Robert Gary Sarver - Chairman, Chief Executive Officer and Chairman of Torrey Pines Bank Dale M. Gibbons - Chief Financial Officer, Executive Vice President and Executive Vice President of BankWest - Nevada

Joe Morford - RBC Capital Markets, LLC, Research Division Casey Haire - Jefferies & Company, Inc., Research Division Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division Herman Chan - Wells Fargo Securities, LLC, Research Division Terence J.

McEvoy - Oppenheimer & Co. Inc., Research Division Timothy N.

Coffey - FIG Partners, LLC, Research Division Jeffrey Bernstein Gary P. Tenner - D.A.

Davidson & Co., Research Division

Thank you. Good morning, everybody.

I'd like to welcome you to the Western Alliance's first quarter 2013 earnings call. I'd like to spend a few minutes reviewing the performance highlights of our strong quarter and then I'll turn it over to Dale to give you a little more detailed analysis on our operating performance.

After that, we'll open up for questions. For those of you who may not know, Ken Vecchione has participated on this call in the past, has resigned as President of Western Alliance to be named CEO of Encore Capital Group.

However, he remains actively involved in the company as a Director, is Chairman of our finance investment committee and Vice Chairman of our Bank of Nevada subsidiary. In terms of our first quarter operating performance, yesterday afternoon, our company announced first quarter net income of $21 million, $0.24 a share, double the $0.12 we earned in the first quarter last year.

Our $0.24 operating EPS also compares favorably to the fourth quarter of last year when we reported $0.22 before a $0.15 bargain purchase gain from our acquisition of Western Liberty Bancorp for less than its tangible book value. Net of the one-time gain, our operating EPS was $0.22.

Coming in at the top of our guidance last quarter, our net interest margin was 4.36% compared to 4.55% in the fourth quarter. In January, as you may recall, we mentioned a loan fee we collected on an early payoff in the fourth quarter that added 7 basis points, and we also took down $200 million of 5-year fixed rate financing in the first quarter that curtailed our margin but positioned us well as rate should rise in the future.

The strong rebound of our performance is demonstrated in our return on assets and return on tangible common equity of 1.08% and 13.9% respectively, each up about 50% from a year ago. We continue to have strong balance sheet momentum with loans up $149 million and deposits up $280 million for the quarter.

Net charge-offs fell to $5.4 million during the quarter, down over 60% from $14.1 million in the first quarter last year. Non-performing assets also continued to decline at 2.1% of total assets this quarter, down from 2.7% a year ago.

Our strong loan and deposit growth has been matched by our capital generation as Tier 1 common equity has increased from 8.1% a year ago to 8.6% at this quarter end. This is also reflected in our tangible book value per share, which is up 22% in the past year to $7.04 as of March 31, 2013.

We've talked before about our acquisition of Centennial Bank, and I'm pleased to report that as of April 10, we received the final regulatory approval to complete this transaction. We got a couple week cooling off period from the Department of Justice, and we expect this deal to close on the last day of this month.

As you recall, we're paying $57.5 million of cash, plus sellers are retaining a loan in the amount of $12.7 million for a total consideration of $70 million. In March 31, Centennial had $101 million intangible common equity, and loan loss reserves of $11 million.

We will be acquiring approximately $400 million in loans, yielding about 5.5% and $423 million in deposits in Federal Home Loan Bank borrowings, costing about 1.5%. Their deposits are essentially Internet sourced, therefore, wholesale.

We expect to run these deposits in funding off, and we will cover that through our extremely high cash position, which Dale will talk to when he talks about the margin. In terms of our loan growth, again, we had a strong quarter.

We've got a number of different channels in which we're originating loans and, therefore, I believe able to originate credit and grow our loan portfolio in spite of the fact that most banks really aren't, and the total demand for loans isn't real strong still as the economy begins to recover. But again, we were -- our growth was pretty good.

We have $146 million in loan growth, a lot of that was generated through our Arizona subsidiary. As you look at the numbers, you'll see Bank of Nevada up, but we sold some participations, there was a lot of credit from Arizona sold in Nevada to make room on the balance sheet to close the Centennial acquisition, which I previously said will bring in $400 million in loans.

Almost all of our loan growth in the first quarter were commercial loans, up $137 million. And that included some municipal loans too, as that group is beginning to gain some momentum.

In terms of deposits, we always want to focus on growing our core deposits. Deposit growth remained robust during the quarter, up $280 million.

90% of which was in money market deposits, and again, the majority of which was in our Arizona affiliate, positioned us well for substituting some low cost core funding for Centennial's Internet deposits. Moving on to problem loans.

We had a nice pickup here as aggregate potential problem loans and non-performing assets slipped to $395 million in the first quarter, down from $416 million a year ago. The 5% decline is against the backdrop of 19% loan growth during the period includes $20 million of acquired potential problem loans and NPAs from Western Liberty.

Of the $95 million in non-accruing loans, approximately half of those remained current with the regard to contractual principal and interest payments. In addition to our strong loan and deposit growth, our cash position increased as we prepared to close the Centennial Bank.

Other liabilities rose from our acquisition of fixed-rate term funding. Despite our strong balance sheet growth, our capital ratios are still higher than they were last year as our internal capital generation has increased sharply.

I'd like to now turn things over to Dale, who can comment a little more about the income statement and some of the operating results. Dale?

Thanks, Robert. For the first quarter, net interest income was up 8.9% to $76 million from a year ago.

NII slipped $1.2 million from the fourth quarter of 2012 as February only has 28 days from which we earn interest, as well as the loan prepayment fee that Robert discussed earlier. Operating non-interest income was flat to the fourth quarter of $5.1 million and declined from a year ago due to our exit from the wealth management business in the last half of 2012.

Total revenue was up 7.1% to $81.3 million over the first quarter of last year. Operating expense increased 4.5% to $46.2 million during the quarter from the first quarter of 2012, and again, with revenue growth outpacing expense growth, pretax pre-provision income grew faster, up 10.9% to $35.1 million for the quarter.

Net loan losses and the loan loss provision each fell by more than half compared to both the first and fourth quarters of 2012 to $5.4 million, reflecting continued improvement in our asset quality. ORE valuation charges were $0.5 million dollars, flat to the fourth quarter and down from $2.7 million a year ago.

Our tax rate for the quarter was close to the 25% estimate we provided during our fourth quarter earnings call, resulting in net income of $21 million compared to $11.3 million in the first quarter of 2012 and $19 million in the fourth quarter, excluding the one-time bargain purchase gain that Robert discussed. Reviewing the increase in EPS from the $0.12 in the first quarter of 2012, earnings increased $0.05 to a higher -- $0.05 to a higher net interest income driven by our strong loan and deposit growth.

Increased operating expenses cost $0.02, while we picked up $0.10 from lower provisions, tax litigation strategies and success in reducing our preferred dividends from the generation of qualifying small business loans. Our share count increased primarily due to the acquisition of Western Liberty, which gave us a bargain purchase gain we recognized in the fourth quarter of last year, taking us to $0.24 earnings this quarter.

Of our margin decline of 19 basis points to 4.36%, 1/3 was due to the collection of the loan fee and the balance related to the $200 million of fixed rate borrowing we incurred early in 2012 that will be deployed when we acquire Centennial Bank. Both of these variances occurred at Bank of Nevada and explain their NIM decline.

Both price competition in each of our markets continues to be acute, the rates we obtained on loan originations has been stable for the past several quarters. Short-term investments increased as we bolster in liquidity and the expectation of closing Centennial Bank.

Our investment portfolio yield was stable during the quarter while loan yields returned to the third quarter of 2012 level from the increase in the fourth quarter in part due to the nonrecurring fee. Omitting the decline in loan yields on the margin, interest varying deposits were up $280 million during the quarter, while our funding costs fell.

Expiration of the transaction account guarantee program at year end had a negligible effect on our balance sheet or cost of funds in either the fourth quarter of last year or the first quarter of '13. At 54.6% for the first quarter of 2013, our consolidated efficiency ratio improved from 57% a year ago, and slipped from 54.5% in the fourth quarter, primarily due to seasonal factors regarding compensation including annual director share awards, FICA and vacation accruals.

In addition, Torrey Pines Bank incurred certain charges that should not recur in the second quarter of 2013. However, we do not expect their efficiency ratio to return to the 46% level they achieved at the end of 2012.

Our pretax, pre-credit return on assets declined to 1.8% as assets and our cash position increased, and will not be fully deployed until the Centennial Bank acquisition closes at month end. However, we still expect to move this ratio above 2% over time.

We've demonstrated consistent improvements in return on assets excluding the nonrecurring gains in the fourth quarter for the disposition of our affinity credit card program at Torrey Pines and the bargain purchase gain for Western Liberty. Of particular note on these slides, is the very strong trend line of Bank of Nevada ROA, which, once again, is contributing significantly to the company's overall performance.

Despite the strong growth we achieved in the past year, the quality of our loan portfolio has also improved during this period. This page shows the change in the grade of our credits over the past 12 months, we grade pass credits from 1 to 5.

At March 31, 2012, 25% of our portfolio was what I call high pass, graded either 1, 2 or 3. One year later that proportion was up to 29%.

Meanwhile, the lowest pass category, grade 5, has fallen from 40% of the pass credits to 31% in the past year. Weighted average of our credit rate -- of our pass grades improved from 4.27% to 4.12%.

The charge-offs fell to $5.4 million in the quarter from $11.9 million in the fourth quarter, excluding the affinity credit card mark as Bank of Nevada's net charge-off rate declined from 1.45% of loans to 55 basis points. For the quarter, company as a whole, net loan losses annualized were 38 basis points of average loans during the first quarter of 2013.

Of our provision expense of $5.4 million for the quarter, $2.2 million was incurred to cover the standard loss reserve allocation for the $146 million of loan growth we achieved. The weighted average reserve requirement of the new loans was 1.4% compared to our allowance overall of 1.63% of total loans at quarter end.

This graph on charge-offs by vintage shows charge-offs by year of loan origination rather than the usual presentation of when the loss was incurred. The bottom graph shows the loan portfolio as of March 31, 2013 started by when the loan was actually originated.

From the top bar graph, 95% of our cumulative losses from 2000 through the first quarter of this year, with loans originated in '04 through '08. Only $8 million in losses have been incurred for loans originated since then.

In the bottom graph, 70% of our loan portfolio, which originated after 2008, and just 28% of our current balances remained from the high loss origination years shown above. This graph tracks charge-offs by vintage for perhaps the 2 most volatile loan segments: non-owner occupied commercial real estate and construction loans.

For example, using the vintage column on the left, look down to 2006. Moving to the right on the 2006 row, under the 2006 column, you can see we charged-off $0.1 million of loans that originated the same year.

$2.3 million of the 2006 originations were charged-off in 2007. And in the worst year, 2009, we charged off $22.6 million.

The total column shows that to date, we have charged off $55 million of loans originated in that year, which was our worst vintage year. In March 31, 2013, we have a remaining balance of $92 million in loans originated in 2006.

Looking at the total column on the right and the rows for the years 2009 through 2013, which are boxed in red, you can see we have incurred only $1 million in charge-offs for these types of loans originated in those years. Looking at the circles, you can see that the charge-offs on average peak in the third year after origination as we saw for 2006 vintage.

So for 2009 and 2010 originations, we should be at or near peak charge-offs now, and should be starting to incur losses from 2011 and 2012. But as you can see, there's only been $1 million.

The point of these 2 slides is to show that the asset quality of loans originated after 2008 appears strong, and now constitutes over 70% of our loan portfolio. Other real estate was flat at $77 million during the quarter, with $7 million in additions essentially matched by sales and valuation marks.

That proceeds from disposition is tracking slightly above our book balance. 72% of our ORE is in land of which about 1/3 is under contract or letter of intent for disposition later this year.

The combination of strong earnings performance, issuance of shares to consummate the Western Liberty transaction and mark-to-market gains in our securities portfolios has driven our tangible book value per share up 22% during the past year as Robert mentioned, the $7.04. Despite our strong asset growth during the quarter, our capital ratios has remained stable from year end and are higher than 1 year ago and Tier 1 common capital risk weighted assets of 8.6% at March 31, 2013.

Robert?

Yes. Thanks, Dale.

I want give a little highlights on our outlook for the second quarter. In spite of competition for originating high quality loans is getting higher, we do expect to continue organic loan growth in the range of $100 million per quarter.

Although we will close the purchase of the $500 million Centennial Bank this quarter, I expect our total assets will increase less as they did in the first quarter as we deployed our excess cash to fund Centennial's loan book and reprice or runoff their non-core lending. We expect our interest margin to decline modestly in the second quarter as benefits from the higher yield of Centennial's loan portfolio are offset by higher borrowings at the parent company to fund the acquisition and strong loan and deposit rate competition.

However, net interest income should rise significantly from the first quarter as we earned through the margin compression with higher loan volume from Centennial as well as organic growth. We also gained another day in the second quarter compared to the first quarter.

This higher revenue, coupled with normalization of seasonal expenses, should deliver an improved efficiency ratio this coming quarter. We're obviously pleased with the sharp drop in net charge-offs in the first quarter of 2013, but it's difficult to project the immediate sustainability of this improved performance since losses are dependent on specific circumstances of individual credits.

That said, we do believe that our asset quality continues to be on a sustainable trajectory of improvement and look for lower levels of problem assets and loan losses as time goes. We are presently undertaking another valuation from third-party consultants of the Centennial assets that will be used to set our credit and rate marks as of the close of this transaction which we'll discuss more thoroughly in our second quarter earnings call.

However, given the discount to tangible book for the purchase price, the yield on the portfolio and the loan and deposit marks that we recognize marking the balance sheet to fair value, we do expect we will recognize a bargain purchase gain this quarter in addition to higher revenue and earnings. And at this point, I'd like to open it up for questions while also just letting you know that Dale and I are in different cities today.

So if you ask a question and we kind of talk over each other, that's the reason.

The slide showed that the C&I portfolio has grown from 29% to 36% of the overall portfolio over the past year. I guess, Robert, you could talk a bit more of what the drivers to that have been.

How much of it is some various niche portfolios? Any kind of national lending you're doing versus the stuff in your backyard?

Right. I think it's really 2 things.

One, as we've talked about before, we've kind of developed that nice niche within our communities in terms of our size, of our company. And that niche between the small community banks and the big banks and becoming kind of the local bank of choice for businesses.

And so that organic growth that comes from that, as well as hiring new bankers, is probably half of our growth if you look back over the last, I don't know, 4 to 6 quarters. And then we've got our equipment leasing group, our asset base lending group and our municipal loan group.

And when you look at those 3, that probably is the other half.

Okay. And then -- that's helpful.

The other question, I guess, would be on charge-offs and you just mentioned it's hard to predict the sustainability of the improvement.

And that's Dale who put that in.

Okay. I guess, what are your thoughts about where we may settle in overtime to what kind of a normalized loss ratio may be for the portfolio given the mix of originations you've seen?

And what you may expect for the run rate of the provision here in the next few quarters given these positive credit trends and the strong growth...

It's tough because it's like there really isn't a normalized. It's either like things are really good or things are really bad.

So if you talk about averaging out a loss rate over 10 or 20 years in multiple cycles, that's one thing. You're seeing what I think a loss rate would be over the next 5 years assuming the economy doesn't taken any major setbacks.

To me, that's 3/8 to 50 basis points.

There are a couple of things that we're doing differently now than what we did earlier. Kind of before the financial crisis.

One is investment-grade lending is now a significant part of our portfolio, including the large preponderance of the municipal finance that we've been undertaking. Another thing that we don't do prospectively is really consumer credit.

And consumer credit tends to have a consistent burn rate associated with it whether that's credit card loans, some -- housing, as well as indirect auto and things like this. We don't have those business lines and so I would think that, comparatively, our average charge-off rates should probably be lower than the industry since we don't have -- we only have exposure on the commercial side.

Dale, a couple of questions for you on Centennial. Just as we think about sort of the balance sheet size going forward, can you just give us an idea what -- I know it's $500 million of assets, but what the second quarter balance sheet looks like as a starting point?

Just from the addition of Centennial?

Yes, so we grew a little over $0.5 billion in the first quarter. And I'm looking for our second quarter growth to be essentially about that same level.

And how I get there is from $400 million of loans acquired from Centennial plus a bit of our organic growth. But the other elements that grew significantly during the first quarter for us -- really, I don't expect to be repeated and these are from the long-term fixed-rate financing we did to make room for Centennial in anticipation that we're going to runoff a lot of their Internet deposits.

We also reinitiated our strategy to mitigate the effect of loan force [ph]. We talked about that last year, but you can see that on our balance sheet this time.

So I'm looking for it, really, a comparatively consolidation quarter that otherwise should improve kind of ratio performance. That said, we do expect continued pressure in terms of our organic loan originations.

And so as Robert indicated, we're looking for the margin to fall, but more modestly than that we saw in the first quarter.

Okay. And just following up on that.

So the organic loan originations, how was the pricing comparing on new production versus the existing book? I think in the past you'd said its 60 bps -- 60 bps lower, just an update there.

Yes. It's a little -- it's less than that today.

It's more like 40. But I would tell you that of late, I mean, we do think that there is maybe another ratcheting up of loan price competition.

So I am concerned of our ability to hold that tighter level that we've been doing for at least for the first quarter and the fourth quarter originations.

Okay. And just lastly, the Internet deposit funding.

What is the duration? How quickly can you guys run that off?

Well, I mean, so of the marks that we're going to take, we're going to mark all that stuff to market day 1. So that's going to burn up about $5 million because they do have some kind of long-term FHLB borrowings as well, but their cost of funds of 1.5% will drop for our accounting reporting purposes right away, and so you'll see that a little bit better, but it will also burn up a little bit of our discount to tangible book value that we're buying this thing by and in terms of our -- in terms of the marks we're taking when we release our second quarter earnings.

Most of my questions are answered on Centennial. But, Dale, do you have the ability to -- since the unique way you acquired this, since it's is from bankruptcy court, I guess, the parent was in bankruptcy but do you have the ability to break the deposits immediately so you wouldn't have to order through purchase accounting or is that just the best way to go through it?

We do not -- even if we could, we do not have that capability. So the parent is in bankruptcy, but this entity does not have release from financial claims.

And so we are going to honor those obligations.

Got it. Okay.

And then secondly, just as you've gotten more into in the loan book, any thoughts on kind of the duration? How quickly or not quickly the loans would runoff or stay on your books?

Well, I mean, they're -- they've got some length to them. So we think that this could go for 3 or 4 years.

That said, a lot of the types of credit that they were doing were not the type of things that we would do. I mean these are brokered loan purchases to enlarged measure and some participations.

So I'm not sure that we got relationships that are necessarily going to come from this, but these are, they're intermediate termed commercial real estate assets and they do have some duration to them.

Okay. And then final question.

Just on operating expenses, you guys did a nice job this quarter, I thought they might be even seasonally higher. Would you anticipate this as a fairly good run rate?

Sort of absent the Centennial folks coming on? Anything else in there that would send it higher or lower from your standpoint?

Not a lot. A couple of things.

I mean, it was a short month. It was also short for compensation days so we'll probably pick up another compensation day in the second quarter relative to the first.

But that said, as I alluded to, annually, we make director share awards, and that happens in the first quarter of the year. So that's a seasonal item that will go away.

Vacation accruals are higher in Q1 than Q2, but we're also continuing to hire business development officers so that we can keep our organic loan generation going, so that's kind of a counter vailing trend. And then over time, as we continue to see improvement at Bank of Nevada in terms of asset quality, some of their elevated costs associated with legacy asset clearing and, as well as FDIC insurance premiums, we'll hope to see them go down maybe later on this year.

Can you add come color on what you're seeing on the competition front? Can you break that down also in terms of geography and loan site?

Yes, sure. Well, our industry, I mean it moves as a herd, and now, people lending money again.

So we are seeing more intense competition from the bigger banks from a pricing standpoint. And a little bit from the structure, although I'd say more really from a pricing standpoint.

Most of that competition is pretty much everywhere we lend. I'd say it's more product specific, like owner-occupied commercial loans.

The things that tend to be more commodity based, those tend to have the higher pricing competition. But I wouldn't say it's any one geographic region.

I mean, the competition for good credit is stiffer today than it was a year ago for sure.

Got it. Thanks.

And are you...

We've also -- okay, just to add in there. We've also picked up what we believe is -- reputational equity.

And that was a from, unlike some other institutions that declined in terms of their ability to originate or interest in originating credit during the financial crisis, we were always there and we always kept our organic growth machine going. And we're seeing that today in terms of being able to get deals done, being called to the table on these types of things, and we think in some cases, it even helps us on getting a deal even though we're maybe not a price leader in that transaction.

Understood. And my second question, are you seeing any additional opportunities for some bolt-on M&A at this time?

And at this stage, are you seeing any greater dialogue from potential sellers looking to partner up?

Yes, I think the appetite for both buyers and sellers is getting better in the industry as prices recover a little bit. I think people feel more comfortable selling and people feel more comfortable buying.

And so we have a pretty good flow of businesses that we're able to take a look at. I don't anticipate in us doing another deal this year.

We're going to get this acquisition made this quarter, we're going to integrate it in the third quarter, and hopefully, look to consolidate our charters either in the fourth quarter or the first quarter. But we definitely want to continue looking for opportunities, I just wouldn't anticipate us closing anything in the next 6 months.

I was wondering if you could talk about, first, new hiring activity. Has the focus really been on doing these deals or have you continue to hire in the marketplace?

And then, are you keeping some of these new lenders that are coming from these deals that may have a similar, call it, banking philosophy and be additive to growth going forward?

Well, 2 answers there. One, the deals we bought have mostly been asset purchases.

And for the most part, we haven't kept lenders because it's not the type of business we originate so much organically. But on the recruitment of lenders, we are continuing to do that, and in some cases, that's even getting a little easier because some of the good folks are now trying to seek us out because they see us having success, and they talk to their peers who work in our banks and see they're getting compensated nicely, and having success getting deals done and their customers are happy and things like that.

So we're -- we have a nice pipeline going. We hired a team for North Scottsdale, a new team, we're going to be building an office, opening an office there in the next 90 days.

We're starting construction in the Southeast Valley of Phoenix shortly in Chandler with a new office and the team, we're bringing on 2 new lenders in the next 2 weeks in Beverly Hills. We've got a pretty good pipeline of people.

I mean, we're doing well in that area. I think that's a strength of ours.

Let me just follow up. You're fortunate to be in some markets that are showing nice recovery in home prices.

I know that wasn't the case, call it, 5 years ago. Phoenix up 20-plus percent.

Where are you seeing the ripple effect? Is it just greater confidence among small businesses?

Greater business activity? And we read about it in the newspaper, but what are you seeing locally within those markets?

Is it really having that much of a positive effect?

Well, the home business does have some effect because people see the equity in their houses going up and they have more confidence, so they spend money. The new home construction has a pretty significant effect because it trickles down.

So now you got contractors and subcontractors and they go buy new trucks and people are buying flooring and carpet and window coverings and furniture. And so the increase in construction is definitely a big plus.

But the bigger thing like with Phoenix specifically, is just corporations coming there and job growth. Phoenix will have a net job growth of 50,000, 60,000 this year, and it's more diverse than it used to be, but the construction activity still has a trickle down effect and it gets more people employed, and they spend money at fast food restaurants.

And as I said, furniture, carpet, drapes, all that stuff gets purchased and subs are back doing business and able to raise prices a little bit, and so it's got a trickle-down effect that's positive especially for Vegas and Arizona.

Well, I'm wondering are there any scheduled reappraisals of legacy non-performing assets in the second quarter?

Yes. There are.

But to be honest with you, that's -- -- we're not seeing much of an impact from that anymore. And if anything, we have as many or more going up in value than down.

So it's -- we just -- we didn't really highlight as much because it's just isn't as significant of an issue.

Okay. And then on the cash and equivalent balances going forward, is there a target level that you have in mind for those?

Well, what you saw where we were kind of previously and I'll go back to kind of the third quarter of last year where we're running about $160 million, $170 million. That baseline is fairly -- should be fairly intact, going forward as well.

So we've got an excess of $200 million, really, just at our Federal Reserve account, you're earning 25 basis points that we can swap out here for some of the Internet deposits in particular of Centennial. So I'm expecting to see that fallback off by June 30th.

Just a quick question back on general economy. In Las Vegas, we are seeing the gaming business comeback a little bit.

We're hearing about a little bit of craziness going on in the housing market. But could you just give us a sort of an overview of Las Vegas and the important economic underpinnings and what the outlook is?

Yes, well, from a big picture standpoint, Vegas is still heavily dependent on gaming and tourism. I think the outlook -- and we've got some operators there, we do business with, and on our board and this and that.

So we get some information from time to time as to kind how things are going. I would say that the airport's busy, the trips are good, the traffic is good both on the freeway and the airport, hotels are starting to see enough activity to begin to raise a little bit on the room rates and the convention business is good.

What's still not real strong is gaming revenue. And the consumer's not spending the kind of money the consumer used to spend, and so I think over time, that will get better as people have a little more equity in their house and feel more better about the economy and their job and this and that.

But that's the big thing that's kind of missing. But construction activity is picking up and some of the casinos are starting to hire some more workers.

They've just announced a big deal that's going to be built at the old Echelon project, which will employ, I believe, they said about 8,000 workers to get that project going. And there is optimism for Las Vegas in terms of the economy.

For us, the value of commercial and residential real estate got beaten down so low that a lot of our write-offs came from that. And so as things get better, not only do customers feel better about their prospects going forward, so they dig in more to keep their business going and keep going, but the value of the collateral goes up and so therefore, our write downs become less.

And so what we're doing is, we're kind of working through some of our problems but we're not hardly getting very many new problems and that's why our provisioning levels are coming down quite a bit there. The good thing about that market is when it does come back, I mean, we kind of own it.

So, that's...

One significant vote of confidence we've had on Las Vegas was MGM recently announcing that they're going to be building their largest event center, 20,000-seat capacity. As you know, MGM was Vegas-centric during the financial crisis and didn't have nearly the revenue coming from Macao and Cotai that the LVS and Wynn had.

So that Jim Murren has put that out there that -- I think the market in Vegas has changed. It's less gaming and it's more tourism, it's more retail, but they're looking for a sharp return there and he's spoken quite bullishly about Las Vegas recently.

Just a quick question on the REO properties. You had a small gain in what you sold this quarter and the last few quarters, the losses have been pretty small.

We're getting pretty close to a point where we may see a more significant downdraft in the balances in that portfolio?

Yes, a little bit. I mean, don't forget when we buy some of these banks, we're going to be taking in some more REO.

Now it's going to be marked appropriately. But some will flow through to the REO bucket.

But what I'll say is that the values are stable to getting higher so Dale alluded to the fact that we got about 1/3 of our land in escrow and every one of those deals is in escrow at a number higher than what it's on the books for. We've been a little patient with some of the land.

Land is an asset that either everybody wants or nobody wants. And so our view was, hey, we're not going to ride this thing down for 4 years, and then at the bottom of the bottom, sell it.

We're going to wait until there's a little balance which we're staring to see and then we'll start selling some of it.

Yes, sure. Thanks.

Well, we're obviously very pleased with our quarter. Looking at the reports of our industry, we're kind of bucking the trend a little bit.

Hopefully we gave you some color as to why we're doing it in a very safe manner and why we can continue doing it. And we'll look forward to sharing our second quarter results with you in July.

Thank you very much.

Dale?