Western Alliance Bancorporation
Q2 2013 Earnings Call Transcript

Published: 19 Jul 2013

[Operator:]

Good day, everyone. Welcome to the earnings call for Western Alliance Bancorporation for the second quarter 2013. Our speakers today are Robert Sarver, Chairman and CEO; and Dale Gibbons, Chief Financial Officer. You may also view the presentation today via webcast through the company's website at www.westernalliancebancorp.com. The call will be recorded and made available for replay after 2

[Robert Gary Sarver:]

Thank you. Welcome to the Western Alliance Second Quarter 2013 Earnings Call. First, I'd like to spend a few minutes reviewing our performance highlights, and then I'll turn the time over to Dale for a more detailed report. We'll then open it up for questions. As we previously announced, we closed the Centennial Bank acquisition at the end of April; which has augmented our strong performance this quarter with increased loans and deposits, as well as a bargain purchase gain. We've really focused on maintaining organic growth during the acquisition and integration of Centennial and believe we've been able to do that too. I'm also pleased to report that Bank of Nevada has been released from their safety and soundness MOU, which has been in place since 2009. As you know, Nevada was perhaps the hardest hit state in the nation during the financial crisis. You'll see in the numbers today that Bank of Nevada is once again contributing to the strong results of the company. So yesterday afternoon, our company announced second quarter net income of $34 million or $0.39 per share, which includes a gain, net of merger cost, of $8.5 million from the acquisition of Centennial Bank for less than tangible book value, a $1.1 million gain on sale of REO and a revaluation charge on our trust preferred of $3.3 million. EPS was $0.30, excluding these non-core items, double the $0.15 earned in the second quarter of last year. Our net interest margin was 4.36%, the same as the last quarter, as the improvement from Centennial offset continued loan pricing pressure and the cost of new debt to fund the Centennial purchase. On a reported basis, our return on assets was 1.64%, and return on tangible common equity was 21.6%. Excluding the BPO, they were 1.23% and 16.5%, respectively. We've continued to have strong balance sheet momentum with loans up $556 million for the quarter, of which $213 million was organic; deposits up $266 million, with a modest organic decline of $34 million. Net charge-offs were $2.7 million, only 17 basis points of average loans, down 80% from $13.9 million in the second quarter of last year. Nonperforming assets also declined to 1.9% of total assets from 2.5% a year ago. Our strong loan and deposit growth has been matched by our capital generation as Tier 1 common equity remains stable above 8%. Our tangible book value per share is up 20% in the past year to $7.26 as of June 30, 2013. On April 30, we acquired $404 million of loans from Centennial and marked them down a total of $53 million to reflect the impaired status of some of the credits. At June 30, the net book balance of these loans was $351 million. We also acquired $337 million in deposits, which has fallen to $298 million at quarter end, despite cutting the rates paid significantly. We recognized a gain of $10 million on the purchase and incurred merger cost of $2.6 million, resulting in an after-tax gain of $8.5 million or $0.10 per share. Dale?

[Dale M. Gibbons:]

The organic loan growth, as Robert mentioned, was $213 million for the quarter of the $556 million total we reported. The loan growth was most robust in Arizona and California and included C&I loans, construction loans, commercial real estate, owner-occupied as well as investor. The only category that declined was residential real estate. And as some of you know, we are no longer offering this product. Deposits increased $266 million during the quarter, but slipped $34 million without Centennial, all of which was in CDs. The Centennial portfolio consisted of $242 million in CDs and $54 million in savings. Considering our first quarter deposit growth of $280 million, organic deposit growth was $246 million for the first half of the year. Looking at the graph on the left, adversely graded loans and nonperforming assets from our own originations improved to $337 million in the second quarter from $375 million at March 31 and are down from $409 million 1 year ago. More than half of the $82 million in nonaccruing loans remained current with regard to contractual principal and interest payments. We had $90.9 million of TDRs at June 30, none of which are delinquent. For acquired adversely graded assets on the right, at June 30 the book balance was $125 million. We believe there is minimal risk of loss on these loans as they are already net of $67 million of combined credit and rate marks from purchase accounting. Our strong organic loan and deposit growth, augmented with our 2 acquisitions of Western Liberty and Centennial resulted in 20% increase in total assets during the past year to $8.6 billion. This growth was matched by an increase in equity as our tangible common equity rose from 7% to 7.4% over the same period. Book value per share climbed to $7.26 despite a noncash valuation swing in our available for sale portfolio of $18 million during the quarter as interest rates rose. For the second quarter, net interest income was up $6 million in over the first quarter to $82.2 million, including $1.6 million of loan discount accretion from Centennial. At $87.2 million, total revenue was up 13.8% to $81 million over the second quarter of last year. Comparatively, operating expense grew 5.8% to $47.1 million during the same period as we continue to improve our operating leverage, resulting in pretax, pre-provision income of $40 million, up 24% -- up 25% from a year ago. The credit loss provision was $3.5 million, outpacing net charge-offs of $2.7 million for the quarter. A year ago, net loan losses were $13.9 million. Dispositions of other real estate were at 117% of carrying value during the quarter, resulting in the $1.1 million gain that Robert mentioned. We incurred a debt valuation charge of $3.3 million, as we wrote up the liability for our trust preferred borrowings, which occur -- which mature in approximately 20 years. The $10 million bargain purchase gain for acquiring Centennial at discount to book value was partially offset by the merger and expense charge of $2.6 million during the quarter. Pretax income was $41 million and tax liability was only $6.8 million as the bargain purchase gain is a permanent difference and not subject to income tax, resulting in a net income of $34 million and $0.39 per share. Reviewing the change in EPS from the $0.24 in the first quarter of 2012, earnings increased $0.05 due to higher net interest income, driven by our strong organic loan growth and bolstered by the Centennial acquisition. Increased operating expense costs $0.01 while we picked up $0.02 from our lower provisions, bringing our second quarter earning power to $0.30 per share. Reversing out the after-tax gains on other real estate and Centennial, as well as our TruPS valuation loss resulted in a reported earnings of $0.39 per share. On a consolidated basis, our margin was flat for the quarter at 4.36% as margin gains from Centennial offset the additional cost of debt at the parent to complete the acquisition and continued competitive pressure in all of our markets. Western Alliance Bank was the beneficiary of the Centennial acquisition and explains their margin improvement. Torrey Pines Bank has the most asset-sensitive loan book and the lowest cost to deposits. As we discussed on our last call, we hold higher levels of cash at March 31 in expectation of substantial run-off in Centennial deposits as we cut the rate on theirs to nearly match our own. To date, that run-off has been fairly light as deposits only fell 12% from $337 million as of the close date, to $298 million at June 30. So our cash and short-term investments have been higher, which has reduced our investment yield. Loan yield was flat including the accretion of discounts on Centennial, which otherwise would have added 10 basis points while, deposit costs were stable. With our expenses growing at less than half of the rate of revenue, our efficiency ratio improved to 52.2% during the quarter compared to 56% last year. As asset quality has improved, legal, appraisal and other collection costs have all declined. Compensation costs have increased to reflect higher level of bonus accruals, as well as compensation for new hires. At 1.94% for the second quarter, our pretax, pre-provision return on assets edged closer to our interim goal of 2%, as prepay income tops $40 million for the first time, which was led by a performance improvement in Western Alliance Bank. We continue to expect improvement in this measure over time as revenue growth continues to exceed that expense. Excluding the bargain purchase gain, ROA was 1.23% for the second quarter, which is up over 50% during the past year. Certainly, Bank of Nevada's consistent earnings performance was helpful in having never released from their safety and soundness MOU that Robert mentioned. As we've reviewed in the past, in addition to our strong loan growth, we've been significantly improving the quality of our portfolio at the same time. Looking at the portfolio composition by grade a year ago on the left, $1.2 billion or 23% was in the high pass category, and $3.6 billion or 70% was in other pass loans. The bars in the middle show the change during the past year. Within which 58% of our loan -- organic loan growth of $826 million was in high pass, while classified assets, shown in red, declined. The quality of our acquired loans from Centennial and Western Liberty is lower than our homegrown credits with $295 million or 70% in other pass loans. But as I mentioned, it's important to remember that these loans are already net of credit marks on this portfolio. Even with the acquisitions, the weighted grade of our loans improved during the past year with high pass now standing at $1.7 billion, or 27% of the total portfolio. Net charge-offs fell to $2.7 million in the quarter from $5.4 million in the first quarter, as gross loan losses declined by 29% to $5.7 million and the recoveries increased 51% -- 15% to $3.1 million. Net loan losses annualized were 17 basis points of average loans. $3 million of the $3.5 million provision during the quarter was to establish a reserve for the $213 million of organic loan growth we achieved. This was a ratio of 1.4% on net new loans. These 2 tables show how our allowance is different as the result of the acquisitions we've conducted. In the first column, at June 30, 2013, we reported a loan loss reserve of $96 million and total loans of $6.4 billion, with a ratio of the reserve to loans at 1.5%. However, included in the total number is $421 million of acquired loans from Western Liberty, which was completed last year, and Centennial Bank. No reserve is provided for these loans as they've already been written down to fair value. So in the title -- in the column titled Less

[Robert Gary Sarver:]

Thanks, Dale. Largely from our strong earnings performance, our tangible book value per share is up 20% during the past year, to 7.26%. Excluding the one-time bargain purchase gain from Centennial, our return on tangible common equity was 16.5% for the second quarter. This strong capital growth has enabled us to support the increase in our balance sheet as our capital ratios have remained stable during the past year, and exceed the well-capitalized targets under both the current as well as the Basel 3 standards to take effect in 2015. Looking ahead, we expect our organic loan and deposit growth of $100 million per quarter to continue. As we mentioned, we were short of this target for deposits in 2Q due to CD run-off, but still exceed the average of $100 million per quarter year-to-date. The margin was flat this quarter but would have slid, except for the acquisition of Centennial, as the accretion of loan discounts added 8 basis points, which was partially offset by higher debt at the parent that cost 2 basis points. As the acquisition was only in for 2 months during the quarter, I'm looking for the margin to be essentially flat again this quarter, with modest contraction resuming thereafter. If the recent rise we've seen in the market rates holds, it should provide opportunities for investment at higher yields in the future while not translating to higher funding cost. We're looking for continued efficiency improvement as legacy credit cost continue to fall, allowing revenue growth to continue to outstrip expenses. We'll also see a benefit from lower deposit insurance at Bank of Nevada of about $500,000 per quarter going forward. However, we expect these improvements in efficiency to be incremental over time and at a slower pace than during the past year. We will still be incurring merger charges from Centennial as the systems conversion is scheduled for next week, but believe the majority of the integration expenses are behind us. We were obviously again pleased with the drop in net charge-offs in the second quarter. But this was in part due to higher recoveries, which are even harder to predict than losses. We do believe that our credit recovery continues and look for lower levels of problem assets over time. However, there will be some volatility in our asset quality results. At this time, we'd like to open it up for questions.

[Operator:]

[Operator Instructions] And our first question comes from Casey Haire at Jefferies.

[Casey Haire:]

I was hoping to dig in a little bit deeper on the loan guidance. It seems a little conservative at $100 million, especially coming off a pretty robust organic quarter. I'm just curious, is that seasonality or are you -- can you give us some color also on the pace of runoff at Centennial? It just seems a little conservative at $100 million a quarter.

[Robert Gary Sarver:]

Yes. The Centennial probably is not going to be a lot of heavy runoff because the term of these loans is fairly lengthy. And for the most part, a lot of them could have been refinanced at lower rates, probably already have. I think it's probably just conservative forecasting on our part because our pipelines are still pretty healthy.

[Casey Haire:]

Okay. And the securities yield is down 30 bps on the quarter. That's the excess liquidity drag relating to the Centennial deposits?

[Dale M. Gibbons:]

Partially related to that. We also had an acceleration of prepayment fees in the second quarter that has subsequently retreated. And what that acceleration did is it resulted in higher amortization of our premiums and our portfolios. Most of the bonds we have were bought were purchased in the secondary market. As that reverses, that yield should maybe retreat a little bit. I'm not looking for the securities yield to decline from where it is today.

[Casey Haire:]

Okay. So x the premium AM hit, it would -- it was much less than 30 bps?

[Dale M. Gibbons:]

Right.

[Casey Haire:]

Okay, got you. And then just lastly, on the credit front, I mean, the credit recovery trend, it just seems -- you got a lot of tailwinds there. I know you guys have talked about normalized rates being around 50 bps. But just given all the tailwinds, I mean, it seems likely that we're going to be running at pretty benign loss rates. I'm just curious about -- if that's how we play out, what's your ability to hold the provision at this level or better going forward?

[Robert Gary Sarver:]

Yes. I mean, we do have a little wind at our back in terms of recoveries as we're collecting some of the stuff we've charged off over the last 4 or 5 years. I think it's just tough to project really low sustained rates because surprises always happen in this business. So we're not going to project 10 or 20 bps. But if it happens, it wouldn't be a surprise.

[Dale M. Gibbons:]

If you look at our gross charge-off number, that was kind of almost doubled at the 17 bps, which is more in line with kind of where we've kind of guided over time. We have recoveries this quarter. We'll probably have some more, a little bit. But we're not looking for what's taking place in the past at some other institutions, where they have a higher reserve level and were able to even run negative provisions for a while. So we've got to continue to provide for our loan growth, which we're pleased with. And so I'm not looking for the provision to really fall any lower than it is now.

[Operator:]

Our next question comes from Joe Morford at RBC.

[Joe Morford:]

Just a quick follow-up on Casey's question there, just -- you touched on the pipelines being strong. Just in general, how does that compare with where you were 3 months ago? And are paydowns still much of an issue, an ongoing issue, that you have to overcome at all?

[Robert Gary Sarver:]

Yes, they are, because for the most part our book is commercial and therefore, the amortizations and the maturities are 5 years or less. So we do have a fair amount of amortization. But I'd say our -- just our pipelines are strong or stronger than they were 90 days ago. So it's pretty good, the new business is good.

[Dale M. Gibbons:]

Duration of our loan book is about 2 years, so there's a lot of activity just to hold balances flat.

[Joe Morford:]

Right. And then one just more broader question on the economy. I mean, you're obviously in some of the markets that enjoyed some of the strongest recovery tied to the housing. I just wonder if you could kind of talk about what spillover effect, if any, you're seeing in those different markets that is leading to increase business activity? And is that driving some of the C&I growth that you're seeing too?

[Robert Gary Sarver:]

Yes, I think it is a little bit. I mean, construction activity has a pretty good waterfall in terms of guys going out and buying new trucks and subcontractors being busy, and money being spent at C-stores and casinos after work and fast food operators get more revenue. And so construction is good for the overall economy and it does affect some of our customers. And we're seeing that, especially in Las Vegas where it's starting to pick up and hasn't had any new construction there for a long time. So that will be good.

[Operator:]

Next question comes from Brad Milsaps at Sandler O'Neill.

[Brad J. Milsaps:]

Robert, just maybe a comment on M&A. I know it sounds like you guys continue to have really strong organic growth. But coming off the success of the Centennial deal, and you guys have a nice earnings multiple now, what are kind of your thoughts on M&A, maybe what markets? And might we see you maybe look at maybe some fee income generating type businesses to maybe less than the concentration spread revenue?

[Robert Gary Sarver:]

I don't worry quite as much on the spread revenue. I think just leveraging what we're really good at probably makes more sense to getting into other things that we're not as good at. But we do -- we are getting a pretty good currency now. And so it just gives us a lot of flexibility in terms of looking at deals. And I think there'll be a fair amount of opportunities for us. And we have taken advantage of 2 kinds of what I call "value plays." And now, we're in a position to look at not only value plays, but also healthy banks that we can add on kind of our sophistication and some of our products and our size and help them grow.

[Brad J. Milsaps:]

Is there a certain size that you want to target? Or existing markets, new markets?

[Robert Gary Sarver:]

Probably more existing markets. And size-wise, we're kind of open.

[Operator:]

Our next question comes from Brett Rabatin of Sterne Agee.

[Brett D. Rabatin:]

Wanted to ask about -- Robert, you were talking earlier about the efficiency would continue to improve but at a slower pace. And you've kind of given some aggressive thoughts on where the efficiency ratio could get to in the past. I was just curious if you could update that a little bit in terms of where you might eventually get to. And then also I was just hoping maybe you could reach out to people that you've added here in the past quarter too, and just kind of thoughts about the growth potential from those adds.

[Robert Gary Sarver:]

Yes. I mean, we are a business bank and so you got to look at efficiency ratios in that context, which -- those banks that are good tend to be at a lower -- Dale's signaling me at 50 and I would hope we could be in the mid- to high-40s over time. So he's not happy looking at me right now, but that's where we should be.

[Brett D. Rabatin:]

Okay. And then just in terms of people you've added in the past quarter or so, can you talk maybe about some of the teams that you've been putting in place?

[Robert Gary Sarver:]

Yes. We're always on the lookout. I would say, this quarter was probably a little bit slower in terms of new commercial teams we added. We did add a group in West L.A., a couple of bankers that have a pretty good following. We added a equipment leasing individual. We added somebody on to our staff in California that will be focusing on municipalities. But we have a pretty big focus with that Centennial deal in terms of -- on the loan book and a lot of our senior management have been working on that portfolio. So it wasn't an extraordinarily strong quarter for us in terms of new hires. We've got a lot of senior bankers in the company right now who got their tentacles pretty well spread. And as I said earlier, our pipeline has been pretty dang good, but we're always on the lookout for good folks that can add business to us. And the good thing about it now is we've got good incentive plans, companies doing well and we're making deals and people know it. And so a lot of the good bankers are starting to find us versus us having to go out and find them, so...

[Brett D. Rabatin:]

Okay. And then just one last quick one on OREs. If you gave it, I missed it. But just any thoughts on potential gains kind of given where you've marked a lot of those properties going forward? Do you think you'll see some additional potential gains in what you have remaining?

[Robert Gary Sarver:]

I don't think we're going to see losses. And kind of based on what's an escrow and appraisals and all that, I think I'd estimate anywhere from breakeven to kind of continued modest gains, like we had this quarter.

[Operator:]

Our next question comes from Herman Chan at Wells Fargo.

[Herman Chan:]

Want to get your take on the deposits from the Centennial acquisition. It seems like the attrition there was slower than expected. But what are you baking in for attrition going forward as it relates to the margin outlook?

[Dale M. Gibbons:]

Yes. What we -- in terms of the margin outlook, we marked those down. So kind of the day we closed that deal, we cut their deposit rates from about almost half, a little less than half, of where they were today, really kind of in line with our own. So we're down 13%. Quarter-to-date, we're down about another $3 million, is all. I'm expecting that we're probably going to see maybe a similar kind of rate of attrition. Maybe that means fewer dollars over the next couple of quarters to what we saw in Q2. That would take -- continue to take us down a little bit. We haven't had an Internet channel in the past and we have elected to keep that open. They've basically been a wholesale operation. So our ability to kind of continue to hold that or maintain that really is going to depend in large part on perhaps how competitive we are. Today, there is -- the whole industry, I would say, is maybe a bit washed in liquidity. And as a result, broker deposit rates are lower. These aren't broker deposits incidentally, but they are wholesale in that respect. And so it's going to depend a little bit on that. But right now, we've got good credit demand, and so we're interested in doing what we can to mitigate the attrition from Centennial.

[Herman Chan:]

Great. And in the last quarter call, I think there was a mention about a charter consolidation either later this year or early next. Should we expect any sort of expenses related to that endeavor?

[Dale M. Gibbons:]

Well, charter consolidation is -- that's something that we -- it's been on our table to pursue. We think that will give us a better kind of a risk profile as we're able to have controls and centralization of processes. We're already -- do things the same way and we have kind of centralized underwriting at higher levels of credit. But at the same time, anytime you do something differently or multiple times, it's going to introduce new ones. So we think that will help. There will -- there should be some maybe cost saves from charter consolidation, but I think the real value is really going to be from just kind of our architecture and our administration and ability to execute. So Robert mentioned that we're going to pick up about $500,000 a quarter in FDIC insurance at Bank of Nevada. There may be some other things associated with this, but I'm not looking for a big pickup on expense saves.

[Operator:]

Our next question comes from Terry McEvoy at Oppenheimer.

[Terence J. McEvoy:]

Dale, a question for you. Last quarter, purchase accounting accretion, if I'm reading the Q correctly, was about $2.1 million. And in your prepared remarks, you said $1.6 million of additional purchase accounting accretion from Centennial. Do you have the total number for the second quarter, or was the $1.6 million, did that represent the total?

[Dale M. Gibbons:]

No, the $1.6 million was Centennial. The $2.1 million was a little higher than we would typically get. As you know, Western Liberty is smaller than Centennial and included a payoff of a loan that have been credit impaired. So as you saw, we had rate marks on Centennial of about $17 million. So those should come in at about $1.6 million. We had it for 2 months, so it was $500,000, $800,000 a month. We should continue to see that. The Western Liberty accretion was lower during the second quarter than the first quarter as we did not have any credit impaired payoffs. So it's going to be kind of hard to predict, I mean, if we get payoffs on some of these loans and we -- and it is included in the page that Robert reviewed. There's $43 million of credit impairment on the Centennial book. I don't know how that's going to come in. We expect that, that's necessary because we're ultimately -- some of those were not going to ever get fully paid off. They're going to have -- there's going to be kind of a workout schedule 2 or 3 years from now. So there's going to -- it's going to introduce some volatility in that number. If I added the $1.6 million plus the Western Liberty piece, that total is going to be about $3 million, a little less than that to maybe $2.5 million as a result of -- we didn't get to pick up on the impaired payoff.

[Terence J. McEvoy:]

So back of the envelope about 15 basis points of the margin came from purchase accounting accretion between those 2 transactions?

[Dale M. Gibbons:]

Yes, probably maybe a little bit less than that. In addition, we did pick up -- we did put an issue debt to close the Centennial deal that cost us 2 basis points.

[Operator:]

Your next question comes from Jeff Bernstein at AH Lisanti.

[Jeffrey M. K. Bernstein:]

I just wanted to get a little more flavor on some of the lending that you're doing. You're mostly getting refi-type activity in CRE or are there actual transactions starting to take place in your markets? And can you touch a little bit on what's going on in construction lending? Is it horizontal-type stuff or homebuilding or is there vertical stuff in there, et cetera?

[Robert Gary Sarver:]

Yes, sure. So we had organic loan growth of a little over $200 million for the quarter. Included in that was growth in the construction bucket of $35 million. And we're doing a couple of things there

[Jeffrey M. K. Bernstein:]

Great. And any commentary you can give around just yield variations among those? Misconstructions still getting a lot better yield or -- and your multi-family...

[Robert Gary Sarver:]

Yes, construction is getting a better yield because you got the fees included in it, but it costs more money to do it, too. But the fees bump up the yield. So probably at the lower end is multi-family, and then you get into multi-family, and CRE owner-occupied would be at the lower end. So let's say those yields are coming in, in the low to mid-4s and then you get into construction and you're talking somewhere in the low to high-5s all in with fees.

[Jeffrey M. K. Bernstein:]

Great. And that multi-family, that price is off like a 5-year as opposed to the C&I stuff?

[Robert Gary Sarver:]

Yes, multi-family, if it's not -- well, if it's construction...

[Jeffrey M. K. Bernstein:]

No, I just meant the multi-family term loans.

[Robert Gary Sarver:]

Yes, right. We'd be doing 3- to 5-year. And mostly, what we'll do is like bridge facility. So someone's buying something and maybe they need to close it quick, and they don't have time to get into a perm; or they're buying something, they're refurbishing it, that type of thing. We don't really do the long term permanent multi-family. We're more of the bridge loan.

[Operator:]

Our next question comes from John Moran at Macquarie.

[John V. Moran:]

So a quick follow-up on the premium amortization question. Dale, do you have the dollar amount of that? And I guess we could probably back into it easy enough if I just assume the 30 basis points was mostly due to premium amortization. But I just...

[Dale M. Gibbons:]

There's a combination of factors, partly premium amortization, partly because you see our balances in cash and short-term investments were higher than what we expected. We could -- we still have about $100 million or a little more than that in there based upon -- as we talked about in the first quarter call, we ran up our cash position in expectation of deposit runoff in Centennial that's been more muted. So we got higher cash. We had premium amortization, a deceleration -- or acceleration of that. We had -- we did have some loan sales as well -- I mean, security sales as well. So those items combine to that. I can maybe see what I can come up with in -- and maybe a catch little bit later, but I don't have that number with me.

[John V. Moran:]

Okay. Yes, that'd be helpful. And then just a quick -- kind of circling back on OREO. I think last quarter, you said you had 2/3 of it either under contract or heading toward LOI. Just with the activity this quarter, where does that stand today?

[Robert Gary Sarver:]

Well, it's probably a little bit less because we've got new OREO coming in with the acquisitions of those 2 banks we made. So we're -- I don't -- we didn't really even put an OREO slide in this time because it's just not that material anymore. I don't see our balances of OREO coming down that much because we're going to be selling things and we're bringing new stuff in from these acquisitions. So the actual balance itself may be relatively stable for the next 2, 3 quarters. And as I said, the valuations, really not much volatility there. Obviously, the land piece, especially anything residential, has gone up a fair amount. But other than that, it just -- I don't think it's going to be that material in terms of the impact on our financials.

[John V. Moran:]

Got you. And that -- obviously, that touched back to what you said earlier

[Dale M. Gibbons:]

No, 25% -- maybe a hair under 25%, but yes -- but that's -- it's going to balance back up in the third quarter.

[Operator:]

Our next question comes from Gary Tenner at D.A. Davidson.

[Gary P. Tenner:]

I just had a question on M&A. You mentioned on the call taking advantage of these 2 most recent deals with the bargain purchase gains helping to grow the tangible book, et cetera. Could you talk about and you may have commented on this to some degree, but could you talk about what you'll be looking at for deals? And obviously, you're trading in excess of 2x tangible book right now. So you've got some good currency to use to go out and do deals. So I just love to hear your commentary on that.

[Robert Gary Sarver:]

Well, as I said, it gives us the optionality to look at a lot of different deals, more types of deals than we did say a year ago. But I'm not going to -- I can't really forecast for you or predict or I'm not going to really give you color on specific deals or how many or when or where, so -- or I can't give you too much help, other than -- we try to be pretty disciplined. I mean, we've learned our lessons over the years on what works and what doesn't work and we've got, fortunately, a very strong and robust organic growth opportunity with the company. So we're going to be pretty disciplined on these deals.

[Operator:]

At this time, we show no further questions. Would you like to make any closing remarks?

[Robert Gary Sarver:]

No. I just appreciate everybody taking the time this morning to dial in and hear about our quarter.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.