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Western Alliance Bancorp (NYSE:WAL)
Q4 2019 Earnings Call
Jan 24, 2020, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon and welcome to the Western Alliance Fourth Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Ken Vecchione, President and CEO. Please go ahead.

Kenneth A. Vecchione -- President and Chief Executive Officer

Thank you. Good morning and a happy new year to everyone and thank you for joining us today. Today, I'm accompanied by Dale Gibbons, our Chief Financial Officer. I will provide an overview of the quarterly results, Dale will walk you through the Bank's financial performance in greater detail and at the conclusion of our prepared remarks, we will take your questions.

2019 was a record year on many levels for Western Alliance Bank and demonstrated the powerful advantages of our diversified and distinctive business model to continue advancing our key strategic objectives, which include promoting disciplined and thoughtful loan growth matched with rising deposits, carefully managing our balance sheet with regards to asset sensitivity, derisking our loan composition, maintaining industry-leading operating efficiency and thoughtfully returning capital to our shareholders through share buybacks and dividends.

Financially 2019 was a terrific year and was our 10th consecutive year of rising earnings. For the year we produced record revenues of $1.1 billion, net income of $499.2 million and EPS of $4.84. These results were driven by record organic loan and deposit growth of $3.4 billion and $3.6 billion respectively, which generated the highest total revenues in the Company's history against the backdrop of a volatile and falling rate environment. As our Bank has scaled and matured, we also took new capital management actions this year and announced our inaugural quarterly dividend of $0.25 in Q2 and repurchased 2.8 million shares, reducing our share count by 2.7%.

Given all these actions tangible book value per share grew 20% year-over-year to $26.54 and is now grown by 237% over the past six years, as we continue to expand our business. We believe shareholder value is deeply correlated to loan, deposit and revenue growth, outstanding asset quality and predictable and sustainable earnings. As you can see, Q4 was an extraordinary quarter for Western Alliance as EPS of $1.25 grew 11% year-over-year and was accompanied by strong asset quality metrics. Fourth quarter loan growth of $1 billion and deposit growth of $356 million drove our balance sheet to $26.8 billion in assets. As a reminder, deposit growth is seasonally lower in this quarter as our warehouse lending clients pay down taxes from custodial accounts housed with us. The yearly deposit growth noted above was supported by the best year ever for our HOA business, they were up $603 million, tech and innovation, which knocked the ball out of the park with growth of $1.2 billion and our deposit initiatives which saw our balances rise over $100 million.

On the lending side, our regional banking divisions continued their healthy growth trajectory, generating over $550 million growth year-over-year after the reduction of construction and land and development loans of $182 million. Our residential mortgage program, warehouse lending and Hotel Franchise Finance added $1 billion, $561 million and $451 million respectively to the loan portfolio.

During the quarter, we achieved our goal to reduce the relative proportion of our construction land and development loans below our 10% target to 9.2% of total loans one year earlier than our December 2020 target. Of note captured in the $1 billion for loan growth was a $203 million reduction in CLD.

Beginning in 2018, we undertook a program to mitigate our interest rate risk and support our EPS growth objectives through the expansion of high-quality residential loans originated by our mortgage warehouse clients. This quarter demonstrated our ability to successfully execute on our strategy to grow revenues through the transition to a lower rate environment as net interest income for the quarter climbed to $272 million or 8.3% on a linked-quarter annual basis.

Quarterly NIM was 4.39%, only down 2 basis points from Q3 at 4.41%. Full year operating non-interest expenses grew $62.2 million to $479 million producing an efficiency ratio of 42.7%. Our efficiency -- our operating efficiency ratio increased from 41.9% in 2018 as net interest income growth was impacted by the three Fed rate reductions. For the fourth quarter operating non-interest expenses grew $6.2 million to $128.7 million from the prior quarter inclusive of approximately $4.1 million in one-time non-recurring expenses.

Credit quality remained stable this quarter. Special mention loans dropped $53 million to $180.5 million from Q3. Substandard loans on an absolute dollar basis are at their lowest point since 2015 when our balance sheet was only half the size it is today.

Charge-offs were $1.2 million in Q4 and full year charge-offs were 2 basis points of loans. Our tangible common equity ratio ended at 10.3% for 2019, compared to 10.1% at Q3 and 10.2% for 2018. For the year, we returned $171 million to shareholders through our stock repurchase program and dividend distributions.

Full year 2019 return on average assets and return on average tangible common equity were 2% and 19.6% respectively compared to 2.05% and 20.6% in 2018. We remain one of the most profitable banks in the industry.

Finally and most importantly, all of our accomplishments could not be achieved without the dedication and professionalism of our management team and the people of Western Alliance. They make the unassailable difference. Their drive, enthusiasm and standard of excellence is the secret sauce of our Company.

Dale will now take you through our financial performance.

Dale Gibbons -- Vice Chairman and Chief Financial Officer

Thanks, Ken. For the year net interest income rose $124.5 million or 13.6% to just over $1 billion. Net income of $499.2 million increased $63.4 million or 14.5% and EPS of $4.84 increased 16.9% from the prior year, demonstrating the impact of our stock repurchase program. For the fourth quarter strong ongoing balance sheet growth resulted in record earnings despite headwinds from the flattening yield curve that preceded anticipated Fed rate cuts.

Net interest income rose $5.6 million or 8% annualized from the third quarter to $272 million, driven by a $600 million increase in average earning assets which outweighed reduced loan yields. For the corresponding period last year, net interest income rose 11.7%. The provision for credit losses was $4 million for the quarter, which was consistent with the prior period.

Non-interest income decreased $3.4 million from the third quarter to $16 million as equity investment income from our Tech & Innovation segment and net gains on sales of investment securities were elevated in the third quarter. Non-interest expense was up $3.7 million as data processing, professional fees and incentives and year-end bonuses increased by $2.9 million, $1.9 million and $1.8 million respectively, which partially offset a $4.7 million decrease in deposit costs. Compensation costs were affected by increased accruals for annual incentive and bonus plan.

Share repurchases in Q4 of 88,000 reduced the diluted share count to 102 million resulting in diluted EPS of $1.25 for the quarter. Throughout 2019, we reduced shares outstanding by 2.7% by opportunistically repurchasing 2.8 million shares. For 2020, our Board has authorized a new share repurchase plan for up to $250 million.

Turning to net interest drivers. Net interest income for the quarter rose $28.5 million year-over-year to a record $272 million. Investment yield decreased 12 basis points from the prior quarter to 2.96% due to a flattening yield curve and lower reinvestment rates. Lower long-term rates increased mortgage prepayment speeds and the resulting accelerated amortization of premium was responsible for lowering the overall quarterly portfolio yield from the prior year.

On a linked quarter basis, loan yields decreased 21 basis points due to reduction in interest rates and spreads. Further impacting the decline in yields was our intentional mix shift toward residential loans and the decline in LIBOR which preceded the cuts in the Fed funds rate and prime.

Interest-bearing deposit costs decreased by 22 basis points in Q4 to 1.08% as a result of proactive steps taken to reduce our deposit rates immediately after the Fed cut rates in October, outpacing the reduction that we had in loan yields. This decreased funding cost by 12 basis points when all of the Company's funding costs are considered, including noninterest-bearing deposits as well as borrowings.

As Ken mentioned, this quarter demonstrated our ability to successfully grow net interest income through the transition to a lower rate environment. Strong balance sheet growth and proactive steps taken to reduce the cost of interest bearing deposits resulted in net interest income growth of 8.3% on a linked-quarter annualized basis. Despite the strategic shift in our loan mix away from construction and the overall reduction in market rates, the net interest margin only declined 2 basis points to 4.39% during the quarter as the 12 basis point reduction in earning asset yield was offset by a 12 basis point decrease in total funding cost.

With regards to our asset sensitivity, our rate risk profile has declined notably as our mix shift to primarily fixed rate residential loans has reduced our net interest income variability due to changes in the rate environment. Meanwhile, $3.4 billion of our variable rate loans are now behaving as fixed rate since the rate floors are now in effect active. This has reduced our interest rate risk and a 100 basis point parallel shock lower scenario to only 3.8% of expected net interest income at December 31st from 4.8% at September 30th and 7% in June, 2018 when we commenced our residential loan diversification program.

Should rates decline from here, we believe a ramp-down scenario was a much more probable rate reduction outcome, which further reduces our rate risk profile by another 50%. We believe we are now positioned to asymmetrically benefit if rates rise, but have limited downside net interest income risk if rates should fall. With an additional 25 basis point rate cut, another $1.7 billion of loans with floors will be triggered which will further reduce sensitivity and mitigate our margin compression.

Our interest rate mitigation program has lowered our volatility if rates decline further while maintaining significant upside if rates rise again. To be clear, in a ramp scenario if rates declined 100 basis points, 1.7% of net interest income is risk. However, if rates go up 100 basis points, we would have a positive 3.6% impact to net interest income, double the effect in a down rate scenario.

Turning now to operating efficiency. In Q4 year-over-year we produced another quarter of positive operating leverage, while continuing to invest in new products and business initiatives to continue to drive organic growth. On a linked quarter basis, our efficiency ratio increased 140 basis points to 43.8%, which includes the $4.1 million of one-time expenses that Ken mentioned earlier. Despite progress we have made to reduce asset sensitivity and net interest income at risk, our efficiency ratio in 2019 was still affected by a decline in NIM caused by the following rate environment.

Adjusting NIM compression driven by the three Fed rate cuts, our efficiency ratio would have remained flat from the year-ago period. As a core component of our strategy and irrespective of the rate environment, we will continue disciplined expense management to maintain industry-leading operating leverage and profitability.

Our pre-provision net revenue ROA was 2.38% and return on assets was 1.92% for the quarter. The fourth quarter decline in operating PPNR ROA of 25 basis points was directly related to the margin decline of 29 basis points over the same period. These metrics continued to be in the top decile compared to peers.

Our strong balance sheet growth momentum continued during the quarter as loans increased $970 million to $21.1 billion and deposit growth of $356 million brought our deposit balance to $22.8 billion at quarter-end. Our loan to deposit ratio increased to 92.7% from 89.8% in Q3. Our strong liquidity position continues to provide us with balance sheet flexibility to pursue attractive risk-adjusted lending opportunities. We grew our shareholders' equity by $403 million to $3 billion from 2018 and tangible book value per share increased $0.94 over the prior quarter and $4.47 or 20% over the prior year to $26.54 per share.

Our industry-leading financial performance is a direct result of our distinctive business model, which combines the commercial banking relationships within our regional footprint and our national business lines. Total loan growth was driven by increases in C&I loans of $674 million, residential loans of $285 million and commercial real estate non-owner occupied loans of $214 million. Strong C&I growth was supported by approximately $175 million in Tech & Innovation and $228 million in mortgage warehouse lending.

Residential loans now comprise 10.2% of our loan portfolio, while construction loans decreased another $203 million and now make up 9.2% of total loans at year-end versus 10.7% of total loans when compared to the prior quarter. We believe our ability to profitably grow deposits is both a key differentiator and a core value driver to our platform's long-term value creation. Despite Q4 being seasonally weak for deposits, we were able to grow them $356 million for the quarter. A decrease of $218 million in non-interest bearing DDA, primarily from warehouse lending was offset by growth in net interest bearing DDAs and savings in money market accounts of $252 million and $62 million respectively.

Over the last year deposits grew across all categories with the largest increases in savings and money market deposit accounts of $1.8 billion and non-interest bearing DDA of $1.1 billion. During 2019 deposit growth has been $3.6 billion of which 29.9% has been in non-interest bearing -- non-interest bearing accounts. The deposit growth of $3.6 billion for the year was used to fully fund loan growth of $3.4 billion.

Overall asset quality remained stable with credit ratios at historically low levels. Total adversely graded assets decreased $98 million during the quarter to $342 million as special mention credits were reduced $53 million to 86 basis points of total assets. From the prior year, total adversely graded assets have increased just $26 million versus a $3.4 billion rise in loans, resulting in reduced ratio to total assets of 1.31% from 1.43%.

Non-performing assets comprised of loans on nonaccrual and repossessed real estate increased marginally to $70 million or 0.26% of total assets and continued to hold steady as a proportion of the balance sheet. Regarding the reduction in total adversely graded assets, as discussed last quarter, we view special mention loan credits as an early indicator of potential stress that has little correlation to loan becoming nonperforming. Overall we see nothing in our portfolio that raises concerns or indicates a change in our credit outlook.

Gross credit losses of $2.2 million for the -- during the quarter were offset by $900,000 in recoveries, resulting in net loan losses of $1.2 million or 2 basis points of total loans annualized. The credit loss provision of $4 million remains consistent with the prior quarter. Provisioning related to our loan growth also increased the allowance for loan and lease losses to $167.8 million, up $15.1 million from a year ago, resulting in a reserve of 80 basis points of total gross loans held for investment at December 31st.

In advance of the adoption of CECL in the first quarter of 2020, we've included historical information on a reserve for unfunded loan commitments and credit discounts on acquired loans, which we believe better represents the total allowance for credit losses going forward. Inclusive of these additional reserves, our allowance for credit loss ratio to total loans would have been 87 basis points in Q4.

Finally, regarding the transition to CECL in the first quarter of this year we expect day one increase in reserves of approximately $35 million or 20%, which on an after-tax basis will reduce our tangible common equity ratio by approximately 10 basis points. Assuming the economic backdrop, relative mix, level of loan growth and the duration of credits remains consistent, our go-forward allowance for loan losses will remain relatively stable at the new CECL adoption reserve level of approximately 100 basis points, which is inclusive of the $35 million day one charge. As a reminder, under prior GAAP our provisioning was based upon an incurred loss model while under CECL we're estimating lifetime losses and provisioning for them at the time of loan origination.

And finally, we continue to generate significant capital and maintain strong regulatory ratios with tangible common equity to total assets of 10.3% and a common equity Tier 1 ratio of 10.6%. Despite the payment of our quarterly cash dividend of $0.25 per share, our tangible common equity per share rose $0.94 in the quarter to $26.54 and is up 20% from a year earlier.

Notably our production of tangible book value has grown more than three times that of the peer group over the past six years. Given capital requirements that banks operate under, we believe that consistent capital accretion is fundamental to value creation.

I'll turn the call back to Ken.

Kenneth A. Vecchione -- President and Chief Executive Officer

Thanks, Dale. On the heels of achieving several corporate milestones in 2019, we are excited by the growth opportunities in both our regional and national business lines in 2020. We continue to hold to the belief that predictable EPS and tangible book value growth will drive industry leading total shareholder returns.

In 2020, we expect to, one, continue to thoughtfully and conservatively grow loans, our pipelines appear strong and we expect to grow loans between $600 million to $800 million per quarter, funded by deposit growth. Balance sheet growth will drive net interest income growth despite marginal NIM compression. As deposits come back in Q1 and Q2, our liquidity will rise placing some pressure on margin as we continue our residential real estate diversification strategy. Given the backdrop of a flat rate environment, our efficiency ratio should remain stable near current levels throughout the year even as we continue to invest in technology and new products. These actions should position us to return -- these actions should position us to continue industry-leading return on average assets and return on average tangible common equity.

At this time, we'll field your question. Operator, would you open up the line, please?

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Timur Braziler of Wells Fargo Securities. Please go ahead.

Timur Braziler -- Wells Fargo Securities -- Analyst

Hi. Good morning.

Kenneth A. Vecchione -- President and Chief Executive Officer

Good morning.

Dale Gibbons -- Vice Chairman and Chief Financial Officer

Good morning.

Timur Braziler -- Wells Fargo Securities -- Analyst

Starting with the margins, it looks like NIM benefited from some higher loan fees and pretty impressive reduction in funding costs during the quarter. I'm just wondering how big of a step-down do you think that's going to take place in 1Q, assuming that loan fees normalize? And I would love to hear about your expectations on future possibilities to cut deposit costs.

Dale Gibbons -- Vice Chairman and Chief Financial Officer

Yeah. So you're correct. It was a little higher and a little higher than what we guided to. I think our core margin for the fourth quarter was about 4.35% [Phonetic] if you kind of back that off. And then from there going forward, we are going to continue to whittle down the margin based upon the execution of our residential mortgage program as that becomes an increasingly large proportion of our loan portfolio. We've stated that we think that's going to be maybe 2 basis points a month -- a quarter. In any case, we can kind of easily earn through that in terms of net interest income by the balance sheet growth that we expect to have. If we don't see any more rate increases, and I realize the futures market still has one in there, I think it might be unlikely that we're going to see one frankly in 2020 before the election, but if we don't see any, I think the opportunity for increased funding cost reduction is fairly limited. I think we have gotten the rates down a lot. We are in a little more of a compressed yield environment as we were on the way up when rates were lower. But we can -- we're good with the margin kind of in the 4.30% [Phonetic] range and we believe we can execute upon that.

Timur Braziler -- Wells Fargo Securities -- Analyst

And then switching over to the expenses. As you look at the pipeline for future projects, expenses grew roughly 15% on a core basis in 2019. Is that a good type of run rate to think of for 2020 or is the slower revenue growth going to correlate to a slower expense growth?

Dale Gibbons -- Vice Chairman and Chief Financial Officer

Well, I expect that we're going to be able to hold our efficiency ratio essentially kind of where it is, in the kind of the lower -- the lower 40%s. And we believe that we can continue to grow with that and increased funds that we have, we've been investing into improve the products and services and the feature functionality of our systems. During 2019, for example, we had significant outlays to improve the experience for HOA clients and that we think was instrumental to the very strong growth we had there. We expect to do the same. So I would look for our efficiency to be fairly -- our efficiency ratio to be fairly flat as we go through 2020.

Timur Braziler -- Wells Fargo Securities -- Analyst

Okay. And then just one last one for me. Looking at the residential mortgage growth and the punitive treatment of resi mortgages under CECL, does that at all change your appetite to grow that lending category? And I guess how should we be thinking about provisioning as that becomes a larger component of the loan book?

Dale Gibbons -- Vice Chairman and Chief Financial Officer

Yeah. So it's only punitive if it has kind of a large charge associated with it. Of course, residential loans do have a larger, much longer duration than what some of our average loan lengths have been and so that could have an effect. But the types of residential loans we're acquiring that is LTVs in the 60s [Phonetic], FICOs 750, 760 [Phonetic] debt to income in the mid 30%s Phonetic], those metrics result in a very low estimated annual charge-off. And so even when I multiply that by a duration factor, it's still a low number. So increasing our proportion of our loan book into residential is not going to be increasing our overall reserve in a CECL world above the 100 basis points. So I don't see an increase there. In fact if anything it could dribble down slightly.

Timur Braziler -- Wells Fargo Securities -- Analyst

Okay, great. Thank you.

Operator

Our next question comes from Michael Young of SunTrust. Please go ahead.

Michael Young -- SunTrust -- Analyst

Hey. Thanks for taking the question. Wanted to first ask just maybe about the competitive landscape, in particular in some of the national business lines like mortgage warehouse. Do you see an opportunity to take more market share or grow at a faster rate in any of them in 2020 given some market disruption from acquisitions?

Kenneth A. Vecchione -- President and Chief Executive Officer

Yeah, this is Ken. Overall, I would say the competitive landscape hasn't really changed for the entire book of business. As it relates to warehouse lending, yeah we see some opportunity for disruption there and we see some opportunity to take advantage both on the loan side and on the deposit side.

Michael Young -- SunTrust -- Analyst

Okay. And just, Dale, maybe a follow-up on the 1-to-4 family strategy. You mentioned continuing that this year. What's kind of the overall eventual goal there? It sounds like you're pretty well positioned from an ALCO perspective right now. But should we expect you to go all the way to kind of a neutral balance on the ALCO figure [Phonetic]?

Dale Gibbons -- Vice Chairman and Chief Financial Officer

I don't think we'll get that far. What we see about this is it strengthens the relationship with our mortgage warehouse clients. It mitigates our interest rate risk. It positions us in an asset class that we think is going to perform very well throughout the credit cycle. And we have very -- 2018 we had very strong deposit growth and it's like well, this is a great go-to asset to take advantage of to again improve earnings, improve earnings-per-share growth and we're getting yields well above what we could do if we were buying residential mortgage-backed securities, for example.

I don't expect us to necessarily get to 30% or something like that where the peer group is. But we have plenty of runway to grow 2020, 2021, 2022 at basically kind of the same pace as we did in 2019. And we think that gives us a sustained kind of a growth model, assuming that we have the kind of the funding sources to be able to apply them.

Michael Young -- SunTrust -- Analyst

Okay. And maybe just one last one on the share buyback versus dividend increase, kind of, how are you guys feeling about deploying capital through one versus the other at this point or are there M&A opportunities, we should be thinking of?

Kenneth A. Vecchione -- President and Chief Executive Officer

So for us, as you look at capital when we started the year, we said that about two-thirds of our capital that's generated is used to support organic growth. Where -- we ended the year with about three quarters of the organic capital that we generate to support growth. So our first and foremost best use of capital is for organic growth. The dividend policy has been set. And then lastly, we will be, as we always say, opportunistic when either the stock shows some weakness or the overall market shows some weakness to come in and buy.

Michael Young -- SunTrust -- Analyst

Okay, thanks.

Operator

Our next question comes from Chris McGratty of KBW. Please go ahead.

Chris McGratty -- KBW -- Analyst

Great. Thanks. Ken maybe the M&A aspect of that question, could you elaborate? You've got your multiple up a little bit. Could you remind us the market size, what you're seeing in terms of books that might interest you? Thanks.

Kenneth A. Vecchione -- President and Chief Executive Officer

So at this time, there is really nothing going on on the M&A front and we are rather quiet there as we see better opportunities to grow our business organically. And quite frankly, that's where we're spending most of our time. We have a viewpoint into 2020 that says it's going to look a little bit like 2019 in terms of the momentum that we had in '19. And by sticking organically we'll see or have less execution risk with an organic strategy than if you do an acquisition.

In addition, the market has not been kind to acquiring banks, as you know. So at this point, we're in the very fortunate place of saying, we don't need to do an acquisition for revenue growth, loan growth, we don't need to do an acquisition to take out expenses and we don't need one so that we can move our EPS or net income up. So we have as much optionality as one would want. And right now, as I said, all quiet on the M&A front and we're spending a lot of our time on looking how to continue to organically grow.

Chris McGratty -- KBW -- Analyst

That's great color. Thanks. Just one more. I think in the past you've guided to that $600 million a quarter, Dale, of growth. You've obviously come in well above that in recent quarters. I think the comments were $600 million to $800 million. Is that just marking to market kind of how you've been performing, exceeding guidance or is that -- are you trying to send a message that, hey, we feel even stronger about growth going into 2020?

Dale Gibbons -- Vice Chairman and Chief Financial Officer

We're building our plans around that $600 million to $800 million bogie there, in some quarters it may be closer to $600 million and in some quarters it may be $800 million or more. As you've seen, this quarter was $1 billion and the last couple of quarters it was $1 billion. So we are looking and I think what the most important thing here is it's asset quality that will drive us to the right decision in terms of growth. Right now the asset quality appears good, appears good in our overall book. And we're not seeing a lot of deals that are being won on structure, meaning they are loosening up covenants. We're not seeing that. So we feel comfortable in this $600 million to $800 million range, and you'll get the markers to market at the end of next quarter and see how we do against that.

Chris McGratty -- KBW -- Analyst

Great. Thank you.

Operator

Our next question comes from Casey Haire of Jefferies. Please go ahead.

Casey Haire -- Jefferies -- Analyst

Thanks. Good morning guys.

Kenneth A. Vecchione -- President and Chief Executive Officer

Good morning.

Casey Haire -- Jefferies -- Analyst

Just following up on sort of the capital management, would you guys ever entertain a special dividend? That's an option that you guys have not used. It could be compelling if the stock price seems high and the buyback is not an option.

Kenneth A. Vecchione -- President and Chief Executive Officer

Yeah. First, let's remember we have a long history of dividend distributions of two consecutive quarters. And so I don't think we want to get ahead of that until at least we hit four. So we're going to continue on with the dividend quarterly growth. We're going to always talk to the Board about the best way to return capital to our shareholders. And it's really I think really too early at this point to start thinking about special dividends.

Specifically as you see, we moved the amount of capital we're using for organic means up from two-thirds to three-quarters. So we are trying to find good, thoughtful, conservative, managed loans to bring on to the balance sheet.

Casey Haire -- Jefferies -- Analyst

Got you. And to that end, so on the loan growth front, if I look at Slide 11 and your outlook for 2020, do you see the loan growth mix sort of tracking that -- the loan growth mix in 2020 tracking that same level of C&I, resi and CRE?

Kenneth A. Vecchione -- President and Chief Executive Officer

Well, the nice thing about our distinctive business model is that we get to move capital around all throughout the year to take advantage of the best returns and where we think the credit is the strongest and where sometimes competition is a little less active. So as we plan through the 2020 cycle, generally just about every business has the same growth rate to try to achieve. As we execute that becomes a different story as we look almost daily or weekly as we look to move capital around to where we find the best opportunities. And that really has been the success of one of the reasons Western Alliance has been so successful.

Dale Gibbons -- Vice Chairman and Chief Financial Officer

I mean, I would expect the construction fees, we're under 10 [Phonetic] now to hover in the kind of the 9 to 10 [Phonetic] range. The residential is going to be continue to climb from 10 [Phonetic] now. I think that's going to certainly go into the teens. And the others, as Ken mentioned, depend upon kind of the best risk adjusted returns that we have within those categories.

Casey Haire -- Jefferies -- Analyst

Okay, thanks. And just last question for me on credit quality. Dale it sounds like the outlook is very clean. There's nothing systemic that you see. I think we're all -- everyone is very impressed with your ability to keep the NCOs low. But -- I mean when you -- a lot of investors out there would say like it's only so sustainable given the risk profile. Can you just give us some thoughts as to what -- when you see some of your peers catch a commercial credit and the leverage loan book comes to mind, specifically with you guys, what are you guys doing differently that is enabling you to avoid catching these credits?

Kenneth A. Vecchione -- President and Chief Executive Officer

Right. This is Ken. First half a step back, big picture, our portfolio today looks fine. We don't see any economic stress from the economy. And to answer your more specific question, we think our well-diversified portfolio, which again is consistent with this business model we have, helps us to avoid some pitfalls. So, for example, we don't do energy loans. We've gotten out of solar. We have very little QSR loans on the books. We don't have large retail malls. These are all things that we have stopped doing years ago or maybe a year ago. So we're trying to look for where we see there -- where there is possibles of the credit hiccups and avoid that.

Next back to the National Business Lines. The National Business Lines, for the most part we've never seen losses. So, let's go through timeshare. We've never had a loss and the team that's running it has never had a loss in 35 years. Warehouse lending, we've had that business 10, going on 11 years, never had a loss. Municipal lending, we've had one small loss for $400,000 over the last 10 years. Even our hotel book is very well positioned when I -- if you want to talk about our debt service coverage ratio, our LTV and our debt yields for example.

So we've been fortunate to be playing in spaces in the National Business Lines that other banks do not play in. And remember the National Business Lines have four characteristics to them. One, generally there is less competition, which allows us to have a fairly good pricing power or pricing stability, good operating leverage, and last but not least, as I described, good asset quality.

Dale, do you want to add anything to that?

Dale Gibbons -- Vice Chairman and Chief Financial Officer

Yeah. Regarding the corporate finance notes that you mentioned, we monitor those. Those are liquid loans and we monitor that pricing daily. If there is a price deterioration that's going on, if we don't understand why that is, it's, you know what sell first and then ask questions later. So we'll cut a particular haircut down or something like that and get out and we've really moved quickly on those types of deals.

Casey Haire -- Jefferies -- Analyst

Great. Thank you.

Operator

Our next question comes from Brad Milsaps of Piper Sandler. Please go ahead.

Brad Milsaps -- Piper Sandler -- Analyst

Hey, Ken and Dale.

Kenneth A. Vecchione -- President and Chief Executive Officer

Hey Brad.

Brad Milsaps -- Piper Sandler -- Analyst

Ken, I was just curious if you could update us on maybe the number of new producers you hired in 2019 and kind of what your appetite would be for new revenue producers in 2020.

Kenneth A. Vecchione -- President and Chief Executive Officer

Yeah, we've been rather fortunate that through most of our businesses, we've not had large attrition in our revenue producers. I will say it's a little more competitive up in Northern California in the Tech & Innovation business. But relatively speaking we're not pushing heavily to bring in new producers given the runway that we see in front of us. And some of the businesses that we started certainly on the loan initiatives that we started in '18 and in '19 both of our two loan initiatives had great results. So we brought in people there earlier in '18 than we needed to to get them comfortable with our way of doing business.

Dale Gibbons -- Vice Chairman and Chief Financial Officer

In terms of the FTE increase, a good portion of that has really been to increase infrastructure. So those have been in operations and IT areas and also kind of personnel development for that. As Ken mentioned, most of the positions we've had in terms of frontline producers have been fairly static over the past year.

Brad Milsaps -- Piper Sandler -- Analyst

Yes. So that's where my next question is, it sounds like you've got plenty of capacity on staff without really having to add any additional revenue producers in a big way.

Kenneth A. Vecchione -- President and Chief Executive Officer

Yes. Yeah, I think that's fair.

Brad Milsaps -- Piper Sandler -- Analyst

And maybe as a follow-up, as you look at your $600 million to $800 million quarterly loan and deposit goal, which side of that would be -- it looks easier to attain against the backdrop of being maybe more selective with credit versus it's always difficult to grow deposits. Just kind of curious which pipeline might be bigger or which side of that equation you kind of feel better about as you move through the year based on kind of what you see in the pipeline.

Kenneth A. Vecchione -- President and Chief Executive Officer

It's funny. Our pipeline conversations change almost weekly depending on when deals are going to close or when people are making their customer calls. So, quite frankly, they both have the same probability of occurring. I just think you may see some -- we're not that good to make sure every quarter is exactly lined up. But if you look at 2019 as an example, it did eventually line up very, very well. If you go back to 2019 Q1, deposits came out of the chute very, very strong, loans were OK and then it ended just the reverse with loans being very strong and deposits being OK. But net-net, loans grew $3.4 billion, deposits grew $3.6 billion. So that's what we're trying to do is to kind of, as I said in my outlook to have deposits match the loan growth.

Dale Gibbons -- Vice Chairman and Chief Financial Officer

I like getting the deposits and I like leading with deposits. I think that gives you -- that really gives you inventory that you can find alternatives. If it's a bad economy we can go to residential. If we think things are growing, we've got a more expansive kind of product array on the loan side that we can offer. If we continue to sustain good core deposit growth that's going to drive improving earnings per share.

Brad Milsaps -- Piper Sandler -- Analyst

Great. Thank you guys. Nice quarter.

Kenneth A. Vecchione -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Gary Tenner of DA Davidson. Please go ahead.

Gary Tenner -- DA Davidson -- Analyst

Thanks. Just one question for me in terms of the $4 million of non-recurring items in the quarter. Could you give any detail on that? Was severance, was it tech writedowns, just any kind of background there?

Dale Gibbons -- Vice Chairman and Chief Financial Officer

Yeah, so I mean we -- it kind of enumerated a little bit, but yeah -- so we had a very strong 2019. We had an accrual catch-up in terms of incentive compensation that we recognized. We continue to build out, as I mentioned, on one particular product with -- regarding HOA. But both infrastructure regarding feature functionality of products, regulatory compliance and sustaining of what we need to do there as well. So it's a little bit elevated in the fourth quarter in terms of kind of what those charges came in. But in some respects they're going to continue. As I mentioned, we're going to expect to have basically a stable efficiency ratio going forward, which means that our revenue growth in dollars is going to be more than double what we're getting via increasing expense.

Gary Tenner -- DA Davidson -- Analyst

Okay, thank you.

Operator

Our next question comes from Brock Vandervliet of UBS. Please go ahead.Thanks. Good morning.

Kenneth A. Vecchione -- President and Chief Executive Officer

Good morning, Brock.

Brock Vandervliet -- UBS -- Analyst

Good morning. Dale, just going back to your deposit pricing comment, it sounded like there wasn't -- you weren't expecting much scope there to further down deposit costs. So just wanted to talk about that.

Dale Gibbons -- Vice Chairman and Chief Financial Officer

Sure. Yeah, I know -- so we got -- we got in front of I think the market is rates were coming down. I mean we moved within hours after each of the -- after each of the Fed changes. And today we -- where we see our pricing relative to kind of the competitive environment is we don't see that we've got a whole lot of latitude relative to what others are paying. And of course we have these kind of -- everyone does, these online banks that are charging or providing returns much, much higher than when local institutions do. So that doesn't mean there isn't some kind of changes we can kind of make on the margin. But I think people have kind of settled into kind of the term structure of the yield curve that we have today. And I think it's been fairly quiet out there for rate changes, not just for us but for the market of late as well.

Brock Vandervliet -- UBS -- Analyst

Okay. And others have asked about this as well. But within that resi portfolio and these rates 4.75 [Phonetic] loan yields of say 140 bps above agency conforming, could you talk about what's in there in a little bit more detail, number one? And number two, as this portfolio grows relative to other components, do you think there could be a leak down in the reserve given that this may have a lower -- some benefit under CECL which you may have alluded to?

Dale Gibbons -- Vice Chairman and Chief Financial Officer

Yeah, it does have some benefit under CECL and it could kind of whittle down maybe over time. Of course, CECL you're always in this process of kind of reconfirming and testing and testing your models and back testing them. So there could be other changes that might [Phonetic] take place. But -- so a couple of things. One is we are not intending to buy agency qualifying paper. So that is part of the reason that picks this up in yield. So we're not expecting to kind of bundle this up and ship it off to Fannie, Freddie or anything like that. So from our warehouse clients, we're buying some of the stuff that doesn't qualify to their primary liquidity channel, which is one of these GSEs. So where do we buy? So there is some jumbo in there. It's not a lot. The average balance on this stuff is under $500,000, but there is some jumbos that doesn't qualify. There is this significant piece of something that isn't owner occupied. So these could be vacation home or something else that is -- that could make it ineligible for these agencies to pick up. But again, we're looking for things that may improve the yield to us, but don't increase the risk. So again these are really low -- these are low LTV loans, they are good to high FICO scores, but not necessarily their primary residence.

We also look for things that are -- maybe there is some defect in the process that makes them ineligible for it. There has been like timing on right of rescission. There has been kind of...

Kenneth A. Vecchione -- President and Chief Executive Officer

Just the documentation [Speech Overlap] to have a slight imperfection.

Dale Gibbons -- Vice Chairman and Chief Financial Officer

Yeah. And so we'll take those and we get a cheaper price for it.

Brock Vandervliet -- UBS -- Analyst

Got it. Okay, great. Thank you.

Operator

Our next question comes from David Chiaverini of Wedbush Securities. Please go ahead.

David Chiaverini -- Wedbush Securities -- Analyst

Hi. Thanks. A couple of questions for you. So a follow-up first on the deposit discussion. What's giving you confidence on the deposit side to fund that increased growth of $600 million to $800 million? Is it new initiatives or getting more entrenched in existing businesses? Just curious there.

Kenneth A. Vecchione -- President and Chief Executive Officer

Yeah, I think there are a couple of things. One the way our business is structured, A, we have an HOA business. Again, you heard us say it grew over -- deposits over $600 million. We put money against it for technology. We think that technology improvement has allowed us to bring in more deposits this year. So that channel helps us. The Tech & Innovation channel generally brings in deposits on a 2-to-1 basis. Our warehouse lending channel with all the ways we touched the warehouse lending clients allows us to bring in deposits that are 1-to-1. So we have a number of channels just that created all natural momentum for us to grow.

And then the things we always say, we're a pay-for-performance culture. So everyone is out looking to get deposits. We don't do a loan without getting the operating accounts. We've got minimum liquidity requirements in our loan docs, in case you don't hold your deposits at a certain level, we have an opportunity to reprice your loan, your yield. So it's all those things.

As it relates to the loan initiatives, we've gotten a little traction on the loan -- sorry, the deposit initiatives. We've gotten a little traction there. We grew both of those over $100 million. We are still keeping our eye on that. We'd rather be a little slower and right and give the clients the best customer service experience than to be fast to bring in stuff and not service the client. And since we have the opportunity through these other channels to bring in deposits, we can take it a little slower on the new initiatives and wait till when we feel ready to go out and bring them in at a faster pace.

Dale Gibbons -- Vice Chairman and Chief Financial Officer

But our new initiatives had a great year. I mean Tech & Innovation, up $1 billion, HOA up $600 million.

Kenneth A. Vecchione -- President and Chief Executive Officer

Yeah.

Dale Gibbons -- Vice Chairman and Chief Financial Officer

So it's been both.

David Chiaverini -- Wedbush Securities -- Analyst

That's helpful. And should we expect a similar mix in that deposit growth between interest bearing and non-interest bearing?

Dale Gibbons -- Vice Chairman and Chief Financial Officer

Yeah. I think if we can hold our own on interest bearing dollars, I think that's doing pretty well, our non-interest bearing dollar. So -- I mean, I could see over time, and particularly if rates rise, that's going to be a little more difficult. So I would like to hold our own dollars on the non-interest bearing side, maybe most of the growth comes from interest bearing.

David Chiaverini -- Wedbush Securities -- Analyst

Got it. Thanks very much.

Operator

Our next question is from Jon Arfstrom of RBC Capital Markets. Please go ahead.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Thanks, good morning guys.

Kenneth A. Vecchione -- President and Chief Executive Officer

Good morning.

Jon Arfstrom -- RBC Capital Markets -- Analyst

A couple of follow-ups. Ken you talked about going where competition is less active. Is that the case in the CLD book? I'm just curious. Yields look good and you are a little bit under 10%. And just curious what your thought is on that book going forward.

Kenneth A. Vecchione -- President and Chief Executive Officer

Yeah, so on that book we're going to -- we're going to flow between 9% and 10%. This quarter, as it relates to the percentage [Indecipherable] numerator and the denominator impact. Denominator went up $1 billion and we focused on the numerator and that came down to $103 million. We primarily did that through pricing. So we priced up a little bit. We did get some deals at our pricing and the ones we didn't get, well we waited for our loans to roll off the books. We didn't replace them. And that's how we brought the ratio down.

But some of the aspects of what we do in that book, the competition is not anymore competitive than it's been for the last two or three years.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay, good. And then your ability to get there a year early, it's just simply what you just said, pricing and letting some things roll off.

Kenneth A. Vecchione -- President and Chief Executive Officer

And the denominator.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay.

Kenneth A. Vecchione -- President and Chief Executive Officer

Yeah.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay. And then two other follow-ups. The other National Business Lines growth was really strong for the quarter. You talked a bit about the mortgage warehouse. Anything else to call out in that segment?

Kenneth A. Vecchione -- President and Chief Executive Officer

I don't think anything pops right off the top of my head. I think -- it's really, the growth was in those segments.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay. And then last one. Tech spending is the other area that you called out in your expense guidance. You mentioned HOA. But talk a little bit about the initiatives and where you're spending the tech money, where it's focused. Thanks.

Dale Gibbons -- Vice Chairman and Chief Financial Officer

Yeah, so our spending is really targeted against the client satisfaction and offering products and improved service. And my hypothesis is that I think a lot of banks are going to pull back in 2020 because they don't have the growth aspects that we have. And I don't think they're going to service their clients to the level that the clients want to be serviced at. So I think by continuing to improve our service offering, I think, one, we will have happy clientele and number two, as you saw in HOA, we'll be able to either hold deposits or bring in more deposits.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay. There a lot of your peers are talking about expense programs, no doubt about it. Thank you.

Dale Gibbons -- Vice Chairman and Chief Financial Officer

You got it.

Operator

Our next question comes from Tyler Stafford of Stephens. Please go ahead.

Tyler Stafford -- Stephens -- Analyst

Hey, good morning, guys and thanks for taking the question. When I compare the management outlook slide for 2020 in the deck released yesterday to the outlook slide last year, you guys kept the loan and deposit growth the same, the interest margin the same, the operating leverage the same and the asset quality the same. But this year you added earnings to it. Obviously, the outlook is very favorable that you guys have talked about so far in this call. I'm just curious, given that you added that to the slide, if you wanted to comment just around the pace for earnings growth or how [Indecipherable] earnings growth in 2020, especially given a lot of your peers are not growing earnings? Thanks.

Kenneth A. Vecchione -- President and Chief Executive Officer

Yeah. One, it's good to hear that we are rather consistent year-over-year with our loan and deposit growth, interest margin, operating leverage and asset quality. The point of earnings was the cumulative effect of all of that will produce year-over-year earnings. And we -- again as we said in our prepared remarks, higher earnings, higher tangible book value will lead to a better valuation over the long term. And to distinguish ourselves from our peer group that may have a little trouble growing earnings I think only helps us.

Tyler Stafford -- Stephens -- Analyst

Okay. Thanks, Ken. And then just going back to the buyback, would you expect to fully utilize the authorization this year?

Kenneth A. Vecchione -- President and Chief Executive Officer

I'm not going to make a forecast on that other than to say think about how we've done it so far. And I think we've done it in a very managed and prudent way. When there is plenty -- when there's plenty of growth that growth is supported by capital. We realize we are running with a little more capital we initiated a dividend. And, again if the stock looks weak, if the market takes down everyone, we will have enough ammunition to come in and support the stock and buy what we hope will be at attractive pricing.

Tyler Stafford -- Stephens -- Analyst

Okay, understood. Congrats on a very strong quarter.

Kenneth A. Vecchione -- President and Chief Executive Officer

Thank you very much.

Operator

This concludes our question-and-answer session. I'd like to turn the conference back over to Ken Vecchione for any closing remarks.

Kenneth A. Vecchione -- President and Chief Executive Officer

Well, thank you all for joining us and we look forward to talking to you a couple of months from now. Thank you.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

Kenneth A. Vecchione -- President and Chief Executive Officer

Dale Gibbons -- Vice Chairman and Chief Financial Officer

Timur Braziler -- Wells Fargo Securities -- Analyst

Michael Young -- SunTrust -- Analyst

Chris McGratty -- KBW -- Analyst

Casey Haire -- Jefferies -- Analyst

Brad Milsaps -- Piper Sandler -- Analyst

Gary Tenner -- DA Davidson -- Analyst

Brock Vandervliet -- UBS -- Analyst

David Chiaverini -- Wedbush Securities -- Analyst

Jon Arfstrom -- RBC Capital Markets -- Analyst

Tyler Stafford -- Stephens -- Analyst

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