Western Alliance Bancorporation Presents at 2013 Credit Suisse Financial Services Forum, Feb-14-2013 11:45 AM

| About: Western Alliance (WAL)

Western Alliance Bancorporation (NYSE:WAL)

February 14, 2013 11:45 am ET


Dale M. Gibbons - Chief Financial Officer, Executive Vice President and Executive Vice President of BankWest - Nevada

Unknown Analyst

Okay, get started. Next up we have Western Alliance with us today. $7.6 million in assets, bank holding company with subsidiary banks operating out of Nevada, Arizona and California. They have been back -- they're back on offense here, generating double-digit loan, deposit and revenue growth. A lot of earnings leverage left still from credit, and wanted to thank CFO, Dale Gibbons, for joining us today. Let me turn it over to Dale.

Dale M. Gibbons

Thank you. So just a brief description of who we are. It's indicated, we're operations in 3 different states. Our largest market is Nevada, that's about 40% of the total. That's down from about 70% before the financial crisis. The next is Arizona, that's about 35%, and about 25% in Arizona.

Today, for the financial performance for 2012, we have full year EPS of $0.83 per share. That included a $0.15 gain on the bargain purchase price for Western Liberty Bancorp. Except for that, we're at $0.68. Full year net income of $72 million, an ROA of just over 1%. Return on tangible common equity was about 14%. Total assets grew $778 million, loans were up $929 million. Excluding the Western Liberty acquisition, that was about a 17% growth rate for loans. And deposits, very similar. In terms of dollars, a little bit slower. In terms of rate, because of a higher balance to begin with, we're up 12% in deposits, excluding Western Liberty.

Asset quality, net charge-offs, 99 basis points. That included a little bit of a one-time element, we've moved our affinity credit card portfolio, known as PartnersFirst, to held-for-sale. Except for that, that would have been about 80 basis points. And NPAs to assets still elevated as indicated, about 2.4%. One of the biggest achievements, I think, that we has for 2012 was boosting our tangible book value per share, to fed up [ph] 20% from 5.63 to 6.84 at the end of December.

Looking at our balance sheet growth from our IPO, which was in June of 2005 to today, our loan growth has had a compounded annual growth rate of just under 20%, as we essentially have nearly quadrupled in size. Deposit growth was about 15% and about 15% for asset growth. I think we do have -- we are one of the few banking companies that really can demonstrate a growth story. These levels of growth have resulted in top line revenue growth for the company in excess of 10% for the past 3 years.

Our loan portfolio, we had strong growth in the fourth quarter, as we indicated. That was, in part, driven by the Western Liberty closure that added $91 million. But even except for that, it was further robust. It did include a little bit of a pull-forward. I know you've heard that already from other institutions from the first quarter. That said, we do think our pipeline really is on track. And maybe a little bit of a stutter step in the first quarter, in terms of loan growth, and we think we still have momentum kind of going forward.

If you look at the bottom 2 items on that graph, you have the commercial loans and commercial real estate owner-occupied. We really consider those to be really relationship, we're usually the relationship bank, and that's 55% of our loan book. The next is CRE, non-owner occupied. These might be subtype of an investor deal. Those are generally more transaction related. Now that doesn't mean that we don't have relationships with these entities as they have one project to another, but those are really transaction-based.

The next category up is residential and consumer. We've really exited this market today. We're really kind of laser-focused on what we can do for the commercial enterprise and how we can help businesses. This has enabled us to probably have a lower efficiency ratio than other institutions. And as we've had to build out less infrastructure. For a $7.5 billion bank, we have only 39 offices, which is relatively small, obviously, but gives us penetration we need to be able to service commercial clients, primarily in metropolitan areas, in Arizona, Nevada and California.

On the deposit side, we've always really focused on the liability side of the balance sheet, in terms of building a franchise. I don't think this necessarily is appreciated today in the low rate environment. But at some point in time, when rates rise, we expect that we'll be able to -- this will give us a sound footing to be able to continue to sustain earning asset growth in the future. So we've got about 30% of non-interest-bearing, a substantial portion of money market and just over 20% in CDs. Again, augmented in the fourth quarter by $117 million of deposits from the Western Liberty acquisition.

Looking at the Arizona deposit market share, we're the seventh largest institution in the state. This bank was started, de novo, in 2003, 10 years ago. And there was over 100 banks started nationwide that year. Our Arizona affiliate has grown faster than any of those other institutions, if you exclude a couple of them that are captives like Schwab started a bank that year for its money funds. But excluding that, we've had the fastest organic growth of any banking making company. And I think this is really a testament to what we do in terms of our incentive plans for our employees, the focus we have on growth, on growing our liability side, and well underwritten loans. In addition to that, what we've been able to do, in terms of recruiting from other financial institutions, we do make a point, in terms of hiring people that have a book of business with them, that have expertise and that can bring that over to Western Alliance.

You see a similar type of thing in San Diego. This bank is also 10 years old, and is a second-fastest growing bank of the more than 100 banks started that year, after its sister. And again, we edged up a notch now, to the eighth largest institution, but very similar to Arizona. Arizona, there wasn't one other institution that was under $50 billion. So I mean, we are the only game in town, in terms of kind of a local franchise. Here, there's one other in the top 10, PacWest Bancorp, but those are the only 2 institutions that we would categorize as really being kind of local to that particular market.

And in Nevada, we're the fifth largest institution. We got passed by U.S. Bank during this past year. U.S. Bank has about 5x as many branches as we have in Nevada. And again, what I would state is, we're really focused on the commercial side. U.S. Bank has a lot of grocery store facilities and things like this that are consumer-focused. So it's really not necessarily where we're trying to compete.

For our fourth quarter of 2012, we had net interest income of $77 million, this was our seventh consecutive quarter where interest income increased and interest expense declined. Total revenue of $82 million was up 11% from where we were in the same quarter of 2011. Really helping our operating leverage as expenses grew just little bit over half as fast as revenue grew. That drove pretax, pre-provision income to about 17% kind of year-over-year. Our provision still running a bit higher relative to what we think a normalized level would be, as result of legacy asset issues, and I'll talk about more in a minute, in terms of the quality of our loan portfolio.

And the repossessed asset valuation, this is really kind of the volatility of our OREO appraisals. That has come way, way down, from $7.7 million loss in the fourth quarter '11 to $0.5 million loss in the fourth quarter of '12. I've mentioned the bargain purchase options was essentially a tax-free recognition from the Western Liberty transaction, as they had written off their deferred tax assets and that we're eligible to recognize the large majority of what they had written off. And then we've also been going into affordable housing tax credits. These were something that has reduced our tax rate, you'll see it's much lower today, and we expect it to remain lower into 2013 and '14.

A couple of other nonrecurring items, securities gains primarily, that we exclude from kind of our core operating number, brings to our net income of $32 million. And then preferred dividends. We were in the SBL, we're the largest institution in Small Business Lending Fund, that's the Treasury program to encourage lending to small business. We have achieved the highest level of performance in that, and that has resulted in a dividend rate for us of $141 million of Treasury Tier 1 capital of 1%. So we have a $400,000 preferred dividend and earnings per share of $0.37. And as I mentioned we think that'd be about $0.22, excluding the onetime gain.

In terms of our financial metrics, we had our interest margin increase during the fourth quarter. We don't consider that to be sustainable. 7 basis points of that increase is related to a repayment we had on a loan -- recognition of a loan fee. In addition, in expectation that, if not this year, in the not too distant future, rates are going to be rising. We also put on during -- at the beginning of January, we put on $200 million of fixed term borrowing from the Federal Home Loan Bank at just over 1%. That will pull our margin down about 10 to 15 basis points in the first quarter. Not from necessarily a loss on that investment, although it's probably slightly negative. But mostly because we just increased the denominator of the net interest income of the income divided by the earning assets. We increased the denominators off of that. So we're looking for the margin to drop about 25 basis points this quarter, but from then, it should be fairly stable for a couple quarters as we fully deploy the $200 million of the borrowings we took in.

Our operating expenses, our efficiency ratio, we expect that to continue to head in the right direction. As we have some of our legacy asset costs, these can be elevated, deposit insurance that we pay, as well as legal fees and loan collection costs from legacy asset issues that continue -- should continue to drop off over the next year or 2. So we're looking for, as we had in the fourth quarter, improvement in operating leverage, and that is strong revenue growth and a little more muted expense growth as some of these costs are saved and they offset compensation costs for bringing on teams and other individuals to be able to continue to grow the franchise.

Pretax pre-provision income was close to 2%, that's kind of been our intermediate goal for a while. We think we're still on track for that, we really want to get that up to about 2.30%, that would be about 1.20% ROA, which we think is achievable. To get there, we probably -- we do need continued improvement, obviously, in the provision costs that we've been incurring. In our operating leverage, I'd like to see that down to 50%, if we can. Net income and ROA, you can see it there as well.

In terms of the interest margin, you see our cash position increased in the fourth quarter. That's going to be sustained into the first quarter. And that's already reflected in the margin we talked about, but again, prepared for what we expect to be a higher rate -- a rising rate environment, which will otherwise help us over time as a positively sloped yield curve, I think you would all expect this, is generally going to be favorable to the banking industry.

Our investment portfolio has a good yield at 3.25%, increased a little bit. And that was really because the balance went down as we sold off some of our lower-yielding GSE paper, particularly those that had premiums. We did get in front of this a little bit. We were concerned that some of these actions regarding the mortgage finance programs, when the administration might accelerate prepayment activity, and a result, particularly securities that are held at a premium are going to -- our CPRs are going to pick up and that is going to drive that amortization faster and those yields down. So that was mostly what attributed to why our yield rose a bit. We do have a municipal bond portfolio that has about a 4.8-year average life to call. And that helps that yield as well.

The loan yield increased also. Now 9 basis points of that -- of the increase we saw to a 5.60% is related to the onetime loan prepayment element I mentioned. If you back that back out, we did still have a little bit of an increase, that's the first time we've seen that since the prior year, since 2011. I'm not sure I'm going to call that a trend yet, but we do think that the rate of decline that we've been experiencing in our loan book, should at least mitigate. Our interest-bearing deposit costs have been coming down. This is going to be a little bit tougher, I think there's probably a little more room here. But it is really working at the margins in terms of what we can do to fully -- to continue to lower our funding costs.

This slide is indicative of one of the things that we've tried to be. We try to be what we call an and company. An and company is one that does 2 things that are seemingly in conflict concurrently. So in this case, what we're trying to do is we're trying to de-risk our balance sheet, improve our loan yield, at the same time, having, maintaining strong loan growth. So if you look at the pie in left, you see this is the composition of pass credits by grade. So pass credits are graded 1 through 5, 1 being the best. And you can see that if you add those like 1, 2 and 3, I'm going to call those high pass, 1, 2 and 3 grades together, that was about 22% of the loan portfolio at the beginning of 2012. And at the end of 2012, that's now risen to 28%. So that proportion has grown while we had a 17% increase in the loan book overall.

Meanwhile, the lowest pass category, grade 5, has actually shrunk and is no longer even the largest segment of the portfolio, it's now grade 4. So while we were continue to have very robust loan growth, the quality of the loan book increased even more substantially than the loan book itself. So and you can kind of see that at the bottom, in terms of the change by loan grade, year-over-year in terms of where that come from, grades 2, 3 and 4, really, where we really see the growth take place.

If there was one area that we were a little disappointed was that we didn't get even kind of better performance improvement on the loan book. And you can see it was fairly flat. This is an aggregation of all kinds of what you might call problem or becoming emerging problem credit So it starts with repossessed assets ORE on the bottom, then gets to nonperforming loans, then classified loans that are still on accrual, then finally, watch loans on top. So we were really stubborn over $400 million. We just cracked that in the fourth quarter. We do -- for more than a year, I'd say we think we're about a quarter or 2 away from really maybe seeing some significant improvement here. I would still say that, where we are today. What we have seen of late is -- in our largest market where these take -- where most of our problems are, it's about 75% of our total is in Las Vegas, and we are certainly seeing a pickup in demand. Our largest OREO property now we have, we've received multiple offers on from some of the largest homebuilders to dispose of that.

Net charge-offs, really kind of tracks the previous slide a little bit as well. Whereby you can see, in blue on the top bar, in terms of bond, it's Bank of Nevada that most of all of our losses have come from Bank of Nevada. Certainly, that was the hardest hit area in the financial crisis, as I'm sure many of you know. In the fourth quarter of 2012, we have a little light blue on top, that's the charge-off to recognize the mark to fair value of our affinity credit card portfolio, which I had considered a one-time as well. So excluding that, we did have a little bit of an uptick from the third quarter of '12. But does look like it's come down a bit. The bottom graph really separates our provision into that, which is required for growth versus other items, i.e., charge-offs and legacy asset issues. So for the growth that we had, it was about -- it's been running about 1/3 of our provision amount. If you look at the loan growth that we had in the fourth quarter, and the allocations that we use by asset class, it runs about 1.3%. So that's about 1.3% of our net loan growth that we had in 4Q.

I think this is helpful in terms of kind of showing where we are. So this is charge-offs by vintage and remaining balances. So normally, when a bank reports charge-offs, they tell you, well, how much did charge-offs took place in a particular accounting period, fourth quarter 2012, whatever. Well, this restates that and says, let's looks like at charge-offs based upon when the loan was originated, regardless of when it was finally incurred. And so the pie on the left shows that in blue, 95% of the charge-offs that we've had for the past 13 years, from 2000 and 2012, were from loans that were originated in 2004 to 2008. So that's where all the losses are coming from. You can see the piece from loans originated after -- in 2009 to 2012 was only 1.5%, only $6 million of loss.

Well, compare that to now, the pie graph on the right, and you can see, well, the piece where 95% of the charge-offs will come from is now only 30% of the portfolio. And the piece where almost no charge-offs have come from is now 67% of the portfolio. You can see that on the bottom as well, in terms of where that's borne out, that we now have $3.8 billion of loans originated after 2008 that have had cumulative losses for 4 years, of only $1.6 million.

This is -- takes that same data but pierces down another level for what some might consider to be the highest, most volatile areas of a bank's loan portfolio, and that is investor commercial real estate and construction and development loans. So this is year of origination and charge-offs. If you look at 2006, which was our worst vintage year, on the left, and come across, you can see in 2006, we charged off $0.1 million, $100,000, of loans originated in that year. '07, it went up; '08 it went up; and in '09, $22 million, that was the worst year of that vintage, 3 years after it originated.

Coming all the way over, you can see that the total charge-offs were, for 2006 originations, $55 million. And at the end of 2012, we still have $102 million in loans in our books that originated in that year. So but now, if look down at total column, you'll see for 2009, '10, '11 and '12, the number is 0. We have not lost $1 in loans originated, of these asset classes, since 2008. And in fact, if you look at the circles in the red, you see that usually, the peak charge-offs come approximately 3 years after a loan was originated. So as we saw 2006 was in 2009. So now, in 2009 originations, in 2012, those should be peak originations. And we've had 0. We should also be incurring losses from 2010 and 2011. Also, none.

So look at the regulatory capital for where we are today. You can see, I think, as I mentioned earlier, tangible book value per share was up substantially, $0.83 from earnings per share, $0.07 from amortization and write-down of goodwill, which doesn't affect tangible equity, but that hurt our EPS. And then we also had an increase in our marks of our other comprehensive income on our securities portfolio. So our capital ratios went up. We think we are in a situation, today, whereby our -- with our stronger internal capital generation rate, we can sustain a strong balance sheet growth and continue to increment our capital ratios over time.

Where we are. So the past 5 quarters, earnings per share has been moving up significantly, and our stock price has reflected that as well. So we have a pending acquisition that we announced in January of Centennial Bank. Centennial is a $500 million dollars one-branch bank in Orange County. It's part of the LandAmerica bankruptcy, and so it's been a little more complicated in that regard. But in any event, we're paying $57 million in cash, they're keeping a mortgage that has a value of $12 million. So effectively, we're paying $70 million for this bank that has tangible equity of about $100 million. And they make money as well. So we're buying it for a little less than tangible book. We are going to have marks on this, as they do have elevated levels of classified and nonperforming assets. But they are profitable today. And we do not expect to be issuing any shares to close this transaction late this quarter or the beginning of second quarter this year.

Any comments or questions?

Question-and-Answer Session

Unknown Analyst

Yes, Dale, why don't you start with the M&A piece? And just talk to whether or not you see other opportunities out there to do more deals like this or not.

Dale M. Gibbons

Yes, I don't see other opportunities to deals like this. But we do see, certainly, properties available. Probably, our target market, if there were just one, would be L.A. or Orange County. We think we can fill out our franchise there as well. The pricing has always been an issue, in terms of where that's going to come out and maybe sell our expectations, what that might be. But we do see more properties potentially becoming available. We're going to look at these sequentially, not concurrently or whatever. So we did the Western Liberty deal, we closed that in the fourth quarter. We expect to close this one in the next couple of months. And then I think we will -- we do expect to kind of look at other types of things. But I will tell you, where we stand is we're much more interested in doing what makes sense in terms of the shareholder and EPS, and tangible capital. We already took our dilution from our view, with some of the issues we had to make to be able to kind of weather the financial crisis. So we'd like things that are accretive. And I think you can see that from looking at the shareholder base as well, in terms of the ownership interest and management and the board.

Unknown Analyst

Question in the audience?

Unknown Analyst

Can you talk about opportunities [indiscernible]?

Dale M. Gibbons

Yes. So opportunities for land development and residential construction lending. We are certainly seeing a marked increase from homebuilders, in terms of what they're trying to get done in Arizona and Nevada, I would state. I mean a lot of these national home builders, that's just not a space where we play. So I don't know that there's that much of it that can translate into us. But we do expect to see credit demand and construction activity picking up. And on some smaller entities, and we might be able -- we expect to be able to participate in some of that. But as you know, the larger home builders all have access to the capital markets directly.

Unknown Analyst

If I [indiscernible] liabilities [indiscernible].

Dale M. Gibbons

Well, yes, Nevada has been a tough market. It still leads the nation, or nearly leads the nation, in unemployment. It was the fastest-growing state for 50 years. But it got hit hard. I used to think, when things first went down, that Nevada was going to be first one down, first one up. But they use a different method of accounting in that. And they're coming up more like last. But that said, we do see, we are encouraged, by activity levels that we're seeing. If anybody – if you've been to Las Vegas lately, I mean the energy level is higher. The hotels are busier. But the gaming revenue is down substantially. Retail sales are down but climbing again. And hotel room rates, and average daily room rate are picking up and convention business is picking up. So we think it's getting better. But it is not close to kind of what it used to be. I also wonder if there isn't some effect from the Asian element. I'm not sure that tourism from Asia is as high as it was. You can go to a bigger Venetian in Macau today than you can the Venetian on Las Vegas Boulevard. So it is coming back and it's, I'd say, no longer kind of a drag on the company overall. But we're not -- certainly not seeing the growing there that we have in other places. One other thing, too, is -- it's even in that market, it's difficult to take business from somebody else because the commercial property values have fallen so far that even if you have a potential performing loan that's at ABC Bank, and paying as agreed, it might not be at an LTV that you can underwrite today because it may have fallen more sharply than what you'd be willing to take it over at. So all of this tends to tether things where they are. And at least for the near term, we think our opportunities for growth still remain outside of Nevada, but Nevada should no longer -- it's making money, it's been making money. And we think they're on the right track.

Unknown Analyst

Can you talk about the pending acquisition? And what we might see from a -- in terms of the size of a potential BPO gain and how the -- what you expect from accretion -- accretable yield into the margin?

Dale M. Gibbons

Yes, we don't have any -- we haven't given any stats in terms of what we're looking for on the Centennial deal, but I can comment a little bit. First off, it won't be as significant as the Western Liberty deal. The Western Liberty deal, really, was driven by -- on the BPO, was driven by -- that they had written off their deferred taxes. Centennial hasn't done that. So but there will be a bit of a BPO, as I mentioned, because our purchase price is less than tangible book. And so that'll be mitigated by the mark that we're taking. So we do expect a BPO. We expect the accretion to be helpful from the aspect that there's really no shares to be issued to consummate the transaction. So between both of those, we think it's going to work from a shareholder point of view. We will probably issue a little bit of debt coincident with closing the transaction, however, at the parent company. So there will be a little bit of a cost drag associated with that, as we expect to infuse the acquiring bank, Western Alliance Bank with some capital to be able to absorb the higher level of assets.

Unknown Analyst

Any pending MOUs, still? Can you give us a sense for timing as to when you think you might see some relief there?

Dale M. Gibbons

I'm not sure. That's an FDIC decision, where we do things that we comply with, really, all elements of the MOU. We're certainly allowed to grow there. We expect to grow in Nevada and provide credit to that market. So we think that we're there in terms of what we need to accomplish. They come into that bank regularly. And we would hope that they would agree with us sooner rather than later.

Unknown Analyst


Dale M. Gibbons

Well, I think first and foremost is lower levels of classified and nonperforming assets. I mean, I think that's what it starts with. But other elements, higher capital, better underwriting and risk controls. And I think those are probably the primary elements there. So today, we're operating Nevada and it's working well. We do not take any dividends from Nevada. That's probably the most significant thing, in terms of how it affects the company overall. There's no cash flow coming from Nevada.

Unknown Analyst


Dale M. Gibbons

Well, a couple of things, one of them is it was a bad market. I mean, the Moody's Commercial Property Index, S&P/Case-Shiller, the FHFA, all of them will show that Las Vegas was probably ground 0 for the financial crisis. And one thing that I think the graph that I showed, in terms of losses, on commercial real estate, shows is that the #1 thing that you can -- that points to whether or not you're going to have a performing loan or not is the value of the collateral. And if the collateral value collapses, and in Nevada, particularly on developed land, I mean, where we've seen in excess of 90% drops in collateral value, that's going to be a problem. And that's going to be a problem for anybody that's in Nevada. And almost any bank that didn't have operations elsewhere failed. Silver State, First National, Community Bank. So it was only through diversification that some of these banks were able to survive. That said, that's fair game. I mean, so we have diversified. We had 70% in Nevada, going into the crisis. It's where the company was started. Today, we have 40%. That's -- another element is concentration risk. So we were up to about 28% on construction and development loans. That number today is 7%. But these are types of things that can mitigate that. But I would say that if other cities had the same collapse in property values as Nevada had, there would've been a lot more other failures to take place.

Unknown Analyst

[indiscernible] the nature of the [indiscernible]

Dale M. Gibbons

Well, I think maybe Nevada got little bit ahead of itself, certainly, just in terms of how it thought about how insulated it was. And Nevada collectively believed that the gaming industry was essentially immune to business cycles. That had kind of been shown to be the case. I mean, this is the first recession, I believe, that Nevada had since the 1930s. They really got past the 1980s, they really got past the 1970s. And I think the longer an entity goes without maybe kind of a clean out in terms of a reassessing, I think probably -- it induces complacency and complacency is painful when it has to be confronted. So, yes. Again, I think the lessons for us are concentration risks, both geographically and by asset class type, need to be done. The other thing, too, is I mean there were some things whereby loans were made that maybe weren't physically inspected. And you just have to do that because, well, we got appraisal after appraisal that shows this train is never going to end. I mean, the belief that home values really don't go down. Maybe they do in some select markets, based upon some acute economic environment. Santa Clara, dropped after the dotcom bubble burst. But for the most part, no. Home prices are -- at worse is they stay flat, and we all know what that belief cost the U.S. economy kind of nationwide. So, yes. I mean, I think a higher level diligence, a little more skepticism on everything. Better risk management architecture, not really taking things for granted, not believing in old systems, arguing things more internally. I think all of those things help.

Unknown Analyst

You talk about the problem loans and the repossessed assets down to just under $400 million. I guess, you had mentioned you were -- that was one area of disappointment in terms of the pace of decline. Can you talk to whether or not you're doing anything to kind of speed up that...

Dale M. Gibbons

Well, I mean, we're certainly all over these credits, in terms of managing them. It does become kind of fact and circumstances specific. And why one loan does or doesn't -- isn't rehabilitated. But the tide seems to be rising, and with that, a lot of these boats are coming up a little bit. So I think that would help. What we're not going to do is some type of a kind of a bulk transaction. I mean, there was a time when you debate whether or not reducing the uncertainty by being able to flush out some of this in a bulk sale might make sense, because you increase the predictability going forward. That said, it's usually a notable capital hit because you're selling this stuff at an IR discount to some private equity firm that you're giving up on. But we think we're really kind of past that today, and particularly with what we believe is kind of the turn in the market. And there's some tangible evidence of that in our own book and what we're seeing in offers for some of the properties that we have.

Unknown Analyst

On the expense side you, I think, mentioned you still -- that the growth will be muted because of all the credit cost coming down. I guess why not – isn't there enough credit leverage I that expense base to cause maybe that run rate to go down or why not...

Dale M. Gibbons

No, I don't believe it'll go down. We expect to have continued double-digit loan growth, I would say. And with that, implicit in that, is that we're going to be hiring new people, we're going to be paying incentive compensation to them. So I'm looking for our employee cost line to continue to rise. So these other items, which FDIC insurance, I mentioned some legal costs and collection costs. And reallocation of personnel, as we have some people that are in kind of credit recovery today, that could move to an origination function as that book continues to continues to be addressed. So those should slow down the rate of growth of the expenses. But given what we see on the revenue side, we're looking for expenses to continue to rise, but muted. And efficiency ratio to continue to improve, i.e. go down.

Well, with that, thank you for your time.

Unknown Analyst


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