Western Alliance Bancorporation, the $5.2 billion asset Las Vegas-based holding company for Bank of Nevada, reported Friday that it lost $94.7 million in the third quarter because of charge-offs for security investments and goodwill in the acquisition of First Independent Bank.
The third-quarter loss of $2.78 per share contrasts with the bank’s earnings of 35 cents in the same quarter last year when the holding company made $11 million in profit.
The charge-offs were non-cash and didn’t affect regulatory capital at Western Alliance.
The bank holding company wrote down investments in debt securities of Freddie Mac, Washington Mutual, Bank of America, Zions Bancorporation and holdings on collateralized debt obligation pools from financial institutions. Western Alliance hired PIMCO, an investment management firm, to take over management of the securities holdings.
The bank wrote off $79.2 million in goodwill paid acquiring First Independent Bank, but most of the purchase was paid with Western Alliance stock that was then trading at $33 a share. Goodwill is the difference between the value as reflected on accounting books and the price paid for the bank.
While Western Alliance wrote off the goodwill, executives said First Independent has increased its deposits and loans since the buyout in 2007. Western Alliance reported that operating income increased to $5.5 million from $3million in the second quarter but is down from $11.1 million in the third period last year.
“Our goal is to fix what isn’t working, but also to exploit our strengths,” said chairman and chief executive Robert Sarver. Sarver said Torrey Pines Bank, which serves the San Diego area, is expanding into Los Angeles where he expects to have opportunities to acquire federally insured deposits from banks that fail.
He contrasted Western Alliance’s financial health with that of its competitors. “A lot of the banks we compete with locally have gone out of business or are going out of business,” Sarver said.
Western Alliance increased its loan loss reserve to $14.7 million from $13.2 million in the second quarter. It has reduced non-accrual loans to $40 million, down from $51.3 million at the end of June.
Sarver said Western Alliance started getting conservative on land and construction loans two years ago while competitors remained bullish on the market. Now, Western Alliance is making land loans to “super rich” investors with personal guarantees, with low loan to property value ratios and 7 to 9 percent interest rates.
“We’re one of the few banks in our markets that can make loans,” Sarver said.
Loans to businesses represent 52 percent of the bank holding company’s $4 billion loan portfolio with 16 percent in consumer loans, 13 percent in commercial real estate loans, 8 percent in construction loans, 6 percent in commercial land loans and 5 percent in residential land loans.
The holding company hopes to sell $140 million in senior preferred stock to the Treasury Department, increasing its capital and ability to lend, he said.
The company’s Nevada banks reported $4.1 million in third-quarter net operating income (excluding the securities and goodwill charge offs), down from $10.9 million a year ago. The Nevada banks increased their loans by $14 million during the quarter to $2.6 billion.
“In markets like Arizona and Nevada, everybody gets affected by the slow down in construction,” Sarver said.
Western Alliance shares dropped 69 cents or 5.4 percent to close at $12.05 on the New York Stock Exchange Friday. Contact reporter John G. Edwards at firstname.lastname@example.org or 702-383-0420.