Western Alliance Bancorporation Earnings Call Insights: New Loan Originations and Loss Expectations
Western Alliance Bancorporation (NYSE:WAL) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
New Loan Originations
Brad Milsaps – Sandler O’Neil: Nice quarter.
Robert G. Sarver – Chairman and CEO: Thanks.
Brad Milsaps – Sandler O’Neil: Dale, just wanted to follow up on some of the March guidance. Did you say that new loan originations were coming in – I think you said around (455), is that right, I just want to make sure I have that number correct.
Dale M. Gibbons – EVP and CFO: Right; that’s correct. Yeah, they are up from where they were in the third quarter, but they are still below what the prepayments or payments on our existing book are coming off at. So, it should mitigate a decline a little bit, but we still should look for an overall decline in loan yields except for the pops that we see because of Western Liberty which will be sustained.
Dale M. Gibbons – EVP and CFO: To give you kind of a couple specific numbers, Brad, if you went to the fourth quarter, the average rate on loan maturities was 5.28 and the average rate originations was 4.55.
Brad Milsaps – Sandler O’Neil: Is 2013, a heavier year for renewals or if that thing is coming due that you feel like you’re going to have more just down relative to 2012 or is it relatively stable?
Robert G. Sarver – Chairman and CEO: It’s not the same as last year. We’ve got, when you look at our maturities, we’ve got lines that are up every year, but really it’s term loans that are subject to pressure for refinancing and new rates and things like that, and so I think, a pretty similar, obviously a lot of the real high rate loans have already been refinanced if they are going to be refinanced, but we still have fair amount of loan in the 6s that could be under a little pressure to refinance as we go on.
Brad Milsaps – Sandler O’Neil: Just kind of switching to asset quality Robert, the last couple of quarters, I guess the core charge-off rate has been kind of in that 70 or 75 basis points range. Can you talk a little about what you think, as you go into 2013, where you think that can sort of finish out the year, as it relates also to your provisioning?
Robert G. Sarver – Chairman and CEO: I mean, I think it’s going to get better and one of the main reasons it’s getting better is we’re seeing an uptick in the valuations of real estate collateral in Las Vegas. Specifically in land. Land is actually starting to get a little more popular. We got one nice piece of land; we actually got five offers this week on. And so we’re seeing an uptick in the collateral values and that’s going to have an impact. So, I’m hoping we’ll be 50 basis points this year and it may be less if we do a good job.
Herman Chan – Wells Fargo Securities: I want to revisit Slide 18. It looks like the 2007-2008 vintage investor CRE and construction loans saw a pick-up in losses last year. Any color on loss expectations going forward from these two vintages?
Robert G. Sarver – Chairman and CEO: You mean from the (6.2) to (7.1)?
Herman Chan – Wells Fargo Securities: Right.
Robert G. Sarver – Chairman and CEO: I mean, I don’t have any particular color on it. I think, I don’t have the breakdown of those losses – fairly modest, I guess, (9.7) down to (6.2) and up to (7.1). I’d say going forward in general, just overall commercial real estate kind of valuations and health of that market is getting a little better than all our markets. So, we’ll continue to see that number maybe improve a little better in 2013.
Dale M. Gibbons – EVP and CFO: Which clearly driven – the losses that we’ve taken is really what Robert was just saying, it’s all about the kind of the valuations that have been incurred, and that we are seeing stabilization certainly improvement, particularly in other markets, but perhaps in Nevada as well. So, obviously its facts and circumstances is going to affect the particular charge-off that can result in a number there, but overall we’re looking for the trends to continue to…
Robert G. Sarver – Chairman and CEO: Yeah, there (isn’t too) we’ve been doing sum of and you may see a little bit of this too in the Centennial deal although the accounting for that is a little different because the way they are marked, but when you do these AB notes, so we have some of this credits where – these real estate credits where we do an A note that has good cash flow coverage than those of B note. And that B note for accounting and regulatory purposes kind of gets charged-off, but it’s still on the books with the customer, and the customer still owes the money. And some of the helps us with the asset quality numbers, but it increases the – I mean helps us with the classified numbers, but increases the charge-offs a little bit, but we still hope to be able to recover a good chunk of that at the end of the day, just going to be back end loaded.
Herman Chan – Wells Fargo Securities: Your comments on larger bids for OREO, how aggressive were you in disposition in Q4 particularly in Nevada and should we expect somewhat steeper drop in OREO balances in 2013?
Robert G. Sarver – Chairman and CEO: I don’t think that we are going get a real steep drop-off. We have some – a few pieces, few big pieces in escrow, but the commercial real estate stuff we are selling but some of the land we’ve had, we’ve written it down for like three or four years, and now it’s really starting to turn. And so what you may see with some of that is the new appraisals are actually going to increase the values of the REO and some of that stuff is going to start to be written up. So I don’t necessarily see the total coming down quickly. Over the next 24 months, yeah, I do see that total coming down, but is there an urgency today to unload all the stuff just as the market turned, no I mean, over the next 12 months, we’ll be looking for strategic buyers and developers that are looking develop this property that will pay us a better price.
Dale M. Gibbons – EVP and CFO: In total, our undeveloped land is held at 17.5% of current original appraisals and that number is up. That’s up from about 14.5% at the trough, so to the degree that we’re on maybe a little of a turn here that might be some value benefit from not selling at the bottom.