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Article by DailyStocks_admin    (07-01-08 09:23 AM)

Western Alliance Ban Corp. CEO ROBERT GARY SARVER bought 302000 shares on 6-27-2008 at $7.94

BUSINESS OVERVIEW

Western Alliance Bancorporation
We are a bank holding company headquartered in Las Vegas, Nevada. We provide a full range of 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 our subsidiary banks and financial services companies located in Nevada, Arizona, California and Colorado. On a consolidated basis, as of December 31, 2007, we had approximately $5.0 billion in assets, $3.6 billion in total loans, $3.5 billion in deposits and $501.5 million in stockholders’ equity. We have focused our lending activities primarily on commercial loans, which comprised 85.2% of our total loan portfolio at December 31, 2007. In addition to traditional lending and deposit gathering capabilities, we also offer a broad array of financial products and services aimed at satisfying the needs of small to mid-sized businesses and their proprietors, including cash management, trust administration and estate planning, custody and investments, equipment leasing and affinity credit card services nationwide.
Bank of Nevada (formerly BankWest of Nevada) was founded in 1994 by a group of individuals with extensive community banking experience in the Las Vegas market. We believe our success has been built on the strength of our management team, our conservative credit culture, the attractive long-term growth characteristics of the markets in which we operate and our ability to expand our franchise by attracting seasoned bankers with long-standing relationships in their communities.
In 2003, with the support of local banking veterans, we opened Alliance Bank of Arizona in Phoenix, Arizona and Torrey Pines Bank in San Diego, California. Over the past four and a half years we have successfully leveraged the expertise and strengths of Western Alliance and Bank of Nevada to build and expand these new banks in a rapid and efficient manner.
In 2006, we opened Alta Alliance Bank in Oakland, California. In addition, we acquired both Nevada First Bank and Bank of Nevada as part of mergers completed in 2006. Both of these banks were merged into BankWest of Nevada (whose name was subsequently changed to Bank of Nevada).
In March 2007, we expanded our presence in Northern Nevada through the acquisition of First Independent Bank of Nevada headquartered in Reno, Nevada. First Independent Bank of Nevada is a successful community bank with a management team, credit culture and an attractive growth market similar to our other existing banks.
Through our wholly owned, non-bank subsidiaries, Miller/Russell & Associates, Inc., Shine Investment Advisory Services, Inc. and Premier Trust, Inc., we provide investment advisory and wealth management services, including trust administration and estate planning. We acquired Miller/Russell and Premier Trust in May 2004 and December 2003, respectively. We acquired Shine in July 2007. As of December 31, 2007, Miller/Russell had $1.6 billion in assets under management, Shine had $428 million in assets under management and Premier Trust had $325 million in assets under management and $520 million in total trust assets.

The Company provides a full range of banking services, as well as trust and investment advisory services through its eight consolidated subsidiaries. The company manages its business with a primary focus on each subsidiary. Thus, the Company has identified eight operating segments. However, the trust and investment advisory segments do not meet the quantitative thresholds for disclosure and have therefore been included in the “other” column. Parent company information is also included in the other category because it represents an overhead function rather than an operating segment. PartnersFirst, a division of Torrey Pines Bank, is currently included in the Torrey Pines Bank segment. Western Alliance Leasing, a subsidiary of the parent company, is also included in the “other” column. The Company has not aggregated any operating segments.
The Company reported four segments in the financial statements issued prior to December 31, 2007. In October 2006, the Company opened a new bank subsidiary, Alta Alliance Bank, which is located in Northern California. Although Alta Alliance Bank does not meet the quantitative thresholds for disclosure at December 31, 2007, this segment is reported because it is expected to meet the quantitative thresholds for disclosure in the future. The addition of First Independent Bank of Nevada in 2007 resulted in an additional operating segment this year.
The five reported segments derive a majority of their revenues from interest income and the chief executive officer relies primarily on net interest income to assess the performance of the segments and make decisions about resources to be allocated to the segments. The accounting policies of the reported segments are the same as those of the Company as described in Note 1 to the Consolidated Financial Statements. 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.
Recent Developments
Acquisition of Shine Investment Advisory Services, Inc . Effective July 31, 2007, the Company acquired 80% of the outstanding common stock of Shine Investment Advisory Services, Inc. (Shine), headquartered in Lone Tree, Colorado. Since the merger closed on July 31, 2007, Shine’s results of operations were not included prior to the closing date. Shine’s assets under management at the date of merger were $409.9 million. The fair value of tangible assets acquired through this merger was $0.4 million. As provided in the purchase agreement and based on valuation amounts as of the merger date, approximately 314,000 shares of the Company’s stock at a price of approximately $25.48 were issued in connection with the Shine acquisition.
On July 12, 2007, the Company announced the formation of PartnersFirst Affinity Services, a division of its Torrey Pines Bank affiliate. PartnersFirst focuses on affinity credit card marketing using an innovative model and approach.
Our Strategy
Since 1994, we believe that we have been successful in building and developing our operations by adhering to a business strategy focused on understanding and serving the needs of our local clients and pursuing growth markets and opportunities while emphasizing a strong credit culture. Our objective is to provide our shareholders with superior returns. The critical components of our strategy include:
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Leveraging our knowledge and expertise. Over the past decade we have assembled an experienced management team and built a culture committed to credit quality and operational efficiency. We have also successfully centralized a significant portion of our operations, processing, compliance, Community Reinvestment Act administration and specialty functions. We intend to grow our franchise and improve our operating efficiencies by continuing to leverage our managerial expertise and the functions we have centralized at Western Alliance.

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Maintaining a strong credit culture. We adhere to a specific set of credit standards across our bank subsidiaries that ensure the proper management of credit risk. Western Alliance’s management team plays an active role in monitoring compliance with our Banks’ credit standards. Western Alliance also continually monitors each of our subsidiary banks’ loan portfolios, which enables us to identify and take prompt corrective action on potentially problematic loans.

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Attracting seasoned relationship bankers and leveraging our local market knowledge. We believe our success has been the result, in part, of our ability to attract and retain experienced relationship bankers that have strong relationships in their communities. These professionals bring with them valuable customer relationships, and have been an integral part of our ability to expand rapidly in our market areas. These professionals allow us to be responsive to the needs of our customers and provide a high level of service to local businesses. We intend to continue to hire experienced relationship bankers as we expand our franchise.

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Offering a broader array of personal financial products and services. Part of our growth strategy is to offer a broader array of personal financial products and services to high net worth individuals and to senior managers at commercial enterprises with which we have established relationships. To this end, we acquired Premier Trust, Inc. in December 2003, Miller/Russell & Associates, Inc. in May 2004, and a majority interest in Shine Investment Advisory Services, Inc. in July 2007.

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Focusing on markets with attractive growth prospects. We operate in what we believe to be highly attractive markets with superior long-term growth prospects. Our metropolitan areas have a high per capita income and are expected to experience some of the fastest population growth in the country. We continuously evaluate new markets in the Western United States with similar growth characteristics as targets for expansion. Our long term strategy is to operate in six to twelve high growth markets. We intend to implement this strategy in the long term through the formation of additional de novo banks or acquiring other commercial banks in new market areas with attractive growth prospects. As of December 31, 2007, we maintained 39 bank branch offices located throughout our market areas. To accommodate our growth and enhance efficiency, we opened a service center facility in Las Vegas, Nevada that provides centralized back-office services and call center support for all our banking subsidiaries. We are currently focused on growing our business with existing branches.

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Attracting low cost deposits. We believe we have been able to attract a stable base of low-cost deposits from customers who are attracted to our personalized level of service and local knowledge. As of December 31, 2007, our deposit base was comprised of 28.4% non-interest bearing deposits, of which 14.3% consisted of title company deposits, 79.6% consisted of other business deposits and 6.1% consisted of consumer deposits.
Our Market Areas
We believe that there is a significant market segment of small to mid-sized businesses that are looking for a locally based commercial bank capable of providing a high degree of flexibility and responsiveness, in addition to offering a broad range of financial products and services. We believe that the local community banks that compete in our markets do not offer the same breadth of products and services that our customers require to meet their growing needs, while the large, national banks lack the flexibility and personalized service that our customers desire in their banking relationships. By offering flexibility and responsiveness to our customers and providing a full range of financial products and services, we believe that we can better serve our markets.
Through our banking and non-banking subsidiaries, we serve customers in Nevada, Arizona, California and Colorado.
Nevada. In Southern Nevada, we operate in the cities of Las Vegas, Henderson, Mesquite and North Las Vegas, all of which are in the Las Vegas metropolitan area. In Northern Nevada, we operate in the cities of Reno, Sparks and Fallon which are located in or around the Reno metropolitan area. The economy of the Las Vegas and Reno metropolitan areas are primarily driven by services and industries related to gaming, entertainment and tourism.
Arizona. In Arizona, we operate in Phoenix, Scottsdale and Mesa, which are located in the Phoenix metropolitan area, Tucson, which is located in the Tucson metropolitan area, and Flagstaff and Sedona, which are located in the Flagstaff metropolitan area. These metropolitan areas contain companies in the following industries: aerospace, high-tech manufacturing, construction, energy, transportation, minerals and mining and financial services.
California. In California, we operate in the cities of San Diego, La Mesa and Carlsbad, which are in the San Diego metropolitan area, and Oakland and Piedmont, which are in the Bay Area metropolitan area. The business communities in the San Diego and Bay Area metropolitan areas include numerous small to medium-sized businesses and service and professional firms that operate in a diverse number of industries, including the entertainment, defense and aerospace, construction, health care and pharmaceutical, technology and computer, financial and telecommunications industries.
Colorado . In Colorado, we operate investment management services though our subsidiary, Shine.
Operations
Our operations are conducted through the following subsidiaries:
•
Bank of Nevada. Bank of Nevada is a Nevada-chartered commercial bank headquartered in Las Vegas, Nevada. As of December 31, 2007, the bank had $3.0 billion in assets, $2.2 billion in loans and $2.0 billion in deposits. Bank of Nevada has 15 full-service offices in the Las Vegas metropolitan area.

•
Alliance Bank of Arizona. Alliance Bank of Arizona is an Arizona-chartered commercial bank headquartered in Phoenix, Arizona. As of December 31, 2007, the bank had $822.6 million in assets, $584.2 million in loans and $613.1 million in deposits. Alliance Bank has four full-service offices in Phoenix, three in Tucson, one in Scottsdale, one in Sedona, one in Mesa and one in Flagstaff.

•
Torrey Pines Bank. Torrey Pines Bank is a California-chartered commercial bank headquartered in San Diego, California. As of December 31, 2007, the bank had $759.5 million in assets, $515.4 million in loans and $470.4 million in deposits. Torrey Pines has five full-service offices in San Diego, one in La Mesa and one in Carlsbad.

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Alta Alliance Bank. Alta Alliance Bank opened in October 2006 and is a California-chartered commercial bank headquartered in Oakland, California. As of December 31, 2007, the bank had $91.0 million in assets, $38.5 million in loans and $68.7 million in deposits. Alta Alliance has one full-service office in Oakland and one in Piedmont.

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First Independent Bank of Nevada. First Independent Bank of Nevada was acquired in March 2007 and is a Nevada-chartered commercial bank headquartered in Reno, Nevada. As of December 31, 2007, the bank had $549.9 million in assets, $322.2 million in loans and $420.1 million in deposits. First Independent has two full-service offices in Reno, one in Sparks and one in Fallon.

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Miller/Russell & Associates, Inc. Miller/Russell offers investment advisory services to businesses, individuals and non-profit entities. As of December 31, 2007, Miller/Russell had $1.6 billion in assets under management. Miller/Russell has offices in Phoenix, Tucson, San Diego and Las Vegas.

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Premier Trust, Inc. Premier Trust offers clients wealth management services, including trust administration of personal and retirement accounts, estate and financial planning, custody services and investments. As of December 31, 2007, Premier Trust had $520 million in total trust assets and $325 million in assets under management. Premier Trust has offices in Las Vegas and Phoenix.

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Shine Investment Advisory Services, Inc. We acquired a majority interest in Shine in July 2007. Shine offers investment advisory services to businesses, individuals and non-profit entities. As of December 31, 2007, Shine had $428 million in assets under management. Shine has one office in Lone Tree, Colorado.
Lending Activities
We provide a variety of loans to our customers, including commercial and residential real estate loans, construction and land development loans, commercial loans, and to a lesser extent, consumer loans. Our lending efforts have focused on meeting the needs of our business customers, who have typically required funding for commercial and commercial real estate enterprises. Commercial loans comprised 85.2% of our total loan portfolio at December 31, 2007.

Commercial Real Estate Loans. The majority of our lending activity consists of loans to finance the purchase of commercial real estate and loans to finance inventory and working capital that are secured by commercial real estate. We have a commercial real estate portfolio comprised of loans on apartment buildings, professional offices, industrial facilities, retail centers and other commercial properties. As of December 31, 2007, 50.7% of our commercial real estate and construction loans were owner occupied.
Construction and Land Development Loans. The principal types of our construction loans include industrial/warehouse properties, office buildings, retail centers, medical facilities, restaurants and single-family homes. Construction and land development loans are primarily made only to experienced local developers with whom we have a sufficient lending history. An analysis of each construction project is performed as part of the underwriting process to determine whether the type of property, location, construction costs and contingency funds are appropriate and adequate. We extend raw commercial land loans primarily to borrowers who plan to initiate active development of the property within two years.
Commercial and Industrial Loans. In addition to real estate related loan products, we also originate commercial and industrial loans, including working capital lines of credit, inventory and accounts receivable lines, equipment loans and other commercial loans. We focus on making commercial loans to small and medium-sized businesses in a wide variety of industries. We also are a “Preferred Lender” in Arizona with the SBA.
Residential Loans. We originate residential mortgage loans secured by one to four-family properties, most of which serve as the primary residence of the owner. Most of our loan originations result from relationships with existing or past customers, members of our local community, and referrals from realtors, attorneys and builders.
Consumer Loans. We offer a variety of consumer loans to meet customer demand and to increase the yield on our loan portfolio. Consumer loans are generally offered at a higher rate and shorter term than residential mortgages. Examples of our consumer loans include:
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home equity loans and lines of credit;

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home improvement loans;

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credit card loans;

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new and used automobile loans; and

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personal lines of credit.

Credit Policies and Administration
General
We adhere to a specific set of credit standards across our bank subsidiaries that ensure the proper management of credit risk. Furthermore, our holding company’s management team plays an active role in monitoring compliance with such standards by our banks.
Loan originations are subject to a process that includes the credit evaluation of borrowers, established lending limits, analysis of collateral, and procedures for continual monitoring and identification of credit deterioration. Loan officers actively monitor their individual credit relationships in order to report suspected risks and potential downgrades as early as possible. The respective boards of directors of each of our banking subsidiaries establish their own loan policies, as well as loan limit authorizations. Except for variances to reflect unique aspects of state law and local market conditions, our lending policies generally incorporate consistent underwriting standards. We monitor all changes to each respective bank’s loan policy to promote this philosophy. Our credit culture has helped us to identify troubled credits early, allowing us to take corrective action when necessary.
Loan Approval Procedures and Authority
Our loan approval procedures are executed through a tiered loan limit authorization process which is structured as follows:
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Individual Authorities. The board of directors of each subsidiary bank sets the authorization levels for individual loan officers on a case-by-case basis. Generally, the more experienced a loan officer, the higher the authorization level. The maximum approval authority for a loan officer is $1.5 million for real estate secured loans and $750,000 for other loans.

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Management Loan Committees. Credits in excess of individual loan limits are submitted to the appropriate bank’s Management Loan Committee. The Management Loan Committees consist of members of the senior management team of that bank and are chaired by that bank’s chief credit officer. The Management Loan Committees have approval authority up to $6.0 million at Bank of Nevada, $7.5 million at Alliance Bank of Arizona, $5.0 million at Torrey Pines Bank and First Independent Bank of Nevada and $5.5 million at Alta Alliance Bank.

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Credit Administration. Credits in excess of the Management Loan Committee authority are submitted by the bank subsidiary to Western Alliance’s Credit Administration. Credit Administration consists of the chief credit officers of Western Alliance and Bank of Nevada. Credit Administration has approval authority up to $18.0 million.

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Board of Directors Oversight. The CEO of Bank of Nevada acting with the Chairman of the Board of Directors of Bank of Nevada has approval authority up to Bank of Nevada’s legal lending limit of $66.4 million.
Our credit administration department works independent of loan production.
Loans to One Borrower. In addition to the limits set forth above, state banking law generally limits the amount of funds that a bank may lend to a single borrower. Under Nevada law, the total amount of outstanding loans that a bank may make to a single borrower generally may not exceed 25% of stockholders’ tangible equity. Under Arizona law, the obligations of one borrower to a bank may not exceed 20% of the bank’s capital, plus an additional 10% of its capital if the additional amounts are fully secured by readily marketable collateral. Under California law, the obligations of any one borrower to a bank generally may not exceed 25% of the sum of the bank’s shareholders’ equity, allowance for loan losses, capital notes and debentures.
Notwithstanding the above limits, because of our business model, our affiliate banks are able to leverage their relationships with one another to participate in loans collectively which they otherwise would not be able to accommodate on an individual basis. As of December 31, 2007, the aggregate lending limit of our subsidiary banks was approximately $126.2 million.
Concentrations of Credit Risk. Our lending policies also establish customer and product concentration limits to control single customer and product exposures. As these policies are directional and not absolute, at any particular point in time the ratios may be higher or lower because of funding on outstanding General
One of our key strategies is to maintain high asset quality. We have instituted a loan grading system consisting of nine different categories. The first five are considered “satisfactory.” The other four grades range from a “watch” category to a “loss” category and are consistent with the grading systems used by the FDIC. All loans are assigned a credit risk grade at the time they are made, and each originating loan officer reviews the credit with his or her immediate supervisor on a quarterly basis to determine whether a change in the credit risk grade is warranted. In addition, the grading of our loan portfolio is reviewed annually by an external, independent loan review firm.
Collection Procedure
If a borrower fails to make a scheduled payment on a loan, we attempt to remedy the deficiency by contacting the borrower and seeking payment. Contacts generally are made within 15 business days after the payment becomes past due. Our Special Assets Department reviews all delinquencies on a monthly basis. Each bank’s chief credit officer can approve charge-offs up to $5,000. Amounts in excess of $5,000 require the approval of each bank’s respective board of directors. Loans deemed uncollectible are proposed for charge-off on a monthly basis at each respective bank’s monthly board meeting.
Non-performing Loans
Our policies require that the chief credit officer of each bank continuously monitor the status of that bank’s loan portfolio and prepare and present to the board of directors a monthly report listing all credits 30 days or more past due. All relationships graded “substandard” or worse typically are transferred to the Special Assets Department for corrective action. In addition, we prepare detailed status reports for all relationships rated “watch” or lower on a quarterly basis. These reports are provided to management and the board of directors of the applicable bank and Western Alliance.
Our policy is to classify all loans 90 days or more past due and all loans on a non-accrual status as “substandard” or worse, unless extraordinary circumstances suggest otherwise.
We generally stop accruing income on loans when interest or principal payments are in arrears for 90 days, or earlier if the bank’s management deems appropriate. We designate loans on which we stop accruing income as non-accrual loans and we reverse outstanding interest that we previously accrued. We recognize income in the period in which we collect it, when the ultimate collectibility of principal is no longer in doubt. We return non-accrual loans to accrual status when factors indicating doubtful collection no longer exist and the loan has been brought current.
Criticized Assets
Federal regulations require that each insured bank classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, examiners have authority to identify problem assets, and, if appropriate, classify them. We use grades six through nine of our loan grading system to identify potential problem assets.

The following describes grades six through nine of our loan grading system:
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“Watch List/Special Mention.” Generally these are assets that require more than normal management attention. These loans may involve borrowers with adverse financial trends, higher debt/equity ratios, or weaker liquidity positions, but not to the degree of being considered a “problem loan” where risk of loss may be apparent. Loans in this category are usually performing as agreed, although there may be some minor non-compliance with financial covenants.

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“Substandard.” These assets contain well-defined credit weaknesses and are characterized by the possibility that the bank will sustain some loss if such weakness or deficiency is not corrected. These loans generally are adequately secured and in the event of a foreclosure action or liquidation, the bank should be protected from loss. All loans 90 days or more past due and all loans on non-accrual are considered at least “substandard,” unless extraordinary circumstances would suggest otherwise.

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“Doubtful.” These assets have an extremely high probability of loss, but because of certain known factors which may work to the advantage and strengthening of the asset (for example, capital injection, perfecting liens on additional collateral and refinancing plans), classification as an estimated loss is deferred until a more precise status may be determined.

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“Loss.” These assets are considered uncollectible, and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practicable or desirable to defer writing off the asset, even though partial recovery may be achieved in the future.
Allowance for Loan Losses
The allowance for loan losses reflects our evaluation of the probable losses in our loan portfolio. Although management at each of our banking subsidiaries establishes its own allowance for loan losses, each bank utilizes consistent evaluation procedures. The allowance for loan losses is maintained at a level that represents each bank’s management’s best estimate of losses in the loan portfolio at the balance sheet date that are both probable and reasonably estimable. We maintain the allowance through provisions for loan losses that we charge to income. We charge losses on loans against the allowance for loan losses when we believe the collection of loan principal is unlikely. Recoveries on loans charged-off are restored to the allowance for loan losses.
Our evaluation of the adequacy of the allowance for loan losses includes the review of all loans for which the collectibility of principal may not be reasonably assured. For commercial real estate and commercial loans, review of financial performance, payment history and collateral values is conducted on a quarterly basis by the lending staff, and the results of that review are then reviewed by Credit Administration. For residential mortgage and consumer loans, this review primarily considers delinquencies and collateral values.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview and History
We are a bank holding company headquartered in Las Vegas, Nevada. We provide a full range of banking and related services to locally owned businesses, professional firms, real estate developers and investors, local nonprofit organizations, high net worth individuals and consumers through our subsidiary banks and financial services companies located in Nevada, Arizona, California and Colorado. In addition to traditional lending and deposit gathering capabilities, we also offer a broad array of financial products and services aimed at satisfying the needs of small to mid-sized businesses and their proprietors, including cash management, trust administration and estate planning, custody and investments and equipment leasing.
We generate the majority of our revenue from interest on loans, service charges on customer accounts and income from investment securities. This revenue is offset by interest expense paid on deposits and other borrowings and non-interest expense such as administrative and occupancy expenses. Net interest income is the difference between interest income on interest-earning assets such as loans and securities and interest expense on interest-bearing liabilities such as customer deposits and other borrowings which are used to fund those assets. Net interest income is our largest source of net income. Interest rate fluctuations, as well as changes in the amount and type of earning assets and liabilities, combine to affect net interest income.
We provide a variety of loans to our customers, including commercial and residential real estate loans, construction and land development loans, commercial and industrial loans, Small Business Administration, or SBA loans, and to a lesser extent, consumer loans. We rely primarily on locally generated deposits to provide us with funds for making loans.
In addition to these traditional commercial banking capabilities, we also provide our customers with cash management, trust administration and estate planning, equipment leasing, custody and investment services and affinity card services resulting in revenue generated from non-interest income. We receive fees from our deposit customers in the form of service fees, checking fees and other fees. Other services such as safe deposit and wire transfers provide additional fee income. We may also generate income from time to time from the sale of investment securities. The fees collected by us are found in our Consolidated Statements of Income under “non-interest income.” Offsetting these earnings are operating expenses referred to as “non-interest expense.” Because banking is a very people intensive industry, our largest operating expense is employee compensation and related expenses.

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 Average Tangible Equity (ROTE);

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

• Asset Quality;

• Asset and Deposit Growth; and

• Operating Efficiency.
Return on Average Equity and Tangible Equity. Our net income for the year ended December 31, 2007 decreased 17.6% to $32.9 million compared to $39.9 million for the year ended December 31, 2006. The decrease in net income was due primarily to a $37.6 million increase in non-interest expenses related primarily to expansion efforts and a $15.6 million increase to the provision for loan losses, offset by a $31.1 million increase in net interest income. Basic earnings per share decreased to $1.14 per share for the year ended December 31, 2007, compared to $1.56 per share for the same period in 2006. Diluted earnings per share decreased to $1.06 per share for the year ended December 31, 2007, compared to $1.41 per share for the same period last year. Average shares outstanding increased 3.3 million from 25.6 million for the year ended December 31, 2006 to 28.9 million for the year ended December 31, 2007. Average stockholders’ equity increased $145.1 million for the same periods. The increase in shares outstanding and average stockholders’ equity was due primarily to our acquisitions of First Independent Bank of Nevada and Shine Investment Advisory Services. The decrease in net income and increase in shares outstanding resulted in an ROE of 6.7% for the year ended December 31, 2007, compared to 11.5% for the year ended December 31, 2006, and ROTE of 11.9% for the year ended December 31, 2007, compared to 16.5% for the year ended December 31, 2006.
Return on Average Assets. Our ROA for the year ended December 31, 2007 decreased to 0.70% compared to 1.09% for the same period in 2006. The ROTA decreased to 11.94% for the year ended December 31, 2007 compared to 16.47% for the same period in 2006. The decrease in ROA and ROTA is primarily due to the decrease in net income 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 non-accrual 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 December 31, 2007, non-accrual loans were $17.9 million compared to $1.4 million at December 31, 2006. Non-accrual loans as a percentage of gross loans were 0.49% as of December 31, 2007, compared to 0.05% as of December 31, 2006. At December 31, 2007 and December 31, 2006, our non-performing assets were comprised of non-accrual loans, other impaired loans, loans past due 90 days or more and still accruing and other real estate. For the year ended December 31, 2007, net charge-offs as a percentage of average loans were 0.23%, compared to 0.04% for the year ended December 31, 2006.
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 20.3% to $5.0 billion as of December 31, 2007 from $4.2 billion as of December 31, 2006. Gross loans grew 21.0% (11.3% organically) to $3.6 billion as of December 31, 2007 from $3.0 billion as of December 31, 2006. Total deposits increased 4.3% (7.6% organic decline) to $3.5 billion as of December 31, 2007 from $3.4 billion as of December 31, 2006. Loans and deposits acquired through the First Independent Bank acquisition in 2007 were $290.7 million and $402.3 million at March 31, 2007, respectively.
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 (non-interest expenses divided by the sum of net interest income and non interest income, tax adjusted) was 64.67% for the year ended December 31, 2007 compared to 57.51% for the same period in 2006. We recently implemented an initiative designed to reduce our efficiency ratio, which will include more efficient deployment of FTE. In the short term we expect our branch expansion to slow significantly, which should lead to a lower efficiency ratio as the opened branches become profitable.
Critical Accounting Policies
The Notes to Consolidated Financial Statements 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 following is a discussion of these critical accounting policies and significant estimates. Additional information about these policies can be found in Note 1 of the Consolidated Financial Statements.
Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for probable losses incurred in the loan portfolio. Our allowance for loan loss methodology incorporates a variety of risk considerations in establishing an allowance for loan losses that we believe is adequate to absorb probable losses in the existing portfolio. Such analysis addresses our historical loss experience, delinquency and charge-off trends, collateral values, changes in non-performing loans, economic conditions, peer group experience and other considerations. This information is then analyzed to determine “estimated loss factors” which, in turn, is assigned to each loan category. These factors also incorporate known information about individual loans, including the borrowers’ sensitivity to interest rate movements. Changes in the factors themselves are driven by perceived risk in pools of homogenous loans classified by collateral type, purpose and term. Management monitors local trends to anticipate future delinquency potential on a quarterly basis. In addition to ongoing internal loan reviews and risk assessment, the audit committee utilizes an independent loan review firm to provide advice on the appropriateness of the allowance for loan losses.
The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries. Provisions for loan losses are provided on both a specific and general basis. Specific allowances are provided for watch, criticized, and impaired credits for which the expected/anticipated loss may be measurable. General valuation allowances are based on a portfolio segmentation based on collateral type, purpose and risk grading, with a further evaluation of various factors noted above.
We incorporate our internal loss history to establish potential risk based on collateral type securing each loan. As an additional comparison, we examine peer group banks to determine the nature and scope of their losses. Finally, we closely examine each credit graded “Watch List/Special Mention” and below to individually assess the appropriate specific loan loss reserve for such credit.
At least annually, we review the assumptions and formulae by which additions are made to the specific and general valuation allowances for loan losses in an effort to refine such allowance in light of the current status of the factors described above. The total loan portfolio is thoroughly reviewed at least quarterly for satisfactory levels of general and specific reserves together with impaired loans to determine if write downs are necessary.
Although we believe the levels of the allowance as of December 31, 2007 and 2006 were adequate to absorb probable losses in the loan portfolio, a decline in local economic conditions or other factors could result in increasing losses that cannot be reasonably estimated at this time.
Available-for-Sale Securities. Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities , requires that available-for-sale securities be carried at fair value. Management utilizes the services of a third party vendor to assist with the determination of estimated fair values. Adjustments to the available-for-sale securities fair value impact the consolidated financial statements by increasing or decreasing assets and stockholders’ equity.
Securities Measured at Fair Value . The Company elected early adoption of SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities , effective January 1, 2007. Concurrent with the adoption of SFAS 159, the Company adopted SFAS No. 157, Fair Value Measurements , effective January 1, 2007. SFAS 159 requires early adoption of SFAS 157 if the company chooses to early adopt SFAS 159. SFAS 157 provides a definition of fair value and provides a framework for calculating fair value. Election of SFAS No. 159 requires elected securities to be carried at fair value with changes in value running through the income statement. See further discussion in the notes to the consolidated financial statements.
Other than Temporary Impairment of Securities . We regularly review investment securities for impairment based on criteria that include the extent to which cost exceeds market value, the duration of that market decline, our intent and ability to hold to recovery and the financial health and specific prospects for the issuer. We perform comprehensive market research and analysis and monitor market conditions to identify potential impairments. Further information about actual and potential impairment losses is provided in the notes to the financial statements.

Goodwill. The Company evaluates goodwill for impairment on at least an annual basis pursuant to SFAS 142, Goodwill and Other Intangible Assets . The first step of the impairment evaluation involves the determination of the fair value of each reporting unit to which goodwill has been assigned. Goodwill is not impaired if the fair value of the reporting unit exceeds its carrying value. The Company’s fair value measurements were based on recent sales of similar companies. The Company determined that none of its goodwill was impaired as of October 1, 2007.
Stock Based Compensation. SFAS 123R requires the Company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Since an observable market price of an option with the same or similar terms and conditions is not available, the Company estimates the fair value of stock options using the Black Scholes option-pricing model. The Black Scholes model requires the Company to make assumptions regarding the expected term of the option, the expected volatility of the price of the underlying share for the expected term of the option, the expected dividends on the underlying share for the expected term of the option, and the risk-free interest rates for the expected term of the option. The assumptions and the methods used to determine those assumptions are described in Note 13 of the financial statements included in this 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 non-interest income, consisting 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 non-interest expenses, such as compensation and benefits, occupancy and equipment and other miscellaneous operating expenses.
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

The 17.6% decrease in net income was due primarily to a $37.6 million increase in non-interest expenses related to expansion efforts and a $15.6 million increase to the provision for loan losses related to the challenging economic conditions in our primary markets, offset by a $31.1 million increase in net interest income compared with the same period in 2006.
Net Interest Income and Net Interest Margin. The 20.9% increase in net interest income for year ended December 31, 2007 compared to the year ended December 31, 2006 was due to an increase in interest income of $72.7 million, reflecting the effect of an increase of $819.6 million in average interest-bearing assets which was primarily funded with an increase of $692.6 million in average deposits, of which $64.9 million were non-interest bearing.
The average yield on our interest-earning assets was 7.45% for the year ended December 31, 2007, compared to 7.07% for the year ended December 31, 2006, an increase of 5.0%. The increase in the yield on our interest-earning assets is primarily the result of an increase in the volume of loans held in our portfolio. Other factors contributing to the higher yield are adjustments related to the adoption of SFAS 159 and some changes in the investment portfolio mix to higher yielding securities.
The cost of our average interest-bearing liabilities increased to 4.08% in the year ended December 31, 2007, from 3.67% in the year ended December 31, 2006, which is a result of higher balances in our interest bearing deposits and higher rates paid on deposit accounts and borrowings, partially offset by a reduction in interest expense related to the election of the fair value option for trust preferred securities upon early adoption of SFAS 159.
Our average rate on our interest-bearing deposits increased 12.9% from 3.42% for the year ended December 31, 2006, to 3.86% for the year ended December 31, 2007, reflecting increases in general market rates. Our average rate on total deposits (including non-interest bearing deposits) increased 20.9% from 2.25% for the year ended December 31, 2006, to 2.72% for the year ended December 31, 2007.
Our interest margin of 4.40% for the year ended December 31, 2007 was lower than our margin for the previous year of 4.52% due to the increase in our cost of funds exceeding the increase in our yield on earning assets. Our cost of funds increased more than the increase in market rates due to an unfavorable shift in our deposit mix. Average non-interest bearing deposits increased 6.5% while interest bearing deposits increased 32.8%.
Average Balances and Average Interest Rates. The table below sets forth balance sheet items on a daily average basis for the years ended December 31, 2007 and 2006 and presents the daily average interest rates earned on assets and the daily average interest rates paid on liabilities for such periods. Non-accrual loans have been included in the average loan balances. Securities include securities available for sale and securities held to maturity. Securities available for sale are carried at amortized cost for purposes of calculating the average rate received on taxable securities below.

The $6.5 million, or 36.4%, increase in non-interest income was influenced by several factors. Collectively, Premier Trust, Inc., Miller/Russell Associates, Inc. and Shine Investment Advisory Services, Inc. produced $9.8 million in trust and investment advisory fees in the year ended December 31, 2007, compared to $7.3 million in the year ended December 31, 2006. The increase was due to an increase in volume of business from Premier and Miller Russell and the acquisition of Shine in July 2007. Trust assets and assets under management have increased from a combined amount of $1.83 billion at December 31, 2006 to $2.51 billion at December 31, 2007.
Service charges increased $1.4 million from 2006 to 2007 due to higher deposit balances, increased fee charges on existing accounts and the growth in our customer base.
Income from bank owned life insurance, or BOLI, increased $1.1 million. In addition to $2.2 million of BOLI added through the First Independent acquisition, we purchased additional BOLI products with a face amount of $25.0 million in late 2006 to help offset employee benefit costs.
Other income increased $1.6 million, due to the growth of the Company and its operations and the sale of a branch facility in 2007. Other income also includes broker fees received on sales of leases and mortgages and gains on sales of SBA loans.
Unrealized gains/losses on assets and liabilities measured at fair value . During the year ended December 31, 2007, we recognized net unrealized gains on assets and liabilities measured at fair value of $2.4 million. These gains and losses are primarily the result of changes in market yields on securities similar to those in our portfolio. We view the majority of these gains and losses as temporary in nature since the changes in value on most of our securities were not related to a deterioration or improvement in credit profile, but rather such gains and losses were the result of fluctuations in market yields.
During the year ended December 31, 2007, we recognized an impairment charge on one collateralized debt obligation that has exposure to subprime mortgages. The reduction in fair value of $2.9 million, or 57%, was deemed to be other than temporary due to a substantial deterioration in the credit profile of the security as indicated by a credit rating downgrade.
SFAS 159 and 157 were adopted by the Company on January 1, 2007. A detailed explanation of the adoptions is included in the notes to the financial statements.
During the year ended December 31, 2007, we recognized a gain on interest rate swap derivatives of $0.7 million and losses of $2.5 million on credit default swap derivatives embedded in certain structured securities.
Non-Interest Expense. The following table presents, for the periods indicated, the major categories of non-interest expense:

Non-interest expense grew $37.6 million, or 39.1%. These increases are attributable to our overall growth, and specifically to merger and acquisition activity, the opening of new branches and hiring of new relationship officers and other employees. At December 31, 2007, we had 992 full-time equivalent employees compared to 785 at December 31, 2006. Given current market conditions, we expect branch expansion activity to slow dramatically in 2008.
The increase in salaries and occupancy expenses related to the growth discussed above totaled $27.0 million, which is 71.8% of the total increase in non-interest expenses.
Insurance expense increased $2.3 million from the year ended December 31, 2006 to the same period in 2007 primarily due to significant FDIC depository insurance rate increases assessed for the 2007 year.
Other non-interest expense increased $2.6 million from December 31, 2006 to December 31, 2007. Other non-interest expense increased, in general, as a result of the growth in assets and operations of the Company.
Provision for Income Taxes. We recorded tax provisions of $15.5 million and $21.6 million for the years ended December 31, 2007 and 2006, respectively. Our effective tax rates were 31.9% and 35.1% for 2007 and 2006, respectively.
The effective tax rate decreased from 35.1% for the year ended December 31, 2006 to 31.9% for the same period in 2007 primarily due to an increase in securities yielding dividends received deductions, non-taxable increases in the cash surrender value of life insurance and increased tax-exempt income from a larger tax-exempt loan and bond portfolio.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

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 non-interest 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 non-interest expenses, such as compensation and benefits, occupancy and equipment and other miscellaneous operating expenses.
The following table sets forth a summary financial overview for the three months ended March 31, 2008 and 2007.

The 63.7% decrease in net income was due primarily to a $5.3 million securities impairment charge and a $7.6 million increase to the provision for loan losses caused by challenging economic conditions in our primary markets, partially offset by $1.6 million in realized and unrealized gains on financial instruments. The increase in net interest income for the three months ended March 31, 2008 over the same period 2007 was the result of an increase in the volume of interest-earning assets, primarily loans.
Net Interest Income and Net Interest Margin. The 14.7% increase in net interest income for the three months ended March 31, 2008 compared to the same period in 2007 was due to an increase in interest income of $9.5 million, reflecting the effect of an increase of $891.0 million in average interest-bearing assets which was funded primarily with an increase of $292.0 million in average deposits and $707.1 million in average short-term borrowings.
The average yield on our interest-earning assets was 6.85% for the three months ended March 31, 2008, compared to 7.52% for the same period in 2007. The decrease in the yield on our interest-earning assets is a result of a decrease in market rates, repricing on our adjustable rate loans, and new loans originated with lower interest rates because of the lower interest rate environment.
The cost of our average interest-bearing liabilities decreased to 3.32% in the three months ended March 31, 2008, from 4.12% in the three months ended March 31, 2007, 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 months ended March 31, 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. Non-accrual 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.

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, non-accrual loans have been included in the average loan balances.

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.
Our provision for loan losses was $8.1 million for the three months ended March 31, 2008, compared to $0.4 million for the same period 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.

Non-Interest Income. We earn non-interest 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 $2.8 million, or 50.6%, increase in non-interest income, excluding net investment securities gains and net unrealized gain/loss on assets and liabilities measured at fair value, from the three months ended March 31, 2007 to the same period in 2008 was due to increases in investment advisory revenues, increases in service-related charges and non-recurring income amounts of approximately $1.1 million.
Assets under management at Miller/Russell and Associates were $1.38 billion at March 31, 2008, down 7.7% from $1.49 billion at March 31, 2007. This decline is due primarily to lower market valuations. At Premier Trust, assets under management increased 30.3% from $251 million to $327 million from March 31, 2007 to March 31, 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 $408 million on March 31, 2008. Overall growth in assets under management resulted in a 32.8% increase in trust and advisory fee revenue for the three month period ending March 31, 2008 as compared to the three month period ending March 31, 2007.
Service charges increased 33.5%, or $0.4 million from 2007 to 2008, due to higher deposit balances and the growth in our customer base.
Other income increased 128.2%, or $1.9 million from 2007 to 2008, due to the growth of the Company and its operations and 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 month period ended March 31, 2008, we recognized net unrealized gains on assets and liabilities measured at fair value of $1.4 million. 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.

CONF CALL

Robert Sarver

Thank you. It's Robert Sarver speaking. I'd like to start off by kind of looking at a high level view of where we are today and kind of where we are headed in the near term, talk about some of our strengths and positive trends and also talk about some of our challenges. After that, I am going to turn the call over to Dale to get into some more financial analysis of the quarter and then after that Hal Erskine, President of PartnersFirst will give you an update on where we are with our Affinity credit card business.

In terms of some of the issues facing us and some of the challenges, number one, clearly the markets of Nevada, Arizona and California have been hit the hardest by the housing crisis and overall downturn in the economy. Not only have we had to significantly increase loan loss reserves, but spreads in much of our securities portfolios has widened significantly leading to some realized and unrealized losses. Our strategy on dealing with impaired credits will continue to be to identify them quickly, reserve them appropriately, and resolve them very aggressively. We are not looking to build a portfolio of OREO and prolong the recognition of our credit issues.

Second challenge we have would be around capital ratios which are getting a little tight. Our total risk-based capital of 10.1%, we expect to address the subordinated debt issue in this quarter. Our tier 1 capital leverage ratio of 7.4% is sufficient and our tangible equity ratio of 5.1%, while below our target, reflects a full write down to market value of all our trust preferred securities, none of which are currently in default. If you add that back, our unrecognized loss on these securities, our tangible common equity ratio would be at about 6%.

In terms of some of the positive trends and strengths of the organization, I'd point to asset quality and our strong regulatory relation. Our non-performing assets to total assets was only 32 basis points at the end of the quarter, a level that is about one fourth of what our peers and was actually declined from year end. We sold all of our OREO that we had at the end of the year at a modest gain.

Our current OREO portfolio consists of two properties. One is a residential development that is on the books for $5 million, which is currently under a letter of intent for sale. The second is a 19 hole – excuse me, 19 lot golf course project in Reno, Nevada, that is on the books for $1.8 million. I anticipate just like in last quarter that both these properties will be sold off our books by the end of the quarter without any further write down.

Net charge offs for the quarter were 6.5 million. Half of that amount came from a write down on the first OREO property we took in and the other half consists of various commercial and real estate loans mostly 300,000 and less that have been negatively impacted by the slowed economy equivalent primarily in the state of Nevada.

We did see an increase in past due loans at quarter end. However, as of today, 40% of those loans are now current. A couple of examples of the two largest would be a $5 million loan we have secured by first deed of trust on a church in Reno. We do have a strong guarantor on that credit and that loan is currently current. We made an advance of approximately 50% of cost when that church was built.

Second loan, which I think underscores some of our solid credit underwriting was a $6.5 million loan secured with commercial land in Las Vegas. This loan has a strong guarantor on it and just recently we received a 1.2 million pay down of principal on this loan and we extended it.

I believe our asset quality will continue to outperform our peers based on solid underwriting of our credit folks and the fact that we did begin to prepare for this cycle a year ahead of our peers. While I don't have a crystal ball, I do not perceive a major uptick in non-performing assets in the next quarter.

Revenue growth and our net interest margin, both of which increased modestly. Our margins increased 4 basis points in spite of a declining rate environment. This is a result of a relatively neutral asset liability position we have combined with our ability now to lend money at better spread. Both those led to a stable net interest margin. It is a good time to be a lender right now as a bank, good opportunities at better spread.

Third item I want to talk about, we are making some headway in being more efficient. Compared to nine months ago, if you exclude PartnersFirst, we operate four more banking offices with 5% less FTEs. We have more work to do there but we continue to focus on growing our business bringing in new relationship managers to Western Alliance while at the same time processing our work more efficiently. To put it more succinctly, we are trying to add the muscle by eliminating some of the fat in the organization.

Number four, our new business pipelines are actually more robust today than they have been in the last 12 months. We think we can capitalize today on providing customers with that personal relationship but with a stable bank in an unstable banking environment. While customer repos declined 50 million on a linked quarter basis, customer deposits were up $14 million. Last month, we saw an increase in deposits at Bank of Nevada for the first time since last December.

Our deposit base, of which 29% was non-interest bearing DDA at quarter end, is one of our greatest strength. While investors today are more focused on asset valuations than they are deposit valuation, long term value we believe is led by our strong stable and low cost funding source for Western Alliance.

And finally, I feel good about our employee morale and spirit at Western Alliance in light of our stock price in today's challenging markets. Our people see us as survivors and prosperous at the end of the day in this unstable environment.

I'd now like to turn it over to Dale to shed more light on the financial information for the quarter. Dale?

Dale Gibbons

Thanks. As you saw, net income for the quarter was $4.1 million or $0.14 per share. It was held down by our provision expense of $8.1 million, which was 1.6 million in excess of our net charge offs. That was $0.03 in terms of reserve build on EPS. We also had our net securities losses of $3.7 million. That's another $0.08 in EPS that that's held down by. These are partially offset by a non-recurring revenue of $1.1 million or $0.02 per share.

In terms of our revenue position, $55.3 million. As Robert indicated, our margin was up 4 basis points from the fourth quarter. On a recurring basis, our non-interest income was $7.3 million. We had a gain from a lease transaction, which we don't expect to happen again in the future.

However, even without that, we were up 6% from the fourth quarter reflecting improvement in merchant services and other income as well as lower earnings credits from compensating balances. Assets under management increased 22% to $2.1 billion at 3/31, largely reflecting our merger with Shine Investment last summer and a bit down from a year end reflecting lower equity valuations in the markets.

Our non-interest expense was up $2 million to $38 million from the fourth quarter. Virtually all of that is in compensation. Half of that number I would say is recurring in terms of we had reinstituted bonuses which were – bonus accruals which were eliminated last year and the other half however related to seasonal factors, vacation accrual, FICA and things like that.

PartnersFirst expenses were flat for the first quarter from the fourth quarter at about $2 million. Our efficiency ratio increased again to 68.7%. If you back out PartnersFirst, we are at 65%. Obviously, it's not the direction we wanted to head, but we have been making progress as Robert indicated in terms of our expenses. Our FTE was down 13 from year end, down 16 if you exclude the three increase in PartnersFirst, and that includes that we opened one office in Reno which has six employees. We opened that in March.

Regarding our securities book, we had – you may recall we had two CDO square deals that were backed by sub prime. They originally rated A 5 million and another 5 million rated AA by both Moody's and S&P. At year end, we had written those down to 4.9 million combined from 10 million, and one of those defaulted in the first quarter. And as a result, we have written them both down to zero as of March 31st. So we don't have any more on the books of subprime.

One of these shows up in securities impairments and the other one reduced – would have been a larger gain, a larger mark-to-market gain from FAS 159 valuation. The 159 gain was caused by a decrease in the liability that we have for our own issuance of trust preferred securities. As spreads have widened for financial institution debt, our liability – our present liability has declined and so we have taken a gain there on that situation.

Our NPAs declined from 21.3 million to 16.7 million, and Robert talked about kind of where we are on 30 days past due still on accrual, which is up 30 million as of today. Organic loan growth was 2.5% on an annualized linked quarter basis. Most of that occurred in Torrey Pines, which is our affiliate that has been least affected by the market downturn.

And in terms of our tangible common equity and our loss – other comprehensive loss, it's really the flip side of what I mentioned in terms of the securities, our reserve for trust preferred on the liability side. As that liability has decline, our asset value has also declined and the spreads have increased. The actual security that has the greatest mark-to-market variance is Washington Mutual. That trades at $0.50, most of the securities in there are around $0.65 to $0.75, but even in the case of WaMu, we do not see that institution going into default.

In terms of the organic deposit growth, most of that occurred at Alliance Bank for the first time. And for the first time in a couple of years we have really seen an uptick in terms of title company balances and not necessarily sure it is sustainable, but that improved our DDA balances at year end.

I would like to turn over to Hal who will talk about some of the activity going on in PartnersFirst.

Hal Erskine

Thank you, Dale. It is Hal Erskine, PartnersFirst. We had a very productive first quarter which included 13 new partners sold, brought on for a total of 30 partners now at PartnersFirst and these partners are consistent with the group loyalty and demographics professionals that we like, which include the Chicago Bar Association made up of over 20,000 lawyers in Chicago, the Blue and White Scholarship Fund of Villanova University, the University of Arizona athletics program, Winston Salem State University, Earl The Pearl Monroe being an alumni there, as well as Westchester County Bar Association of New York, the Westchester County Bar made up of about 10,000 lawyers in Westchester County.

On the marketing front, we put on over 2,000 new accounts through the quarter end and as of today, we are over 3,000 accounts. We had a very successful marketing program with Scott [ph] Magazine, a good productive program marketing professionals. And in the Chicago bar was launched with something we feel as unique in the industry with the 9 digit unique Chicago bar lawyer number, their member number, in the plastic embedded in the bar code that they give rewards for attending continual legal education and that was lost as well within. And we are very proud of the fact that we launched all our partners within our 45-day of signing in the first quarter as well.

Our cardholder demographics are something I'd like to talk about and it's very strong. Our average cardholder has $180,000 of income. The meaning of that is $120,000 so they have a very strong income. 20 years of paying their bills on time, a 736 FICO score. 80% are homeowners and 85% professionals. Plus all applications at PartnersFirst we use the best technology from our partner Total Systems and it's very extensive in terms of the demographic information we get from all the bureaus, plus two reviews by all PartnersFirst management including a Thursday night application review with everybody in the company reviewing applications.

So our cardholder demographics are very strong. Cardholder service, we have a new statement we just launched with full color highlighting our partners. Our approach to our partners is full customization for every aspect of the program. The Golf Magazine is an example which is a very exciting statement plastic Web site, the whole thing is full color and customization. We launched an online bill pay opportunity. We have a new card design technology for our partners. Our average service calls for our cardholders is 8.5 seconds and 85% are very satisfied with PartnersFirst so far.

Other operations we signed our Total Systems contract, we are very proud of our partnership with Total Systems and that's been very exciting and they've been very helpful in reaching our 45-day to market goal for our partners with full customization. And we of course have no subprime or mortgage problems to distract us. We are a brand new entity with strong demographics of our cardholders. With large banks having the issues that you are reading about in the paper every day, the opportunities presented for PartnersFirst this year were very exciting and we had some very large ones as well.

So with that, I'll turn it back over to you Robert.

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