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, 2010 or

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

For the Transition period from                     to                     

WESTERN ALLIANCE BANCORPORATION

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

Yesþ           Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yeso           Noo

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: 73,426,774 shares as of July 31, 2010.

 

 

Table of Contents

Index		Page
Part I. Financial Information
Item 1 – Financial Statements
Consolidated Balance Sheets as of June 30, 2010 (unaudited)  and December 31, 2009			3
Consolidated Statements of Operations for the three and six months ended June 30, 2010 and 2009 (unaudited)			4
Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2010 and 2009 (unaudited)			5
Consolidated Statement of Stockholders’ Equity (unaudited)			6
Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009 (unaudited)			7
Notes to Unaudited Consolidated Financial Statements			9
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			38
Item 3 – Quantitative and Qualitative Disclosures About Market Risk			58
Item 4 – Controls and Procedures			59
Part II. Other Information
Item 1 – Legal Proceedings			59
Item 1A – Risk Factors			60
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			61
Item 3 – Defaults Upon Senior Securities			61
Item 4 – Removed and Reserved			62
Item 5 – Other Information			62
Item 6 – Exhibits			63
Signatures			65
Exhibit Index			66
EX-31.1
EX-31.2
EX-32

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

		June 30,
		2010				December 31,
		(unaudited)				2009
		(in thousands, except per share
		amounts)
Assets:
Cash and due from banks		$	105,102			$	116,841
Federal funds sold and other			31				3,473
Interest-bearing demand deposits in other financial institutions			455,490				276,516
Cash and cash equivalents			560,623				396,830
Money market investments			5,063				54,029
Investment securities — measured, at fair value			40,632				58,670
Investment securities — available-for-sale, at fair value; amortized cost of $794,848 at June 30, 2010 and $740,783 at December 31, 2009			798,284				744,598
Investment securities — held-to-maturity, at amortized cost; fair value of $4,610 at June 30, 2010 and $7,482 at December 31, 2009			4,610				7,482
Investments in restricted stock, at cost			40,418				41,378
Loans:
Held for investment, net of deferred fees			4,129,950				4,079,639
Less: allowance for credit losses			(110,012	)			(108,623	)
Total loans			4,019,938				3,971,016
Premises and equipment, net			118,743				125,883
Goodwill and other intangible assets			41,307				43,121
Other assets acquired through foreclosure, net			104,365				83,347
Bank owned life insurance			94,009				92,510
Deferred tax assets, net			68,114				68,957
Prepaid expenses			31,194				35,323
Other assets			32,063				30,135
Discontinued operations, assets held for sale			116				—
Total assets		$	5,959,479			$	5,753,279
Liabilities:
Deposits:
Non-interest-bearing demand		$	1,330,357			$	1,157,013
Interest-bearing			3,899,727				3,565,089
Total deposits			5,230,084				4,722,102
Customer repurchase agreements			87,131				223,269
Other borrowings			—				29,352
Junior subordinated debt, at fair value			36,323				42,438
Subordinated debt			—				60,000
Other liabilities			30,083				100,393
Total liabilities			5,383,621				5,177,554
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock — par value $.0001 and liquidation value per share of $1,000; 20,000,000 authorized; 140,000 issued and outstanding			129,378				127,945
Common stock — par value $.0001; 100,000,000 authorized; 73,344,405 shares issued and outstanding at June 30, 2010 and 72,503,902 at December 31, 2009			7				7
Surplus			688,260				684,092
Retained deficit			(245,045	)			(241,724	)
Accumulated other comprehensive income (loss)			3,258				5,405
Total stockholders’ equity			575,858				575,725
Total liabilities and stockholders’ equity		$	5,959,479			$	5,753,279

See the accompanying notes.

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
		(in thousands, except per share amounts)
Interest income:
Loans, including fees		$	64,201			$	63,268			$	126,368			$	126,521
Investment securities — taxable			5,203				6,179				11,112				12,209
Investment securities — non-taxable			31				116				82				295
Dividends — taxable			28				108				136				303
Dividends — non-taxable			65				252				301				722
Other			472				373				735				414
Total interest income			70,000				70,296				138,734				140,464
Interest expense:
Deposits			11,067				16,413				23,146				32,063
Customer repurchase agreements			114				1,046				397				2,296
Borrowings			369				837				819				2,112
Junior subordinated and subordinated debt			994				1,199				2,198				2,462
Total interest expense			12,544				19,495				26,560				38,933
Net interest income			57,456				50,801				112,174				101,531
Provision for credit losses			23,115				37,573				51,862				57,557
Net interest income after provision for credit losses			34,341				13,228				60,312				43,974
Non-interest income:
Mark to market gains (losses), net			6,250				(449	)			6,551				3,622
Gain on sales of securities, net			6,079				10,867				14,297				10,874
Securities impairment charges, net			(1,071	)			(1,674	)			(1,174	)			(42,126	)
Portion of impairment charges recognized in other comprehensive loss (before tax)			—				—				—				2,047
Net securities impairment charges recognized in earnings			(1,071	)			(1,674	)			(1,174	)			(40,079	)
Gain on extinguishment of debt			3,000				—				3,000				—
Trust and investment advisory fees			1,181				2,361				2,394				4,598
Service charges and fees			2,319				1,980				4,515				3,662
Operating lease income			967				894				1,931				1,897
Income from bank owned life insurance			780				435				1,499				949
Derivative (losses) gains, net			(69	)			(67	)			(136	)			(130	)
Other			1,324				1,100				2,512				2,226
Total non-interest income (loss)			20,760				15,447				35,389				(12,381	)
Non-interest expenses:
Salaries and employee benefits			22,161				23,384				43,601				47,003
Occupancy expenses, net			4,828				5,196				9,615				10,416
Insurance			3,759				5,061				7,251				6,708
Net (gain) loss on sales/valuations of repossessed assets and bank premises, net			11,994				3,974				10,980				8,910
Repossessed asset and loan expenses			1,564				2,078				3,928				3,155
Legal, professional and director fees			2,139				1,821				4,007				3,185
Marketing			1,045				1,368				2,201				2,579
Customer service			1,154				1,127				2,219				2,144
Intangible amortization			907				945				1,813				1,890
Data processing			793				1,215				1,584				2,352
Operating lease depreciation			647				838				1,336				1,757
Goodwill impairment			—				—				—				45,000
Other			2,271				3,166				5,568				6,110
Total non-interest expenses			53,262				50,173				94,103				141,209
Income (loss) from continuing operations before income taxes			1,839				(21,498	)			1,598				(109,616	)
Benefit for income taxes			(190	)			(8,427	)			(1,751	)			(11,471	)
Income (loss) from continuing operations			2,029				(13,071	)			3,349				(98,145	)
Loss from discontinued operations, net of tax benefit			(802	)			(1,066	)			(1,737	)			(2,434	)
Net income (loss)			1,227				(14,137	)			1,612				(100,579	)
Dividends and accretion on preferred stock			2,466				2,424				4,933				4,856
Net loss available to common shareholders		$	(1,239	)		$	(16,561	)		$	(3,321	)		$	(105,435	)
Loss per share — basic and diluted
Continuing operations		$	(0.01	)		$	(0.29	)		$	(0.02	)		$	(2.25	)
Discontinued		$	(0.01	)		$	(0.02	)		$	(0.02	)		$	(0.05	)
		$	(0.02	)		$	(0.31	)		$	(0.05	)		$	(2.31	)
Average number of common shares — basic			72,160				53,252				72,063				45,716
Average number of common shares — diluted			72,160				53,252				72,063				45,716
See the accompanying notes.

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
		(in thousands)
Net (loss)/ income		$	1,227			$	(14,137	)		$	1,612			$	(100,579	)
Other comprehensive (loss)/ income, net:
Unrealized gain/(loss) on securities AFS, net			1,842				22,612				6,390				2,783
Impairment loss on securities, net			605				1,088				668				38,571
Realized (gain) on sale of securities AFS included in income, net			(3,872	)			(7,063	)			(9,205	)			(7,068	)
Net other comprehensive (loss)/ income			(1,425	)			16,637				(2,147	)			34,286
Comprehensive (loss)/ income		$	(198	)		$	2,500			$	(535	)		$	(66,293	)

Amount of impairment losses reclassified out of accumulated other comprehensive income into earnings for the three and six months ended June 30 2010, and 2009 were $1.1 million and $1.2 million, and $1.7 million and $40.1 million, respectively. The income tax benefit related to these losses was $0.4 million and $0.6 million for the three months ended June 30, 2010 and 2009, respectively. For the six months ended June 30, 2010 and 2009, the income tax benefit related to these losses was $0.4 million and $1.5 million, respectively.

See the accompanying notes.

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY (UNAUDITED)

																						Accumulated
																						Other				Retained				Total
		Preferred Stock								Common Stock												Comprehensive				Earnings				Stockholder's
		Shares				Amount				Shares				Amount				Surplus				Income (Loss)				(Deficit)				Equity
		(in thousands)
Balance, December 31, 2009			140			$	127,945				72,504			$	7			$	684,092			$	5,405			$	(241,724	)		$	575,725
Net Income			—				—				—				—				—				—				1,612				1,612
Stock-based compensation			—				—				142				—				1,823				—				—				1,823
Restricted stock grants, net			—				—				521				—				2,072				—				—				2,072
Stock options exercised			—				—				15				—				78				—				—				78
Stock warrants exercised			—				—				162				—				195				—				—				195
Dividends on preferred stock			—				—				—				—				—				—				(3,500	)			(3,500	)
Accretion on preferred stock discount			—				1,433				—				—				—				—				(1,433	)			--
Other comprehensive income, net			—				—				—				—				—				(2,147	)			—				(2,147	)
Balance, June 30, 2010			140			$	129,378				73,344			$	7			$	688,260			$	3,258			$	(245,045	)		$	575,858

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

		Six Months Ended
		June 30,
		2010				2009
		(in thousands)
Cash flows from operating activities:
Net income/ (loss)		$	1,612			$	(100,579	)
Adjustments to reconcile net income/ (loss) to cash (used in) provided by operating activities:
Provision for credit losses			51,862				57,557
Depreciation and amortization			7,149				7,945
Stock-based compensation			3,895				4,587
Deferred income taxes and income taxes receivable			1,999				(14,372	)
Net amortization of discounts and premiums for investment securities			2,761				819
Goodwill impairment			—				45,000
Securities impairment			1,174				40,079
(Gains)/Losses on:
Sales of securities, AFS			(14,297	)			(10,874	)
Derivatives			(136	)			(130	)
Sales of repossessed assets and premises, net			10,980				8,910
Sale of loans, net			(8	)			—
Extinguishment of debt			(3,000	)			—
Changes in:
Other assets			(46,514	)			39,324
Other liabilities			(70,310	)			(3,398	)
Fair value of assets and liabilities measured at fair value			(6,551	)			(3,362	)
Servicing rights, net			18				19
Other, net			—				(1,579	)
Net cash (used in) provided by operating activities			(59,366	)			69,946
Cash flows from investing activities:
Proceeds from sale of securities measured at fair value			8,069				21,444
Principal pay downs and maturities of securities measured at fair value			10,409				12,051
Purchases of securities measured at fair value			—				(5,224	)
Proceeds from sale of available-for-sale securities			335,031				68,057
Principal pay downs and maturities of available-for-sale securities			645,803				72,776
Purchase of available-for-sale securities			(1,023,367	)			(144,734	)
Purchase of short-term investments			—				(168,729	)
Principal pay downs and maturities of securities held-to-maturity			2,746				795
Loan originations and principal collections, net			(100,776	)			(17,900	)
Investment in money market			48,966				—
Liquidation of restricted stock, net			959				2
Sale and purchase of premises and equipment, net			1,921				(3,148	)
Sale of other real estate owned, net			12,567				(973	)
Net cash used in investing activities			(57,672	)			(165,583	)

WESTERN ALLIANCE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(continued)

		Six Months Ended
		June 30,
		2010				2009
		(in thousands)
Cash flows from financing activities:
Net increase in deposits			507,982				608,271
Deposits assumed from the FDIC			—				131,720
Net decrease in borrowings			(222,490	)			(403,268	)
Proceeds from issuance of common stock options and stock warrants			273				78
Proceeds from issuance stock, net			—				191,268
Accretion of discount on preferred stock			(1,433	)			—
Cash dividends paid on preferred stock			(3,500	)			(3,500	)
Net cash provided by financing activities			280,832				524,569
Net increase in cash and cash equivalents			163,793				428,932
Cash and cash equivalents at beginning of year			396,830				139,954
Cash and cash equivalents at end of year		$	560,623			$	568,886
Supplemental disclosure:
Cash paid during the period for:
Interest		$	24,788			$	38,559
Income taxes, net			—				—
Non-cash investing and financing activity:
Transfers to other assets acquired through foreclosure, net			44,682				36,616
Assets transferred to held for sale			116				—

See the accompanying notes.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operation

Western Alliance Bancorporation (“WAL or the Company”), incorporated in the state of Nevada, is a bank holding company providing full service banking and related services to locally owned businesses, professional firms, real estate developers and investors, local non-profit organizations, high net worth individuals and other consumers through its five wholly owned subsidiary banks; Bank of Nevada and First Independent Bank of Nevada, operating in Nevada, Alliance Bank of Arizona, operating in Arizona, and Torrey Pines Bank and Alta Alliance Bank, operating in California. In addition, its non-bank subsidiaries Premier Trust, Inc., Shine Investment Advisory Services, Inc. and Western Alliance Equipment Finance offer a broad array of financial products and services aimed at satisfying the needs of small to mid-sized businesses and their proprietors, including trust administration and estate planning, custody and investments, and equipment leasing nationwide. These entities are collectively referred to herein as the Company.

Basis of Presentation

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States (“GAAP”) and conform to practices within the financial services industry. The accounts of the Company and its consolidated subsidiaries are included in these Consolidated Financial Statements. All significant intercompany balances and transactions have been eliminated.

In June 2009, the Financial Accounting Standards Board (“FASB”) established the FASB Accounting Standards Codification (“FASB ASC”), as the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements. Rules and releases of the United States Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB ASC became effective for the Company on September 30, 2009 and supersedes all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the FASB ASC became non-authoritative. The FASB ASC does not change or alter GAAP and, therefore, the adoption of the FASB ASC did not impact the Company’s Consolidated Financial Statements.

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 credit losses; fair value of other real estate owned; determination of the valuation allowance related to deferred tax assets; impairment of goodwill and other intangible assets and other than temporary impairment on securities. Although Management believes these estimates to be reasonably accurate, actual amounts may differ. In the opinion of Management, all adjustments considered necessary have been reflected in the financial statements during their preparation.

Principles of consolidation

WAL has 13 wholly-owned subsidiaries. Bank of Nevada (“BON”), Alliance Bank of Arizona (“ABA”), Torrey Pines Bank (“TPB”), Alta Alliance Bank (“AAB”), First Independent Bank of Nevada (“FIBN”), which are all banking subsidiaries, Premier Trust, Inc. (“PTI”), a registered investment advisor, Western Alliance Equipment Finance, Inc. (“WAEF”), which provides equipment leasing, and six unconsolidated subsidiaries used as business trusts in connection with issuance of trust-preferred securities . In addition, WAL maintains an 80 percent interest in Shine Investment Advisory Services Inc. (“Shine”), a registered investment advisor.

BON has a wholly-owned Real Estate Investment Trust (“REIT”) that is used to hold certain commercial real estate loans, residential real estate loans and other loans in a real estate investment trust. The Company does not have any other entities that should be considered for consolidation. All significant intercompany balances and transactions have been eliminated in consolidation.

Reclassifications

Certain amounts in the consolidated financial statements as of December 31, 2009 and for the three and six months ended June 30, 2009 have been reclassified to conform to the current presentation. The reclassifications have no effect on net income or stockholders’ equity as previously reported.

Interim financial information

The accompanying unaudited consolidated financial statements as of June 30, 2010 and 2009 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, 2009.

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.

Investment securities

Investment securities may be classified as held-to-maturity (“HTM”), available-for-sale (“AFS”) or trading. The appropriate classification is initially decided at the time of purchase. Securities classified as held-to-maturity are those debt securities the Company has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or general economic conditions. These securities are carried at amortized cost. The sale of a security within three months of its maturity date or after at least 85 percent of the principal outstanding has been collected is considered a maturity for purposes of classification and disclosure.

Securities classified as AFS or trading are reported as an asset on the Consolidated Balance Sheets at their estimated fair value. As the fair value of AFS securities changes, the changes are reported net of income tax as an element of other comprehensive income (“OCI”), except for impaired securities. When AFS securities are sold, the unrealized gain or loss is reclassified from OCI to non-interest income. The changes in the fair values of trading securities are reported in non-interest income. Securities classified as AFS are both equity and debt securities the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as AFS would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, and regulatory capital considerations.

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

In estimating whether there are any other than temporary impairment losses, management considers 1) the length of time and the extent to which the fair value has been less than amortized cost, 2) the financial condition and near term prospects of the issuer, 3) the impact of changes in market interest rates and 4) the intent and ability of the Company to retain its investment for a period of time sufficient to allow for any anticipated recovery in fair value.

Declines in the fair value of individual debt securities available for sale that are deemed to be other than temporary are reflected in earnings when identified. The fair value of the debt security then becomes the new cost basis. For individual debt securities where the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, the other than temporary decline in fair value of the debt security related to 1) credit loss is recognized in earnings and 2) market or other factors is recognized in other comprehensive income or loss. Credit loss is recorded if the present value of cash flows is less than amortized cost. For individual debt securities where the Company intends to sell the security or more likely than not will not recover all of its amortized cost, the other than temporary impairment is recognized in earnings equal to the entire difference between the securities cost basis and its fair value at the balance sheet date. For individual debt securities for which a credit loss has been recognized in earnings, interest accruals and amortization and accretion of premiums and discounts are suspended when the credit loss is recognized. Interest received after accruals have been suspended is recognized on a cash basis.

Securities measured at fair value are equity and debt securities for which the Company elected early adoption of FASB ASC 825 Financial Instruments (“ASC 825”), effective January 1, 2007. Securities for which the fair value measurement classification was made generally were fixed rate with a relatively long duration and low coupon rates. Securities measured at fair value are reported at fair value with unrealized gains and losses included in current period earnings.

Allowance for credit losses

Credit risk is inherent in the business of extending loans and leases to borrowers. Like other financial institutions, the Company must maintain an adequate allowance for credit losses. The allowance for credit losses is established through a provision for credit losses charged to expense. Loans are charged against the allowance for credit losses when

Management believes that collectability of the contractual principal or interest is unlikely. Subsequent recoveries, if any, are credited to the allowance. The allowance is an amount believed adequate to absorb probable losses on existing loans that may become uncollectable, based on evaluation of the collectability of loans and prior credit loss experience, together with the other factors. The Company formally determines the adequacy of the allowance for credit losses on a quarterly basis.

Our allowance for credit loss methodology incorporates several quantitative and qualitative risk factors used to establish the appropriate allowance for credit losses at each reporting date. Quantitative factors include our historical loss experience, delinquency and charge-off trends, collateral values, changes in the level of nonperforming loans and other factors. Qualitative factors include the economic condition of our operating markets and the state of certain industries. Specific changes in the risk factors are based on perceived risk of similar groups of loans classified by collateral type, purpose and terms. An internal one-year and three-year loss history are also incorporated into the allowance calculation model. Due to the credit concentration of our loan portfolio in real estate secured loans, the value of collateral is heavily dependent on real estate values in Nevada, Arizona and California, which have declined significantly in recent periods. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic or other conditions. In addition, the FDIC, and state banking regulatory agencies, as an integral part of their examination processes, periodically review our subsidiary banks’ allowances for credit losses, and may require us to make additions to our allowance based on their judgment about information available to them at the time of their examinations. Management regularly reviews the assumptions and formulae used in determining the allowance and makes adjustments if required to reflect the current risk profile of the portfolio.

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

The Company uses an appraised value method to determine the need for a reserve on collateral dependent loans and further discounts the appraisal for disposition costs. Due to the rapidly changing economic and market conditions of the regions within which we operate, the Company obtains independent collateral valuation analysis on a regular basis for each loan, typically every six months.

The general allowance covers all non-impaired loans and is based on historical loss experience adjusted for the various qualitative and quantitative factors listed above. The change in the allowance from one reporting period to the next may not directly correlate to the rate of change of the nonperforming loans for the following reasons:

1. A loan moving from impaired performing to impaired nonperforming does not mandate an increased reserve. The individual account is evaluated for a specific reserve requirement when the loan moves to impaired status, not when it moves to nonperforming status, and is reevaluated at each reporting period. Because our nonperforming loans are predominately collateral dependent, reserves are primarily based on collateral value, which is not affected by borrower performance but rather by market conditions.

2. Not all impaired accounts require a specific reserve. The payment performance of the borrower may require an impaired classification, but the collateral evaluation may support adequate collateral coverage. For a number of impaired accounts in which borrower performance has ceased, the collateral coverage is now sufficient because a partial charge off of the account has been taken. In those instances, neither a general reserve nor a specific reserve is assessed.

Other assets acquired through foreclosure

Other assets acquired through foreclosure consist primarily of properties acquired as a result of, or in-lieu-of, foreclosure. Properties or other assets (primarily repossessed assets formerly leased) are classified as other real estate owned and other repossessed property and are initially reported at fair value of the asset less selling costs. Subsequent valuation adjustments are based on the lower of carrying value or fair value, less estimated costs to sell the property. Costs relating to the development or improvement of the assets are capitalized and costs relating to holding the assets are charged to non-interest expense. Property is evaluated regularly to ensure the recorded amount is supported by its current fair value and valuation allowances.

Goodwill

The Company recorded as goodwill the excess of the purchase price over the fair value of the identifiable net assets acquired in accordance with applicable guidance. As per this guidance, a two-step process is outlined for impairment testing of goodwill. Impairment testing is generally performed annually, as well as when an event triggering impairment may have occurred. The first step tests for impairment, while the second step, if necessary, measures the impairment. The resulting impairment amount if any is charged to current period earnings as non-interest expense.

Income taxes

Western Alliance Bancorporation and its subsidiaries, other than BW Real Estate, Inc., file a consolidated federal tax return. Due to tax regulations, several items of income and expense are recognized in different periods for tax return purposes than for financial reporting purposes. These items represent “temporary differences.” Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.

Although realization is not assured, the Company believes that the realization of the recognized net deferred tax asset of $68.1 million at June 30, 2010 is more likely than not based on expectations as to future taxable income and based on available tax planning strategies as defined in FASB ASC 740 Income Taxes (“ASC 740”) that could be implemented if necessary to prevent a carryforward from expiring.

The most significant source of these timing differences is the credit loss reserve build which accounts for substantially all of the net deferred tax asset. In general, the Company will need to generate approximately $188 million of taxable income during the respective carryforward periods to fully realize its deferred tax assets.

As a result of the recent losses, the Company is in a three-year cumulative pretax loss position at June 30, 2010. A cumulative loss position is considered significant negative evidence in assessing the realizability of a deferred tax asset. The Company has concluded that there is sufficient positive evidence to overcome this negative evidence. This positive evidence includes Company forecasts, exclusive of tax planning strategies that show realization of deferred tax assets by December 31, 2013 based on current projections, or by December 31, 2014 under stressed conditions. In addition, the Company has evaluated tax planning strategies, including potential sales of businesses and assets in which it could realize the excess of appreciated value over the tax basis of its assets. The amount of deferred tax assets considered realizable, however, could be significantly reduced in the near term if estimates of future taxable income during the carryforward period are significantly lower than forecasted due to deterioration in market conditions.

Based on the above discussion, the net operating loss carryforward of 20 years provides sufficient time to utilize deferred federal and state tax assets pertaining to the existing net operating loss carryforwards and any net operating loss (“NOL”) that would be created by the reversal of the future net deductions that have not yet been taken on a tax return.

Fair values of financial instruments

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities. FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The Company uses various valuation approaches, including market, income and/or cost approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs, as follows:

•

Level 1— Observable quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

•

Level 2— Observable quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuation techniques where all significant assumptions are observable, either directly or indirectly in the market.

•

Level 3— Model-based techniques where all significant assumptions are not observable, either directly or indirectly, in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques may include use of matrix pricing, discounted cash flow models and similar techniques.

The availability of observable inputs varies based on the nature of the specific financial instrument. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. When market assumptions are available, ASC 820 requires the Company to make assumptions regarding the assumptions that market participants would use to estimate the fair value of the financial instrument at the measurement date.

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

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at June 30, 2010 or 2009. The estimated fair value amounts for 2010 and 2009 have been measured as of period-end, and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those dates. As such, the estimated fair values of these financial instruments subsequent to the reporting date may be different than the amounts reported at the period-end.

The information in Note 11, “Fair Value of Financial Instruments,” should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Company’s assets and liabilities.

Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimate, comparisons between the Company’s disclosures and those of other companies or banks may not be meaningful.

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

Cash and cash equivalents

The carrying amounts reported in the consolidated balance sheets for cash and due from banks and federal funds sold and other approximates their fair value.

Securities

The fair values of U.S. Treasuries corporate bonds, and exchange-listed preferred stock are based on quoted market prices and are categorized as Level 1 of the fair value hierarchy.

The fair values of other investment securities were determined based on matrix pricing. Matrix pricing is a mathematical technique that utilizes observable market inputs including, for example, yield curves, credit ratings and prepayment speeds. Fair values determined using matrix pricing are generally categorized as Level 2 in the fair value hierarchy.

The Company owns certain CDOs and structured notes for which quoted prices are not available. Quoted prices for similar assets are also not available for these investment securities. In order to determine the fair value of these securities, the Company uses a third party which estimated the future cash flows and discount rate using observable market inputs adjusted based on the assumptions regarding the adjustments a market participant would assume necessary for each specific security. As a result, the resulting fair values have been categorized as Level 3 in the fair value hierarchy.

Restricted stock

The Company’s subsidiary banks are members of the Federal Home Loan Bank (“FHLB”) system and maintain an investment in capital stock of the FHLB. Alta Alliance Bank is a member of the Federal Reserve Bank (“FRB”) system and

maintains an investment in capital stock of the FRB. The Company’s subsidiary banks also maintain an investment in their primary correspondent bank. These investments are carried at cost since no ready market exists for them, and they have no quoted market value. The Company conducts a periodic review and evaluation of our FHLB stock to determine if any impairment exists.

Loans

For variable rate loans that reprice frequently and that have experienced no significant change in credit risk, fair values are based on carrying values. Variable rate loans comprised approximately 66.6% and 66.8% of the loan portfolio at June 30, 2010 and December 31, 2009, respectively. Fair value for all other loans is estimated based on discounted cash flows using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality with adjustments that the Company believes a market participant would consider in determining fair value. As a result, the fair value for loans disclosed in Note 11, “Fair Value of Financial Instruments,” is categorized as Level 3 in the fair value hierarchy.

Accrued interest receivable and payable

The carrying amounts reported in the consolidated balance sheets for accrued interest receivable and payable approximate their fair value. Accrued interest receivable and payable fair value measurements disclosed in Note 11 “Fair Value of Financial Instruments,” are classified as Level 3 in the fair value hierarchy.

Derivative financial instruments

All derivatives are recognized on the balance sheet at their fair value. The fair value for derivatives is determined based on market prices, broker-dealer quotations on similar product or other related input parameters. As a result, the fair values have been categorized as Level 2 in the fair value hierarchy.

Deposit liabilities

The fair value disclosed for demand and savings deposits is by definition equal to the amount payable on demand at their reporting date (that is, their carrying amount) which the Company believes a market participant would consider in determining fair value. The carrying amount for variable-rate deposit accounts approximates their fair value. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on these deposits. The fair value measurement of the deposit liabilities disclosed in Note 11, “Fair Value of Instruments,” is categorized as Level 3 in the fair value hierarchy.

Federal Home Loan Bank and Federal Reserve advances and other borrowings

The fair values of the Company’s borrowings are estimated using discounted cash flow analyses, based on the market rates for similar types of borrowing arrangements. The FHLB and FRB advances and other borrowings have been categorized as Level 3 in the fair value hierarchy.

Junior subordinated and subordinated debt

Junior subordinated debt and subordinated debt are valued by comparing interest rates and spreads to benchmark indices offered to institutions with similar credit profiles to our own and discounting the contractual cash flows on our debt using these market rates. The junior subordinated debt and subordinated debt have been categorized as Level 3 in the fair value hierarchy.

Off-balance sheet instruments

Fair values for the Company’s off-balance sheet instruments (lending commitments and standby letters of credit) are based on quoted fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.

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.

Certain derivative transactions that meet specified criteria qualify for hedge accounting. The Company occasionally purchases a financial instrument or originates a loan that contains an embedded derivative instrument. Upon purchasing the instrument or originating the loan, the Company assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the financial instrument (i.e., the host contract) and whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and (2) a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is

separated from the host contract and carried at fair value. However, in cases where (1) the host contract is measured at fair value, with changes in fair value reported in current earnings or (2) the Company is unable to reliably identify and measure an embedded derivative for separation from its host contract, the entire contract is carried on the balance sheet at fair value and is not designated as a hedging instrument.

Recent Accounting Pronouncements

FASB ASC 810, Consolidation (“ASC 810”). Effective January 1 2010, further new authoritative accounting guidance under ASC Topic 810 amends prior guidance to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The new authoritative accounting guidance requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entity’s financial statements. The new authoritative accounting guidance under ASC Topic 810 was effective January 1, 2010 and did not have a significant impact on the Company’s consolidated financial statements.

FASB ASC Topic 860 Transfers and Servicing (“ASC 860”) was amended to enhance reporting about transfers of financial assets including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. The new authoritative accounting guidance eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. The new authoritative guidance also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. The new authoritative accounting guidance under ASC 860 was effective January 1, 2010 and did not have a significant impact on the Company’s consolidated financial statements.

Issued October 2009, ASU 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing amends FASB ASC Topic 470, Debt (“ASC 470”), and provides guidance for accounting and reporting for own-share lending arrangements issued in contemplation of a convertible debt issuance. At the date of issuance, a share-lending arrangement entered into on an entity’s own shares should be measured at fair value in accordance with ASC 820 and recognized as an issuance cost, with an offset to additional paid-in capital. Loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs. The amendments also require several disclosures including a description and the terms of the arrangement and the reason for entering into the arrangement. The effective dates of the amendments are dependent upon the date the share-lending arrangement was entered into and include retrospective application for arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. The Company has no plans to issue convertible debt and, therefore, does not expect the update to have an impact on its consolidated financial statements.

In January 2010 the FASB issued ASU 2010-06 Fair Value Measurements and Disclosures Topic 820 which provides guidance requiring enhanced fair value disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in level 3 fair value measurements and (4) the transfers between levels 1, 2, and 3. The increased disclosure requirements further set forth in the update that in the reconciliation for fair value measurements using significant unobservable inputs (level 3), a reporting entity should present separately information about purchases, sales, issuances and settlements (that is, gross amounts shall be disclosed as opposed to a single net figure). Increased disclosures regarding the level 3 fair value reconciliation are required for fiscal years beginning after December 15, 2010.

In April 2010 the FASB issued ASU 2010-18 Loan Modifications Topic 310 which provides guidance that loans accounted for within a pool need not be removed from the pool when loan modifications are made, even if the modifications would otherwise be considered trouble debt restructurings. Under this guidance an entity will continue to evaluate the pool of loans when performing its impairment analysis. The effective date of the amendments in this update is in the first interim period ending on or after July 15, 2010. The amendments are to be applied prospectively. The Company does not expect the adoption to have a significant impact on its consolidated financial statements.

2. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

In the first quarter of 2010, the Company decided to sell its credit card segment, PartnersFirst, and has presented certain activities as discontinued operations. During the first quarter 2010, the Company transferred certain assets with balances at June 30, 2010 of $0.1 million to held-for-sale and reported a portion of its operations as discontinued. At June 30, 2010, the Company had $47.6 million of outstanding credit card loans which will have continuing cash flows related to the

collection of these loans. These credit card loans are included in loans held for investment as of June 30, 2010 and
December 31, 2009.

The following table summarizes the operating results of the discontinued operations for the periods indicated:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
		(in thousands)
Affinity card revenue		$	459			$	398			$	950			$	693
Non-interest expenses			(1,842	)			(2,417	)			(3,945	)			(4,813	)
Loss before income taxes			(1,383	)			(2,019	)			(2,995	)			(4,120	)
Income tax benefit			(581	)			(953	)			(1,258	)			(1,686	)
Net loss		$	(802	)		$	(1,066	)		$	(1,737	)		$	(2,434	)

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 (loss) per share is based on the weighted average outstanding common shares during the period.

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
		(in thousands, except per share amounts)
Basic:
Net loss available to common stockholders		$	(1,239	)		$	(16,561	)		$	(3,321	)		$	(105,435	)
Average common shares outstanding			72,160				53,252				72,063				45,716
Loss per share		$	(0.02	)		$	(0.31	)		$	(0.05	)		$	(2.31	)
Diluted:
Net loss available to common stockholders		$	(1,239	)		$	(16,561	)		$	(3,321	)		$	(105,435	)
Average common shares outstanding			72,160				53,252				72,063				45,716
Loss per share		$	(0.02	)		$	(0.31	)		$	(0.05	)		$	(2.31	)

As of June 30, 2010 and 2009, all stock options and restricted stock were considered anti-dilutive and excluded for purposes of calculating diluted loss per share.

4. INVESTMENT SECURITIES

Carrying amounts and fair values of investment securities at June 30, 2010 and December 31, 2009 are summarized as follows:

		June 30, 2010
		(in thousands)
						OTTI
						Recognized
						in Other				Net				Gross				Gross
		Amortized				Comprehensive				Carrying				Unrealized				Unrealized				Fair
		Cost				Loss				Amount				Gains				(Losses)				Value
		(in thousands)
Securities held to maturity
Collateralized debt obligations		$	793			$	—			$	793			$	—			$	—			$	793
Municipal obligations			2,317				—				2,317				—				—				2,317
Other			1,500				—				1,500				—				—				1,500
		$	4,610			$	—			$	4,610			$	—			$	—			$	4,610

						OTTI
						Recognized
						in Other				Gross				Gross
		Amortized				Comprehensive				Unrealized				Unrealized				Fair
		Cost				Loss				Gains				(Losses)				Value
		(in thousands)
Securities available for sale
U.S. Government-sponsored agency securities		$	249,468			$	—			$	1,573			$	(139	)		$	250,902
Municipal obligations			318				—				1				(1	)			318
Adjustable-rate preferred stock			11,438				—				2,960				(150	)			14,248
Direct obligation and GSE residential mortgage backed			473,443				—				8,281				(452	)			481,272
Private label residential mortgage-backed securities			11,107				(1,811	)			1,354				(386	)			10,264
Trust preferred securities			32,078				—				—				(8,192	)			23,886
FDIC guaranteed corporate bonds			—				—				—				—				-
Other			16,996				—				398				—				17,394
		$	794,848			$	(1,811	)		$	14,567			$	(9,320	)		$	798,284

Securities measured at fair value
U.S. Government-sponsored agency		$	2,551
Direct obligation and GSE residential mortgage backed			36,652
Private label mortgage-backed securities			1,429
		$	40,632

		December 31, 2009
		(in thousands)
						OTTI
						Recognized
						in Other				Net				Gross				Gross
		Amortized				Comprehensive				Carrying				Unrealized				Unrealized				Fair
		Cost				Loss				Amount				Gains				(Losses)				Value
Securities held to maturity
Collateralized debt obligations		$	1,462			$	(544	)		$	918			$	340			$	(340	)		$	918
Municipal obligations			5,064				—				5,064				—				—				5,064
Other			1,500				—				1,500				—				—				1,500
		$	8,026			$	(544	)		$	7,482			$	340			$	(340	)		$	7,482

						OTTI
						Recognized
						in Other				Gross				Gross
		Amortized				Comprehensive				Unrealized				Unrealized				Fair
		Cost				Loss				Gains				(Losses)				Value
		(in thousands)
Securities available for sale
Municipal obligations		$	324			$	—			$	2			$	(10	)		$	316
Adjustable-rate preferred stock			7,825				—				10,471				—				18,296
Direct obligation and GSE residential mortgage-backed securities			600,307				—				9,699				(4,250	)			605,756
Private label residential mortgage-backed securities			12,829				(1,811	)			1,045				(762	)			11,301
Trust preferred securities			32,098				—				—				(10,048	)			22,050
FDIC guarantee corporate bonds			71,680				—				104				(594	)			71,190
Other			15,720				—				21				(52	)			15,689
		$	740,783			$	(1,811	)		$	21,342			$	(15,716	)		$	744,598

Securities measured at fair value
U.S. Government-sponsored agencies		$	2,479
Direct obligation and GSE residential mortgage-backed securities			49,317
Private label residential mortgage-backed securities			6,874
		$	58,670

Gross unrealized gains on the adjustable rate preferred stock (“ARPS”) securities are considered after-tax amounts as the previous impairment losses on these securities were also not tax-effected. This was due to a deferred tax valuation allowance that was originally booked on the ARPS impairment losses. Sales of these ARPS at current values would generate after-tax gains to the Company.

The Company conducts an other-than-temporary impairment (“OTTI”) analysis on a quarterly basis. The initial indication of OTTI for both debt and equity securities is a decline in the market value below the amount recorded for an investment, and the severity and duration of the decline. In determining whether an impairment is OTTI, the Company considers the length of time and the extent to which the market value has been below cost, recent events specific to the issuer, including investment downgrades by rating agencies and economic conditions of its industry, and the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. For marketable equity securities, the Company also considers the issuer’s financial condition, capital strength, and near-term prospects.

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

Company may avoid recognizing an OTTI charge by asserting that it has the intent and ability to retain its investment for a period of time sufficient to allow for any anticipated recovery in fair value.

Gross unrealized losses at June 30, 2010 are primarily caused by interest rate fluctuations, credit spread widening and reduced liquidity in applicable markets. The Company has reviewed securities on which there is an unrealized loss in accordance with its accounting policy for OTTI described above and recorded impairment charges totaling $1.1 million and $1.7 million for the three months ended June 30, 2010 and 2009, and $1.2 million and $40.1 million for the six months ended June 30, 2010 and 2009, respectively. The impairment charge for 2010 is attributed to the Company’s collateralized debt obligations (“CDO’s). For the first six months of 2009, the impairment charges included $36.4 million related to impairment losses in the Company’s ARPS and $2.0 million related to the Company’s collateralized mortgage obligation (“CMO”) portfolio.

The Company does not consider any other securities to be other-than-temporarily impaired as of June 30, 2010 and December 31, 2009. However, without recovery in the near term such that liquidity returns to the applicable markets and spreads return to levels that reflect underlying credit characteristics, additional OTTI may occur in future periods.

Information pertaining to securities with gross unrealized losses at June 30, 2010 and December 31, 2009, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

		June 30, 2010
		Less Than Twelve Months								Over Twelve Months
		Gross								Gross
		Unrealized				Fair				Unrealized				Fair
		Losses				Value				Losses				Value
		(in thousands)
Securities available for sale
U.S Government-sponsered agency		$	139			$	20,361			$	—			$	—
Municipal obligations			1				216				—				—
Direct obligation and GSE residential mortgage-backed securities			330				27,989				122				13,352
Private label residential mortgage-backed securities			—				—				2,197				10,264
Adjustable-rate preferred stock			150				5,652				—				—
Trust preferred securities			—				—				8,192				23,886
Corporate debt securities			—				—				—				—
		$	620			$	54,218			$	10,511			$	47,502

There were no held to maturity securities in an unrealized loss position at June 30, 2010.

		December 31, 2009
		Less Than Twelve Months								Over Twelve Months
		Gross								Gross
		Unrealized				Fair				Unrealized				Fair
		Losses				Value				Losses				Value
		(in thousands)
Securities held to maturity
Collateralized debt obligations		$	663			$	724			$	221			$	—
		$	663			$	724			$	221			$	—

		December 31, 2009
		Less Than Twelve Months								Over Twelve Months
		Gross								Gross
		Unrealized				Fair				Unrealized				Fair
		Losses				Value				Losses				Value
		(in thousands)
Securities available for sale
Direct obligation and GSE residential mortgage-backed securities		$	3,946			$	285,044			$	303			$	23,847
Municipal obligations			10				207				—				—
Private label residential mortgage-backed securities			—				—				2,573				11,301
Trust preferred securities			594				51,110				10,048				22,050
Other			53				13,197				—				—
		$	4,603			$	349,558			$	12,924			$	57,198

At June 30, 2010 and December 31, 2009, 16 and 64 debt securities (excluding adjustable rate preferred stock, debt obligations and other structured securities), respectively, have unrealized losses with aggregate depreciation of approximately 3.9% and 2.1%, respectively, from the Company’s amortized cost basis. These unrealized losses relate primarily to fluctuations in the current interest rate environment. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysis reports. Since material downgrades have not occurred and management does not have the intent to sell the debt securities for the foreseeable future, none of the securities described in the above table or in this paragraph were deemed to be other than temporarily impaired.

At June 30, 2010 and December 31, 2009, two investments in trust preferred securities have unrealized losses with aggregate depreciation of approximately 34.3% and 31.3%, respectively, from the Company’s amortized cost basis. At June 30, 2010 the combined net unrealized loss on trust preferred securities classified as available-for sale (“AFS”) was $8.2 million, compared with $10.0 million at December 31, 2009. The Company is actively monitoring its debt and other structured securities portfolios classified as AFS for declines in fair value. These unrealized losses relate primarily to fluctuations in the current interest rate environment, and specifically to the widening of credit spreads on virtually all corporate and structured debt, which began in 2007. The Company has the intent and ability to hold trust preferred securities for the foreseeable future, none were deemed to be OTTI.

The amortized cost and fair value of securities as of June 30, 2010 and December 31, 2009, by contractual maturities, are shown below. The actual maturities of the mortgage-backed securities may differ from their contractual maturities because the loans underlying the securities may be repaid without any penalties. Therefore, these securities are listed separately in the maturity summary. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

		June 30, 2010								December 31, 2009
		Amortized				Estimated				Amortized				Estimated
		Cost				Fair Value				Cost				Fair Value
		(in thousands)
Securities held to maturity
Due in one year or less		$	940			$	940			$	2,029			$	2,029
Due after one year through five years			645				645				648				648
Due after five years through ten years			732				732				1,387				1,387
Due after ten years			793				793				2,462				1,918
Other			1,500				1,500				1,500				1,500
		$	4,610			$	4,610			$	8,026			$	7,482
Securities available for sale
Due in one year or less		$	1,684			$	1,610			$	—			$	—
Due after one year through five years			5,818				5,851				71,695				71,206
Due after five years through ten years			224,655				225,862				56				57
Due after ten years			72,252				66,295				40,176				40,589
Mortgage backed securities			473,443				481,272				613,136				617,057
Other			16,996				17,394				15,720				15,689
		$	794,848			$	798,284			$	740,783			$	744,598