Below is transcript of the Western Alliance Bancorporation (NYSE:WAL)’s Fourth Quarter 2014 Earnings Conference Call, held on Friday, January 23, 2015 at 12:00 p.m. EST. Bennett Lawrence Management, Sirios Capital Management and Hutchin Hill Capital was among Western Alliance Bancorporation (NYSE:WAL) shareholders at the end of the third quarter.
Western Alliance Bancorporation (NYSE:WAL) is a bank holding company. The Company provides full-service banking and lending to locally owned businesses, professional firms, real estate developers and investors, local non-profit organizations, high net worth individuals and other consumers through its three wholly owned subsidiary banks.
Company Executives:
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
Dale Gibbons, Chief Financial Officer, Western Alliance Bancorporation
Analysts:
Casey Haire, Jefferies
Brad Milsaps, Sandler O’Neill
John Moran, Macquarie
Brian Klock, Keefe, Bruyette Woods
Brett Rabatin, Sterne Agee
Joe Morford, RBC
Tim Coffey, FIG Partners.
Operator
Good day everyone. Welcome to the earnings call for Western Alliance Bancorporation for the fourth quarter 2014. 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 2PM ET, January 23rd, 2015, through Tuesday, February 24th, 2015 at 9AM ET, by dialing 1-877-3447529 and using pass code 10057230.
The discussion during this call may contain forward-looking statements that relate to expectations, belief, projections, future plans and strategies, anticipated events and or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements contained herein reflect our current views about future events and financial performance and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from historical results and those expressed in any forward-looking statement. Some factors that could cause actual results to differ materially from historical or expected results includes those listed in the filings with the Securities and Exchange Commission. Except as required by law, the company does not undertake any obligation to update any forward looking statements. Now for the opening remarks, I would like to turn the call over to Robert Sarver. Please go ahead sir.
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
Thanks. Good morning everybody. Welcome to Western Alliance’s Fourth Quarter Earnings Call. First are review of our performance highlights, then I will turn it over to Dale to discuss some more details on our results and then we will open the lines up for your questions. 2014 was the best year in our company’s history. It culminated with a strong fourth quarter growth in our balance sheet, record revenue and credit recoveries. Net income was $40.4 million or $0.46 cents per share. The same amount is the third quarter and up 28% from the $0.36 cents we made in the fourth quarter of 2013. Loan growth was $469 million, or up 20% annualized on a linked quarter basis. Deposits were up $233 million or 11% annualized. Our tangible book value per share increased 28% during the quarter on an annualized basis to $10.21 a year end. As we continue to grow, our tangible book value faster than our return on equity. Non-performing assets improved to just 1.18% of total assets, while net loan recoveries to average loans were 4 basis points annualized.
Despite our strong balance sheet growth, capital remain strong and our 2:1 leverage ratio was 9.7%. Our return on assets was 1.56% and our return on tangible common equity was over 18%. For the year, loans grew $1.6 billion and deposits grew $1.1 billion. Earnings per share climb 27% from 2013 to $1.67 in 2014, which was the largest component of our $2.31 increase in our tangible book value per share last year. Our full year return on assets was 1.5%, and our full year return on equity was 18.5%, similar ratios to our fourth quarter.
Fourth quarter net income increased $4 million to $102 million, while non-interest income increased $1.3 million. Including $1 million from Bancorp Life Insurance and performance payments and service contracts. Total revenue increased to $5 million was matched by similar increase in non-interest expense, including some non-recurring items. Leaving pretax, pre-provision income modestly higher than that of the third quarter of $52 million. We again had net loan recoveries during the quarter which reduced our provisioning requirements despite having strong loan growth. ROE gains were $1.1 million and we also reported a $1.4 million gain from the valuation of our trust preferred issued, resulting in pretax income of $54.5 million and net income of $40.4 million. Diluted shares increased to $88 million, primarily reflecting the issuance of 432,000 new shares during the quarter from our at-the-money offering, with an EPS of $0.46 cents.
For the year, our net interest income was up 15% to $385 million. This attract the organic growth of the balance sheet. Non-interest revenue increased 14%, while total revenue was up 15%. The increase in operating expense was held only 2/3 of that growth rate. This improved our operating leverage and drove a 21% increase in our Pre Pre income, to $195.6 million. The credit loss provision, was $4.7 million for the year as the company had net loan recoveries of $5.4 million. ORE gains were $5.4 million and net of other items pretax income was $197 million. Income taxes climb to $48 million as of 2013 tax rate reflected a non-reocurring bargain purchase gain in the acquisition of Centennial Bank below tangible book value, resulting in net income of $148 million up 29% from 2013 and $1.67 per share. I will turn you over to Dale now.
Dale Gibbons, Chief Financial Officer, Western Alliance Bancorporation
Thank you. The interest margin increase 1 basis point during the quarter as there were several upsetting items. Cash balances declined $95 million from September 30 to year-end, and fell $16 million on an average balance basis during the quarter. While the securities portfolio yield slip 5 basis points, the long yield increase by 2. Our interest bearing deposit cost edged down 1 basis point to 32 basis points and our total cost of deposits which include our $2.3 billion in non-interest bearing came down the same amount to 24 basis points. 1 basis point increase in the margin during the quarter to 4.44% on a 33-60 basis included the benefit of an additional day during the fourth quarter. On the bottom graph, disposition accretion on purchase, credit impaired loans fell from $2.5 million in the third quarter to $1.2 million in the fourth. However, this $1.3 million reduction and interest income was more than offset from margin benefits from $1.8 million in prepayment penalties in our own organic loan portfolio.
Operating expense increased $5 million for the quarter and includes a $1 million contribution to establish Western Alliance Charitable Foundation from which future donations will be made. A $1 million catch-up accrual was also incurred for long term incentive compensation. These charges will not repeat in the first quarter. During the fourth quarter, we opened an office in Chandler, Arizona bringing our total to 40. Staffing facility contributed to the increase in FTE employees during the quarter of ’11. While slipping from 3Q, we remained at our Pre Pre ROA target of 2% during the quarter. Net income again exceeded $40 million in the fourth quarter while our return on assets was above 1.5%. The investment portfolio and cash position declined during the quarter, making up a substantial portion of the difference between the faster growth of loans over deposits during the fourth quarter. As a result of our strong loan growth and credit recovery position, the allowance for credit losses is up 10% in the past year to $110 million. Total shareholders’ equity was flat at $1 billion for the quarter as the increase from retained earnings and evaluation of securities, security fair value was offset by the voluntary payoff of $70.5 million over 1/2 of our Small Business Lending Fund preferred stock.
During the quarter, loan growth was more significant in the commercial and owner-occupied sectors. While we have slower growth in investor commercial real estate. Contribution to our total $469 million of loan growth during the quarter, was led by our Arizona Banking Operation which was up $137 million. Then public finance which was up $117 million and non-profit loans were up $112 million. 84% of our loan balances are entities domiciled in or collateralize by assets in our primary markets of Arizona, California and Nevada. Commercial real estate loans are managed by geography as a strong understanding of local market conditions and property locations are critical elements of prudent CRE underwriting.
At the bottom of the slide you can see that the mean loan grade is higher and the duration is shorter for loans that we make outside of our primary 3 State market area.The bottom segment of each bar is commercial & industrial loans which were up $240 million to $3.5 billion in the fourth quarter. The second largest growth category was owner-occupied CRE which increased to $113 million. Construction loans climbed $77 million to 8.9% of the portfolio, while residential and consumer continue to amortize of. Deposit growth was led by increases in savings and money market accounts which had a $185 million with 79% of the $233 million total deposit increase in the fourth quarter. Interest bearing transaction account were $46 million and non-interest bearing grew $41 million. Higher cost CDs declined.
For 2014 tangible book value per share rose $2.31 or 29 % to $10.21 at year end. 72% of this increase was from retained earnings of $1.67 and 18% from higher valuation marks on our securities portfolio. The remaining 10% was split between gains from our equity offering in which we sold 540,000 shares for a net proceeds of $13.7 million in compensation from restricted share awards which reduced earnings per share as this cost are amortized against income but increased paid in capital when it rewards best. Organic adversely graded assets consisting of ORE non-performing loans, other classified loans, and special mention declined to $264 million during the quarter and are down 13% in the past year. Acquired adversely graded assets fell at $48 million which is net of $28 million of unrecognized credit and rate discounts. Three quarters of the $68 million dollars and non-performing loans were current with regard to contractual principle of interest payments at year-end.
Gross loan charge-offs were $2.6 million during the quarter for 12 basis points of average loans annualized. While recoveries declined slightly to $3.4 million, resulting in a net recovery of $800,000 for the fourth quarter, compared to a loss of $2.1 million in the same quarter last year. While our total allowance growth loan assets climbed to $110 million at year-end, strong loan growth and improving asset quality resulted in a loan loss reserve ratio declining to 1.31% of total loans. Capital growth in excess of our asset growth contributed to push up our tangible common equity ratio which climbed to 8.6% at December 31st, from 7.4% at December 31st, 2013. The total capital ratio declined from 12.2% in the third quarter to 11.7% at year-end due to the voluntary payoff of 1/2 of the SBLF preferred stock I mentioned earlier. Under the Basell III rules — are going to affect this quarter — each regulatory capital ratio will be haircut about 20 basis points, but will still significantly exceed well-capitalized regulatory levels.
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
Thanks Dale. So looking into 2015, I have been reading the number, the reports that have been coming out from banks, and a lot of the expectations are little muted and a lot number of the banks have some kind of tough quarters, we faced some of the same headwinds that many of the banks faced, which is primarily pressure on that interest margin, due to what looks to be a lower interest rate environment and a lower rate environment for longer that the most have expected. But, offsetting that, we got a couple of tailwinds behind us. One is our balance sheet momentum. We continue to have a very strong organic growth in both loans and deposits. We finished the year out very strong and we also continue to be able to recruit and retain some of the best bankers in our markets, in our specialty groups that provided great levels of service to the customers so the customers keep coming.
So that is probably the biggest differentiator with our business model that the most of our peers is the organic growth. And that’s what allows us to earn through some of this interest rate pressures, and, along with our manageable expense base, given that we have just opened up our 40th office, we are able to continue to drive positive operating leverage and continue to grow earnings. So a little more specifically, we continue to believe that we can support our net organic loan and deposit growth goals of $1 billion per each for 2015. Although the margin was centrally flat in the fourth quarter from the third, the lower rate environment and continued competitive pressure, as I mentioned, will likely crimp that interest margin a bit this year. However we expect to sustain our net interest income increases, as this compression is more than offset by the balance sheet growth we continue to have and think we will have again this year.
As we mentioned on the last call, our operating efficiency ratio climbed during the fourth quarter from the third. For the first quarter we expect it to be essentially flat, as net interest income is a little challenged given the drop in number of days in the quarter from 92 to 90. However, we also expect our operating expenses to decline from that of the fourth quarter due to some lower incentive compensation accruals that we caught up on, as well as we funded our charitable foundation and funded everything else we can get our hands on. So we expect the efficiency ratio to resume its longer term improving trend after the first quarter. As we saw every quarter in 2014, our asset quality outlook continues to be benign when low levels of growth loan losses and a continued tailwind of recoveries in Nevada. We think those will continue in 2015, estimated in $2 million a quarter. And so at this time I would like to open it up for questions.
Question and Answer Session
Operator
We will now begin the question and answers session. And our first question is from Casey Haire of Jefferies
Casey Haire, Jefferies
Hi good morning guys. I want to dig a little bit on the NIM outlook. Can you give some color as to what your your new money loan yield is on production?
Dale Gibbons, Chief Financial Officer, Western Alliance Bancorporation
Yeah, it climbed during the quarter. Fourth quarter over third and we averaged at 41.
Casey Haire, Jefferies
Sorry 4.41?
Dale Gibbons, Chief Financial Officer, Western Alliance Bancorporation
4.81, 4.81%.
Casey Haire, Jefferies
Okay got you. And in terms of the loan growth guide of a $1 billion…
Dale Gibbons, Chief Financial Officer, Western Alliance Bancorporation
Casey, that number would not include fees or anything like that. That’s just the weighted mean of the loans originated during 4Q.
Casey Haire, Jefferies
Okay understood. Thanks for that. And then, on the loan growth, loan and deposit growth outlook. Obviously it is, it is competitive out there. But a $1 billion, are you guys just being a little conservative? Because that is a pretty nice pull back from the $1.6 billion production that we just saw in 2014.
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
Well, I hope we can do better, but those are pretty good numbers.
Casey Haire, Jefferies
Okay. And then just lastly, M&A prospects on the year, how, you guys have been pretty optimistic recently about your chances of landing a deal. How is that shaping up as we look into 2015 and what size targets are you guys looking at?
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
We do not want to really get into many specifics, but we do have a lot of opportunities we’re working on. And, we’re pretty confident we’re going to make a good deal this year. But beyond that I’m not going to give any specifics.
Casey Haire, Jefferies
Okay thank you.
Operator
Our next question will come from Brad Milsaps of Sandler O’Neill
Brad Milsaps, Sandler O’Neill
Hey god morning guys. Robert, I appreciate all the guidance on loan growth. Just curious, I think last quarter you hired 9 new lenders in the third quarter. Curious how many hired in the fourth in maybe by geography and, and what types of parts of your business they concentrate on?
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
Yeah, we, I think we hired about 11 during the quarter. We hired some folks in the Bay Area. We are going to be opening up a — we just came to terms on a some space in downtown San Francisco for a good, well-located office. We just open up a large regional office in Chandler, Arizona, which is probably the most healthy growing city in Arizona, and we hired some folks there. And we also hired a few people in the Los Angeles market and also in Phoenix.
Brad Milsaps, Sandler O’Neill
That’s great. And then, any additional color, any change on the economy in Nevada, or is it still sort of status-quo there?
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
Well it’s getting better in that, I mean that is, we are hopeful we have some opportunity this year. Because our loan totals in Nevada have been shrinking for the last 6 years and including last year. But business is looking a little better there. I just looked at some recent economic data, unemployment rate dropped again and actually had some of the highest priced housing value increases in the Western US, in the South West, I’ll say. And we are seeing more momentum there, so we are thinking that maybe this year turns the corner in terms of loan growth and we actually start growing our local loans in Nevada. And Reno’s got a little excitement going on there too, so that could have a meaningful addition for us.
Brad Milsaps, Sandler O’Neill
Great thank you very much.
Operator
Our next question will come from John Moran of Macquarie
John Moran, Macquarie
Hi guys, how is it going? Can you hear me? I just wanted to kind of touch real quickly, I mean a lot of the growth in the fourth quarter and for the year really came out of that essential business lines versus traditional C&I or Commercial Real Estate. And I know that there has been better — just flat out better risk adjusted opportunities there and a little bit less competition. I wonder if you could give up quick update on where those yields might be today versus the traditional business and how you kind of see that playing out over, over ’15?
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
Well yes, the non-profit area and the municipal area got really strong growth for us. And actually the growth has started to pick up in deposits too. We opened up in that book of business we opened up about 10 new deposit relationships in the quarter over $10 million. And so we carved a pretty nice niche there in our markets. It is a good market for us because we really do not need to compete against the money setter banks, because the rest of the banks are not really in the business. And so we are able to get some pretty good returns. I do not know, Dale do you have the exact numbers. I mean on, on the real high quality stuff, we are averaging spreads of about 320 over life-term LIBOR swap rates. So they are pretty good spreads.
You know what happens with some of this specialty areas, you carve a niche and your niche is that you have people with expertise that really know the business. So, we have that in medical, we have it in legal, we have it in like, we have done a fair amount of kind of high tier franchise restaurant financing. But then you follow the market and you see where it goes, and as an example, we got into the restaurant business five years ago and we are making loans in the sixes because all the finance companies had vanished. And so we picked up some pretty good market share. Now the finance companies are back, with terms that are probably not real smart and so we are not doing much of that anymore. And so we got about 15 of these different niches and for us it is, hit in the gas and the brakes at the right time in each of them. But, it is the best way for us to grow our business because we really add value to the customer. If you just limit it to traditional C&I loan and Real Estate Investor Owner-Occupied loan, those clients while we are good at it, they have a lot of options. When we get into some of these areas that require someone to really understand the business. There is a lot less options, and less options means better credit structure and better risked-adjusted pricing.
John Moran, Macquarie
Sure yes, that’s helpful, helpful detail and I appreciate that. I got two, two kind of finance key questions for Dale, too? One is, just with the partial retirement of the SBLF and then I think there is still a chunk of the higher cost debt come in due at the end of the year. Any thoughts on replacement capital that might be needed at the, at the end of ’15? I mean obviously it will going to come at a much lower rate than what is hanging around out there today given the ratings. And then just on tax rate, which run a little bit higher in the quarter and looking for what might be a good rate to use going forward there?
Dale Gibbons, Chief Financial Officer, Western Alliance Bancorporation
Yes, so next year on September 1, we have $58 million of senior debt at the parent that has a cost of 10.4% on it. And then we have the other remaining —
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
I thought we have must been desperate back then.
Dale Gibbons, Chief Financial Officer, Western Alliance Bancorporation
5 years, 5 years ago.
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
Oh God!
Dale Gibbons, Chief Financial Officer, Western Alliance Bancorporation
Then we have the remaining $70.5 million of SBLF funds that will, unless it is paid off, will rise in March of 2016 to 9% and it currently pays one. So what I am looking to do is that we will probably do a subordinated debt offering sometime, maybe out of Western Alliance Bank and that would take care of both of those items and probably be neutral to EPS. That is, we are eliminating 10.4%, $58 million and then 1%, $70 million. So the numbers where rates I think are today, I think we can do that, that is basically EPS neutral. And sustain our capital levels really kind of where they are, maybe take them a little bit higher since only the $70 million qualifies as capital — all the subordinated debt we would do would qualify. Regarding the tax rate, yes, it came up a little bit. We had a true-up on that as well. We are looking for the tax rate to fade slightly in 2015. But it will be a little bit higher than it was in 2014, somewhere around 25.5%.
John Moran, Macquarie
Perfect. Thank you very much guys.
Operator
And the next question is from Brian Klock of Keefe, Bruyette & Woods
Brian Klock , Keefe, Bruyette Woods
Hey good morning guys. I am just thinking about the year and the good growth. You guys have done a really good job though on the expense side. So ex the one-time items in the quarter, there are real gains in the two other expenses I am just talking about. Should we be thinking about $55 million as the sort of first quarter run rate for that expense base?
Dale Gibbons, Chief Financial Officer, Western Alliance Bancorporation
Yes we should give back, we should give back at least a couple of million dollars that we identified. I think maybe by half of the increase, from the third quarter to the fourth, we should pick up good in it, coming in to 2015.
Brian Klock, Keefe, Bruyette & Woods
Okay and then —
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
You want us to write you our whole projection or pro forma Brian or…
Brian Klock, Keefe, Bruyette & Woods
Well maybe just part of it, thanks. And the margin too I guess maybe try to get a little finer point on the first quarter you had. You know taking out the prepayment penalty would put your fourth quarter NIM at somewhere around 4.33%. So I guess thinking about that as–
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
You know what, I was talking to Dale about this last night. You know some of the things we get only happen like once, and some of the things we get happen more than once but you do not know when is that going to happen. And so we have prepayment penalties somewhere between the third half of our loans. And a number of the type of business we are doing more now has more prepayment teeth in them. And so, maybe we will average $500,000 a quarter of prepayment penalties, maybe it will start to go up a little bit, I do not know. But I would not take the whole $1.8 million out.
Brian Klock, Keefe, Bruyette & Woods
Alright that is fair, that is fair. So I mean, I am just thinking that is where we should start I think somewhere in the 4.35% range and then think about the other margin pressure that could be there because of the interest rate environment we are in?
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
It should ebb off, I mean we have talk about this for a while, but, but —
Dale Gibbons, Chief Financial Officer, Western Alliance Bancorporation
In 5 years.
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
Yes okay. I am crying the wolf here I guess, but at the same time I mean, with the money that we have on the balance sheet, we are looking for a net interest income to certainly earn through that contraction of 4 basis points or whatever.
Brian Klock, Keefe, Bruyette & Woods
Got it. Okay and last question. The mortgage warehouse lending looks like it was up and I am kind of guessing somewhere around $60 million I guess. Is there a thought process of kind of where that portfolio would go or do you expect that to — where do you expect that to go going forward?
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
It was up a little high for the quarter because these rates came down a little more so activity was up. We picked up some more customers too. That number — well under $400 million in balances. That is probably a pretty good number. I think we are only projecting that to grow this year from that height, about 10%. But with that portfolio, the month end, the quarter end numbers are not really as important as more the average because there tend to be a lot of fundings at the end of the month, at the end of the quarters. That books about $300 million dollar average outstanding balance book for us and should grow on the average 10% to 20%. It is just more volatile on a day-to-day basis for most of the other items, but, so yes it was $358 million at year-end.
Brian Klock, Keefe, Bruyette & Woods
Alright thanks for taking my questions guys I appreciate it.
Operator
And then our next question is from Brett Rabatin of Sterne Agee
Brett Rabatin, Sterne Agee
Hi guys good morning. I wanted to ask, you have been talking about potentially some new lending initiatives the past quarters so as you are looking out into what you can do on the risk adjusted basis that makes sense. Are you guys any closer to adding anything there material and as you grow in Northern California, does the VC and private equity markets, does that attract you any vis-a-vis what you currently doing and other central lines of business?
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
Well, yes you kind of warm there. We have got 4 different types of initiatives that we are in different stages and discussion on so. Due to the issues around them I cannot get into details.
Brett Rabatin, Sterne Agee
Okay. I guess the other part of that question is just would any of those new initiatives be kind of acquisitional oriented, i.e. acquisition that can kind of get you into this new businesses as well?
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
Could be yes. Yes I mean, the key to this thing –we typically study — before we got into each of this niches were, we study for a year. And then we put a plan together and the key part of that plan is going to be: what are the opportunities but mainly who are the people we have to have to do this. And so a lot of this centers around people. And those are really the opportunities you are looking for. The right niche that can be priced properly, that is not overly competitive and that you have the right people that know that business and can relate to customers, can sell it, and also can manage the risk in it better than your peers. There are two ways of doing that, you either buy them or you hire. So we are looking at both.
Brett Rabatin of Sterne Agee
Okay great thanks for the color.
Operator
Next we have a question from Joe Morford of RBC
Joe Morford, RBC
Thanks good morning. You guys have touched on this a little bit. But in the first quarter you grew your loan to twice the rate of deposits and the loan to deposit ratio is getting well up into the 90% range now. Curious how you think about managing the funding side of the business in the year ahead and how important are acquisitions to that as well?
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
I am not really going to answer any of those questions now that you are a competitor of ours. Yes the funding is really important. We just got off with a call with our entire staff. We do a staff call every quarter, all 1100 of us, and one thing we talk about is some adjusting on our incentive plans. Where our deposits and our goals for annual bonus plan, our deposits are going to be really driven by a non-interest bearing demand. And so we need to pick up in terms of growth, the amount of our business in DDA, and help drive our fee income too from that category, that is a new piece in our annual bonus plan. We got a lot of loan growth demand, we can make good loans, good yields and we are going to focus more on the deposit side this year. It is funny because we have the opposite. Our issues are the opposite of the larger banks. The larger banks are swimming in money but they have hard time lending out money and anything more than 2% or 3%. And so we are, strange than it sounds, I mean that will be one of our focus and that is probably one area I was disappointed in 2014 was our growth in checking accounts.
Joe Morford, RBC
Okay. And then just briefly on just the phase of growth in the fourth quarter, loan growth in the fourth quarter. Look like the end of period balances were quite a bit higher than the average. It is just kind of more back-end loaded or was anything going on in terms of pay down activity?
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
Yes part of it is back-end loaded and the warehouse stuff funds up towards the end. That is about $75 million swing. I do not know why, I mean it just people get focus on closing business at end of the month and the of the quarter. It is just always kind of been that way.
Dale Gibbons, Chief Financial Officer, Western Alliance Bancorporation
Yes seasonally the fourth quarter has been our strongest and you also have some tax reasons for it on some of the equipment financing elements as well.
Joe Morford, RBC
Okay that is helpful, thanks a lot guys.
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
Good luck to you.
Joe Morford, RBC
Thanks. I appreciate it.
Operator
And next we have Tim Coffey from FIG Partners
Tim Coffey, FIG Partners
Good morning gentlemen. Mind you, if we can look at Slide 5 on the presentation deck, you have done a pretty good job of improving the leverage of the earning asset mix. Do you see that improvement continuing to 2015?
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
Well there are still some more opportunity there. We still have substantial — more than half of our securities portfolio is free and not pledged for anything so there is room there. I do not think there is a lot more room on the cash side, in terms of what can be done. But, part of the reason that it is mitigated — while others have had margin compression generally and we have avoided it, it is because of we have been doing in the mix. Mix within the loans categories as well as within the balance sheet more broadly. So there is still more that could be done there if we wanted to.
Tim Coffey, FIG Partners
Okay. So when it comes to talking about spread income, we are talking about balance sheet growth and improving the mix, right?
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
Well both of those have been a factor in terms of our margin stability, yes.
Tim Coffey, FIG Partners
Okay. And then the expectations on non-interest expense into 2015, does that include new opportunities to pick up teams from Southern California that start to emerge yesterday?
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
So, I mean, within our projections that we talk about for our run rate for this year for non-interest expense, it includes that we are going to continue to target and recruit business development officers that can bring in quality relationships and augment our growth. So whether that relates to anything or any transactions or something like this, does not necessarily matters. We intend to continue pursue that strategy, that has been successful for us and it is been an important component of the momentum that we have established. But a number of our expenses are tied to how the company is doing. So if we get a growth in some of the expenses like we have this year in ’14, it is going to be because we are outperforming kind of what we budgeted to do, and so that is kind of closely tied together, so you see our expenses going up at a higher rate it is going to be because our revenue is going up at a higher rate.
Tim Coffey, FIG Partners
Right, I guess my question alluded to more of the people-related expenses not necessarily variable expenses.
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
Well a lot of the people is tied to performance. We got about $30 million of — $30 to $35 million of compensation last year that was all performance driven.
Tim Coffey, FIG Partners
Okay. Thanks. Those are my questions.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Robert Sarver for any closing remarks.
Robert Sarver, Chairman and CEO, Western Alliance Bancorporation
Yes nothing really else to add. Appreciate your calling in and participating on our call and we will talk to you here in three months. Thanks.
Operator
The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.
