Good day, everyone, and welcome to the Acquisition Announcement Call for Western Alliance Bancorporation. Our speakers today are Kevin Vecchione, President and Chief Executive Officer Del Givens, Chief Financial Officer and Jim Furash, are Mary Holm, President and Chief Executive Officer. 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 p. M.
Eastern Time, February 17, 2021 through March 16, 2021 at 9 am Eastern Time by dialing 1-eight seventy seven-three forty four-seven thousand five hundred and twenty nine, again that is 1-eight seventy seven-three forty four-seven thousand five hundred and twenty nine, using the participant code 10,125,228. Again, that is 10,125,258. 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 the transactions being discussed and other matters that are not historical facts. The forward looking statements contain herein reflect our current views and about our future events and financial performance and are subject to various risks and uncertainties and assumptions with respect to future business strategies and decisions that are subject to change and difficult to predict with regard to timing, extend, likelihood and degree of occurrence. As a result, actual results may differ materially from the anticipated results discussed in these forward looking statements because of possible uncertainties.
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 now like to turn the call over to Ken Vecchione. Please go ahead, sir.
Thank you, operator. Good afternoon, everyone, and thank you for dialing into our call today. We look forward to providing an overview of our planned acquisition of AmeriHome. Joining me on the call are Dale Gibbons, our Chief Financial Officer Steve Kehrli, Division President of our Mortgage Warehouse Lending division and Jim Kurash, President and CEO of AmeriHome, I will first provide an overview of the business and the compelling strategic and financial rationales behind this transaction. Jim, will then provide his perspective on AmeriHome's unique business model, including how it fits into the broader mortgage landscape, and Dale will conclude with the transaction details.
Afterwards, we will open the line and take your questions. I have to begin by saying how excited we are to have a as a client of Western Alliance and they have built a tremendous amount of credibility with us. AmeriHome is an established industry leader and brings us relationships with over 700 correspondent mortgage originator clients and purchase volume of $65,000,000,000 in 20.20. AmeriHome's clients are independent mortgage bankers, community and regional banks and credit unions of all sizes. This is an exciting transaction as AmeriHome will extend Wahl's national commercial bank strategy with a new business to business national business line, a correspondent mortgage platform that enhances growth, returns an overall diversification with a delivery model that is national, scalable are an efficient, consistent with Wall's National Business Line strategy.
The transaction will help us continue to deliver top performance for shareholders, are the first responders and employees. Acquiring this best in class tech enabled mortgage company provides another powerful national growth engine And aligns with our practice of growth through targeted specialized financing groups that give us flexible business levers Throughout economic cycles. Acquiring the 3rd largest correspondent mortgage purchaser gives us a scaled position With a leading national platform that is complementary to Wall's existing business model. However, this is not a traditional mortgage business. AmeriHome's correspondent channel delivers scalability, flexibility and consistent profitability, While the consumer direct channel protects the value of the mortgage servicing rights and provides potential cross sell opportunities are to wall's existing client base.
Additionally, the company's purpose built proprietary tech enabled platform is essential to the success of the business and its low cost operating model. AmeriHome provides an avenue for increased earnings stability across economic cycles as it will diversify our revenue mix and commercial focused portfolio while enhancing growth opportunities. AmeriHome's fee based revenue model diversifies Wall's current commercially focused spread based income to deliver a more balanced Business mix. This creates a meaningful increase in non interest income from Wall's current composition. The mortgage business also provides a natural counterbalance to the traditional asset sensitivity of Wall's balance sheet.
While the significant capital generation of the combined company will enhance WAL's flexibility to opportunistically reinvest in the growth are of other high performing commercial businesses. AmeriHome has done a superior job of minimizing their earnings volatility Over time with their differentiated portfolio management capabilities, this expertise was critical in our evaluation of the opportunity As predictability of earnings is an important tool for Western Alliance utilized in our business strategy. A key element of this acquisition is how well we AmeriHome as they have been a valued client of our mortgage warehouse lending team for more than 4 years. We have developed strong relationships with their executive team and are pleased that their entire senior team will be joining Western Alliance, Ensuring continuity for their employees and clients. Our cultures are aligned as AmeriHome prioritizes people and relationships And operates with a customer centric business model, while being focused on risk controls, operating efficiency and strong consistent financial performance.
Based on year end 2020 financials, the estimated transaction consideration is $1,000,000,000 are 1.4x adjusted tangible book value. With AmeriHome's strong performance and the funding synergies we can facilitate, This transaction is extremely financially compelling, over 30% EPS accretive to 20 22 consensus with tangible book value earn back within 1 year. This earnings power will drive over 500 basis points accretion are to Wall's return on average tangible common equity. Bottom line, the strategic merits of this transaction are consistent with Western Alliance's long term approach and the financial metrics are exceptional. One of the things we are most impressed will allow AmeriHome is how they have thoughtfully developed a highly scalable loan cost and efficient mortgage production and servicing ecosystem that leverages their complementary correspondent and consumer direct production channels and servicing business to produce consistent and profitable growth While minimizing risk.
Through a nationwide business to business correspondent channel with approximately 6% market share has tremendous opportunities for growth while purchasing residential mortgage loans from a diverse network of independent mortgage originators. They have a diversified correspondent base with approximately 60% of production acquired from sellers are outside of the top 25. Their mortgage purchases are also geographical universe with California and Texas being the only states representing greater 10% of purchases in 2020. Once the loans are purchased, they are onboarded to the servicing system And pooled and certified to the respective agency or investors. In the last 12 months, AmeriHome's more than 700 approved corresponded sellers provided access to over $600,000,000,000 of LTM looks representing nearly 20% are of total market.
The consumer direct channel primarily protects the value of their mortgage servicing rights by maximizing the opportunity to recapture existing customers through targeted refinancing. By proactively offering attractive refinancing terms to existing customers across the country, AmeriHome can minimize MSR portfolio attrition and build customer loyalty. Over the last 5 years, AmeriHome has purchased over $230,000,000,000 in volume with a split of 60% purchase and 40% refinanced, A mix that is approximately 10 points above the industry, which sets us up well for growth opportunities As the current refi boom abates. Additionally, production volume is diversified at low risk With 20% government and 73 conventional loans in 2020, which are guaranteed by the GSEs. AmeriHome retained servicing rights on approximately $99,000,000,000 of residential loans, primarily for the GSEs and Ginnie Mae, generally earning a contractual fee.
AmeriHome takes an asset management approach to servicing, which includes hedging interest rate risk, Active Portfolio Surveillance and Management and the use of an industry leading third party subservicer. This allows them to leverage the sub service's scale and efficiency to achieve a more variable servicing cost structure, prioritize quality and value over volume, while reducing operational risks. All these components together have allowed their business to achieve substantial growth without sacrificing profitability through market cycles. I'll turn the call over to Jim for his comments on the business and the mortgage industry in general.
Thank you, Ken. Let me start off by saying How generally excited I and the other members of AmeriHome team are to be joining Western Alliance Bank. We founded AmeriHome in 2013 with a simple goal to change what it meant to be a mortgage lender. And this transaction presents a terrific opportunity to accelerate our own strategic objectives, access to capital and pathway to grow with an outstanding partner that, as Ken mentioned, we know well. Expanding further on Ken's description of AmeriHome's business profile, we have generated positive net income at our operating company Ever every month since achieving initial profitability in February of 2015.
Through a focus on disciplined growth, Our top line results have translated into strong earnings. And since Q1 of 2016, our quarterly trailing 12 months return on average equity has been consistent at an average of 18% despite the changes in interest rate environment and macroeconomic environments as well. AmeriHome's highly efficient and flexible business model, paired with the financial resources of Western Alliance's National Commercial Banking and Funding franchise, uniquely positions us to succeed in the evolving U. S. Mortgage market compared to traditional retail and non bank mortgage businesses.
Western Alliance is a terrific partner because they are a top commercial bank with mortgage expertise that complements rather than competes with our own. They will provide significant resources and synergies to help AmeriHome continue to pursue our successful business model, grow our scalable programs And provide even more opportunity for our talented people. I wanted to highlight further where we fit in the overall mortgage are Despite the size and attractive growth characteristics, the mortgage industry has become increasingly fragmented and diversified With the market share of mortgage originations produced by the top 5 banks declining from 60% in 2010 to under 20% in 2020. Most mortgage transactions start off at a local level where we believe relationships And advice matter more than brand or scale. A majority of these relationships are between small independent mortgage bankers, realtors, builders and borrowers.
Unlike other consumer facing industries, leaders in the mortgage market do not hold significant market share. Our correspondent channel allows us to capitalize on this fragmentation by bringing our scale, efficiency and capital markets access to our large diverse network of independent correspondent sellers nationwide. Additionally, our investments in our customer design technology suite support our low cost strategy and maximize efficiencies. We have focused on data and analytics as the most critical and complex component of our foundation, Which creates competitive advantage. We have best in class turn times to purchase loans from correspondent sellers, Propelled by highly automated processes developed through our proprietary data and analytics platform.
We are able analyze and price over $6,000,000,000 worth of loans on a daily basis with a median turn time from bid submission to pricing of approximately 3 minutes. These skill sets allow us to manage our volumes, our profitability and maintain strong risk management controls. With that, I will now turn the call to Dale to review the details of this transaction.
Thanks, Jim. Turning to the terms, this is an all cash deal whereby Western Alliance will pay $275,000,000 premium for AmeriHome's platform Plus adjusted tangible book value at closing. Based on their year end 2020 financials, we estimate the transaction price to be approximately 1,000,000,000 are 1.4x adjusted tangible book value. Ball expects to realize substantial funding synergies by replacing AmeriHome's existing warehouse and MSR financing lines with cash currently at the Federal Reserve Bank earning 10 basis points. In 2022, we anticipate that this result which will result in an after tax savings of approximately $53,000,000 related to funding synergies.
It's important to note that we are not assuming any compensation or operating related expense savings in this deal. As Ken mentioned earlier, AmeriHome team and operations will not be disrupted as a result of this acquisition and there is very little execution risk. We anticipate closing the transaction in the Q2 subject to customary approvals. While the transaction will be funded with balance sheet liquidity anticipate raising approximately $275,000,000 in common stock to replace the goodwill created. Additionally, after closing, Wall expects to optimize the acquired mortgage servicing rights assets for both ongoing operations and regulatory capital treatment.
Pro form a CET1 ratio for this transaction, the capital issuance and MSR optimization is expected to be around 9.1% at the end of the second quarter. Combining our 2 companies provides significant financial benefits As we phase in integration costs and funding synergies, modest tangible book value dilution of less than 5% at closing will be earned back within 1 year. Western Alliance's efficient operating model easily support AmeriHome's operations and the combined company will maintain an efficiency ratio in the mid-40s, remaining a leader among peers. Net income growth will propel our profitability metrics and we expect over 500 basis points Improvement in Roxy accretion once estimated funding synergies are fully realized. This will place us in the top of our peer group.
Additionally, these strong returns are expected to drive our CET1 ratio higher with year end capital approaching 9.8%. In addition to the compelling pro form a financials, Wall will benefit from business and revenue mix diversification. Currently, our asset mix is toward our commercial segment. And while AmeriHome predominantly maintains commercial relationships, revenue from their mortgage services will balance out our business mix and add weight to the are now in line with our expectations. By year end 2022, our operating revenue will be more evenly divided between segments with consumer related representing 47% Revenue.
Fee income will increase substantially, becoming approximately 30% of pro form a revenue, diversifying were also largely spread raised income and increasing our standing relative to peers on that matrix considerably.
I'll pass the call back to Ken. Thanks, Dale. We believe the acquisition of AmeriHome continues to advance what has made Western Alliance successful in the past, While accelerating our strategic priorities for an even brighter future. Financially, this will only high in our industry leading profitability And grow in a low loss asset class. Our national business model will benefit from increased balance between our commercial and consumer related segments And more diversified revenue, which will produce consistent profitability and growth throughout economic cycles.
Finally, With the team from AmeriHome, we believe we're bringing on board some of the most experienced and talented professionals in the mortgage industry. At this time, Dale, Jim, Steve and I will be happy to take your questions.
We will now begin the question and answer session. And the first question will come from Brad Milsaps with Piper Sandler. Please go ahead.
Hey, good afternoon.
Hey, Brad.
Hey, this looks like a great deal for you guys. Congratulations. Just curious, I wanted to start with the appendix on Page 9. Obviously, AmeriHome has grown very quickly since its inception and was Curious what type of growth you guys are assuming in terms of the projected AmeriHome earnings you're using for 2021 in 2022 just wanted to think about how much more you can leverage the existing franchise and kind of what type of market share gains you're thinking about to that contemplated those estimates from you guys.
Yes. Brad, just before I answer your question, I just want to recognize Steve Kehrli, who runs our Warehouse Lending Business, our Note Finance Business, MSR Business, Muni Business and Corporate Finance, quite a list of things he does. Steve was the catalyst that brought us together. Jim was Steve's client or is Steve's client and Steve for a number of years have said we got to find a way to bring the 2 companies together. So kudos for him for staying on this.
Let me answer your question. So in 2021, we have 8 months of income there, full year in 2022, Over 20% EPS accretion in 2021, 30% plus in 2022. We've built in very, very Few synergies here other than the funding synergy, which is the majority of the benefit of AmeriHome gets when joining us. Other synergies about soaking up our excess liquidity and putting more loans on the books have not been included. Benefits of looking at how do we use AmeriHome's consumer direct business to our HOA clients has not been put on the books.
Potential expense synergies as it relates to optimizing contracts Our technology has not been put into the models.
In terms of getting to where the revenue is coming from for 2020 2 in 2020 and direct remainder 2021, we really model it after 2019. 2020 was really an anomaly in terms of how strong that We're expecting it to cut in half to show you the numbers we have here.
No, that's helpful. And maybe just kind of an open ended bigger picture question. Some might think that, hey, we've come off a Tremendous mortgage environment here and there's some debate about how long that's going to continue. What would you guys say about sort of are we at Mortgage earnings here, obviously, the estimates you're providing are less than what AmeriHome did in 2020, which was a tremendous year. But just kind of curious, Ken, how you would respond to that question, buying this type of business that what could be kind of peak type earnings?
Yes, I think that's a fair question. We believe we are buying AmeriHome below valuations of other mortgage banks. That's number 1. Number 2, the EPS accretion of this deal speaks for itself, Dale will tell you that on an incremental and marginal basis, our EPS accretion is close to $60, six-zero, dollars 60 per share. And well, obviously, that speaks for itself, but it's very attractive.
Also, if you look backwards, we're buying 2 quarters of trailing earnings with this purchase. Now if you want to skip 2020, which we have, we used 2019 to do our valuations was a seller and still bought the company for 1.4x tangible book and it still produces the EPS accretion we've already mentioned. And I'll say something else too that there aren't many companies like AmeriHome that are out there today for sale. There are very few. So we think we got a real gem here.
We have a company that differentiates itself in the marketplace And we place a lot of value on that. And last but not least, I think this company, AmeriHome, could do much better positions inside of a bank Then outside of the bank.
Great. Thank you, guys. I'll hop back in queue.
The next question will come from Chris McGratty with KBW. Please go ahead.
Hey, thanks for the question. Dale, maybe a question on the assumptions. Obviously, with rates are moving up, I'm interested in go up a little bit quicker than we think. Sure. Yes.
So we model it after the futures market in terms of what the What it's showing for the 10 year. And right now, we're at about a quarter, quarter, expected to be about 1.5 by the end of this year, 175 by the end of 'twenty two. And that really supports kind of the backdrop that you have on Page 9. And then if you look at what would happen in our Right. Well, we sensitize this and said, well, what if rates go up another 300 basis points from there?
So approximately at about 5% What that would look like. The reduction in earnings that we would have from AmeriHome as their origination value or activity declined, but they probably had gains on their mortgage servicing portfolio rights, which because those are going to lengthen out, is actually less Then the increase in income we're going to get as an asset sensitive institution away from AmeriHome in a plus 300 rate environment. So what this does is it really complements where we are, whereby we've had a scenario that we've been naturally asset sensitive. This will make us a little less naturally asset But will still remain so. And then meanwhile, what should whatever happen, we have another situation like 2020 and rates Now we'll have an enterprise that will actually make considerably better returns in a lower rate environment.
In 2020, we had to pivot from different asset classes to be able to sustain growth and earnings throughout that period of time. This actually would be a
more natural fit. I'll just add one other thing. If you go back into AmeriHome's S1, and you go back and look at their history, since 2015, They've been producing increasing annual net income and look at the interest rate, different interest rate environments between 2015 and where we are today, And we were impressed on how they continuously increased net income year after year.
Thanks. That's great color. Just a quick question on the offset On the capital raise, I think, Dale, correct me if I'm wrong, you said you're going to raise it by the close. I guess, why not raise it sooner given where the stock is? Well, we're going to raise it by the end of the second quarter.
It could be around close. There is no kind of rush or whatever, but We'll pick the right time to do that and I think we've got a couple of months anyway to work that in.
And the next question will come from Brock Vandervliet with UBS. Please go ahead.
Thank you. Ken, I wondered if you could start with that comment. AmeriHome is much better inside a bank than outside. And you juxtapose that with a pattern that we've seen where banks are ceding market share to independent platforms. How does that work?
Is it more just a comment on the financing advantage?
Yes. So I'm going to Jim has always said that to me many times. So I'm going to let him take this and I'll follow-up on his comments.
Great. Thanks, Ken. I mean, the reality of what's happened recently is obviously, in the banking world, more restrictive capital treatment for banks regarding MSRs really did drive their departure from the market. That has started to abate recently, as you know. And so it just is the right time 4 banks to get back into the correspondent, in particular, mortgage banking business.
Obviously, after the crisis, It was very important, where there were some challenges associated with the ancillary activities and risks associated are with those loans in the servicing portfolio and origination. But as everyone knows, recently, the quality of the loans being originated and the risk associated with those underlying assets that have been originated post crisis have really diminished that risk as well, really setting the stage for an
And just for those of us who aren't as familiar with the different delivery channels within mortgage, as you look at correspondent specifically and a market that's changing from say 2 thirds refi to 2 thirds Purchase over 2 years. How do you used to be a correspondent reacting in that kind of environment, both in terms of volume and gain on sale trajectory.
This is Jim again. One of the beautiful things about the correspondent businesses are just our national geographic diversity of our seller base. We as a matter of course focus on identifying correspondent lenders that outperform or deliver excess Purchase volume, if you will, I think we out index the market generally by 10 to 15 percentage points based on what's originated in the market. So For us, in particular, as a correspondent lender and in general as a correspondent lender, you tend to have much more stable volumes as a result, because you're just moving from one bucket to the other, unlike, for instance, a direct retail lender who's really heavily driven by the refinance markets.
Got it. Okay. I'll hop back in the queue. Thank you.
The next question will come from Timur Braziler was Wells Fargo. Please go ahead.
Hi, good afternoon. Dale, I guess going back to your comments are using 2019 levels of revenue expectation. I guess why such a large step down off of the results in 2020? Is that just a General expectation that the industry is in a pullback. Is that some sort of governor being applied to what AmeriHome is doing?
Or could that prove to be
Well, I don't know that we're I don't want to have another pandemic in 2022. So I hope it's not conservative for that reason. But no, I mean, you can make a case that maybe rates aren't going to rise as rapidly as some think they might. And there could be more legs to the purchase and refinancing market. I do think that That sudden increase when you get a sharp drop in rates results in significant demand on the refi side that will abate.
But the purchase market, as you know, is fairly strong. And we wouldn't put numbers out if we didn't think we'd Be able to beat them in some fashion, but this is what we think is pretty reasonable.
Okay. And then looking at your existing mortgage warehouse I guess how does it impact lending in that space? Does that put you in competition somehow? Or I guess what are your thoughts on that?
Sure. No, I don't really think this is Steve Crowley. I don't think it does. I mean, honestly, our sales forces know each other well and already work interoperably. So I think in fact, there might be 1 or 2 customers that may have give them a little bit of buzz, but for the most part, I think they'll all see it really positively.
We call on the same customers now and this will just deepen how we can work together. I think it will be perceived by our customers as a huge positive.
Let me add to Steve. I mean, I think it gives us some cross selling opportunities here. Again, not put into none of those have been put into the model, but it allows us to talk to some of Jim's Clients and we have opportunities to offer them credit lines. And so we're excited about that. But again, as I said, we've been conservative.
We haven't put any of that into the model yet.
Okay. And was AmeriHome one of the partners that you had been Purchasing mortgages from and over time can that turn into a channel for adding residential exposure out to the balance
We have done a couple of purchases, a couple of trades with them. But really, the vast majority of what we've been buying today has come from other customers. Are so we've done a few trades, but certainly there's a lot of opportunity going forward.
But you're on the right question. We have a lot of excess liquidity. It continues to grow faster than we can find good loan opportunities, good credit opportunities to deploy those That liquidity and so we will, once we close the transaction, use AmeriHome as a funnel or a conduit To soak up some of that excess liquidity. Today, we can put that liquidity out depending on the term between $130,000,000 $170,000,000 if you go out, much longer on the yield curve. We can clearly do a lot better than that once AmeriHome is part of Western Alliance.
We have $6,000,000,000 that's at
10 basis points today, so there's room for improvement.
Got it. Congrats on the deal.
Thank you.
The next question will come from Gary Tenner with D. A. Davidson. Please go ahead.
Thanks. Good afternoon. Just a couple of questions. On the revenue slide on or excuse me, the revenue mix portion of Slide 7, the 99% and 1% for AmeriHome, that's based on the standalone AmeriHome, I assume, and not inclusive of the funding cost benefit that you're projecting for 2022, correct?
Correct. Correct.
Okay. Thank you. And then I'm just wondering, is there any change to where your kind of consolidated tax rate would be are bringing our home on based on where they're doing business. Does it bring that tax rate up at all? Yes.
Based on where they're doing business, which is predominantly California, we expect our tax rate to rise about 1%.
Okay. Thank you. Congrats on the deal.
Your next question will come from David Chiaverini with Wedbush Securities. Please go ahead.
Hi, thanks. A couple of questions. The first one is a follow-up. So Prior to this announcement, one of your strategies was to grow mortgage loans to hold on balance sheet. The difference is that you're buying Non QM, whereas AmeriHome is conforming, but AmeriHome has relationships clearly with 700 correspondents.
So does this deal enable you to get better access or better pricing on the Non QM mortgages at the 700 correspondence for you to purchase and hold on balance sheet.
Yes, this is Steve again. Yes, absolutely. That was part of the reason we thought this was a fantastic transaction. And Just before we even started, we used to talk about how we might partner on that kind of opportunity. And we have a very Similar conservative outlook on how to originate good high quality non qualified mortgages.
So our credit Appetite and how we look at that business is exactly the same rate that was clear right
from the outset. David, our appetite for non QM loans Has not been said by all the clients that we have. And so while we're waiting for more non QM loans, Jim and his team will produce is government backed loans and we'll gladly put them on our balance sheet.
So is it safe to say that this deal could accelerate your mortgage your resi mortgage loan growth on balance sheet? Yes. Great. And then the last one for me is, you had mentioned in your prepared remarks and in the press release that Western Alliance plans to optimize the MSRs for both ongoing operations and regulatory capital treatment. I kind of read between the lines that you plan on without putting words in your mouth, but selling a portion of the MSRs.
Can you expand on that and to what extent you could take that exposure down?
Yes. So there are limits that above 25% of CET1 capital, the penalties against capital MSRs becomes substantial. And so we expect to work our way within that parameter over time, over to be in 2021 to be able to do that. There's different ways to get there and we're looking at different alternatives how we can dispose of MSRs. But at the end, yes, you will see the MSR balance comply within the 25% CET1 ceiling.
Thanks very much.
Our next question will come from Jon Arfstrom with RBC Capital Markets. Please go ahead.
Hey, thanks. Good afternoon.
Hi, John.
Hey, maybe this is for Ken or Steve.
What do you guys worry about here?
What should we be worried about? What can go wrong and where did you focus your
So, you're asking an interesting question. First, one of the reasons why we like to deal so much, There's little operational and executional risk. AmeriHome and Jim's senior team, which has been together forever, will continue to do work the day after they close just like the day before they close. And there's not going to be a disruption there, All right. For us, I think, as Western Alliance now with $8,000,000,000 more
in loan growth And the
way we project to grow in the future, we're going to be crossing over $50,000,000,000 sooner than later. So for us, It's about installing and employing all the risk management systems one needs to be a much bigger bank And being ready for the compliance that comes along with that on the consumer side. So if I have a concern, it's always around the CFPB having worked with them in a different lifetime. We think based on our Due diligence, AmeriHome is well positioned with them, but that can be sometimes an unexpected event Depending on how they want to take a viewpoint on certain processes and procedures. So I think it's a little more on the compliance side For AmeriHome relative to CFPB, but for us, it's more on the compliance and risk management As we build the infrastructure to be a much larger company.
We don't need to be there on day 1. We need to just keep making steady improvements as we continue to grow.
Fair enough. Dale, one for you. How do you want us to think about obviously your fee income numbers go up quite a bit, Should we expect a lot of volatility in the fee income lines going forward?
So we think that we're going to see a little more So as EPS goes up 30%, we think quarter to quarter earnings could increase volatility by 2% to 3%, about a that amount, and just related to valuation on items as well as origination actions.
Good. And then if I can squeeze in one more for you, Jim. I asked this respectfully, but Almost everybody has a buy on Western Alliance stock. Question for you is, why cash is part 1 of the Question and why not some stock? And then can you talk a little bit about locking up some of your key?
Thank you.
Yes. So I mean, I have a line on Western Alliance stock. I think that's the shortest answer to that question. I'm thrilled to be part of it. I think the nature of the Just has to do with the financial investors that we had in the past, looking for that.
And so Really, ultimately, you need to know that AmeriHome and AmeriHome's management team is very long Western and very excited about it for that reason.
The sellers had a preference for cash. The management team had a preference for stock. It was all cash. And the management team has employment contracts that lock them up for the next 3 years and we changed the proportion of their compensation From heavy cash to a heavier balance of restricted stock, which is one of the reasons why they like to trade so much or the transaction Because of the long term nature of prospects of Western Alliance.
Okay, got it. That makes sense. Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Ken Baccioni for any closing remarks. Please go ahead, sir.
Well, thank you all for joining us today. To say that we're excited about this transaction is an understatement. We look forward to our Q1 that we can produce and discuss these results and show the impact upon Western Alliance from purchasing this great company. So until then or our next call, we wish you good luck and we'll see you guys soon.