Western Alliance Bancorp
NYSE:WAL
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Western Alliance Bancorp
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Good day, everyone. Welcome to the earnings call for Western Alliance Bancorporation for the First Quarter 2018. Our speakers today are Ken Vecchione, Chief Executive Officer; Dale Gibbons, Chief Financial Officer; and Robert Sarver, Executive Chairman. You may also view the presentation today via webcast through the company's website at www.westernalliancebancorporation.com.
The call will be recorded and made available for replay after 2:00 p.m. Eastern time, April 20, 2018, through May 20, 2018, at 9:00 a.m. Eastern time by dialing 1-877-344-7529, and entering pass code 10118783.
The discussion during this call may contain forward-looking statements that relate to expectations, beliefs, projections, future plans and strategies, anticipated events 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 statements.
Some factors that could cause actual results to differ materially from historical or expected results include 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 Ken Vecchione. Please go ahead, sir.
Good afternoon, everyone. I'd like to welcome you to Western Alliance's First Quarter Earnings Call. Joining me on the call are Dale Gibbons and Robert Sarver. This is the first earnings call in 15 years that has not been led by anyone other than Robert Sarver.I am honored to succeed Robert and very pleased to have the confidence of the Board of Directors and excited to share our financial results for the quarter. Robert will be participating in the questions-and-answer section of the call.
This quarter, I've met with nearly 100 current and prospective investors and I offered them the following comments, one, I returned to the management team because of the passion I have for the people of the company and the enjoyment I receive working with our customers to grow their business, which in return, grows our business; and two, I wanted to reinforce the seamlessness of the transition. I've been involved with the company for over 10 years as both a board member and a member of senior management, positioning the company to deliver predictable and consistent earnings are the twin objectives for Robert and me. I'm proud to say that the momentum the company has built over the years was demonstrated again in our strong financial results for the quarter.
This quarter, we achieved record earnings of $100.9 million or $0.96 per share. Both net income and earnings per share grew 37% year-over-year and 13% on a linked-quarter basis. This -- the increase in income from the Tax Cut and Jobs Act inclusive of reinvestments by the company was $9.5 million or $0.09 per share. Return on tangible common equity grew to 20.46% and return on assets rose to 1.99%, supported by loan and deposit growth of $466 million and $382 million, respectively, along with stable asset quality.
Our record earnings benefit from the continued growth of our business and lower tax expense. The effective tax rate for the first quarter was 17.1% -- excuse me, 17.1% as the company benefits from both the reduction in the federal tax rate as well as cyclical excess tax benefits on share-based payment awards. The interest margin decreased by 13 basis points on a linked-quarter basis to 460 and is down 3 basis points from 463 in the first quarter of 2017. This decrease is primarily related to a decrease in the tax equivalent adjustment resulting from the decrease in the statutory corporate tax rate, which was partially offset by favorable impacts of rising short-term interest rate.
Excluding the effect of the lower tax equivalent adjustment, net interest margin for the quarter would have been 4.71%, which would've been consistent with Q4 and 8 basis points higher than prior year.
For the quarter, our operating efficiency ratio increased to 42.7% as the tax equivalent adjustment decreased by almost 50% from Q4 as well as an increase in the cyclical compensation cost. The reduced benefit of tax exempt revenue increased the ratio by 1%.
Balance sheet growth continues to be consistently strong as loan growth for the quarter was $466 million and deposit growth was $382 million. Nonperforming assets improved to 33 basis points of total assets from 36 basis points at December 31. It also declined 11 basis points from the prior year demonstrating the stable asset quality of our portfolio. Net charge-offs of $1.4 million were consistent with prior quarter and prior year's performance and were only 4 basis points of total loans annualized.
Our balance sheet growth was matched with our rising capital and TCE of 9.8% of total assets, up from 9.6% in the prior quarter and 9.4% in the prior year. Tangible book value per share climbed to $18.86 at quarter end, up 19% from a year ago.
I'll turn you over to Dale, who will take you through the financial results.
Net interest income increased $3.2 million for the first quarter to $214.2 million driven by $470 million increase in average loan growth. Net interest income rose nearly 20% from the year-ago period. Operating noninterest expense was relatively flat from the prior quarter at -- noninterest income flat from prior quarter at $12.7 million. Operating expense rose $4 million from the fourth quarter to $99.4 million, primarily due to seasonal compensation cost in the past due to some of our team members who were part of the benefit from the tax rate reduction. Supporting strong loan growth, our provision for credit losses was $6 million for the quarter compared to $5 million in Q4. We reported $1.2 million gain on OREO disposition as well as a $1.1 million loss on fair market value adjustments on preferred securities. These fair value fluctuations were previously reported in accumulated other comprehensive income. However, due to the adoption of the new accounting guidance effective January 1 of this year, these fluctuations are now reflected in the income statement.
The income tax rate was 17.1% for the quarter or $20.8 million as the tax effects from the Tax Cuts and Jobs Act and similar to the Q1 of last year, includes a 3% benefit from higher share price vesting at restricted share awards higher than when the equity grant was awarded.
Diluted share count held flat at $105 million, EPS $0.96. Consistent with our expectations, yield on securities decreased 8 basis points to 3.07%, while yield on loans decreased 13 basis points to 5.59%, reflecting a more modest benefit of tax exempt interest revenue with the lower federal tax rate.
Excluding the effect of the tax rate change, 1Q securities yield would have increased 13 basis points to 3.28%, while loan yields would have declined 2 basis points to 5.7%. We configured our net interest margin on a 93-60 basis, which results in a lower margin of 8 basis points from the prior quarter due to 2 less days in the current period on the loan portfolio.
The end result of these items is that loan yields would have risen by 6 basis points on a linked-quarter basis.
Interest-bearing deposits climbed to $9.9 billion from $9.5 billion on a linked-quarter basis as the weighted average funding cost increased 7 basis points. Including the benefit of the noninterest-bearing deposits and borrowings, funding cost rose 6 basis points from the fourth quarter to 0.46%.
A step-down in margin by 13 basis points to 4.6% is due to the decrease in the tax equivalent adjustment and of the day count. The margin would have been 4.72%, excluding the reduction in tax equivalent benefit. Additionally, the effect of 2 [indiscernible] days during the quarter reduced the margin by an additional 6 basis points. The net result of these items is the margin would have increased 5 basis points in Q1, which is consistent with our moderate asset-sensitive profile.
Accretion on acquired loans slipped to $5.7 million from $7.1 million in the fourth quarter. Forecast accretion will fall to $2.1 million for the second quarter, if all discounted acquired loans paid just their contractual principal payments. However, because of loan prepayment activity, actual accretion should exceed this estimate.
The efficiency ratio rose to 42.7% from 40.7% on a linked-quarter basis and is down from 44.4% a year ago. Excluding the effect of the lower taxable-equivalent revenue adjustment in the first quarter, efficiency ratio would have been 41.7% or 1% lower than reported. The remainder of the increase in the ratio primarily relates to a seasonal elevated compensation cost, which increased expenses and the day count, which decreased revenue.
Our preprovision net revenue of return on assets of return on assets of 2.51% and return on assets of 1.99% are consistently above -- among the top decile relative to peers.
Strong first quarter loan growth took asset -- total assets to nearly $20.8 million at year-end. Our deposit growth of $382 million during the period helped reduce outstanding borrowings during the quarter and gave a strong start to the second quarter of 2018.
Our liquidity remains strong with loan-to-deposit ratio of 89.7% at quarter end. Our strong first quarter loan growth of $466 million was led by $318 million in construction and land development loans after they declined modestly during the fourth quarter. C&I loans rose $103 million.
Regionally, the loan growth leaders were Arizona at $149 million and Southern California at $79 million. Each of the National Business Lines grew loans during the quarter, except for public finance.
Growth in total deposits was $382 million, driven by an increase of $190 million in noninterest-bearing -- in interest-bearing DDA and $140 million in CDs. Among the business segments, the Homeowners Association Group led growth with $245 million followed by Arizona of $179 million and Northern California of $133 million. These increases were partially offset by a decrease in Nevada of $303 million.
Totally adversely rated loans increased by $24 million during the quarter to $379 million, primarily due to an increase in special mention credits, but still comprise less than 2% of total assets. Classified assets to Tier 1 capital plus the allowance for credit losses decreased to 9.4% from 10.3% at year-end. Nonperforming assets, which is comprised of nonperforming loans and other real estate declined $5 million to $67 million and is only 33 basis points of total assets.
Gross credit losses of $3.6 million during the quarter were offset in part by $2.2 million in recoveries, resulting in net credit losses of $1.4 million, only 4 basis points of total loans annualized.
Supporting our strong loan growth, provision expense was $6 million compared to $5 million in the prior quarter, and increased the allowance for loan and lease losses to $145 million, up $17 million from a year ago. This reserve was 1.02% of nonacquired loans at March 31, as acquired loans are booked at a discount to the unpaid principal balance and hence, have no reserve at acquisition.
For acquired loans on the lower right, credit discounts totaled $23 million at quarter end, which were 1.73% of the $1.34 billion of purchase loan portfolio, which was primarily from the Hotel Franchise Finance acquisition 2 years ago.
Our strong capital growth for the quarter essentially matched our strong balance sheet growth leaving ratios essentially flat to modestly higher from year-end. Our capital ratio metrics have trended higher during the past year.
Tangible book value per share rose $0.55 in the quarter to $18.86 and is up 19% over the past year. Growth in TBV was held back by the $38 million decrease in accumulated other comprehensive income related to the valuation marks on our available-for-sale investment securities portfolio, as interest rates rose during the period. At 9.8%, our tangible common equity ratio was near the top quartile of the peer group, while return on tangible equity was also very strong at over 20%.
I'll turn the call back to Ken.
Thanks, Dale. Our first quarter performance confirmed our outlook for low double-digit growth in loans and deposits for 2018. Credit demand appears to be climbing after a seasonally strong first quarter. Competition for deposits also appears to be climbing, but we remain confident we can grow deposits to fully fund loan originations.
With the new base level of margin set in the first quarter, we expect changes will be largely driven by FOMC action, as we remain asset sensitive and anticipate roughly 5 basis points of expansion per 1 quarter point of increase in the target fed funds rate. We still expect the positive betas to climb to the 50% area as interest rates and competition continue to rise.
With the reset of our efficiency ratio in the first quarter from the tax rate change and related items, we expect to continue our 3:2 ratio of revenue growth rate compared to the rate of growth of expenses, which will reduce our efficiency ratio over time. Because the base of revenue is more than double of expenses, the dollar increase in revenue should be more than triple the dollar expense growth.
We have a disciplined credit culture and our asset quality metrics remain strong. We don't currently foresee any significant credit events that would notably change our stable performance in this area, as we expect our nonperforming assets and gross loan losses to remain consistent with our prior results. However, with continued negligible gross loan losses, even a one-off event could result in a significantly higher charge in a future period. We also expect our stream of loan recoveries to continue to wane. Excluding the first quarter benefit in the tax rate from vesting equity awards at a higher stock price, and when granted, tax rate would have been 20.5%, which should approximate our rate for the rest of 2018.
That's the end of our prepared remarks. Operator, if you would open the line for questions, we'd be happy to take them.
[Operator Instructions]. And our first question will come from Casey Haire of Jefferies.
So wanted to follow up, I guess, on the NIM, the loan yields. If you can give us some updated thoughts as to where the new production yields are versus the existing book. I believe it was 25 basis points lower last quarter. How is that trending today?
Yes, it's very consistent today. As we estimated last quarter, we weren't sure that, that was necessarily a data point of a trend. That appears not to be the case.
Okay. And then also Dale, isn't there -- the day count does factor in addition to the FOMC hike, so wouldn't an extra day add about 5 basis points to the NIM in 2Q as well?
Yes, 4 or 5.
Okay. Great. And then, just switching to the loan growth outlook, I'm curious about the mix. Obviously, we had a very heavy quarter for construction. You guys are now at about 13% of total loans. Just what is the appetite there to take that higher? And what should sort of be the -- what are some the other areas of the portfolio that might contribute more strongly? I know it's uneven quarter-to-quarter and you guys have talked about Nevada being a little bit stronger than it has in the years past. It was down this quarter. Just some color on the mix please.
Yes. I think construction loans are about where we like them, about 13%. I don't really foresee them going much higher. We do have a strong construction pipeline. So if we do originate new loans, we'll also be selling some of those down and keeping the rate at about 13%. In terms of the mix, let me kind of break it down maybe this way. Overall, for the divisions, the market trends remain positive and there is good economic growth, which is positively impacting all the real estate sectors. In Arizona, you're seeing single family market demand outpacing supply. You are seeing CRE market have more attractive investments coming in from investment funds. In Nevada, there is a strong pipeline for construction projects. I'm talking on the strip construction projects. Residential supply is tight. You're seeing low vacancies and increasing rents in the state. That can be seen also in the industrial and multifamily sectors. And you're seeing rising rates there as well for rents.
In California, again, Southern, low vacancy and increasing rental rates can be seen in all sectors. Developable land is somewhat limited there. And then, up in Northern California, the residential market remains strong with rapid absorption of completed projects and demand outpaces supply for rental and multifamily projects. So those are sort of the regions. In -- let's take the bigger contributors to loan growth generally. Mortgage warehouse, I think, the market remains strong and collateral values are strong, and we see a fairly robust pipeline coming in, but there is more competition there. The same could be said of the Hotel Group. We're seeing a lot of volume. There is more competition, but we're winning our fair share of deals. Pricing pressure is a little bit -- we can observe that in both -- actually in all the regions and in all the National Business Lines, we're seeing a little bit more pricing pressure. But we think we can offset that with our customer service platform. So I'll leave it there and see what other questions you have. I'd say, technology -- I should also say technology and innovation. Also, it has far more -- VC firms are raising larger global funds. There is more liquidity . More deal opportunities are flowing in our direction in health tech and biotech and in those areas as well.
Okay. Great. And just on the deal front, just any updated thoughts there? There has been some activity in your footprint. I can understand pricing might be not to your liking, but what about loan portfolio deals, if holdbank deals are not on the tape?
Well, we've had some successes -- this is Rob. We've had some success buying holdbanks and also buying portfolios. Primarily, we're an organic grower, but we do have a successful track record of executing on select acquisition opportunities. A lot of deal flow goes through here. We are pretty selective, we don't do that many, but we're looking at niche portfolio acquisitions, deposit initiatives as well as holdbanks , but we're pretty selective. If you look at our history of M&A, you'll notice that we've executed it pretty successfully and we've executed it in a way that the results have been very accretive to the share price of the stock.
The next question will come from Brad Milsaps of Sandler O'Neill.
Dale, I was curious if you could just maybe comment on the overall size of the balance sheet? I know the interest rate environment is not maybe as favorable for the bond portfolio that maybe is a little smaller than I thought, maybe some of your deposit growth came later. Can you just talk a little bit about maybe the overall size of the balance sheet, if -- did you expect it to get larger? Do you expect to kind of continue to draw down the securities book a bit to fund your loan growth going forward?
I don't think we need to draw down our securities book to fund loans. And we're expecting that for the year loan growth will be matched by our deposit growth. It may not have as much of an excess that we had in 2017, where loan growth was about $500 million higher, but I think, we can kind of hold our own on our securities portfolio. I mean, you can tell by looking at the average balance relative to the ending balance that, that our growth was very back-end loaded at quarter end. We are hopeful that we're going to be able to kind of mitigate that trend going forward and have a little more even type of growth throughout the period, but that had an effect, of course, on the average balance sheet size and net interest income as a result.
Okay. Thanks, and then just maybe a follow-up for Ken. Ken, I know you talked during the quarter about several new initiatives you guys were working on both on the loan and deposit side. I think you mentioned that the expenses for those businesses are in the guidance, but not necessarily the revenue. Just kind of curious if you could update us maybe on timing, is it still too early? Any other color on when you might see some of the revenue come through for some of these things that you're working on?
Yes. So we've got a couple of things in the works both on the deposit and the loan side. And there is a process that we go through, first, do we like the business segment?; and second, and this is very important, do we have the expertise in-house to run that business inside of that segment? Or do we have to go out and bring in the talent? And in a couple of places, we need to go out and bring in the talent and that's what's slowing us down a little bit is bringing in the talent. We think we see a couple of good opportunities. So yes, basically, 80% of the expenses into the P&L for 2018. We didn't put any of the loan growth or the revenue growth that could come from these developments, because we weren't quite certain how quickly we can get the management teams. My hope is that these opportunities for us really blossom, we get the management teams but it's all backended towards '18, which then would give us a catalyst going into '19.
And our next question comes from Brett Rabatin of Piper Jaffray.
I wanted just to ask, you've been talking about these new initiatives. Can you give us any color on the business lines that you're looking at? And just, if they are more geography focused? Or if they are more industry focused? Any additional color would be great.
Well, I'm hesitant to give a lot of information. I don't want this call to be the strategic planning session for our competitors. And the more we talk about what our National Business Lines look like, the more our competitors show up. So I'm reluctant really to say much, but they do span the industry and if we could get some of the things rolling. Remember, we think of ourselves as a national bank with a regional footprint. So to the extent we can develop National Business Lines, great. One of our initiatives is actually coming out of the region, which we think we can then export throughout the country, but we'll wait and see. So very early into these initiatives, and I'm not going to really give more color than that. Sorry.
Okay. Fair enough. And then the other thing is, maybe you guys can help me compound capital and earnings at 20%-plus clip. And I realize there is a pushback on the 3x tangible book multiple and the sort of guardrail there, but as I look at it, your stocks have a bit of a discount to the peers and, I guess, I'm just curious, what pushbacks you get and kind of how you think about that?
Well, I mean, so the first one is what you kind of indicated there in terms of kind of the price to tangible book and kind of where that looks. As you know, I mean our tangible book value multiple, we think, is really supported by our return on tangible equity, if you linear regress the ROCE versus the tangible book multiple. But we've continued to -- we've continued to grow on these types of things, and I think we've demonstrated our National Business Lines in terms of the asset quality that they've had. And I don't know, I would hope that, that the discount relative to kind of expectations or valuation particularly on a price to earnings to growth ratio would dissipate over time.
As I said, I went out and saw about a 100 different customers, new and existing. They bring this point up quite a lot. And quite frankly, they say most banks are envious of the results that we post quarter after quarter. And they, for those reasons, CRPE trading much lower than our peers and think it's a buy. And so, we hope through delivering these types of earnings, we'll generate more buyers than sellers. And that's where we're at.
The next question comes from Chris McGratty of KBW.
Maybe Dale or Ken, for you. You obviously are West Coast banks, but you have a national component to the franchise. With respect to M&A, are there certain geographies that would be off limits to you guys? Or do you feel like you have the scale and the breadth in some of your business lines to consider opportunistically anything across the country?
Well, look, Robert is really running that side of the show as Executive Chairman, but my standard answer is, anywhere I have to wear a heavy winter coat is a place I don't want be. But I'll turn it over to Robert though.
Yes. I mean, as I said a few calls ago, we are looking in other areas outside of the west at opportunities. We have National Business Lines now in 42 states. And so we're looking at other areas, but we are very select in terms of making sure the market we're going into is a market along with a management team that can drive earnings growth commensurate with the earnings growth that this company has seen over the last 10 years. So I don't want to really get into any specific markets, but I would say to answer your question, we're not confined to the contiguous states or the states we're in.
Yes, I'll just add one bit of color. We see investment bankers cycle through here every other week and always showing us properties. And the projections of future growth are straight up. And then when you look at it versus prior performance, flat to down. And so, we kind of look at these meetings sometimes as intelligence tests. And we are trying to find to Robert's point, that management team that can help us continue to grow and be the organic grower once you acquire these assets that we've been, because, I think, that's part of our brand and what people expect from us, or shareholders expect from us.
Dale, maybe one on the cost. Given the seasonal pressure in Q1, how much of the bump in the salary line gets moderated next quarter? And any color on the near-term expense rate?
Yes. I mean, the first quarter is always hot. Second quarter tends to be fairly muted. I mean, we've guided to this 3Q ratio. I think that makes sense for us on an annual basis -- on a linked-quarter basis relative to second quarter, I expect we are going to beat that, i.e., expenses aren't going to grow very much in Q2 at all. And -- but going forward from there, I mean, seasonally the high water marks for us are 1Q and 4Q.
I just want to add, embedded in Q1, with the benefit of the taxes that we received, we did give back to our folks here at the company. So we mentioned that folks under $75,000 got a significant lift in their compensation and then we also increased our 401(k). And when you compare Q4 to Q1, that expense is now present in our Q1 results and will stay constant going forward.
And the next question comes from Michael Young of SunTrust Robinson Humphrey.
I wanted to just ask if there are any segments within the loan portfolio that are maybe less attractive or potentially going to become less attractive as deposit pricing increases. If that incremental margin tightens, is there any way that you would look to kind of consolidate or rationalize?
Well, we like the segments we're in for loan growth. Each one of those segments produces different types of deposit growth. And what we are trying to do more is when we're sitting in front of a bar, is to engage them on the full picture. So what we say to them is, look, we're here to help grow your business and that's by providing capital to you. And if you're successful and you grow, then we grow as well. That's great. But you need to help us grow our business as well. And that is we want your excess liquidity, and it's got to be kept at our bank. And sometimes, it's as simple as just asking and making that statement. So not too long ago, I was at a hotel conference out in Atlanta, and I was having dinner with one of our largest hotel borrowers, and I said that. And I said, look, you go to help us grow. And within 48 hours, we had monies of $16.5 million wired to us. So we try to balance the two together and we try to look at this as a relationship picture. And I think our customers like that and that's how we've been approaching it. So that's how we get the deposit growth and the loan growth to sort of grow one-to-one with each other, which is our goal.
Okay. Great. And just wanted to touch on the comment you made in the press release about the benefits of the Tax Reform Act are just beginning to be realized. Is that from specific customer conversations or any additional color you could add around that? And any change in behavior you've seen maybe kind of late in the quarter or early second quarter?
So first let me say, coming into the year, the economy was improving. The tax cut is just going to add to that. I think it's still a little early to say the tax cut is very much present, but I do think that as we go throughout the year, that's going to grow and it's going to help us. And here is my observation though. Certainly in Arizona, we are seeing more businesses migrate to Arizona for a variety of reasons. Taxes is just one and now, with the elimination of the salt, we think that will also help, but we're seeing businesses migrate here for corporate relo reasons and also expansion reasons. So there is enough young talent here, there is cheaper labor here, there is affordable living that's present and we're seeing some tech businesses and other financial services business relocate to Arizona, manufacturing. And also for those companies that are startups, there is a slower capital burn that they will experience here in Arizona than they will, say, in Northern California, where it's very expensive to do business. And we've got good climate, if you can figure out a way to withstand August here, and there aren't too many natural disasters. So Arizona is offering an attractive alternative, and we've been seeing that migration for the last couple of years.
And the next question comes from Gary Tenner of D.A. Davidson.
Lot of ground covered. Just wanted to get an update and a clarification on your [indiscernible] loan portfolio. How much is LIBOR versus prime? And was there any benefit from the run-up in short-term LIBOR in first quarter? Or is it going to be more of a benefit in 2Q from the late first quarter rate hike?
Yes. So little over 25% of our total loan portfolio is LIBOR-based. That skews toward 30 day fairly heavily as opposed to 90 or something longer. And so we did see -- that has been leading certainly, the rate increases from the FOMC. I think we expect that to continue. Odds are -- our expectations are that FOMC is going to raise again in June. You're certainly seeing that in 90-day labor today. 30-day LIBOR should pick that up assuming that position still holds. So yes, I know we do -- it does lead into it. Of course, we had the same thing going on in the fourth quarter too. So on a kind of a quarter-to-quarter delta basis, I think, you are getting about your 25 basis points, which you're getting on the primary.
The next question is from Brock Vandervliet of UBS.
I was actually just following up on the very first one in terms of the geographic performance. Could you talk a little bit about Nevada, just noticing some of the softness in loans and deposits, especially deposits in the quarter, whether that's just seasonality or something else?
No. So in Nevada, we had a very large deposit blowout that was due to a settlement. So we always knew that deposit was going to leave us. Fortunately for us, we got enough of advance notice that the whole company worked hard throughout the quarter to make up for that $300-plus million that was leaving. So occasionally, you'll see a deposit build up for settlement and then it rotates out of the company. To the extent that we have an early warning on that, we are able to kind of grow through it. So that was -- that's Nevada on the deposit side. On the loan side, I think, we said last quarter, there is about $13 billion to $14 billion of projects that are coming onto the strip in Vegas. And so, that's very encouraging, but those projects will take time for the secondary effect to happen, which will be growth in multifamily, and so forth. And so, we are beginning to sponsor more of those projects. We saw a few come in just recently into our senior loan committee. In Reno, the Tesla factory has been a great addition to the Reno area as well as distribution centers and data centers. And the vacancy rate there is very low, call it about 3%. But pricing is very, very competitive. So we've seen a few deals that we thought we were going to have, but the pricing began to get to a point where we just don't think it warrants the use of our capital at that level. And the beauty to our platform is, we've got a couple of regions we can move the capital around to and we've got National Business Lines that we can move it around to.
Great. Okay. And just as a follow-up, and I know you've answered this in the past, but clearly, the CET1 ratio is building up and it's -- you have a high quality problem. It's not going to build faster with lower taxes, et cetera. Have you or might you reevaluate your position on capital return, whether it's a dividend or a buyback?
Yes. We're not going to be doing a buyback, but in terms of a dividend, I think, at this point, we're not reevaluating it as we think there is some good opportunity, but if we get past the year and we think the best way to deploy that is through a dividend, that's something we would look at. But we think between organic and acquisitions, during the year, we'll find better options to increase value for share shareholders and dividends.
The next question comes from Timur Braziler of Wells Fargo.
First question is on something you had said in your prepared remarks regarding deposit competition increasing. I'm just wondering, is that in a specific geography? Is that a specific asset class where you're seeing some of the greater increases in deposit competition?
So I think we had good growth for the quarter. And you're right, competition is increasing. Customers are more aware of pricing. It's really across all our business lines. And what we're trying to do to offset this phenomena is that we require liquidity to be posted with us when we give you a loan. We require your operating accounts to come with us. And fortunately for us, we've got several businesses where customers are little less sensitive to pricing and we've discussed those before and that benefits us. And then we are proactively going out and really asking for deposits, making sure that we don't leave our meetings without saying what can you do for us, back to my story I gave already. And we also are trying to get ahead of the pressure and cut off the attrition by getting out there earlier and giving increases to some of our borrowers before they ask for it and that preempts the rate conversation, and also narrows the gap between what market rates are and what we are paying.
Okay. Understood. So it's not that there is so much increase kind of pricing out there in the market that's taking preemptive steps to kind of shore that off once that does pick up?
That's part of it. We're taking the preemptive steps. But our borrowers are more aware at this point, and it's costing us a little bit more to get those deposits.
Understood. And then maybe switching to loan growth. Looking at the growth in the other National Business Lines, that was a pretty strong number this quarter. Anything, in particular, driving that? Or is that pretty granular?
No. The National Business Lines is -- the nice thing about them, and we meet once a week to go through our senior loan committee and that's where our large loans come in. And one week, it's heavily weighted towards tech and innovation and next week, you see a lot more hotel deals and then you've got the warehouse lending. So for us, I think, the balance that we have in our segments works well and if one segment is a little slower because deals aren't getting done, the paperwork takes a little longer, another segment seems to pick up the slack. So right now we are seeing good opportunities in all the segments, probably little less so in our muni segment. That's a little bit slower, but all the other segments have a lot of activity.
Okay. And then looking at the other segments, specifically that other National Business Lines, looks like you grew about $180 million on a linked-quarter basis. Anything specific about that number that's maybe tied to specific business line or geography or is that pretty widespread?
Yes. I mean, the biggest factor in there was our mortgage warehouse group, which I know -- I mean, year-end is always a tough period for mortgage warehouse because normally people buy a house and close it in December. But that picked up a little bit despite a little bit of a headwind by having a high rate environment.
Okay. And then last one from me. Just looking at the HS -- HOA business, pretty impressive growth there. Can you remind us -- is there some seasonality in the first quarter within that business and maybe just what the outlook is for deposit gathering out of that business going forward?
So there is seasonality. Usually, leading up to the first quarter, we're making a bunch of our calls and the deposits move the beginning of the year when the new HOA books -- coupon books are printed up. So they had -- you're right. They had a great, great quarter and we're seeing some of that momentum carrying into Q2.
This concludes our question-and-answer session. I would like to turn the conference back over to Ken Vecchione for any closing remarks.
Thanks for joining us today, and we look forward to seeing you in Q2. Thanks, again.
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