Western Alliance Bancorporation - 10-Q quarterly report FY

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


þ		Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2008

or


o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition period from to

Commission File Number: 001-32550

WESTERN ALLIANCE BANCORPORATION

(Exact Name of Registrant as Specified in Its Charter)


Nevada		88-0365922
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer I.D. Number)

2700 W. Sahara Avenue, Las Vegas, NV		89102
(Address of Principal Executive Offices)		(Zip Code)

(702) 248-4200
(Registrant’s telephone number,
including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

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. (Check one):


Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a 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 o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock Issued and Outstanding: 34,075,758 shares as of July 31, 2008.

Table of Contents


	Page
Index
Part I. Financial Information		3
Item 1 — Financial Statements		3
Consolidated Balance Sheets at June 30, 2008 and December 31, 2007		3
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2008 and 2007		4
Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2008		5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007		6
Notes to Unaudited Consolidated Financial Statements		7
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3 — Quantitative and Qualitative Disclosures about Market Risk		38
Item 4 — Controls and Procedures		39

Part II. Other Information
Item 1 — Legal Proceedings		40
Item 1A — Risk Factors		40
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds		40
Item 3 — Defaults Upon Senior Securities		40
Item 4 — Submission of Matters to a Vote of Security Holders		40
Item 5 — Other Information		40
Item 6 — Exhibits		41

Signatures		42
Exhibit Index		43
EX-31.1
EX-31.2
EX-32

2

Part I. Financial Information

ITEM I. FINANCIAL STATEMENTS

Western Alliance Bancorporation and Subsidiaries

Consolidated Balance Sheets
June 30, 2008 and December 31, 2007
(Unaudited)


	June 30,			December 31,
($ in thousands, except per share amounts)	2008			2007

Assets
Cash and due from banks	$	170,341		$	104,650
Federal funds sold		10,942			10,979

Cash and cash equivalents		181,283			115,629

Securities held-to-maturity (approximate fair value $94,014 and $9,530, respectively)		94,126			9,406
Securities available-for-sale		398,285			486,354
Securities measured at fair value		129,242			240,440

Gross loans, including net deferred loan fees		3,874,565			3,633,009
Less: Allowance for loan losses		(58,688	)		(49,305	)

Loans, net		3,815,877			3,583,704


Premises and equipment, net		143,472			143,421
Other real estate owned		6,847			3,412
Bank owned life insurance		89,434			88,061
Investment in restricted stock		41,599			27,003
Accrued interest receivable		18,341			22,344
Deferred tax assets, net		39,359			25,900
Goodwill		217,810			217,810
Other intangible assets, net of accumulated amortization of $5,447 and $3,693, respectively		22,925			24,370
Other assets		20,733			28,242

Total assets	$	5,219,333		$	5,016,096


Liabilities and Stockholders’ Equity
Liabilities
Noninterest bearing demand deposits	$	1,007,596		$	1,007,642
Interest bearing deposits:
Demand		263,844			264,586
Savings and money market		1,585,351			1,558,867
Time, $100 and over		622,234			649,351
Other time		174,653			66,476

		3,653,678			3,546,922
Customer repurchase agreements		185,590			275,016
Federal Home Loan Bank advances and other borrowings
One year or less		666,600			489,330
Over one year ($30,811 and $30,768 measured at fair value, repectively)		50,355			55,369
Junior subordinated debt, measured at fair value		54,326			62,240
Subordinated debt		60,000			60,000
Accrued interest payable and other liabilities		23,343			25,701

Total liabilities		4,693,892			4,514,578


Commitments and Contingencies (Note 6)

Stockholders’ Equity
Preferred stock, par value $.0001; shares authorized 20,000,000; no shares issued and outstanding 2007 and 2006		—			—
Common stock, par value $.0001; shares authorized 100,000,000; shares issued and outstanding 2008: 34,058,669; 2007: 30,157,079		3			3
Additional paid-in capital		412,899			377,973
Retained earnings		158,674			152,286
Accumulated other comprehensive loss — net unrealized loss on available-for-sale securities		(46,135	)		(28,744	)

Total stockholders’ equity		525,441			501,518

Total liabilities and stockholders’ equity	$	5,219,333		$	5,016,096

See Notes to Unaudited Consolidated Financial Statements.

3

Western Alliance Bancorporation and Subsidiaries

Consolidated Statements of Income

Three and Six Months Ended June 30, 2008 and 2007
(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
($ in thousands, except per share amounts)	2008			2007			2008			2007

Interest income on:
Loans, including fees	$	62,817		$	67,193		$	128,521		$	126,213
Securities — taxable		8,074			8,044			17,644			14,939
Securities — nontaxable		328			230			685			288
Dividends — taxable		829			412			1,456			832
Dividends — nontaxable		558			458			977			845
Federal funds sold and other		80			509			195			1,042

Total interest income		72,686			76,846			149,478			144,159

Interest expense on:
Deposits		17,208			25,832			36,722			47,705
Short-term borrowings		5,174			2,677			12,754			5,066
Long-term borrowings		695			639			1,410			1,155
Junior subordinated debt and subordinated debt		1,607			1,872			3,728			3,551

Total interest expense		24,684			31,020			54,614			57,477

Net interest income		48,002			45,826			94,864			86,682
Provision for loan losses		13,152			2,012			21,211			2,453

Net interest income after provision for loan losses		34,850			43,814			73,653			84,229

Other income:
Trust and investment advisory services		2,734			2,137			5,531			4,242
Service charges		1,411			1,167			2,838			2,236
Income from bank owned life insurance		573			960			1,373			1,888
Other		2,234			1,755			5,628			3,242

Noninterest income, excluding securities and fair value gains (losses)		6,952			6,019			15,370			11,608

Investment securities gains (losses), net		56			—			217			284
Derivative gains		764			—			807			—
Securities impairment charges		—			—			(5,280	)		—
Unrealized gain/loss on assets and liabilities measured at fair value, net		(113	)		(3,766	)		1,268			(3,779	)

Noninterest income		7,659			2,253			12,382			8,113

Other expense:
Salaries and employee benefits		21,517			18,821			43,451			35,854
Occupancy		5,179			4,872			10,207			9,111
Advertising and other business development		2,373			1,458			4,473			2,920
Data processing		1,437			628			2,206			1,063
Legal, professional and director fees		1,237			1,167			2,168			2,211
Customer service		1,113			1,897			2,313			3,220
Intangible amortization		915			557			1,704			814
Insurance		873			1,095			1,845			1,393
Audits and exams		637			632			1,285			1,163
Supplies		411			510			782			1,019
Telephone		384			361			785			701
Travel and automobile		364			269			702			556
Correspondent and wire transfer costs		334			457			635			875
Merger expenses		—			747			—			747
Other		2,363			803			4,519			1,548

		39,137			34,274			77,075			63,195


Income before income taxes		3,372			11,793			8,960			29,147

Minority interest		55			—			120			—
Income tax expense		902			3,847			2,283			9,798


Net income	$	2,415		$	7,946		$	6,557		$	19,349

Earnings per share:
Basic	$	0.08		$	0.27		$	0.22		$	0.68

Diluted	$	0.08		$	0.25		$	0.21		$	0.63

See Notes to Unaudited Consolidated Financial Statements.

4

Western Alliance Bancorporation and Subsidiaries

Consolidated Statement of Stockholders’ Equity

Six Months Ended June 30, 2008 (Unaudited)
($ in thousands, except per share amounts)


									Additional						Accumulated Other
	Comprehensive			Common Stock					Paid-in			Retained			Comprehensive
Description	Income (loss)			Shares Issued			Amount		Capital			Earnings			(Loss)			Total

Balance, December 31, 2007					30,157		$	3	$	377,973		$	152,286		$	(28,744	)	$	501,518

Cumulative effect adjustment related to adoption of EITF No. 06-4					—			—		—			(169	)		—			(169	)
Stock options exercised					78			—		644			—			—			644
Stock-based compensation expense					46			—		4,482			—			—			4,482
Stock repurchases					(20	)		—		(356	)		—			—			(356	)
Stock issued in private placement					3,798			—		30,156			—			—			30,156
Comprehensive income (loss):
Net income	$	6,557			—			—		—			6,557			—			6,557
Other comprehensive income (loss)
Unrealized holding losses on securities available-for-sale arising during the period, net of taxes of $11,245		(20,823	)
Less reclassification adjustment for impairment losses included in net income, net of taxes of $1,848		3,432

Net unrealized holding losses		(17,391	)		—			—		—			—			(17,391	)		(17,391	)

	$	(10,834	)



Balance, June 30, 2008					34,059		$	3	$	412,899		$	158,674		$	(46,135	)	$	525,441

See Notes to Unaudited Consolidated Financial Statements.

5

Western Alliance Bancorporation and Subsidiaries

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2008 and 2007 (Unaudited)


($ in thousands)	2008			2007

Cash Flows from Operating Activities:
Net income	$	6,557		$	19,349
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		21,211			2,453
Securities impairment charges		5,280			—
Change in fair value of assets and liabilities measured at fair value		(1,268	)		3,779
Depreciation and amortization		6,426			4,990
Decrease in accrued interest receivable and other assets		1,351			4,309
Decrease in accrued interest payable and other liabilities		(3,141	)		(9,434	)
Other, net		7,422			(4,609	)

Net cash provided by operating activities		43,838			20,837

Cash Flows from Investing Activities:
Proceeds from maturities of securities		63,829			44,160
Purchases of securities		(104,250	)		(205,519	)
Proceeds from the sale of securities		114,409			73,100
Net cash received in settlement of acquisition		—			46,029
Net increase in loans made to customers		(253,385	)		(95,768	)
Purchase of premises and equipment		(4,763	)		(19,359	)
Proceeds from sale of premises and equipment		20			3,041
(Purchases) liquidations of restricted stock		(14,149	)		1,625
Other, net		74			—

Net cash (used in) investing activities		(198,215	)		(152,691	)

Cash Flows from Financing Activities:
Stock issued in private placement		30,156			—
Net increase in deposits		106,756			13,161
Net proceeds from borrowings		82,786			47,167
Proceeds from exercise of stock options and stock warrants		644			2,565
Stock repurchases		(356	)		—
Other, net		45			—

Net cash provided by financing activities		220,031			62,893

Increase (decrease) in cash and cash equivalents		65,654			(68,961	)
Cash and Cash Equivalents, beginning of period		115,629			264,880

Cash and Cash Equivalents, end of period	$	181,283		$	195,919


Supplemental Disclosure of Cash Flow Information
Cash payments for interest	$	63,878		$	56,673
Cash payments for income taxes	$	4,569		$	12,410
Supplemental Disclosure of Noncash Investing and Financing Activities
Stock issued in connection with acquisition	$	—		$	91,304
Transfers of loans to other real estate owned	$	6,847		$	—

See Notes to Unaudited Consolidated Financial Statements.

6

Western Alliance Bancorporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Note 1. Nature of Business and Summary of Significant Accounting Policies

(Dollars in thousands, except per share amounts)

Nature of business

Western Alliance Bancorporation is a bank holding company providing a full range of banking services to commercial and consumer clientele through its wholly owned subsidiaries: Bank of Nevada and First Independent Bank of Nevada, operating in Nevada; Alliance Bank of Arizona, operating in Arizona; Torrey Pines Bank and Alta Alliance Bank, operating in California; Miller/Russell & Associates, Inc., operating in Nevada, Arizona and Southern California; Premier Trust, Inc., operating in Nevada and Arizona and Shine Investment Advisory Services, Inc., operating in Colorado. These entities are collectively referred to herein as the Company. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and general industry practices.

Use of estimates in the preparation of financial statements

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for loan losses; fair value of collateralized debt obligations (CDOs), synthetic CDOs and related embedded derivatives; classification of impaired securities as other-than-temporary; and impairment of goodwill and other intangible assets.

Principles of consolidation

With the exception of certain trust subsidiaries which do not meet the criteria for consolidation pursuant to Financial Accounting Standards Board (FASB) Interpretation No. 46 (FIN 46),Consolidation of Variable Interest Entities, the consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Bank of Nevada and its subsidiary BW Real Estate, Inc., Alliance Bank of Arizona, Torrey Pines Bank, Alta Alliance Bank, First Independent Bank of Nevada (collectively referred to herein as the Banks), Miller/Russell & Associates, Inc., Premier Trust, Inc., and Shine Investment Advisory Services, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

Interim financial information

The accompanying unaudited consolidated financial statements as of June 30, 2008 and 2007 have been prepared in condensed format, and therefore do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These statements have been prepared on a basis that is substantially consistent with the accounting principles applied to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2007.

7

Western Alliance Bancorporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

The information furnished in these interim statements reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the Company’s audited financial statements.

Repurchase program

For the six months ended June 30, 2008, the Company repurchased 20,000 shares of common stock on the open market with a weighted average price of $17.75 per share. The Company has the remaining authority to repurchase shares with an aggregate purchase price of $30.6 million under a share repurchase program authorized by the Board of Directors through December 31, 2008. All repurchased shares are retired as soon as is practicable after settlement.

Recent Accounting Pronouncements

In September 2007, the FASB ratified the consensus of the Emerging Issues Task Force (EITF) Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangement. EITF 06-4 applies to endorsement split dollar life insurance policies that provide a benefit to an employee that extends to postretirement periods and requires an employer to recognize a liability for future benefits over the service period based on the substantive agreement with the employee. EITF 06-4 is effective for fiscal years beginning after December 15, 2007, with early adoption permitted. The adoption of EITF 06-4 resulted in a cumulative effect adjustment of $0.2 million, effective January 1, 2008.

In December 2007, the FASB issued SFAS No. 141R, Business Combinations (SFAS 141R), and SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51(SFAS 160). These new standards significantly change the accounting for and reporting of business combination transactions and non-controlling interests (previously referred to as minority interests) in consolidated financial statements. These statements are effective for the Company beginning on January 1, 2009. The Company does not expect SFAS 141R and SFAS 160 to have a material impact on the financial statements. These standards will change the Company’s accounting treatment for business combinations on a prospective basis.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 amends and expands the disclosure requirements of FASB Statement No. 133, requiring enhanced disclosures about (a) how and why the Company uses derivative instruments, (b) how derivative instruments and related hedge items are accounted for under FASB Statement No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect the Company’s financial position, results of operations, and cash flows. SFAS 161 is effective January 1, 2009 on a prospective basis, with comparative disclosures of earlier periods encouraged upon initial adoption.

In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, or FSP No. EITF 03-6-1. FSP No. EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in

8

Western Alliance Bancorporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

computing earnings per share, or EPS, under the two-class method described in paragraphs 60 and 61 of FASB Statement No. 128, Earnings per Share, or SFAS 128. The guidance in this FSP applies to the calculation of EPS under SFAS 128 for share-based payment awards with rights to dividends or dividend equivalents. FSP No. EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period EPS data presented should be adjusted retrospectively to conform with the provisions of this FSP. Early application is not permitted. The implementation of this standard will not have an impact on our consolidated financial position or results of operations.

Derivative Financial Instruments

All derivatives are recognized on the balance sheet at their fair value, with changes in fair value reported in current-period earnings. These instruments consist primarily of interest rate swaps.

Note 2. Fair Value Accounting

For the three and six months ended June 30, 2008, gains and losses from fair value changes included in the Consolidated Statement of Income were as follows (in thousands):


	Changes in Fair Values for the Three and Six Month
	Periods Ended June 30, 2008 for Items Measured at Fair
	Value Pursuant to Election of the Fair Value Option
								Total
	Unrealized					Interest		Changes in
	Gain/Loss on					Expense on		Fair Values
	Assets and					Junior		Included in
	Liabilities			Interest		Subordinated		Current-
	Measured at			Income on		Debt and		Period
Description	Fair Value, Net			Securities		Borrowings		Earnings
(Three months ended June 30, 2008)
Securities measured at fair value	$	(2,455	)	$	218	$	—	$	(2,237	)
Junior subordinated debt		1,695			—		85		1,780
Fixed-rate term borrowings		647			—		—		647

	$	(113	)	$	218	$	85	$	190


(Six months ended June 30, 2008)
Securities measured at fair value	$	(6,532	)	$	555	$	—	$	(5,977	)
Junior subordinated debt		7,843			—		155		7,998
Fixed-rate term borrowings		(43	)		—		—		(43	)

	$	1,268		$	555	$	155	$	1,978

The difference between the aggregate fair value of $54.3 million and the aggregate unpaid principal balance of $66.5 million of junior subordinated debt was $12.2 million at June 30, 2008.

The difference between the aggregate fair value of $30.8 million and the aggregate unpaid principal balance of $30.0 million of fixed-rate term borrowings measured at fair value was $0.8 million at June 30, 2008.

Interest income on securities measured at fair value is accounted for similarly to those classified as available-for-sale and held-to-maturity. As of January 1, 2007, a discount or premium was calculated for

9

Western Alliance Bancorporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

each security based upon the difference between the par value and the fair value at that date. These premiums and discounts are recognized in interest income over the term of the securities. For mortgage-backed securities, estimates of prepayments are considered in the constant yield calculations. Interest expense on junior subordinated debt is also determined under a constant yield calculation.

Fair value on a recurring basis

The Company measures certain assets and liabilities at fair value on a recurring basis, including securities available-for-sale, securities measured at market value and junior subordinated debt. The fair value of these assets and liabilities were determined using the following inputs at June 30, 2008 (in thousands):


			Fair Value Measurements at Reporting Date Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
Description	June 30, 2008		(Level 1)		(Level 2)		(Level 3)

Assets:
Securities available-for-sale	$	398,285	$	48,848	$	338,524	$	10,913
Securities measured at fair value		129,242		—		129,242		—
Interest rate swaps		2,330		—		2,330		—

Total	$	529,857	$	48,848	$	470,096	$	10,913


Liabilities:
Fixed-rate term borrowings	$	30,811	$	—	$	30,811	$	—
Junior subordinated debt		54,326		—		—		54,326
Interest rate swaps		1,685		—		1,685		—

Total	$	86,822	$	—	$	32,496	$	54,326

10

Western Alliance Bancorporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)


	Securities Available-			Securities Measured			Junior Subordinated
	For-Sale			at Fair Value			Debt

Beginning balance January 1, 2008	$	115,921		$	2,787		$	(62,240	)
Total gains (losses) (realized/unrealized)
Included in earnings		(5,280	)		(2,787	)		7,914
Included in other comprehensive income		(17,229	)		—			—
Purchases, issuances, and settlements, net		—			—			—
Transfers to held-to-maturity		(82,499	)		—			—
Transfers in and/or out of Level 3		—			—			—

Ending balance June 30, 2008	$	10,913		$	—		$	(54,326	)


The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at the reporting date	$	(5,280	)	$	(2,787	)	$	7,914

Fair value on a nonrecurring basis

Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents such assets carried on the balance sheet by caption and by level within the SFAS 157 hierarchy as of June 30, 2008.

Fair Value Measurements Using

Quoted Prices

in Active

Significant Other

Significant

Markets for

Observable

Unobservable

Identical Assets

Inputs

Total

(Level 1)

(Level 2)

(Level 3)

Impaired loans with specific valuation allowance under SFAS 114

$

46,300

$

—

$

—

$

46,300

The specific reserves for collateral dependent impaired loans are based on the fair value of the collateral less estimated costs to sell. The fair value of collateral was determined based on appraisals. In some cases, adjustments were made to the appraised values due to various factors including age of the appraisal, age of comparables included in the appraisal, and known changes in the market and in the collateral. When significant adjustments were based on unobservable inputs, the resulting fair value measurement has been categorized as a Level 3 measurement. These Level 3 impaired loans had an aggregate carrying amount of $59.1 million and specific reserves in the allowance for loan losses of $12.8 million as of June 30, 2008.

Note 3. Earnings Per Share

Diluted earnings per share is based on the weighted average outstanding common shares during each period, including common stock equivalents. Basic earnings per share is based on the weighted average outstanding common shares during the period.

11

Western Alliance Bancorporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Basic and diluted earnings per share, based on the weighted average outstanding shares, are summarized as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
	(in thousands, except per share amounts)
Basic:
Net income applicable to common stock	$	2,415	$	7,946	$	6,557	$	19,349
Average common shares outstanding		29,759		29,666		29,948		28,308

Earnings per share	$	0.08	$	0.27	$	0.22	$	0.68


Diluted:
Net income applicable to common stock	$	2,415	$	7,946	$	6,557	$	19,349


Average common shares outstanding		29,759		29,666		29,948		28,308
Stock option adjustment		71		1,091		253		1,113
Stock warrant adjustment		381		959		475		976
Restricted stock adjustment		—		119		—		112

Average common equivalent shares outstanding		30,211		31,835		30,676		30,509

Earnings per share	$	0.08	$	0.25	$	0.21	$	0.63

As of June 30, 2008, approximately 2.4 million stock options and 132,000 stock warrants were considered anti-dilutive and excluded for purposes of calculating diluted earnings per share because they were out of the money.

Note 4. Securities

Carrying amounts and fair values of investment securities at June 30, 2008 are summarized as follows (in thousands):

12

Western Alliance Bancorporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements


	June 30, 2008
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		(Losses)			Value

Securities held-to-maturity
Debt obligations and structured securities	$	85,986	$	1,118	$	(1,371	)	$	85,733
Municipal obligations		6,640		141		—			6,781
Other		1,500		—		—			1,500

	$	94,126	$	1,259	$	(1,371	)	$	94,014


Securities available-for-sale
U.S. Treasury Securities	$	2,994	$	1	$	—		$	2,995
U.S. Government-sponsored agencies		2,500		—		(30	)		2,470
Municipal obligations		13,930		108		(43	)		13,995
Mortgage-backed securities		284,884		2,929		(2,443	)		285,370
Adjustable-rate preferred stock		105,727		—		(36,508	)		69,219
Debt obligations and structured securities		18,840		—		(7,889	)		10,951
Other		13,638		—		(353	)		13,285

	$	442,513	$	3,038	$	(47,266	)	$	398,285


Securities measured at fair value
U.S. Government-sponsored agencies								$	2,408
Municipal obligations									110
Mortgage-backed securities									126,724

								$	129,242


	December 31, 2007
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		(Losses)			Value

Securities held-to-maturity
Municipal obligations	$	7,906	$	124	$	—		$	8,030
Other		1,500		—		—			1,500

	$	9,406	$	124	$	—		$	9,530


Securities available-for-sale
U.S. Government-sponsored agencies	$	14,971	$	128	$	(20	)	$	15,079
Municipal obligations		14,143		88		(36	)		14,195
Mortgage-backed securities		273,368		2,429		(1,507	)		274,290
Adjustable-rate preferred stock		51,506		—		(21,796	)		29,710
Debt obligations and structured securities		162,855		—		(23,515	)		139,340
Other		13,890		—		(150	)		13,740

	$	530,733	$	2,645	$	(47,024	)	$	486,354


Securities measured at fair value
U.S. Government-sponsored agencies								$	9,049
Municipal obligations									110
Mortgage-backed securities									228,494
Debt obligations and structured securities									2,787

								$	240,440

13

Western Alliance Bancorporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

As of May 31, 2008, the Company transferred its trust preferred CDO portfolio from available-for-sale to held-to-maturity. The par value and fair value of these securities at the date of transfer were $121.4 million and $85.7 million, respectively. The unrealized losses of $35.7 million on the securities transferred to held-to-maturity remain included in other comprehensive loss and continue to be subject to the other-than-temporary impairment consideration rules of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities.

Net unrealized losses, net of taxes, increased $17.4 million for the six months ended June 30, 2008 to $46.1 million from $28.7 million at December 31, 2007. The increase in unrealized losses is generally due to widening interest spreads which began in the third quarter of 2007. During March 2008 and thereafter, the near insolvency of Bear Stearns and other financial businesses caused the debt of almost all financial companies to decline in value. This compounded the lack of liquidity for such securities that existed since late 2007. The Company is actively monitoring these portfolios for declines in fair value that are considered other-than-temporary. These combined unrealized losses were not considered as other-than-temporary as of June 30, 2008.

During the six months ended June 30, 2008, the Company recorded impairment charges totaling $5.3 million, including $2.2 million related to a security which suffered a significant downgrade and $3.1 million related to an auction-rate leveraged security that was discussed in the Company’s Form 10-K for the year ended December 31, 2007.

Note 5. Loans

The components of the Company’s loan portfolio as of June 30, 2008 and December 31, 2007 are as follows (in thousands):


	June 30,			December 31,
	2008			2007

Construction and land development	$	831,731		$	806,110
Commercial real estate		1,624,520			1,514,533
Residential real estate		535,973			492,551
Commercial and industrial		836,962			784,378
Consumer		54,044			43,517
Less: net deferred loan fees		(8,665	)		(8,080	)

		3,874,565			3,633,009

Less:
Allowance for loan losses		(58,688	)		(49,305	)

	$	3,815,877		$	3,583,704

Changes in the allowance for loan losses for the three and six months ended June 30, 2008 and 2007 are as follows (in thousands):

14

Western Alliance Bancorporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007

Balance, beginning	$	50,839		$	37,519		$	49,305		$	33,551
Acquisitions		—			83			—			3,789
Provision charged to operating expense		13,152			2,012			21,211			2,453
Recoveries of amounts charged off		196			92			299			171
Less amounts charged off		(5,499	)		(2,760	)		(12,127	)		(3,018	)

Balance, ending	$	58,688		$	36,946		$	58,688		$	36,946

Information about impaired and nonaccrual loans as of June 30, 2008 and December 31, 2007 is as follows:


	June 30,		December 31,
	2008		2007

Total impaired loans, all with a specific reserve	$	59,139	$	35,114


Related allowance for loan losses on impaired loans	$	12,839	$	6,597


Total nonaccrual loans	$	44,416	$	17,873


Loans past due 90 days or more and still accruing	$	3,597	$	779


Restructured loans	$	5,494	$	3,782

Note 6. Borrowed funds

The Company has a line of credit available from the Federal Home Loan Bank (FHLB). Borrowing capacity is determined based on collateral pledged, generally consisting of securities and loans, at the time of the borrowing. The Company also has borrowings from other sources pledged by securities. A summary of the Company’s borrowings as of June 30, 2008 and December 31, 2007 follows (in thousands):


	June 30,		December 31,
	2008		2007

Short Term
FHLB Advances (weighted average rate for 2008 is: 2.19% and 2007: 3.30%)	$	646,600	$	447,600
Other short term debt (weighted average rate for 2008 is: 5.73% and 2007: 4.17%)		20,000		41,730

Due in one year or less	$	666,600	$	489,330

Long Term
FHLB Advances (weighted average rate is 2008: 4.77% and 2007: 4.63%)	$	40,811	$	45,768
Other long term debt (weighted average rate is 8.79%)		9,544		9,601

Due in over one year	$	50,355	$	55,369

15

Western Alliance Bancorporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Note 7. Tax Matters

The reasons for the differences between the statutory federal income tax rate and the effective tax rate are summarized as follows:


	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2008			2007			2008			2007

Computed “expected” tax expense	$	1,138		$	4,127		$	3,094		$	10,201
Increase (decrease) resulting from:
State income taxes, net of federal benefits		124			100			194			279
Dividends received deductions		(195	)		(224	)		(342	)		(282	)
Bank-owned life insurance		(201	)		(336	)		(481	)		(661	)
Tax-exempt income		(113	)		(34	)		(238	)		(50	)
Nondeductible expenses		74			29			159			113
Other		75			185			(103	)		198

	$	902		$	3,847		$	2,283		$	9,798

Note 8. Contingencies

In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the consolidated financial statements.

Financial instruments with off-balance sheet risk

A summary of the contract amount of the Company’s exposure to off-balance sheet risk is as follows:


	June 30,		December 31,
	2008		2007
	(in thousands)
Commitments to extend credit, including unsecured loan commitments of $234,179 in 2008 and $230,677 in 2007	$	1,086,144	$	1,193,522
Credit card commitments and guarantees		32,528		26,507
Standby letters of credit, including unsecured letters of credit of $11,330 in 2008 and $14,543 in 2007		62,670		80,790

	$	1,181,342	$	1,300,819

During the period ended June 30, 2008, the Company entered into an agreement with the Federal Reserve Bank in which certain loans and securities may be pledged as collateral on a borrowing line at up to 75% of the collateral value.

Note 9. Stock-based Compensation

For the six months ended June 30, 2008, 423,625 stock options with a weighted average exercise price of $15.90 per share, were granted to certain key employees and directors. The Company estimates the fair value of each option award on the date of grant using a Black-Scholes valuation model. The weighted

16

Western Alliance Bancorporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

average grant date fair value of these options was $5.07 per share. These stock options generally have a vesting period of four years and a contractual life of seven years.

As of June 30, 2008, there were 2.6 million options outstanding, compared with 2.5 million at June 30, 2007.

For the three and six months ended June 30, 2008, the Company recognized stock-based compensation expense related to all options of $0.5 million and $1.0 million, respectively, as compared to $0.4 million and $0.8 million, respectively, for the three and six months ended June 30, 2007.

For the three and six months ended June 30, 2008, 24,500 and 51,650 shares of restricted stock were issued, respectively. The Company estimates the compensation cost for restricted stock grants based upon the grant date fair value. Generally, these restricted stock grants have a three year vesting period. The estimated grant date fair value of these restricted stock grants was $0.6 million.

There were approximately 595,000 and 427,000 restricted shares outstanding at June 30, 2008 and 2007, respectively. For the three and six months ended June 30, 2008, the Company recognized stock-based compensation of $1.7 million and $3.4 million, respectively, compared to $0.9 million and $1.8 million, respectively, for the three and six months ended June 30, 2007 related to the Company’s restricted stock plan.

Note 10. Segment Information

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS 131”), provides for the identification of reportable segments on the basis of discreet business units and their financial information to the extent such units are reviewed by an entity’s chief decision maker (which can be an individual or group of management persons).

The Company adjusted its segment reporting composition in the current period in accordance with SFAS 131. The Company’s reporting segments were modified to more accurately reflect the way the Company manages and assesses the performance of the business. The segments were changed to report the banking operations on a state-by-state basis rather than on a per bank basis, as was done in the past, and the Company also created new segments to report the asset management and credit card operations. Previously, the asset management operations were included in “Other” and the credit card operations were included in “Torrey Pines Bank.”

The new structure is segmented as “Nevada” (Bank of Nevada and First Independent Bank of Nevada), “Arizona” (Alliance Bank of Arizona), “California” (Torrey Pines Bank and Alta Alliance Bank), “Asset Management” (Miller/Russell, Premier Trust and Shine), “Credit Card Services” (PartnersFirst) and “Other” (Western Alliance Bancorporation holding company and miscellaneous). Prior period balances were restated to reflect the change.

Transactions between segments consist primarily of borrowings and loan participations. Federal funds purchases and sales and other borrowed funds transactions result in profits that are eliminated for reporting consolidated results of operations. Loan participations are recorded at par value with no resulting gain or loss. The Company allocates centrally provided services to the operating segments based upon estimated usage of those services.

The following is a summary of selected operating segment information as of and for the periods ended June 30, 2008 and 2007:

17

Western Alliance Bancorporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Operating Segment Results
Unaudited


																			Inter-
																			segment			Consoli-
										Asset			Credit Card						Elimi-			dated
	Nevada			California			Arizona			Management			Services			Other			nations			Company

($ in thousands)
At June 30, 2008:
Assets	$	3,668,728		$	863,031		$	796,993		$	18,386		$	20,578		$	16,489		$	(164,872	)	$	5,219,333
Gross loans and deferred fees		2,619,691			664,706			618,083			—			15,085			—			(43,000	)		3,874,565
Less: Allowance for loan losses		(42,577	)		(7,403	)		(8,246	)		—			(462	)		—			—			(58,688	)

Net loans		2,577,114			657,303			609,837			—			14,623			—			(43,000	)		3,815,877

Deposits		2,388,193			622,761			656,855			—			—			—			(14,131	)		3,653,678
Stockholders’ equity		426,309			67,954			54,143			16,685			—			(39,650	)		—			525,441

Number of branches		21			9			11			—			—			—			—			41
Number of full-time equivalent employees		598			152			141			44			28			37			—			1,000

(in thousands)
Three Months Ended June 30, 2008:
Net interest income	$	32,525		$	9,287		$	7,345		$	16		$	15		$	(1,186	)	$	—		$	48,002
Provision for loan losses		10,674			1,464			760			—			254			—			—			13,152

Net interest income after provision for loan losses		21,851			7,823			6,585			16			(239	)		(1,186	)		—			34,850
Gain (loss) on sale of securities		(16	)		—			72			—			—			—			—			56
Mark-to-market gains (losses)		(145	)		(261	)		(639	)		—			—			1,696			—			651
Noninterest income, excluding securities and fair value gains (losses)		2,614			496			1,487			2,720			147			361			(873	)		6,952
Noninterest expense		(19,606	)		(6,410	)		(6,169	)		(2,164	)		(2,901	)		(2,760	)		873			(39,137	)

Income (loss) before income taxes		4,698			1,648			1,336			572			(2,993	)		(1,889	)		—			3,372
Minority interest		—			—			—			55			—			—			—			55
Income tax expense (benefit)		1,363			690			506			226			(1,245	)		(638	)		—			902

Net income (loss)	$	3,335		$	958		$	830		$	291		$	(1,748	)	$	(1,251	)	$	—		$	2,415


(in thousands)
Six Months Ended June 30, 2008:
Net interest income	$	65,037		$	17,807		$	14,641		$	45		$	(66	)	$	(2,600	)	$	—		$	94,864
Provision for loan losses		17,247			2,017			1,485			—			462			—			—			21,211

Net interest income after provision for loan losses		47,790			15,790			13,156			45			(528	)		(2,600	)		—			73,653
Gain (loss) on sale of securities		(13	)		—			230			—			—			—						217
Mark-to-market gains (losses)		(9,932	)		(383	)		(805	)		—			—			7,915			—			(3,205	)
Noninterest income, excluding securities and fair value gains (losses)		6,189			1,015			3,381			5,526			302			364			(1,407	)		15,370
Noninterest expense		(38,850	)		(12,795	)		(12,633	)		(4,852	)		(4,909	)		(4,443	)		1,407			(77,075	)

Income (loss) before income taxes		5,184			3,627			3,329			719			(5,135	)		1,236			—			8,960
Minority interest		—			—			—			120			—			—			—			120
Income tax expense (benefit)		973			1,514			1,213			294			(2,133	)		422			—			2,283

Net income (loss)	$	4,211		$	2,113		$	2,116		$	305		$	(3,002	)	$	814		$	—		$	6,557

18

Western Alliance Bancorporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Operating Segment Results (continued)
Unaudited


																Inter-
																segment			Consoli-
										Asset						Elimi-			dated
	Nevada			California			Arizona			Management			Other			nations			Company

($ in thousands)
At June 30, 2007:
Assets	$	3,461,076		$	682,212		$	755,919		$	9,180		$	10,542		$	(172,103	)	$	4,746,826
Gross loans and deferred fees		2,427,166			457,518			524,256			—			—			(20,000	)		3,388,940
Less: Allowance for loan losses		(25,910	)		(4,759	)		(6,277	)		—			—			—			(36,946	)

Net loans		2,401,256			452,759			517,979			—			—			(20,000	)		3,351,994

Deposits		2,585,591			572,347			662,022			—			—			(4,113	)		3,815,847
Stockholders’ equity		477,907			64,544			53,620			8,497			(85,117	)		—			519,451

Number of branches		17			8			10			—			—			—			35
Number of full-time equivalent employees		642			147			145			36			30			—			1,000

(in thousands)
Three Months Ended June 30, 2007:
Net interest income	$	33,448		$	6,649		$	7,279		$	18		$	(1,568	)	$	—		$	45,826
Provision for loan losses		1,318			149			545			—			—			—			2,012

Net interest income after provision for loan losses		32,130			6,500			6,734			18			(1,568	)		—			43,814
Gain (loss) on sale of securities		—			—			—			—			—			—			—
Mark-to-market gains (losses)		(2,907	)		(419	)		(440	)		—			—			—			(3,766	)
Noninterest income, excluding securities and fair value gains (losses)		3,221			543			611			2,136			—			(492	)		6,019
Noninterest expense		(19,603	)		(5,862	)		(5,842	)		(1,792	)		(1,667	)		492			(34,274	)

Income (loss) before income taxes		12,841			762			1,063			362			(3,235	)		—			11,793
Income tax expense (benefit)		4,073			376			398			159			(1,159	)		—			3,847

Net income (loss)	$	8,768		$	386		$	665		$	203		$	(2,076	)	$	—		$	7,946


(in thousands)
Six Months Ended June 30, 2007:
Net interest income	$	62,414		$	12,884		$	13,973		$	31		$	(2,620	)	$	—		$	86,682
Provision for loan losses		1,605			303			545			—			—			—			2,453

Net interest income after provision for loan losses		60,809			12,581			13,428			31			(2,620	)		—			84,229
Gain (loss) on sale of securities		(5	)		—						—			289			—			284
Mark-to-market gains (losses)		(2,921	)		(418	)		(440	)		—			—			—			(3,779	)
Noninterest income, excluding securities and fair value gains (losses)		6,162			1,071			1,142			4,275			(289	)		(753	)		11,608
Noninterest expense		(34,656	)		(11,509	)		(11,241	)		(3,534	)		(3,008	)		753			(63,195	)

Income (loss) before income taxes		29,389			1,725			2,889			772			(5,628	)		—			29,147
Income tax expense (benefit)		9,582			745			1,109			336			(1,974	)		—			9,798

Net income (loss)	$	19,807		$	980		$	1,780		$	436		$	(3,654	)	$	—		$	19,349

19

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and our unaudited consolidated financial statements and related footnotes in the Quarterly Report on Form 10-Q. Unless the context requires otherwise, the terms “Company”, “us”, “we”, and “our” refer to Western Alliance Bancorporation on a consolidated basis.

Forward-Looking Information

Certain statements contained in this document, including, without limitation, statements containing the words “believes”, “anticipates”, “intends”, “expects”, “should” and words of similar import, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. Such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions in those areas in which we operate, demographic changes, competition, fluctuations in interest rates, changes in business strategy or development plans, changes in governmental regulation, credit quality, the availability of capital to fund the expansion of our business, and other factors referenced in this Report. Except as required by law, we disclaim any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

Overview

During the second quarter of 2008, our earnings continue to be challenged by difficult economic conditions in our primary markets and the economic downturn generally, causing heavy reserves to our loan portfolio and losses in our securities portfolio. We continue to explore and invest in new and expanded business lines and products, including cash management services, credit cards, wealth management and equipment leasing, and we believe the current economic climate presents our Company with the opportunity to differentiate ourselves from our competitors. Loan growth for the quarter ended June 30, 2008 was $151.9 million, or 4.1%, as compared to growth of $52.9 million, or 1.6% for the same period in 2007. Deposit growth was $23.4 million, including $60.0 million of brokered deposits, or 0.6%, for the three months ended June 30, 2008, compared to growth of $33.3 million, or 0.9% for the same period in 2007. We reported net income of $2.4 million, or $0.08 per diluted share, for the quarter ended June 30, 2008, as compared to $7.9 million, or $0.25 per diluted share, for the same period in 2007. The decrease in earnings is primarily due to an increase of $4.9 million in noninterest expenses related to expansion efforts and an $11.1 million increase in the provision for loan losses related to higher historical losses, changes in size and mix of the loan portfolio and increases in specific reserves on impaired loans. Noninterest income, excluding changes in fair value of financial instruments measured at fair value, for the quarter ended June 30, 2008 increased 15.5% from the same period in the prior year due to increases in trust and investment advisory fees, service charges and other revenue. Noninterest expense for the quarter ended June 30, 2008 increased 14.3% from the same period in 2007, due primarily to increases in salaries and benefits and occupancy costs caused by the acquisitions of Shine Investment Advisory Services in 2007, the establishment of the PartnersFirst affinity credit card initiative in 2007 and continued branch expansion during 2007. Branch expansion is expected to be nominal through the remainder of 2008.

Selected financial highlights are presented in the table below.

20

Western Alliance Bancorporation and Subsidiaries
Summary Consolidated Financial Data
Unaudited


	At or for the three months								For the six months
	ended June 30,								ended June 30,
	2008		2007			Change %			2008			2007			Change %
Selected Balance Sheet Data:
($ in millions)
Total assets	$	5,219.3	$	4,746.8			10.0	%
Gross loans, including net deferred fees		3,874.6		3,388.9			14.3
Securities		621.7		685.6			(9.3	)
Federal funds sold		10.9		73.0			(85.1	)
Deposits		3,653.7		3,815.8			(4.2	)
Customer repurchase agreements		185.6		195.7			(5.2	)
Borrowings		717.0		90.8			689.6
Junior subordinated and subordinated debt		114.3		110.2			3.7
Stockholders’ equity		525.4		519.5			1.1

Selected Income Statement Data:
($ in thousands)
Interest income	$	72,686	$	76,846			(5.4	)%	$	149,478		$	144,159			3.7	%
Interest expense		24,684		31,020			(20.4	)		54,614			57,477			(5.0	)

Net interest income		48,002		45,826			4.7			94,864			86,682			9.4
Provision for loan losses		13,152		2,012			553.7			21,211			2,453			764.7

Net interest income after provision for loan losses		34,850		43,814			(20.5	)		73,653			84,229			(12.6	)
Gain (loss) on sale of securities		56		—		NA				217			284			(23.6	)
Mark-to-market gains (losses)		651		(3,766	)		(117.3	)		(3,205	)		(3,779	)		(15.2	)
Noninterest income, excluding securities and fair value gains (losses)		6,952		6,019			15.5			15,370			11,608			32.4
Noninterest expense		39,137		34,274			14.2			77,075			63,195			22.0

Income before income taxes		3,372		11,793			(71.4	)		8,960			29,147			(69.3	)
Minority interest		55		—		NA				120			—		NA
Income tax expense		902		3,847			(76.6	)		2,283			9,798			(76.7	)

Net Income	$	2,415	$	7,946			(69.6	)	$	6,557		$	19,349			(66.1	)

Memo: Intangible asset amortization expense, net of tax	$	595	$	557			6.8		$	1,108		$	814			36.1

21

Western Alliance Bancorporation and Subsidiaries
Summary Consolidated Financial Data (Continued)
Unaudited


	At or for the three months									For the six months
	ended June 30,									ended June 30,
	2008			2007			Change %			2008			2007			Change %
Common Share Data:
Diluted net income per share		0.08			0.25			(68.0	)		0.21			0.63			(66.7	)
Book value per share		15.43			17.24			(10.5	)
Tangible book value per share, net of tax (3)		8.59			9.73			(11.7	)
Average shares outstanding (in thousands):
Basic		29,759			29,666			0.3			29,948			28,308			5.8
Diluted		30,211			31,835			(5.1	)		30,676			30,509			0.5
Common shares outstanding		34,059			30,128			13.0

Selected Performance Ratios:
Return on average assets (6)		0.19	%		0.68	%		(72.1	)%		0.26	%		0.89	%		(70.8	)%
Return on average tangible assets (4)(6)		0.20			0.71			(71.8	)		0.27			0.93			(71.0	)
Return on average stockholders’ equity (6)		1.95			6.15			(68.3	)		2.64			8.37			(68.5	)
Return on average tangible stockholders’ equity (5)(6)		3.79			10.84			(65.0	)		5.07			13.75			(63.1	)
Net interest margin (1)(6)		4.25			4.52			(6.0	)		4.22			4.55			(7.3	)
Net interest spread (6)		3.73			3.42			9.1			3.63			3.41			6.5
Efficiency ratio — tax equivalent basis (2)		70.68			64.23			10.0			69.43			63.16			9.9
Loan to deposit ratio		106.05			88.81			19.4

Capital Ratios:
Tangible Common Equity		5.7	%		6.3	%		(9.5	)%
Tier 1 Leverage ratio		7.9			8.2			(3.7	)
Tier 1 Risk Based Capital		8.4			8.9			(5.6	)
Total Risk Based Capital		11.0			10.7			2.8

Asset Quality Ratios:
Net charge-offs to average loans outstanding (6)		0.55	%		0.31	%		77.4	%		0.63	%		0.18	%		250.0	%
Nonaccrual loans to gross loans		1.15			0.02			5,650.0
Nonaccrual loans and OREO to total assets		0.98			0.02			4,800.0
Loans past due 90 days and still accruing to total loans		0.09			0.19			(52.6	)
Allowance for loan losses to gross loans		1.51			1.09			39.0
Allowance for loan losses to nonaccrual loans		132.13	%		5152.86	%		(97.4	)


(1)		Net interest margin represents net interest income as a percentage of average interest-earning assets.

(2)		Efficiency ratio represents noninterest expenses as a percentage of the total of net interest income plus noninterest income (tax equivalent basis).

(3)		Tangible book value per share (net of tax) represents stockholders’ equity less intangibles, adjusted for deferred taxes related to intangibles, as a percentage of the shares outstanding at the end of the period.

(4)		Return on average tangible assets represents net income as a percentage of average total assets less average intangible assets.

(5)		Return on average tangible stockholders’ equity represents net income as a percentage of average total stockholders’ equity less average intangible assets.

(6)		Annualized

Primary Factors in Evaluating Financial Condition and Results of Operations

As a bank holding company, we focus on several factors in evaluating our financial condition and results of operations, including:

	•		Return on Average Equity (ROE) and Return on Tangible Average Equity (ROTE);

	•		Return on Average Assets (ROA) and Return on Average Tangible Assets (ROTA);

	•		Asset Quality;

	•		Asset and Deposit Growth; and

22

•

Operating Efficiency.

Return on Average Equity. Our net income for the three months ended June 30, 2008 decreased 69.6% to $2.4 million compared to $7.9 million for the three months ended June 30, 2007. The decrease in net income was due primarily to an $11.1 million increase to the provision for loan losses caused by challenging economic conditions in our primary markets, partially offset by a $6.3 million decrease in interest expense due to lower costs of funds. Basic earnings per share decreased to $0.08 per share for the three months ended June 30, 2008 compared to $0.27 per share for the same period in 2007. Stockholders’ equity increased $31.5 million from the quarter ended March 31, 2008 due primarily to a private placement of 3.8 million shares of common stock totaling $30.2 million. Diluted earnings per share was $0.08 per share for the three month period ended June 30, 2008, compared to $0.25 per share for the same period in 2007. The decrease in net income and the increase in equity resulted in an ROE of 1.95% for the three months ended June 30, 2008 compared to 6.15% for the three months ended June 30, 2007. ROTE decreased 65.0% to 3.79% for the three months ended June 30, 2008.

Our net income for the six months ended June 30, 2008 decreased 66.1% to $6.6 million compared to $19.3 million for the six months ended June 30, 2007. Basic earnings per share decreased to $0.22 per share for the six months ended June 30, 2008 compared to $0.68 per share for the same period in 2007. Diluted earnings per share was $0.21 per share for the six month period ended June 30, 2008, compared to $0.63 per share for the same period in 2007. The decrease in net income combined with the increase in equity resulted in an ROE and ROTE of 2.64% and 5.07%, respectively, for the six months ended June 30, 2008 compared to 8.37% and 13.75%, respectively, for the six months ended June 30, 2007.

Return on Average Assets. Our ROA for the three and six months ended June 30, 2008 decreased to 0.19% and 0.26%, respectively, compared to 0.68% and 0.89%, respectively, for the same periods in 2007. The ROTA for the three and six months ended June 30, 2008 decreased to 0.20% and 0.27%, respectively, compared to 0.71% and 0.93%, respectively, for the three and six months ended June 30, 2007. The decreases in ROA and ROTA are primarily due to the decreases in net income as discussed above.

Asset Quality. For all banks and bank holding companies, asset quality plays a significant role in the overall financial condition of the institution and results of operations. We measure asset quality in terms of nonaccrual and restructured loans and assets as a percentage of gross loans and assets, and net charge-offs as a percentage of average loans. Net charge-offs are calculated as the difference between charged-off loans and recovery payments received on previously charged-off loans. As of June 30, 2008, impaired loans, including nonaccrual loans, were $59.1 million compared to $8.0 million at June 30, 2007. Nonaccrual loans as a percentage of gross loans were 1.15% as of June 30, 2008, compared to less than 0.02% as of June 30, 2007. For the three and six months ended June 30, 2008, net charge-offs as a percentage of average loans were 0.55% and 0.63%, respectively. For the same periods in 2007, net charge-offs as a percentage of average loans were 0.31% and 0.18%.

Asset Growth. The ability to produce loans and generate deposits is fundamental to our asset growth. Our assets and liabilities are comprised primarily of loans and deposits, respectively. Total assets increased 10.0% to $5.22 billion as of June 30, 2008 from $4.75 billion as of June 30, 2007. Gross loans grew 14.3% to $3.87 billion as of June 30, 2008 from $3.39 billion as of June 30, 2007. Total deposits decreased 4.2% to $3.65 billion as of June 30, 2008 from $3.82 billion as of June 30, 2007.

23

Operating Efficiency. Operating efficiency is measured in terms of how efficiently income before income taxes is generated as a percentage of revenue. Our tax-equivalent efficiency ratio (noninterest expenses divided by the sum of net interest income and noninterest income, tax adjusted) was 70.68% for the three months ended June 30, 2008, compared to 64.23% for the same period in 2007. Our tax-equivalent efficiency ratios for the six months ended June 30, 2008 and 2007 were 69.43% and 63.16%, respectively. The increase was primarily driven by increases in salaries and benefits and occupancy costs associated with the acquisitions of First Independent Bank of Nevada and Shine Investment Advisory Services in 2007, the establishment of the PartnersFirst affinity credit card initiative in 2007 and continued branch expansion during 2007.

Critical Accounting Policies

The Notes to Audited Consolidated Financial Statements for the year ended December 31, 2007 contain a summary of our significant accounting policies, including discussions on recently issued accounting pronouncements, our adoption of them and the related impact of their adoption. We believe that certain of these policies, along with various estimates that we are required to make in recording our financial transactions, are important to have a complete picture of our financial position. In addition, these estimates require us to make complex and subjective judgments, many of which include matters with a high degree of uncertainty. The discussion of these critical accounting policies and significant estimates can be found in Note 1 of the Audited Consolidated Financial Statements filed with the Company’s Annual Report on Form 10-K.

Results of Operations

Our results of operations depend substantially on net interest income, which is the difference between interest income on interest-earning assets, consisting primarily of loans receivable, securities and other short-term investments, and interest expense on interest-bearing liabilities, consisting primarily of deposits and borrowings. Our results of operations are also dependent upon our generation of noninterest income, consisting primarily of income from trust and investment advisory services and banking service fees. Other factors contributing to our results of operations include our provisions for loan losses, gains or losses on sales of securities and income taxes, as well as the level of our noninterest expenses, such as compensation and benefits, occupancy and equipment and other miscellaneous operating expenses.

24

The following table sets forth a summary financial overview for the three and six months ended June 30, 2008 and 2007:


	Three Months Ended									Six Months Ended
	June 30,									June 30,
	2008			2007			Increase			2008			2007			Increase
	(in thousands, except per share amounts)
Consolidated Statement of Earnings Data:
Interest income	$	72,686		$	76,846		$	(4,160	)	$	149,478		$	144,159		$	5,319
Interest expense		24,684			31,020			(6,336	)		54,614			57,477			(2,863	)

Net interest income		48,002			45,826			2,176			94,864			86,682			8,182
Provision for loan losses		13,152			2,012			11,140			21,211			2,453			18,758

Net interest income after provision for loan losses		34,850			43,814			(8,964	)		73,653			84,229			(10,576	)
Gain (loss) on sale of securities		56			—			56			217			284			(67	)
Mark-to-market gains (losses)		651			(3,766	)		4,417			(3,205	)		(3,779	)		574
Noninterest income, excluding securities and fair value gains (losses)		6,952			6,019			933			15,370			11,608			3,762
Noninterest expense		39,137			34,274			4,863			77,075			63,195			13,880

Net income before income taxes		(3,580	)		5,774			(9,354	)		(6,410	)		17,539			(23,949	)
Minority interest		55			—			55			120			—			120
Income tax expense		902			3,847			(2,945	)		2,283			9,798			(7,515	)

Net income	$	(4,537	)	$	1,927		$	(6,464	)	$	(8,813	)	$	7,741		$	(16,554	)

Diluted earnings per share	$	0.08		$	0.25		$	(0.17	)	$	0.21		$	0.63		$	(0.42	)

The 69.6% decrease in net income for the three months ended June 30, 2008 compared to the same period in 2007 was attributable primarily to an $11.1 million increase to the provision for loan losses caused by challenging economic conditions in our primary markets, partially offset by a $6.3 million decrease in interest expense due to lower costs of funds. Net income for the six months ended June 30, 2008 and June 30, 2007 decreased $12.8 million from $19.3 million, which is due to the above mentioned items as well.

Net Interest Income and Net Interest Margin. The 4.7% increase in net interest income for the three months ended June 30, 2008 compared to the same period in 2007 was due to a decrease in interest expense of $6.3 million in excess of the $4.2 million decrease in interest income.

Net interest income for the six months ended June 30, 2008 increased 9.4% over the same period in 2007 due to an increase in interest income of $5.3 million, reflecting the effect of an increase of $689.0 million in average interest-bearing assets which was funded primarily with an increase of $159.3 million in average deposits and $684.9 million in average short-term borrowings and due to a decrease in interest expense of $2.9 million, reflecting the effect of a 1.13% decrease in average costs of funds.

The average yield on our interest-earning assets was 6.41% and 6.63% for the three and six months ended June 30, 2008, respectively, compared to 7.56% and 7.54% for the same periods in 2007. The decrease in the yield on our interest-earning assets is primarily a result of a decrease in market rates, repricing on our adjustable rate loans, and new loans originated with lower interest rates due to the lower interest rate environment.

25

The cost of our average interest-bearing liabilities decreased to 2.68% and 3.00% in the three and six months ended June 30, 2008, respectively, from 4.14% and 4.13% in the three and six months ended June 30, 2007, respectively, which is a result of lower rates paid on deposit accounts and borrowings due to a lower interest rate environment.

Average Balances and Average Interest Rates. The tables below set forth balance sheet items on a daily average basis for the three and six months ended June 30, 2008 and 2007 and present the daily average interest rates earned on assets and the daily average interest rates paid on liabilities for such periods. Nonaccrual loans have been included in the average loan balances. Securities include securities available-for-sale, securities held-to-maturity and securities carried at market value pursuant to SFAS 159 elections. Yields on tax-exempt securities and loans are computed on a tax equivalent basis.

26


	Three Months Ended June 30,
	2008								2007
						Average								Average
	Average					Yield/Cost			Average					Yield/Cost
($ in thousands)	Balance			Interest		(6)			Balance			Interest		(6)
Earning Assets
Securities:
Taxable	$	611,134		$	8,281		5.45	%	$	589,735		$	8,251		5.61	%

Tax-exempt (1)		78,910			886		6.95	%		52,315			688		8.00	%
Total securities		690,044			9,167		5.62	%		642,050			8,939		5.81	%
Federal funds sold and other		14,279			80		2.25	%		36,034			509		5.67	%
Loans (1) (2) (3)		3,840,060			62,817		6.58	%		3,402,596			67,193		7.92	%
Investment in restricted stock		42,757			622		5.85	%		16,986			205		4.84	%

Total earnings assets		4,587,140			72,686		6.41	%		4,097,666			76,846		7.56	%
Non-earning Assets
Cash and due from banks		104,619								104,976
Allowance for loan losses		(53,535	)							(37,792	)
Bank-owned life insurance		89,108								85,566
Other assets		473,269								405,603
Total assets	$	5,200,601							$	4,656,019

Interest Bearing Liabilities
Sources of Funds
Interest-bearing deposits:
Interest checking		264,458			967		1.47	%		269,838			1,663		2.47	%
Savings and money market		1,584,594			8,790		2.23	%		1,646,757			15,715		3.83	%
Time deposits		788,845			7,451		3.80	%		692,653			8,454		4.90	%

Total interest-bearing deposits		2,637,897			17,208		2.62	%		2,609,248			25,832		3.97	%
Short-term borrowings		895,181			5,174		2.32	%		241,415			2,677		4.45	%
Long-term debt		51,004			695		5.48	%		47,786			639		5.36	%
Junior sub. and subordinated debt		116,003			1,607		5.57	%		110,301			1,872		6.81	%

Total interest-bearing liabilities		3,700,085			24,684		2.68	%		3,008,750			31,020		4.14	%
Noninterest-Bearing Liabilities
Noninterest-bearing demand deposits		976,066								1,106,755
Other liabilities		26,936								22,284
Stockholders’ equity		497,514								518,230

Total liabilities and stockholders’ equity	$	5,200,601							$	4,656,019

Net interest income and margin (4)				$	48,002		4.25	%				$	45,826		4.52	%

Net interest spread (5)							3.73	%							3.42	%


(1)		Yields on loans and securities have been adjusted to a tax equivalent basis.

(2)		Net loan fees of $1.5 million and $1.7 million are included in the yield computation for June 30, 2008 and 2007, respectively.

(3)		Includes average nonaccrual loans of $27,084 in 2008 and $1,503 in 2007.

(4)		Net interest margin is computed by dividing net interest income by total average earning assets.

(5)		Net interest spread represents average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities.

(6)		Annualized.

27


	Six Months Ended June 30,
	2008								2007
						Average								Average
	Average					Yield/Cost			Average					Yield/Cost
($ in thousands)	Balance			Interest		(6)			Balance			Interest		(6)
Earning Assets
Securities:
Taxable	$	643,227		$	17,995		5.63	%	$	554,778		$	15,290		5.56	%
Tax-exempt (1)		77,213			1,662		6.66	%		45,126			1,133		7.69	%

Total securities		720,440			19,657		5.74	%		599,904			16,423		5.72	%
Federal funds sold and other		15,502			195		2.53	%		37,891			1,042		5.55	%
Loans (1) (2) (3)		3,782,127			128,521		6.83	%		3,215,937			126,213		7.91	%
Investment in restricted stock		41,791			1,105		5.32	%		17,155			481		5.65	%

Total earnings assets		4,559,860			149,478		6.63	%		3,870,887			144,159		7.54	%
Non-earning Assets
Cash and due from banks		102,969								102,066
Allowance for loan losses		(52,081	)							(35,704	)
Bank-owned life insurance		88,737								83,985
Other assets		462,940								347,939

Total assets	$	5,162,425							$	4,369,173

Interest Bearing Liabilities
Sources of Funds
Interest-bearing deposits:
Interest checking		264,017			2,231		1.70	%		260,082			3,275		2.54	%
Savings and money market		1,580,276			19,431		2.47	%		1,516,035			28,660		3.81	%
Time deposits		744,252			15,060		4.07	%		653,088			15,770		4.87	%

Total interest-bearing deposits		2,588,545			36,722		2.85	%		2,429,205			47,705		3.96	%
Short-term borrowings		905,850			12,754		2.83	%		225,029			5,066		4.54	%
Long-term debt		51,650			1,410		5.49	%		47,537			1,155		4.90	%
Junior sub. and subordinated debt		119,085			3,728		6.30	%		106,197			3,551		6.74	%

Total interest-bearing liabilities		3,665,130			54,614		3.00	%		2,807,968			57,477		4.13	%
Noninterest Bearing Liabilities
Noninterest-bearing demand deposits		970,966								1,072,149
Other liabilities		23,495								22,635
Stockholders’ equity		502,834								466,421

Total liabilities and stockholders’ equity	$	5,162,425							$	4,369,173

Net interest income and margin (4)				$	94,864		4.22	%				$	86,682		4.55	%

Net interest spread (5)							3.63	%							3.41	%


(1)		Yields on loans and securities have been adjusted to a tax equivalent basis.

(2)		Net loan fees of $2.9 million are included in the yield computation for June 30, 2008 and 2007, respectively.

(3)		Includes average nonaccrual loans of $24,013 in 2008 and $1,321 in 2007.

(4)		Net interest margin is computed by dividing net interest income by total average earning assets.

(5)		Net interest spread represents average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities.

(6)		Annualized.

28

Net Interest Income. The table below demonstrates the relative impact on net interest income of changes in the volume of earning assets and interest-bearing liabilities and changes in rates earned and paid by us on such assets and liabilities. For purposes of this table, nonaccrual loans have been included in the average loan balances.


	Three Months Ended June 30,									Six Months Ended June 30,
	2008 v. 2007									2008 v. 2007
	Increase (Decrease)									Increase (Decrease)
	Due to Changes in (1)(2)									Due to Changes in (1)(2)
	Volume			Rate			Total			Volume			Rate			Total
	(in thousands)
Interest on securities:
Taxable	$	290		$	(260	)	$	30		$	2,474		$	231		$	2,705
Tax-exempt		299			(101	)		198			691			(162	)		529
Federal funds sold		(122	)		(307	)		(429	)		(282	)		(565	)		(847	)
Loans		7,156			(11,532	)		(4,376	)		19,240			(16,932	)		2,308
Other investment		375			42			417			651			(27	)		624


Total interest income		7,998			(12,158	)		(4,160	)		22,774			(17,455	)		5,319

Interest expense:
Interest checking		(20	)		(676	)		(696	)		33			(1,077	)		(1,044	)
Savings and Money market		(345	)		(6,580	)		(6,925	)		790			(10,019	)		(9,229	)
Time deposits		909			(1,912	)		(1,003	)		1,845			(2,555	)		(710	)
Short-term borrowings		3,779			(1,282	)		2,497			9,586			(1,898	)		7,688
Long-term debt		44			12			56			112			143			255
Junior subordinated debt		79			(344	)		(265	)		403			(226	)		177


Total interest expense		4,446			(10,782	)		(6,336	)		12,769			(15,632	)		(2,863	)


Net increase	$	3,552		$	(1,376	)	$	2,176		$	10,005		$	(1,823	)	$	8,182


(1)		Changes due to both volume and rate have been allocated to volume changes.

(2)		Changes due to mark-to-market gains/(losses) under SFAS 159 have been allocated to volume changes.

Provision for Loan Losses. The provision for loan losses in each period is reflected as a charge against earnings in that period. The provision is equal to the amount required to maintain the allowance for loan losses at a level that, in our judgment, is adequate to absorb probable loan losses inherent in the loan portfolio.

29

Our provision for loan losses was $13.2 million and $21.2 million for the three and six months ended June 30, 2008, respectively, compared to $2.0 million and $2.5 million for the same periods in 2007. Factors that impact the provision for loan losses are net charge-offs or recoveries, changes in the size and mix of the loan portfolio, the recognition of changes in current risk factors and specific reserves on impaired loans.

Noninterest Income. We earn noninterest income primarily through fees related to:

	•		Trust and investment advisory services,

	•		Services provided to deposit customers, and

	•		Services provided to current and potential loan customers.

The following tables present, for the periods indicated, the major categories of noninterest income:


	Three Months Ended				Six Months Ended
	June 30,				Increase			June 30,				Increase
	2008		2007		(Decrease)			2008		2007		(Decrease)
	(in thousands)
Trust and investment advisory services	$	2,734	$	2,137	$	597		$	5,531	$	4,242	$	1,289
Service charges		1,411		1,167		244			2,838		2,236		602
Income from bank owned life insurance		573		960		(387	)		1,373		1,888		(515	)
Other		2,234		1,755		479			5,628		3,242		2,386

Non-interest income, excluding securities and fair value gains (losses)	$	6,952	$	6,019	$	933		$	15,370	$	11,608	$	3,762

The $0.9 million and $3.8 million, or 15.5% and 32.4%, respectively, increases in noninterest income excluding net investment securities gains and net unrealized gain/loss on assets and liabilities measured at fair value, from the three and six months ended June 30, 2007 to the same periods in 2008 was due to increases in investment advisory revenues, increases in service-related charges and other revenue.

Assets under management at Miller/Russell and Associates were $1.31 billion at June 30, 2008, down 17.1% from $1.58 billion at June 30, 2007. At Premier Trust, assets under management increased 26.6% from $259 million to $328 million from June 30, 2007 to June 30, 2008. On July 31, 2007, we acquired a majority interest in Shine Investment Advisory Services. Assets under management were $410 million as of the acquisition date and $403 million on June 30, 2008. This growth resulted in 28.0% and 30.4% increases, respectively, in trust and advisory fee revenue for the three and six month periods ending June 30, 2008, as compared to the three and six month periods ending June 30, 2007.

Service charges increased 20.9% and 26.9% or $0.2 million and $0.6 million, respectively, from the three and six months ended June 30, 2007 to the same periods in 2008 due to higher deposit balances and the growth in our customer base.

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Other income increased 27.3% and 73.6% from the three and six months ended June 30, 2007 to the same periods in 2008 due primarily to the growth of the company and its operations, as well as non-recurring income amounts of approximately $1.1 million, including a gain on the sale of a foreclosed property of approximately $0.4 million.

Unrealized gains/losses on assets and liabilities measured at fair value. During the three and six month periods ended June 30, 2008, we recognized net unrealized losses of $0.1 million and net unrealized gains of $1.3 million, respectively, on assets and liabilities measured at fair value. These gains and losses are primarily the result of losses caused by changes in market yields on securities similar to those in our portfolio, offset by a gain on our trust preferred liabilities due to a widening of interest rate spreads. We view the majority of these gains and losses as temporary in nature since the changes in value on most of our financial instruments were not related to a change in credit profile, but rather such gains and losses were the result of fluctuations in market yields.

Noninterest Expense. The following table presents, for the periods indicated, the major categories of noninterest expense:


	Three Months Ended							Six Months Ended
	June 30,				Increase			June 30,				Increase
	2008		2007		(Decrease)			2008		2007		(Decrease)
	(in thousands)
Salaries and employee benefits	$	21,517	$	18,821	$	2,696		$	43,451	$	35,854	$	7,597
Occupancy		5,179		4,872		307			10,207		9,111		1,096
Advertising and other business development		2,373		1,458		915			4,473		2,920		1,553
Data processing		1,437		628		809			2,206		1,063		1,143
Legal, professional and director fees		1,237		1,167		70			2,168		2,211		(43	)
Customer service		1,113		1,897		(784	)		2,313		3,220		(907	)
Intangible amortization		915		557		358			1,704		814		890
Insurance		873		1,095		(222	)		1,845		1,393		452
Audits and exams		637		632		5			1,285		1,163		122
Supplies		411		510		(99	)		782		1,019		(237	)
Telephone		384		361		23			785		701		84
Travel and automobile		364		269		95			702		556		146
Correspondent and wire transfer costs		334		457		(123	)		635		875		(240	)
Merger expenses		—		747		(747	)		—		747		(747	)
Other		2,363		803		1,560			4,519		1,548		2,971

	$	39,137	$	34,274	$	4,863		$	77,075	$	63,195	$	13,880

Noninterest expense grew $4.9 million and $13.9 million, respectively, from the three and six months ended June 30, 2007 to the same periods in 2008. These increases are attributable to our overall growth, and specifically to merger and acquisition activity and the opening of new branches. At June 30, 2008 and at June 30, 2007, we had 1,000 full-time equivalent employees.

Intangible amortization increased $0.4 million and $0.9 million, respectively, from the three months and six months ended June 30, 2007 to the same periods in 2008 as a result of decreases in the estimated amortizable lives of the core deposit intangibles acquired through prior acquisitions.

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Other noninterest expense increased, in general, as a result of the growth in assets and operations of our banking subsidiaries, including the acquisitions of First Independent and Shine.

Financial Condition

Total Assets

On a consolidated basis, our total assets as of June 30, 2008 and December 31, 2007 were $5.22 billion and $5.02 billion, respectively. Assets experienced growth from the period ending June 30, 2007 to the period ending June 30, 2008 of $472.5 million, or 10.0%, including loan growth of $485.6 million, or 14.3%.

Loans

Our gross loans including deferred loan fees on a consolidated basis as of June 30, 2008 and December 31, 2007 were $3.87 billion and $3.63 billion, respectively. Our overall growth in loans from December 31, 2007 to June 30, 2008 is a result of targeting quality credit customers in our markets.

The following table shows the amounts of loans outstanding by type of loan at the end of each of the periods indicated.


	June 30,			December 31,
	2008			2007
	(in thousands)
Construction and land development	$	831,731		$	806,110
Commercial real estate		1,624,520			1,514,533
Residential real estate		535,973			492,551
Commercial and industrial		836,962			784,378
Consumer		54,044			43,517
Net deferred loan fees		(8,665	)		(8,080	)


Gross loans, net of deferred fees		3,874,565			3,633,009
Less: Allowance for loan losses		(58,688	)		(49,305	)


	$	3,815,877		$	3,583,704

Non-Performing Assets

Non-performing assets include loans past due 90 days or more and still accruing interest, nonaccrual loans, and other real estate owned, or OREO. In general, loans are placed on nonaccrual status when we determine timely recognition of interest to be in doubt due to the borrower’s financial condition and collection efforts. Restructured loans have modified terms to reduce either principal or interest due to deterioration in the borrower’s financial condition. OREO results from loans where we have received physical possession of the borrower’s assets that collateralized the loan.

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Impaired loans are loans for which it is probable that the Company will not be able to collect all amounts due according to the original contractual terms of the loan agreement. Other impaired loans include certain loans for which the original terms have been extended or modified, but which are well collateralized and for which no loss is expected.

The following table summarizes the loans for which the accrual of interest has been discontinued, loans past due 90 days or more and still accruing interest, restructured loans, other impaired loans and OREO.


	June 30,			December 31,
	2008			2007
	($ in thousands)
Total nonaccrual loans	$	44,416		$	17,873
Loans past due 90 days or more and still accruing		3,597			779

Total nonperforming loans		48,013			18,652

Restructured loans		5,494			3,782
Impaired loans acquired through merger		767			2,760
Other impaired loans, excluding restructured loans		4,865			9,920

Total impaired loans, including nonperforming loans	$	59,139		$	35,114


Other real estate owned (OREO)	$	6,847		$	3,412
Nonaccrual loans to gross loans		1.15	%		0.49	%
Loans past due 90 days or more and still accruing to total loans		0.09			0.02
Interest income received on nonaccrual loans	$	247		$	30
Interest income that would have been recorded under the original terms of the loans	$	417		$	765

As of June 30, 2008 and December 31, 2007, nonaccrual loans totaled $44.4 million and $17.9 million, respectively. Nonaccrual loans at June 30, 2008 consisted of 63 loans.

Allowance for Loan Losses

Like all financial institutions, we must maintain an adequate allowance for loan losses. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when we believe that collectibility of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance. The allowance is an amount that we believe will be adequate to absorb probable losses on existing loans that may become uncollectible, based on evaluation of the collectibility of loans and prior credit loss experience, together with the other factors noted earlier.

Our allowance for loan loss methodology incorporates several quantitative and qualitative risk factors used to establish the appropriate allowance for loan loss at each reporting date. Quantitative factors include our historical loss experience, peer group experience, delinquency and charge-off trends, collateral values, changes in non-performing loans, other factors, and information about individual loans including the borrower’s sensitivity to interest rate movements. Qualitative factors include the economic condition of our operating markets and the

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state of certain industries. Specific changes in the risk factors are based on perceived risk of similar groups of loans classified by collateral type, purpose and terms. Statistics on local trends, peers, and an internal five-year loss history are also incorporated into the allowance. Due to the credit concentration of our loan portfolio in real estate secured loans, the value of collateral is heavily dependent on real estate values in Nevada, Arizona and California. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic or other conditions. In addition, the Federal Deposit Insurance Corporation, or FDIC, and state banking regulatory agencies, as an integral part of their examination processes, periodically review the Banks’ allowance for loan losses, and may require us to make additions to the allowance based on their judgment about information available to them at the time of their examinations. Management periodically reviews the assumptions and formulae used in determining the allowance and makes adjustments if required to reflect the current risk profile of the portfolio.

The allowance consists of specific and general components. The specific allowance relates to impaired loans. For such loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan are lower than the carrying value of that loan, pursuant to SFAS 114, Accounting by Creditors for Impairment of a Loan. The general allowance covers non-impaired loans and is based on historical loss experience adjusted for the various qualitative and quantitative factors listed above, pursuant to SFAS 5, Accounting for Contingencies.

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The following table summarizes the activity in our allowance for loan losses for the period indicated.


	Three months ended						Six months ended
	June 30,						June 30,
	2008			2007			2008			2007
	($ in thousands)
Allowance for loan losses:
Balance at beginning of period	$	50,839		$	37,519		$	49,305		$	33,551
Acquisitions		—			83			—			3,789
Provisions charged to operating expenses		13,152			2,012			21,211			2,453
Recoveries of loans previously charged-off:
Construction and land development		—			—			—			—
Commercial real estate		—			—			—			—
Residential real estate		—			—			—			—
Commercial and industrial		192			83			287			154
Consumer		4			9			12			17

Total recoveries		196			92			299			171
Loans charged-off:
Construction and land development		1,082			—			4,405			—
Commercial real estate		—			—			182			—
Residential real estate		1,528			—			2,498			—
Commercial and industrial		2,705			2,727			4,789			2,818
Consumer		184			33			253			200

Total charged-off		5,499			2,760			12,127			3,018
Net charge-offs		5,303			2,668			11,828			2,847

Balance at end of period	$	58,688		$	36,946		$	58,688		$	36,946

Net charge-offs to average loans outstanding		0.55	%		0.31	%		0.63	%		0.18	%
Allowance for loan losses to gross loans		1.51			1.09

Net charge-offs totaled $5.3 million and $2.7 million for the three months ended June 30, 2008 and 2007, respectively. For the six months ended June 30, 2008 and 2007, net charge-offs totaled $11.8 million and $2.8 million, respectively. The provision for loan losses totaled $13.2 million and $21.2 million for the three and six months ended June 30, 2008, respectively, compared to $2.0 million and $2.5 million for the same periods in 2007. The increase in the provision for loan losses is due to higher historical losses, changes in size and mix of the loan portfolio and increases in specific reserves on impaired loans.

Investments

Securities are identified as either held-to-maturity, available-for-sale, or measured at fair value based upon various factors, including asset/liability management strategies, liquidity and profitability objectives, and regulatory requirements. Held-to-maturity securities are carried at cost, adjusted for amortization of premiums or accretion of discounts. Available-for-sale securities are securities that may be sold prior to maturity based upon asset/liability management decisions. Securities identified as available-for-sale are carried at fair value. Unrealized gains or losses on available-for-sale securities are recorded as accumulated other comprehensive income in stockholders’ equity. Amortization of premiums or accretion of discounts on mortgage-backed securities is periodically adjusted for estimated prepayments. Securities measured at fair value are reported at fair value, with unrealized gains and losses included in current earnings.

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We use our investment securities portfolio to ensure liquidity for cash requirements, manage interest rate risk, provide a source of income and to manage asset quality. The carrying value of our investment securities as of June 30, 2008 totaled $621.7 million, compared to $736.2 million at December 31, 2007.

In 2007 and 2008 we maintained a high level of investment in mortgage-backed securities while shifting from U.S. Government agency obligations to higher yielding debt obligations (primarily collateralized debt obligations secured by bank and other financial company trust preferred liabilities) and adjustable rate preferred stock of bank and other financial companies.

The carrying value of our portfolio of investment securities at June 30, 2008 and December 31, 2007 was as follows:


	Carrying Value
	At June 30,		At December 31,
	2008		2007
	(in thousands)
U.S. Treasury securities	$	2,995	$	—
U.S. Government-sponsored agencies		4,878		24,128
Mortgage-backed obligations		412,094		502,784
State and Municipal obligations		20,745		22,211
Adjustable rate preferred stock		69,219		29,710
Debt obligations and structured securities		96,937		142,127
Other		14,785		15,240

Total investment securities	$	621,653	$	736,200

As of May 31, 2008, the Company transferred its trust preferred CDO portfolio from available-for-sale to held-to-maturity. The Company considers the held-to-maturity classification to be more appropriate because it has the ability and the intent to hold these securities to maturity. The par value and fair value of these securities at the date of transfer were $121.4 million and $85.7 million, respectively. The unrealized losses of $35.7 million on the securities transferred to held-to-maturity remain in other comprehensive loss and continue to be subject to the other-than-temporary impairment consideration rules of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities.

Net unrealized losses, net of taxes, increased $17.4 million for the six months ended June 30, 2008 to $46.1 million from $28.7 million at December 31, 2007. The increase in unrealized losses is generally due to widening interest spreads which began in the third quarter of 2007. During March 2008, the near insolvency of Bear Stearns caused the debt of almost all financial companies to decline in value. This compounded the lack of liquidity for such securities that existed since late 2007. We are actively monitoring these portfolios for declines in fair value that are considered other-than-temporary. If current market conditions persist, we may have impairment charges against earnings next quarter for declines in securities fair values that are considered other-than-temporary.

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During the six months ended June 30, 2008, we recorded impairment charges totaling $5.3 million, including $2.2 million related to a security which suffered a significant downgrade and $3.1 million related to an auction-rate leveraged security that was discussed in our Form 10-K for the year ended December 31, 2007.

Goodwill

The Company recorded $217.8 million of goodwill from its merger-related activities during 2006 and 2007. In accordance with SFAS No. 141, goodwill is not amortized but rather tested for impairment annually on October 1. Impairment testing consists of comparing the fair value of the acquired reporting units with their carrying amounts, including goodwill. An impairment loss would be recorded to the extent the carrying value of the goodwill exceeds the fair value of the goodwill. At June 30, 2008, the Company’s market capitalization was less than the total shareholders’ equity, which is one factor that is considered when determining goodwill impairment. If current market conditions persist, it is possible that we will have a goodwill impairment charge against earnings in a future period.

Deposits

Deposits have historically been the primary source for funding our asset growth. As of June 30, 2008, total deposits were $3.65 billion, compared to $3.55 billion as of December 31, 2007. Our deposits related to customer relationships increased approximately $47 million, and we acquired third party brokered certificates of deposit totaling approximately $60 million. We do not anticipate utilizing brokered deposits as a significant source of funding in future periods.

Although we expect deposit growth to continue to be the primary source of funding the asset growth of the Company, we anticipate augmenting our liquidity through the use of alternative sources of funding, including overnight and term advances from the Federal Home Loan Bank and Federal Reserve Bank, repurchase agreements, subordinated debt and lines of credit.

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The following table provides the average balances and weighted average rates paid on deposits for the three and six months ended June 30, 2008:


	Three months ended				Six months ended
	June 30, 2008				June 30, 2008
	Average Balance/Rate				Average Balance/Rate
	($ in thousands)
Interest checking (NOW)	$	264,458	1.47	%	$	264,017	1.70	%
Savings and money market		1,584,594	2.23			1,580,276	2.47
Time		788,845	3.80			744,252	4.07


Total interestbearing deposits		2,637,897	2.62			2,588,545	2.85
Noninterest bearing demand deposits		976,066	—			970,966	—


Total deposits	$	3,613,963	1.91	%	$	3,559,511	2.08	%

Our customer repurchases declined $89.4 million from December 31, 2007 to June 30, 2008 due primarily to the transfer of customer funds to other products offered by our banks.

Capital Resources

Current risk-based regulatory capital standards generally require banks and bank holding companies to maintain three minimum capital ratios. Tier 1 risk-based capital ratio compares “Tier 1” or “core” capital, which consists principally of common equity, and risk-weighted assets for a minimum ratio of at least 4%. Tier 1 capital ratio compares Tier 1 capital to adjusted total assets for a minimum ratio of at least 4%. Total risk-based capital ratio compares total capital, which consists of Tier 1 capital, certain forms of subordinated debt, a portion of the allowance for loan losses, and preferred stock, to risk-weighted assets for a minimum ratio of at least 8%. Risk-weighted assets are calculated by multiplying the balance in each category of assets by a risk factor, which ranges from zero for cash assets and certain government obligations to 100% for some types of loans, and adding the products together.

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The following table provides a comparison of our risk-based capital ratios and leverage ratios to the minimum regulatory requirements as of June 30, 2008.


					Adequately-				Minimum For
					Capitalized				Well-Capitalized
	Actual				Requirements				Requirements
					($ in thousands)
As of June 30, 2008	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk Weighted Assets)	$	508,597		11.0	$	370,549		8.0	$	463,186		10.0

Tier I Capital (to Risk Weighted Assets)	$	390,600		8.4	$	185,274		4.0	$	277,912		6.0

Leverage ratio (to Average Assets)	$	390,600		7.9	$	198,703		4.0	$	248,378		5.0

The Company and each of its banking subsidiaries met the “well capitalized” guidelines under regulatory requirements as of June 30, 2008. The increases in our capital ratios for the quarter ended June 30, 2008, are primarily due to a private placement of 3.8 million shares of common stock to a limited number of accredited investors. Of the shares sold, approximately 45 percent were purchased by a total of 40 directors and officers of the Company and its subsidiaries. The issue was priced after the close of business on Tuesday, June 24, 2008 at $7.94 per share for an aggregate offering price of $30.2 million.

Segment Reporting

The Company adjusted its segment reporting composition in the current period in accordance with SFAS 131. We modified our reporting segments to more accurately reflect the way we manage and assess the performance of our business. We changed our segments to report our banking operations on a state-by-state basis rather than on a per bank basis, as we had done in the past, and we also created new segments to report our asset management and credit card operations. Previously, our asset management operations were included in “Other” and our credit card operations were included in “Torrey Pines Bank.”

The new structure is segmented as “Nevada” (Bank of Nevada and First Independent Bank of Nevada), “Arizona” (Alliance Bank of Arizona), “California” (Torrey Pines Bank and Alta Alliance Bank), “Asset Management” (Miller/Russell, Premier Trust and Shine), “Credit Card Services” (PartnersFirst) and “Other” (Western Alliance Bancorporation holding company and miscellaneous). Prior period balances were restated to reflect the change.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices and rates, foreign currency exchange rates, commodity prices and equity prices. Our market risk arises primarily from interest rate risk inherent in our lending, investing and deposit taking activities. To that end, management actively monitors and manages our interest rate risk exposure.

There have not been any material changes in the market risk disclosure contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported in within the time periods specified in Securities and Exchange Commission rules and forms, except for the following:

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2008, which have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings

There are no material pending legal proceedings, other than ordinary routine litigation incidental to its business, to which Western Alliance or any of its subsidiaries is a party or of which any of their property is the subject.

Item 1A. Risk Factors

See the discussion of our risk factors in the Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the SEC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) None.

(b) None.

(c) None.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

31.1		CEO Certification Pursuant to Rule 13a-14(a)/15d-a4(a).

31.2		CFO Certification Pursuant to Rule 13a-14(a)/15d-14(a).

32		CEO and CFO Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002, as amended.

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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	WESTERN ALLIANCE BANCORPORATION
Date: August 11, 2008	By:	/s/ Robert Sarver
		Robert Sarver
		President and Chief Executive Officer


Date: August 11, 2008	By:	/s/ Dale Gibbons
		Dale Gibbons
		Executive Vice President and Chief Financial Officer


Date: August 11, 2008	By:	/s/ Tom Edington
		Tom Edington
		Controller Principal Accounting Officer

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EXHIBIT INDEX

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

31.2		CFO Certification Pursuant to Rule 13a-14(a)/15d-14(a)

32		CEO and CFO Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Western Alliance Bancorporation - 10-Q quarterly report FY

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