Western Alliance Earnings Call Insights: Recent Vintage Credit, Holding Success
Recent Vintage Credit
Joseph Morford III – RBC Capital Markets: I guess can you go back and maybe help explain a little more about what went on with the pick-up in non-performing assets this quarter? It sounded like it was more related to TDRs and just – does that affect how you think about the provision at all going forward, particularly balancing that with your positive comments about the performance of the recent vintage credit?
Robert G. Sarver – Chairman and CEO: Yes, sure. We’re not having new loans fall into problem buckets, but we’ve seen migration from the watch category to substandard and some substandard to non-accrual. I will say that a large chunk of our non-accrual loans that have moved our current in interest and current in payments, but some of the kind of new interpretations of the rules in terms of the accrual, non-accrual, and the restructured credits have had some changes in some of the buckets. They don’t have a big implication on the reserve so much because at the end of the day you have to look to the collateral value on a lot of these, and as the collateral values have stabilized or actually even gotten a little better, it makes it easier for us to work out of some of these credits and doesn’t hit the income statement as much. I’d say at this point we probably are going to be increasing our intensity on the workout side a little more now that the collateral values have stabilized and should have a little more success at actually unwinding these credits and working amount over the next 6 to 12 months I think will do a little better at that.
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Joseph Morford III – RBC Capital Markets: The other question was just kind of big picture. How should we think about expense levels going forward given the credit related work out cost trending lower but now you are continuing to invest in the franchise and things like that. Should overall cost stay fairly flat or very modest growth?
Robert G. Sarver – Chairman and CEO: I would say flat to up a little bit. We still have a fair amount of call it bad economy cost built in our operating expenses and what we will be doing is those start trending down like some of the legal cost and FDIC assessments and things like that, that will give us an opportunity to reinvest that in, call it muscle in the organization to help generate business and generate revenue. We are putting some additional resources you will see in the technology and some other things. So, I would say expenses will grow but at a pretty muted level and we still think we can maintain good operating leverage.
Brad Milsaps – Sandler O’Neil: Dale, if you could maybe repeat a couple of your comments on the margin. I certainly appreciate all the guidance, but just kind of wanted to understand the moving pieces. You mentioned the hedging program and then also I think you said about ($1.05 billion) of loans at force which is I think fairly consistent with where it has been. Are those still hanging out around or just under 6%. If you could comment on those little bit more on your success in holding that and kind of how all that pertains to the margin as you look out into 2013?
Dale M. Gibbons – EVP and CFO: Of course have come down somewhere in the fours and maybe fives, but through 2013, right now we’re going to see a little bit of maybe an accelerated step down in the margin really related to the size of the balance sheet. You may see on the balance sheet, that in the liability section we are showing security sold short and that is basically an earning asset, but it doesn’t earn anything, so that’s what really the margin crimp is. We are losing about $500,000 in net interest income, but the biggest piece is because we bloated our earning assets a little bit. Since that took place in the middle of August, you are going to see the rest of that in the average balance which is of course what the margin is from, picking up in the fourth quarter. So that coupled with continued drop of our loan yields and I think it’s been consistent, we’ll accelerate a little bit, but we dropped eight basis points this past quarter. With that you are going to see the margin come down to I said kind of the lower 430s, 433, 435, I am not sure but somewhere in that respect is where we’re going to end up. After that, I think that the margin compression can be fairly consistent with what it’s been, which maybe is about five basis points a quarter. Again, we do see our strong loan pipeline and that’s not as long obviously through 2013, but we think we’ve got some momentum in that process and we believe we are going to be able to earn through that, and getting to Robert’s point continue to grow revenue faster than the expense line and improve our operating leverage.
Brad Milsaps – Sandler O’Neil: You also gave some color on the income statement impact of the divestiture of Miller/Russell and then Shine. All those numbers are they in the third quarter and that will hit on a full run rate basis in the fourth and does that include both of those items that you talked about?
Dale M. Gibbons – EVP and CFO: Yeah, that’s correct. Moving from the third to fourth, you’ll see a full quarter drop of $600,000 in revenue and $400,000 in expense and $200,000 in pre-pre income from the disposition of both of those entities.
Brad Milsaps – Sandler O’Neil: And then just one more housekeeping item, within the loan portfolio data, there was like – there was a big change between CRE owner-occupied and non-owner-occupied. Was there a reclass there or is that just a shift in what you’ve seen in the market?
Dale M. Gibbons – EVP and CFO: There was no reclassifications; yeah, that’s just in terms of where the originations have been going. I would say that in the – one of the things we’re doing as well is we’re doing some municipal finance and that is showing up in that C&I category also and augmenting that growth.
A Closer Look: Western Alliance Earnings Cheat Sheet>>