WesBanco Q3 2023 Earnings Call Transcript

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Provided by Quartr
October 26, 2023

There are 8 speakers on the call.

Operator

Good afternoon, and welcome to the WesBanco Third Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to John Iannone, Senior Vice President of Investor Relations. Please go ahead.

Speaker 1

Thank you. Good afternoon, and welcome to WesBanco Inc. Q3 2023 Earnings Conference Call. Leading the call today are Jeff Jackson, President and Chief Executive Officer and Dan Weiss, Executive Vice President and Chief Financial Officer. Today's call, an archive of which will be available on our website for 1 year, contains forward looking information.

Speaker 1

Cautionary statements about this information and reconciliations of non GAAP measures are included in our earnings related materials issued yesterday afternoon, as well as our other SEC filings and investor materials. These materials are available on the Investor Relations section of our website, westbanko.com. All statements speak only as of October 26, 2023 and WesBanco undertakes no obligation to update them. I would now like to turn the call over to Jeff. Jeff?

Speaker 2

Thanks, John, and good afternoon. On today's call, we will review our results for the Q3 of 2023 and provide an update of our operations and current 2023 outlook. Key takeaways from the call today are Solid financial performance with deposit and loan growth and stable fee income trends. Maintain strong capital levels and key Credit quality measures, which have remained at low levels and favorable to peer bank averages. We remain focused on disciplined expense management and generating positive operating leverage, while continuing to invest in Tractive long term growth prospects.

Speaker 2

For the Q3 of 2023, we returned deposit balances to year end 2022 levels And delivered another quarter of year over year loan growth at 10%, while maintaining strong credit quality metrics. Our solid financial results for the quarter reflect the strength of our franchise and the competitiveness of our growth strategies and teams in the current environment. For the quarter ending September 30, 2023, we reported net income of $35,000,004.59 per share and pretax pre provision income of $51,000,000 when excluding after tax merger and restructuring charges. Our capital position continues to provide financial and operational flexibility as demonstrated by our CTE ET1 ratio of 11%. The key story for the Q3 was the continuation of solid deposit and loan growth, while maintaining our strong credit standards.

Speaker 2

Our key credit quality measures Further, total loans past due, criticized and classified loans, non performing loans and non performing assets As percentages of the loan portfolio and total assets have remained low from a historical perspective and within consistent range Over the last several quarters. As we mentioned last quarter, both our commercial and retail teams have and continue to make concerted efforts to help us grow deposit levels. These strong efforts are demonstrated by September 30 deposit levels increasing 1.8 percent quarter over quarter to $13,100,000,000 In fact, our deposits are now back To our year end 2022 level, a remarkable achievement considering the turmoil across the banking industry earlier this year. Furthermore, our commercial bankers continue to work diligently on deepening our commercial relationships with focus on loan swaps and deposits. Due to their efforts, we saw a slight uptick in the percentage of commercial deposits as a percentage of our total deposits during the quarter.

Speaker 2

As an example, A customer in one of our legacy West Virginia markets recently grew its banking relationship with us significantly. Thanks to our focus on building long term relationships And over the next few years grew substantially. Our trusted partnership with this customer has grown to an 8 figure deposit relationship. I am proud of the hard work of all our teams as they help our customers meet their financial goals. We reported total loan growth during the Q3 of 10% year over year and 7% quarter over quarter annualized, driven by our commercial and residential lending teams.

Speaker 2

Despite the industry headwinds, our right sized Residential teams continue to find new home purchase and construction loan opportunities. Total commercial loan growth increased 8% year over year And 6% sequentially annualized, which continues to be driven by our strong lending teams and loan production offices. I'm really excited about our newest LPO in Chattanooga as they have hit the ground running and are bringing in a number of new C and I relationships. Our commercial loan pipeline as of October 16 was approximately $860,000,000 A 4% increase from the level of September 30 as our teams continue to find business opportunities to replenish The pipeline that has been driving our strong loan growth. As I mentioned, our 4 loan Production offices are performing very well and are now contributing approximately 25% to the commercial pipeline.

Speaker 2

In just 3 months, our Chattanooga LPO is already 8% of the pipeline. Further, the growth opportunities Our loan production office and lender hiring initiatives, we expect to continue to improve as they gain additional traction. And with a loan to deposit ratio of 87%, we have ample lending capacity to continue to support our customers. We continue to make important growth oriented strategic investments to build upon our successful commercial hiring and LPO initiatives And which supplement our focus on managing costs. During the summer, we introduced our new WesBanco One account, Which has a set of comprehensive features and tools designed to help our customers through their financial journey with features and digital banking tools to help them reach their financial goals.

Speaker 2

I'm pleased to say that we have seen great adoption by both existing and new customers. In addition to our Renewed focus on commercial loan swaps, we have been transforming our treasury management business to more of a sales oriented organization, while equipping it With new products that will enhance our customer relationships. In the next couple of months, we will be rolling out our integrated receivables and payables And purchase card products for our commercial customers. While we provide more details on the 2024 revenue expectations During our January call, we expect these new fee revenue streams to quickly become meaningful From both a more comprehensive customer relationship and bottom line profitability perspectives. These are examples of our commitment to innovation and investments that serve customers better and drive sustainable growth.

Speaker 2

I firmly believe in the long term growth prospects we are building for our customers, communities, employees and shareholders. I would now like to turn the call over to Dan Weiss, our CFO, for an update on our Q3 financial results and current outlook

Speaker 3

And successful execution of our strategic initiatives, reflecting both solid loan and deposit growth as well as strong capital levels and credit For the quarter ending September 30, 2023, we reported GAAP net income available to common shareholders of $34,300,000 or $0.59 per share and $116,500,000 or 1.96 dollars per share year to date. Net income available to common shareholders excluding after tax restructuring and merger related expenses for the year to Period was $119,500,000 or $2.01 per diluted share as compared to 133,700,000 or $2.21 per diluted share in the prior year period. The primary driver in reported results year over year reflects the impact of The higher interest rate environment and the recording of a provision expense this year as compared to a provision release in the prior year period. Total assets of $17,300,000,000 as of September 30 included total portfolio loans of 11 point $3,000,000,000 and securities of $3,400,000,000 Total portfolio loans grew nearly 8% year to date annualized, reflecting the strength of our markets and lending teams combined with our strategic lending initiatives. In addition, roughly 53% Of the year to date loan growth was funded through reductions in the securities portfolio, which totaled 19.7% of total assets at the end of the quarter.

Speaker 3

Commercial Real Estate loan payoffs returned to a more historical quarterly level during the 3rd quarter, totaling approximately $94,000,000 while C and I line utilization as of the end of the quarter declined 490 basis points year over year to 31%. Residential mortgage originations, which were down 30% year over year totaled approximately $165,000,000 in the 3rd quarter with roughly 55% of the originations sold into the secondary market. The 3rd quarter total deposits increased sequentially to a level consistent with year end 2022, reflecting the deposit efforts by our retail and commercial teams combined with $64,000,000 of additional brokered deposits. We continued to experience some shift in the mix For deposits with non interest bearing demand deposits down 2.7% from the 2nd quarter. However, Total demand deposits and non interest bearing deposits represented 57% and 32% of total deposits respectively, which remained consistent with the ranges and averages since December of 2019.

Speaker 3

Furthermore, we utilized our deposit growth To pay down higher cost Federal Home Loan Bank borrowings, which decreased $255,000,000 sequentially to $1,100,000,000 The net interest margin of 3.03 percent for the 3rd quarter decreased 15 basis points sequentially, primarily due to higher funding costs From increasing deposit costs and continued remix from non interest bearing deposits into higher tiered money market and certificate of deposit accounts partially offset by the deployment of excess cash into higher yielding loans and the pay down of higher cost wholesale borrowings. Total deposit funding costs, including non interest bearing deposits for the 3rd quarter, were 136 basis points, An increase of 33 basis points quarter over quarter and 119 basis points year over year, representing a beta of 40% on the 300 basis point increase in the Fed's funds rate since late September of 2022. Our 3rd quarter loan yield of 5.46 percent is up 121 basis points year over year, also representing 40% beta as we continue to originate new commercial loans yielding in the high 7% range As can be seen on Slide 5 of the supplemental earnings presentation. Since commercial swap fees have become a material component of our fee income, We're now detailing these fees at a new income statement line item titled Net Swap Fee and Valuation Income, which includes both new swap fees and fair market value adjustments on existing swaps.

Speaker 3

For the Q3 of 2023, non interest income of 30,900,000 Decreased $1,400,000 year over year due to a $1,500,000 gain on the sale of an underlying equity investment held by WesBanco Community Development Corporation in the prior year period. Excluding this prior year gain on sale, non interest income would have increased 0.5 percent year over year, primarily reflecting the strength in commercial swap fees. Operating expenses continue to reflect nationwide inflationary pressures as well as long term growth investments, including previously completed elements Our strategic loan production office and lender hiring initiatives. Excluding restructuring and merger related expenses, non interest expense The 3 months ended September 30, 2023 totaled $97,300,000 which increased due to higher salaries and wages, benefits, equipment and software and FDIC insurance. Salaries and wages were higher due to mid year merit increases, employee benefits expense increased primarily from Rising healthcare costs, equipment and software was up from the continuation of our ATM upgrade project, while other expenses included a one time $800,000 credit from our payment processing business.

Speaker 3

Our capital position has remained strong as demonstrated by regulatory Ratios that are above the applicable well capitalized standards and favorable tangible equity levels compared to peers. Our tangible common equity to tangible assets as of September 30, 2023 was 7.26%, Up 4 basis points year over year or 6.33 percent when including held to maturity unrealized losses as shown on Slide 7. We continue to believe that we're well positioned for any operating environment as we actively manage our liquidity risk to ensure adequate funds to meet changes in loan demand, unexpected outflows in deposits and other borrowings as well as take advantage of market opportunities as they arise. We'll provide our 2024 outlook during our January earnings call. But regarding our current outlook for the remainder of 2023, We are modeling Fed funds to remain unchanged at 5.5% with a couple of rate cuts in the back half of twenty twenty four.

Speaker 3

Reflecting the current operating environment of higher funding costs and some deposit mix shift into higher Deposit Products, we continue to model some contraction in the 4th quarter net interest margin, but at a lesser rate than the last couple of quarters before beginning Growth and will be impacted by equity and fixed income market trends. Electronic banking fees and service charges on deposit will remain in a similar range as the last few quarters and they're subject to overall consumer spending behaviors. Mortgage Banking will reflect seasonality and be impacted by industry wide lower production trends in the current residential lending environment. New commercial swap fee income, which is up more than 150% year to date is still on track to reach approximately $8,000,000 for the year. Our efforts to enhance our treasury management services continue to progress well.

Speaker 3

We anticipate rolling out new products such as integrated payables and receivables and related cards in the coming months, providing a lift To 2024 fee income, we continue to focus on disciplined expense management to drive positive operating leverage, while also making appropriate growth oriented investments in support of long term sustainable revenue growth and shareholder return. In support of this, we've been reviewing a number of initiatives, including an ongoing efficiency review of our retail network to optimize branch level staffing and reallocate resources into additional revenue generating hires that should benefit 2024. During the past quarter plus, we've also made efforts to right size our residential lending operations to better align with industry wide mortgage Expectations. Considering the expected higher for longer rate environment, we've reduced the overall staffing of This business with an annual expense savings of approximately $3,000,000 which should begin to be reflected in the run rate during the Q4. While software and equipment will come in higher due to the upgrade of another 50 ATMs placed into service here in the 3rd quarter, Most other expenses should remain in similar ranges to the 3rd quarter after also adding back the $800,000 one time credit in other operating expenses.

Speaker 3

The provision for credit losses under CECL will depend upon changes to the macroeconomic forecast and qualitative Factors as well as the various credit quality metrics, including potential charge offs, criticized and classified loan balances, Tax rate to be between 17% 18%, subject to changes in tax regulations and taxable income levels. Operator, we are now ready to take questions. Would you please review the instructions?

Operator

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you have further questions, you may reenter the question And our first question comes from Casey Whitman of Piper Sandler. Please go ahead.

Speaker 4

Hey, good afternoon.

Speaker 1

Hey, good afternoon, Casey. Good afternoon, Casey.

Speaker 4

Hey. Maybe I'd start just Given the success you've had with the LPOs, do you have longer term plans to open others and sort of what are some of the markets that might make sense for you To deploy that strategy?

Speaker 2

Yes. We're really proud of our success in the LPOs. I would say we're still looking to fill in more in Tennessee. We still have room to grow our Nashville LPO. Other cities in East Tennessee are very attractive to us.

Speaker 2

And then I would also say Virginia as well. I think that would be a natural progression from our Acquisition role line.

Speaker 4

Any particular markets in Virginia that would interest you the most?

Speaker 2

I would say Northern Virginia being probably our top market and then we've looked at Richmond before and that potentially could be one down the road.

Speaker 4

Okay. Thank you. And then last one for me, just unpacking that margin guide you just gave, Sounded like hopefully will bottom in the 4th quarter and then maybe stabilize. I guess my question would be, What would it take to start to see the margin grind higher? Do we need rates to go down?

Speaker 4

Do we just need time? Sort of what's your bigger picture thoughts on that?

Speaker 3

Yes, Casey. So I would say, as I mentioned in kind of my prepared commentary, We certainly do expect some slight margin contraction here in the 4th quarter, Probably at about half of what we experienced here in between Q2 and Q3 of 15 basis points. So half of that roughly here in the Q4. And then relatively given our rate outlook, Rate cuts occurring in kind of back half of the year, it really probably does Generally speaking, modeling fairly flat margin for the next couple of quarters thereafter And the rate cuts really are kind of the spark probably that would begin to We will begin to see that positive upward momentum in margin.

Speaker 4

Okay. Thank you. I'll let someone else jump on.

Operator

The next question comes from Daniel Tamayo of Raymond James. Please go ahead.

Speaker 5

Hey, good afternoon, guys. I'm having some audio issues. Just want to make sure you guys can hear me okay.

Speaker 2

Yes. Good afternoon, Daniel. We can hear you. Hi, Daniel.

Speaker 5

Great. Just kind of continuing on the margin, but just looking specifically at the CDs that are on the book That are still relatively low cost. Just wondering if you can give us an idea of when those mature over the next few quarters?

Speaker 3

Yes, Danny. So generally speaking, a large portion, About half of the CD book was put on really over the last couple three quarters. And a lot of that came on with That 4.5 percent 7 month CD special. So we do expect for quite a bit of that to turn Here over, call it, more early in the probably more early in the Q1 and expect it to turn at a similar rate. So Just looking, for example, over the next year, we know that about 80 of the CD book will turn, and that turn the turnover is That break right around 2.88 percent.

Speaker 3

So 2.88 percent is the current yield and would expect at least in the near term for us to keep that 7 month CD special at that 4.5% rate and generally would expect for customers to move into and to stay in that product.

Speaker 5

Okay. All right. That's very helpful. Thank you. And then does your guidance on the margin assume any incremental change in the level of borrowings you have

Speaker 1

Or just how are you thinking about that?

Speaker 3

Yes. So borrowings I would say, wholesale borrowings are relatively flat. As you know, we do have about $260,000,000 in brokered deposits and expect that For the most part, to roll off through kind of late spring, but anticipate about $50,000,000 of that to roll off here In the Q4, I would say as part of that kind of margin outlook or at least what we're modeling, And I mentioned this on our last call as well. In the Q2, we experienced about $200,000,000 In non interest bearing deposit remix into interest bearing, This quarter, we saw about $115,000,000 remixed. So that's round numbers, call it, about half.

Speaker 3

And so we're based on those facts, we're kind of making a similar Assumption that we would expect about half of the $115,000,000 call it, to remix into Out of non interest bearing and into interest bearing. So that's part of the equation. And then as you saw, quite a bit of lift there in our CD book that was a little heavier than what we were projecting. But we're still projecting there to be some lift in CDs as well. But again, probably I would call it about half of the growth in CDs that we experienced from Q2 to Q3 To be experienced here in the Q4.

Speaker 2

Yes. I would just also add, as you saw, we had pretty good success growing our deposits In funding our loan growth along with, as you know, we get about $100,000,000 a quarter off our securities. So I would think going forward, we all the brokered Deposits would just run off. I don't see a need for us to be in that market.

Speaker 5

Okay. And I was just looking at the $1,200,000,000 of FHLB that is You'd imagine that that's mostly staying on the balance sheet?

Speaker 3

Yes. That's what we would model today. But I think we've talked in the past, we do have a deposit campaign on the commercial side that's it will be kind of dependent on The success of our deposit growth here over the next quarter or 2?

Speaker 2

And loan growth. Depending on deposit loan growth that could go probably down.

Speaker 3

Okay. All right.

Speaker 1

Thanks for the question or for the answers guys. Appreciate it.

Operator

The next question comes from Manuel Neves of D. A. Davidson. Please go ahead.

Speaker 6

Hey, good afternoon.

Speaker 1

Good afternoon. Hey, good afternoon, Manuel.

Speaker 2

Roughly, what has been the list

Speaker 6

At your commercial lenders, kind of since the incentive structure has been changed for deposit growth, I know you brought it up as a percent for the whole deposit book, but you kind of look at it, the commercial deposits group, but can you kind of look at it just for the lenders themselves?

Speaker 2

We do. I'm trying to understand. Can you restate that question? I'm sorry, I didn't exactly understand what you're asking.

Speaker 6

So just how much of the deposit growth has come just specifically from the commercial lenders themselves? And that's I think you changed incentive structure this year. And not just this quarter, but just this year, how much is the deposit growth Come from them alone.

Speaker 3

Yes. I would say, Manuel, approximately 75% of deposit growth has come from The commercial side, particularly that money market product has been incredibly successful.

Speaker 2

Yes. And as we said, that change in incentives as we hadn't had in our history of our bank, it's really made a big difference. And we've Really started monitoring it and really talking about it throughout the company, and really have a big deposit campaign going on right now that's Moving in the right positive direction. So we really feel good about growing deposits going forward as we showed this quarter. And once again, that would eliminate us For broker deposits and could really help us on the NAND going forward.

Speaker 6

Would you say that deposit growth you You hinted at it. Could you say that deposit growth would be a wildcard that could improve your margin outlook?

Speaker 2

Absolutely. It could. Yes. Well, it depends on the loan production we have and loan growth. But yes, so that As you saw this quarter, we paid down some of our FHLB borrowings because of it.

Speaker 2

So that could continue.

Speaker 6

Okay. And the loan growth that you're getting and the pipeline is nice and strong. How sensitive are you to kind of Macro conditions there? Or do you feel like you're just gaining market share and still being selective anyways?

Speaker 2

I feel like we're gaining market share, but we're still Maintaining our conservative credit standards. We have not changed any credit standards. We have always been conservative related to that. And so for us, it's really about hiring. We've got a lot of new people, new commercial lenders that are bringing in their solid credit customers.

Speaker 2

So that's what we're seeing and then plus with the expansion of our new markets, that's where we're getting the growth. We have not changed any credit Sanders, we're still being obviously extremely careful as it relates to hospitality and office. And so a lot of it's coming through C and I new relationships.

Speaker 6

Okay. I appreciate it. I'll step back into the queue.

Operator

The next question comes from Russell Gunther of Stephens. Please go ahead.

Speaker 1

Hey, good afternoon, guys. Hey, good afternoon, Russell. Hey, Russell. I wanted to follow-up on the expense conversations and I appreciate the puts and takes. It sounds like we end the year in a pretty similar place A quarterly perspective as we finish this quarter, thinking about the one time credit, bringing in the cost saves from the mortgage rationalization.

Speaker 1

And then I think I heard you guys mention continued investment, but also some further rationalization. So I think we've talked about a core growth rate on expenses in the low single digits in the past. I mean, is that the right way to think about it going forward as you balance Efficiencies and further investment?

Speaker 3

Yes. Russell, what I would say is, I think low to mid single digits is the right way to think about it. I mean, we're going to continue to invest. And if that investment results in a slightly heavier expense, but results in a better Return on equity or ROI, we would probably do that all day. But more specifically, if we kind of 0 in a little bit more in on 4th quarter and think about where we landed here in the 3rd quarter At $97,300,000 if I were to kind of use that as the jumping off point for 4th quarter, I would add back the $800,000 kind of one time credit that ran through other operating expenses.

Speaker 3

A number of puts and takes, as you mentioned there in the salaries line item. We do have the midyear merit increases for the hourly folks that haven't yet fully been baked in for the full third quarter. Those You have some offsets there. So generally speaking, we would expect salaries to be pretty flat. But then we do and as I mentioned, the kind of we're investing in a whole an entirely new ATM fleet.

Speaker 3

We put 50 into service in the Q3 and we've got 33 more that we're putting into place In the Q4, so would anticipate kind of that software and equipment expense to be up maybe around $400,000 as if you're Using if you're building off of Q3, so call it $400,000 there and then the $800,000 adding back the $800,000 credit, I would think of that as adding $1,200,000 or so to the Q3 run rate.

Speaker 1

Okay. I guess just a follow-up to that would be should I be thinking about expense savings from the mortgage vertical is hitting that 4th quarter or is that more of a

Speaker 3

Yes, that's 4th quarter.

Speaker 1

Yes.

Speaker 3

Okay. And that's in that

Speaker 1

okay, that's in your overall commentary. Thank you for the Clarification. And then just the final question for me would be the criticized classified uptick. I know year over year pretty unchanged and all other leading credit indicators were still very benign, but any color you could share there on the migration this quarter?

Speaker 2

Sure. It was a few projects, CRE projects, different industries, different areas that just I'll take into the C and C. Once again, we remain in very good shape, better than our peers and feel really good. Obviously, it fluctuates Quarter to quarter, so but it was just a few transactions.

Speaker 3

Yes. I would say almost the outlier would have been the 1st and second quarter coming in at only right around 1.6% of total loans.

Operator

The next question comes from Dave Bishop of Hovde Group. Please go ahead.

Speaker 7

Yes. Good afternoon, gentlemen.

Speaker 2

Hey, good afternoon, Dave.

Speaker 7

Hey, in terms of going back to loan growth, obviously, year over year, In that double digit range 10%, tick down this quarter, I think 6% and change. Do you think mid single digits is sort of the new environment, the new norm in terms of what the market gives you even with some of the lift outs you think you can still maintain sort of that High single digit, maybe low double digit growth rate?

Speaker 2

We always target mid to upper single digit. I think one of the things if you look at, we had a higher number of payoffs in Q3 than we did in Q2. So I think we would have been very similar Loan growth, have we not had the higher payoffs? I do believe that adding all the new talent we have, increasing the LPOs, I think does give us some momentum. We did that Kind of mid to upper single digit growth.

Speaker 2

But it's an interesting environment today and I'm not going to commit to either number, but that's kind of what we target as mid to upper and we feel really good where we sit today.

Speaker 7

Got it. And then the final question for me, great job in terms of growing the swap fees. Just curious maybe where you think those can where you can take those to maybe on an absolute level or percent of total fee income? Thanks.

Speaker 2

Sure. Yes, we're I think as I've told you last year, we did $4,000,000 in swap fees. I think we're on target as we've said before to double it this year. I think we can continue to grow it as we grow our Lenders and continue to train up our lenders on swaps. We are obviously targeting a total Fee as a percentage of revenue at we'd love to get to 30%.

Speaker 2

As we've said, obviously, that's a long term goal, but we feel like this is one of the many avenues we have to get

Speaker 3

there. Yes. And I would just add, This quarter, with swap fees, including fair value adjustments coming in at $3,800,000 that was pretty remarkable. It certainly exceeded Some expectations there, but just want to point out that $1,300,000 there is a fair market value adjustment. And typically, that's something that tough to model and not something that we do model typically.

Speaker 3

So we We saw a 75 basis point kind of rate increase from 2nd quarter to 3rd quarter and 5 10 year, and that's What really drove the $1,300,000 positive fair value adjustment? So as we look forward into Q4 and beyond, That may or may not be there in future quarters.

Speaker 1

Great. Appreciate the color.

Operator

The next Question comes from Carl Sheppard of RBC Capital Markets. Please go ahead.

Speaker 1

Hey, good afternoon. Good afternoon, Carl. I wanted to follow-up on some of the commentary on the treasury products. You guys sound like you're pretty bullish maybe about the fee revenue opportunity there next year. But curious, are you assuming any deposit or funding benefits from rolling those out and kind of across your lender base?

Speaker 2

Yes. We are very bullish about the treasury management products. We're just starting to roll them out in the Q4. We expect to see Nice benefit in next year in 2024, but that's one of the reasons we're rolling them out. And with our focus on C and I lending, We do believe that that's going to drive some nice deposit growth for us.

Speaker 2

We've also, as I believe I mentioned, really retooled our treasury team, turning them More into a sales function, before I think it was a little bit more of a support function and so we've kind of reorganized that. And so we do believe that that should give us some nice Positive lift next year.

Speaker 1

Okay. And then as a follow-up, we talked about loan growth a little bit, but I'm just curious if you could parse out What the contribution you expect from some of the newer lenders and LPOs is, is that what's driving the loan growth or is it really broader Thank you.

Speaker 2

I think it's broader than that. I do believe the LPOs, as I mentioned, are 25% Of the current pipeline, so I do believe they will drive more of the growth, but I believe it's the whole company, right? So we've seen nice CRE growth through that group And other areas, other markets are driving nice loan growth as well. But I do believe the LPOs are kind of an accelerant To our loan growth, it should contribute pretty solidly next year. Okay.

Speaker 2

Thank you for the help.

Operator

The next question comes from Daniel Cardenas of Janney Montgomery Scott. Please go ahead.

Speaker 1

Hey, guys. Good afternoon. Hey, good afternoon. Good afternoon. So I noticed your securities portfolio has Kind of been declining here over the last several quarters.

Speaker 1

Just wanted to get a sense of what kind of maturities we can see here In Q4 and how are those proceeds going to be put to work now that your securities to asset number is sub 20%?

Speaker 3

Yes. Great question, Dan. So and Jeff kind of alluded to this earlier that we expect And we've been seeing the SKUs portfolio kick off about $100,000,000 per quarter. And I would say that's probably 50% maturity, 50% just amortizing securities, Cash flows from principal and interest payments. But we've obviously had held a little heavier Generally a little heavier than our peers.

Speaker 3

But today, in this environment, we are looking at Holding securities longer term in the high teens as a percentage of total assets, So somewhere between in that 17% to 19% range is kind of our longer term target. That provides us plenty of liquidity, But also provides us an opportunity to reinvest in higher yielding loans. So today, I would say, We're going to continue to work the portfolio down towards that target. And Basically, we're reinvesting each quarter $100,000,000 that's yielding 2.5 Sent into loans that are yielding 8% plus. So we like that math as well.

Speaker 1

And then if you can remind me in the loan portfolio, do you have any SNC exposure?

Speaker 2

We do not participate in any SNCs that I'm aware of.

Speaker 1

Okay. I'll step back for right now. Thank you.

Operator

The last question is a follow-up from Manuel Nieves of D. A. Davidson. Please go ahead.

Speaker 6

Hey, I just wanted to follow-up on wondering what the story was with the 1 hospitality loan that had a specific reserve created to it. Just wanted to hear a little bit more about that one.

Speaker 2

Sure. Sure. It's a loan we've had on the books for a while. It's Hospitality in Downtown Baltimore, near the Inner Harbor, and it has really struggled since COVID. We've had it Obviously reserved for, but we had an appraisal come in right near the end of the quarter that created To take an additional reserve on it, about $2,800,000 We are working with the borrower.

Speaker 2

They are committed to the project. But At this point, that was what increased our reserve this quarter.

Speaker 6

What's the total loan At this point, what's the total reserve on it? Yes.

Speaker 3

The loan balance is $12,000,000 net of reserve is 9.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Jeff Jackson for any closing remarks.

Speaker 2

Thank you for joining us today. During the Q3, we generated solid deposit and loan growth and maintained strong capital levels and credit quality. We remain well capitalized with solid liquidity and a strong balance sheet with capacity to fund loan growth and focused on strengthening our diversified earnings stream for long term We look forward to speaking with you in the near future at one of our upcoming investor events. Please have a good day. Thank you.

Operator

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

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Earnings Conference Call
WesBanco Q3 2023
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