans based on expected future cash flows. The credit marks on acquired loans represent the allowance for credit losses carried over to the Company. Therefore, by adding back the remaining credit marks on acquired loans, management believes this is more indicative of the allowance available for inherent losses in the loan portfolio.
 
December 31,
 
2016
 
2015
 
(dollars in thousands)
Allowance for credit losses
$
124,704

 
$
119,068

Plus: remaining credit marks
 
 
 
Acquired performing loans
34,070

 
12,154

Purchased credit impaired loans
13,194

 
8,491

Adjusted allowance for credit losses
$
171,968

 
$
139,713

 
 
 
 
Gross loans held for investment and deferred fees, net
$
13,189,527

 
$
11,112,854

Plus: remaining credit marks
 
 
 
Acquired performing loans
34,070

 
12,154

Purchased credit impaired loans
13,194

 
8,491

Adjusted loans, net of deferred fees and costs
$
13,236,791

 
$
11,133,499

 
 
 
 
Allowance for credit losses to gross loans
0.95
%
 
1.07
%
Allowance for credit losses to gross loans, adjusted for acquisition accounting
1.30

 
1.25



36


Regulatory Capital
The following table presents certain financial measures related to regulatory capital under Basel III, which includes Common Equity Tier 1 and total capital. The FRB and other banking regulators use Common Equity Tier 1 and total capital 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. Specifically, the total capital ratio takes into consideration the risk levels of assets and off-balance sheet financial instruments. In addition, management believes that the classified assets to Common Equity Tier 1 plus allowance measure is an important regulatory metric for assessing asset quality.
 
December 31,
 
2016
 
2015
 
(dollars in thousands)
Common Equity Tier 1:
 
 
 
Common Equity
$
1,891,529

 
$
1,591,502

Less:
 
 
 
Non-qualifying goodwill and intangibles
294,754

 
293,487

Disallowed deferred tax asset
1,400

 
5,001

AOCI related adjustments
(13,460
)
 
10,228

Unrealized gain on changes in fair value liabilities
8,118

 
6,309

Common Equity Tier 1 (regulatory)
$
1,600,717

 
$
1,276,477

Divided by: Risk-weighted assets (regulatory)
$
15,980,092

 
$
13,193,563

Common Equity Tier 1 ratio
10.0
%
 
9.7
%
 
 
 
 
Common Equity Tier 1 (regulatory)
$
1,600,717

 
$
1,276,477

Plus:
 
 
 
Trust preferred securities
81,500

 
81,500

Less:
 
 
 
Disallowed deferred tax asset
934

 
7,502

Unrealized gain on changes in fair value liabilities
5,412

 
9,464

Tier 1 capital
$
1,675,871

 
$
1,341,011

Divided by: Tangible average assets
$
16,868,674

 
$
13,683,148

Tier 1 leverage ratio
9.9
%
 
9.8
%
 
 
 
 
Total Capital:
 
 
 
Tier 1 capital (regulatory)
$
1,675,871

 
$
1,341,011

Plus:
 
 
 
Subordinated debt
299,927

 
140,097

Qualifying allowance for credit losses
124,704

 
119,068

Other
6,978

 
3,296

Less: Tier 2 qualifying capital deductions

 

Tier 2 capital
$
431,609

 
$
262,461

 
 
 
 
Total capital
$
2,107,480

 
$
1,603,472

 
 
 
 
Total capital ratio
13.2
%
 
12.2
%
 
 
 
 
Classified assets to Tier 1 capital plus allowance for credit losses:
 
 
 
Classified assets
$
211,782

 
$
221,126

Divided by:
 
 
 
Tier 1 capital
1,675,871

 
1,341,011

Plus: Allowance for credit losses
124,704

 
119,068

Total Tier 1 capital plus allowance for credit losses
$
1,800,575

 
$
1,460,079

 
 
 
 
Classified assets to Tier 1 capital plus allowance
11.8
%
 
15.1
%

37


Net Interest Margin
The net interest margin is reported on a TEB. A tax equivalent adjustment is added to reflect interest earned on certain securities and loans that are exempt from federal and state income tax. The following tables set forth the average balances, interest income, interest expense, and average yield (on a fully TEB) for the periods indicated:
 
 
Year Ended December 31,
 
 
2016
 
2015
 
 
Average
Balance
 
Interest
 
Average
Yield / Cost
 
Average
Balance
 
Interest
 
Average
Yield / Cost
 
 
(dollars in thousands)
Interest earning assets
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
5,422,129

 
$
252,017

 
5.14
%
 
$
4,246,882

 
$
186,067

 
4.97
%
Commercial real estate
 
5,210,612

 
285,096

 
5.47

 
4,115,920

 
217,386

 
5.28

Construction and land development
 
1,307,895

 
83,206

 
6.36

 
961,910

 
55,909

 
5.81

Residential real estate
 
289,181

 
13,374

 
4.62

 
306,948

 
15,077

 
4.91

Consumer
 
35,821

 
1,658

 
4.63

 
26,482

 
1,442

 
5.45

Loans held for sale
 
22,256

 
1,245

 
5.59

 
16,092

 
536

 
3.33

Total loans (1), (2), (3)
 
12,287,894

 
636,596

 
5.40

 
9,674,234

 
476,417

 
5.18

Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Securities - taxable
 
1,789,806

 
39,772