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Q4 2008 Western Alliance Bancorp Earnings Conference Call - Final.

Article Excerpt
OPERATOR: Good day everyone and welcome to the earnings call for Western Alliance Bancorp for the fourth quarter of 2008. Our speakers today are Robert Sarver, Chairman, President, Chief Executive Officer; and Dale Gibbons, Chief Financial Officer.

Today's call is being recorded and there will a replay available after 2 PM Eastern time today until 9 AM Eastern time February 6 by dialing 1-877-344-7529 using the pass code 427266. The discussion during this call may contain forward-looking statements that relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.

The forward-looking statements contained herein reflect our current views about future events of financial performance and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from historical results and those expressed in any forward-looking statements. Some factors that could cause actual results to differ materially from historical or expected results include factors listed in the initial public offering registration statement as filed with the Securities and Exchange Commission. Except as required by law, the Company does not undertake any obligation to update any forward-looking statements.

(Operator Instructions). Now for the opening remarks, I would like to turn the call over to Robert Sarver, Chairman and Chief Executive Officer. Please go ahead.

ROBERT SARVER, CHAIRMAN, PRESIDENT AND CEO, WESTERN ALLIANCE BANCORP: Thank you. Thank you for joining us on this conference call. Obviously this quarter was marked by significant write-offs in goodwill as we continue to have to write off some goodwill. Previously we wrote off all goodwill of our bank in Reno and this quarter we wrote off some goodwill in Las Vegas.

This is an accounting adjustment based upon looking at our accounts, looking at our current market price and comparing that to our book value and our tangible book value. We also had significant write-offs in our investment portfolio as we took a rather conservative position in charging off essentially all of our CDO portfolio. Dale will get into a few comments on that going forward -- and increased loan loss provisions.

All in all, it was not a pretty year. I was looking back six years ago when I got involved and made an initial investment of $20 million in the Western Alliance and thinking of all the things we've accomplished over the last six years and the growth of the Company and the people and the customers and the franchise fees, at the end of the day the stock is at the same place it is today as it was six years ago when I originally invested.

So it's a little frustrating not only for you folks as investors but for me and ourselves to see that we've worked so hard over the last six years and really don't have much to show for it in terms of a stock price. However, I will say that we're here and we are here in a much stronger position than most of our competitors.

You know, in a lousy industry, the weak tend to drop out and the survivors tend to get a bigger market share and that is where we are headed right now. Peter Lynch once said in a book called 'Beating the Street' back in 1993 something to the effect of he would rather invest money with company that can capture market share in a stagnant market than one that has to protect its market share in an exciting market. And hopefully that is kind of where we are right now in terms of having ourselves poised to be in a position to gain market share.

A number of the smaller banks we compete with are out of business or going out of business and the larger banks are struggling with their issues too and really their focus right now is not on taking care of customers. I kind of sat down the other night and kind of made a scorecard kind of looking at some of the things we did well, some of the things we didn't do well, some of the mistakes we made and kind of the positives and negatives. And this is kind of the big picture before we get into the numbers and I will let Dale do most of that.

But looking at some of the mistakes we made and some of the negatives here going forward, I mean we purchased a fairly significant trust preferred CDO portfolio. The purpose of that was to mitigate our margin compression as we reduced our exposure significantly to 2.5 years ago from construction and real estate lending.

We purchased that portfolio with the idea that it would give us a better yield than just put it in treasuries which obviously in hindsight we should have done but would be much safer than had we invested the the money in more construction and real estate loans which at the time had the highest yield. We had and since we were kind of head of the curve in during this, we were concerned about a margin.

Obviously this has caused us some significant write-offs. At the end of the day, the strategy was still a net gain for us because we did move ourselves out of 300 to $400 million of higher risk real estate credits.

We also underestimated the severity of this contraction in the market. We're not alone but we did. Although we tightened our underwriting, in retrospect we should have tightened our standards much more and further reduced our real estate exposure.

Insufficient geographic diversification. We are in Arizona, California, Nevada. These are three of the four worst markets that are most negatively affected by the real estate downturn.

I'm not sure how I missed Florida. That would given us the grand slam. But we did. Nonetheless, what's interesting about these markets is long-term we do believe that they will come back and we do believe they have a good future long-term. We do believe in the long-term demographics of these markets and they're becoming much more affordable right now as a place to live which is what helped them with demographics to begin with in terms of growth and people moving there.

The timing of our credit card initiative was probably not good. We have tougher underwriting criteria. It's restricted our leverage. We have had some execution delays.

Having said that, the opportunity right now in the credit card space, the affinity space is phenomenal. We picked up some nice new accounts. Our strategy going forward is really to get this operation bigger and faster because we think there's a good opportunity now but really do it with some other people's money.

So we are in the process of exploring those opportunities with a few different partners and hope within the next 90 to 180 days that we will bring a partner on board to put significant capital in this business which will move some of those losses off our income statement and give us more capital to take advantage of the opportunities right now.

2009, you know provisions will probably continue to be higher at the levels we're seeing right now in provisions which based on a lot of our peers aren't that high but for us they are and I see that continue in 2009. I do however think that the worst of this downturn we've seen doesn't mean it's getting better right away. But I'm seeing some small signs that things are -- that there are people with money looking to invest.

Some of the houses we're reselling that we've taken back, we're now starting to see multiple bids on. That's something we didn't see six months ago. We partnered up with a large institution to bid on a failed -- on a note sale, a large note sale where we would be the servicer, bring in some income for that and also have that minority interest in it.

I was surprised to see there were over a dozen bidders for the portfolio and it went for a number significantly higher than we bid and thought. So we're starting to see some people with money come in. We do have some overhang in our investment portfolio but what is left is with some really big names and Dale can give you some more highlights on that.

In terms of some of the positives, some of the things I'm kind of proud and what I see...

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