WesBanco Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
January 24, 2024

There are 9 speakers on the call.

Operator

Good day, and welcome to the WesBanco 4th Quarter 2023 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr.

Operator

John Iannone. Please go ahead, sir.

Speaker 1

Thank you. Good morning, and welcome to WesBanco Inc. 4th Quarter 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, lesbanco.com. All statements speak only as of January 24, 2024 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 morning. On today's call, we will review our results for the Q4 of 2023 and provide an update on our operations and our current 2024 outlook. Key takeaways from the call today are Successfully navigated industry wide headwinds through the strength of our teams and our strategies. Sustained loan, deposit and fee income growth, maintain strong capital levels And key credit quality measures focused on delivering positive operating leverage through new products and services And expense management. Despite the industry wide headwinds caused by the Federal Reserve's record interest rate escalation, WesBanco performed well during 2023 through our continued focus on customer service and sustainable growth strategies.

Speaker 2

We achieved sustained loan, deposit and fee income growth, maintained strong capital levels and credit quality, and remain focused on ensuring a strong organization for our shareholders, while investing appropriately for long term sustainable growth. Through successful operational execution, we generated solid annual net income while remaining a well capitalized Financial institution with sound liquidity, balance sheet and credit quality metrics built upon well defined strategies and core advantages, which will ensure success regardless of the economic environment. As we begin 2024, We remain well capitalized with solid liquidity and capacity to fund loan growth, positioning us well to continue generating value for our shareholders. For the quarter ending December 31, 2023, We reported net income available to common shareholders of $32,400,000 and diluted earnings per share of $0.55 And for the full year, we reported net income available to common shareholders of 151,900,000 And diluted earnings per share of $2.56 when excluding after tax merger and restructuring charges. Furthermore, the strength of our financial performance during the past year is demonstrated by our return on tangible common equity of 13%.

Speaker 2

Non performing assets to total assets of just 16 basis points and a capital position that continues to provide financial and operational flexibility as demonstrated by our tangible common equity ratio that resulted from our strong performance, operational strengths and focus on communities, customers and employees. These accolades, which recognize our commitment to sustainability and excellence, are also a testament to the hard work and dedication of our employees. So I extend a heartfelt thank you to them. Just to highlight a few of our accomplishments, WesBanco was awarded its 8th consecutive composite outstanding rating by the FDIC for its Community Reinvestment Act performance, a period spanning more than 20 years. We expanded our commercial loan production office strategy into the fast growing Chattanooga market, representing another step in the execution of our long term sustainable growth strategy.

Speaker 2

We introduced new products and services to better serve our customers, including the new Westbank O1 account, which continues to exceed Adoption expectations with more than 90,000 new and migrated accounts to date. We continued our commitment To building a diverse and inclusive workforce by hosting 3 in person WesBanco Equity Conferences in our Upper Ohio Valley, Mid Atlantic And Southwestern Ohio Northern Kentucky Markets. Lastly, we continue to receive top rankings this past year, reflecting our strength and stability and the efforts of our employees every day to maintain our community banking roots and customer focused philosophy. We were recognized for strong customer service, digital services and financial advice Soundless safety and profitability, employer of choice, and recently we were named one of Newsweek's best regional banks based on soundless profitability and customer reviews. The key story for the Q4 as well as the year with solid loan growth and deposit growth, while maintaining our strong credit standards, which remain at relatively low levels and favorable to average of all banks with assets between $10,000,000,000 $25,000,000,000 We reported 4th quarter loan growth of nearly 9% year over year and 11% quarter over quarter annualized, which was driven by both our commercial and residential lending teams.

Speaker 2

Total commercial loans increased 8% year over year and 13% sequentially annualized, driven by our banker hiring and loan production office strategies. In fact, our 4 Our newest loan production offices accounted for more than 20% of the commercial loan growth during the year as they continue to demonstrate a strong return on investment. Furthermore, we continue to ensure that we earn an appropriate return on the loans we are generating, as new commercial loan yields are topping 8%. Our commercial loan pipeline as of January 15 was approximately $820,000,000 a 19% increase from the level at December 31 and roughly flat to September 30. Our teams continue to find business opportunities to replenish the pipeline that has been driving our strong loan growth.

Speaker 2

Our new loan production offices account for 28% of the current pipeline, with Tennessee representing a meaningful percentage. Dependent upon the economy, we expect to generate continued loan growth in the mid to upper single digit range during 2024 as our loan production offices and banker hiring initiatives gain additional traction. Through the strong efforts of our retail and commercial teams, we successfully navigated the industry wide turmoil earlier in 2023 And grew total deposits year over year. Building upon the success of our company wide deposit generation and retention campaign, We again grew total deposits during the 4th quarter, which increased 2.4% annualized from the 3rd quarter. In addition, our focus on diversifying our revenue streams with new fee based services is driving positive non interest income trends As demonstrated by $9,000,000 of new commercial swap revenue and organic growth in our trust and wealth management business during this past year.

Speaker 2

Our bankers continue to work diligently on deepening our commercial relationships with a focus on deposit and fee business cross sell. During the Q4, we had a nice team win in our Western Pennsylvania market. A team comprised of retail, commercial and treasury management associates Significantly expanded our relationship with a commercial customer. After several discussions to understand the client's unique needs, The team recommended a number of tailored financial solutions, including ICS accounts, wealth management and Perks at Work to better serve the client and its employees and win more of the relationship. Ultimately, we earned several business deposit accounts totaling 7 figures, a multimillion dollar family trust and additional personal deposit accounts.

Speaker 2

This example highlights our commitment to winning complete banking relationships through a deep understanding of client needs and we expect to continue these strong efforts at deepening relationships going forward. We continue to make important growth Oriented strategic investments that will generate positive operating leverage. During the past year, we implemented our retail transformation initiative, which we expect to complete during the Q1 of 2024. This initiative is focused on ensuring appropriate staffing models for All of our financial centers, including staff and hour reductions and the hiring of business bankers to drive additional growth. We reduced staffing by 65 employees throughout 2023 through a combination of attrition and retirements and currently expect another 20 reductions during the Q1.

Speaker 2

We intend to use about half of the overall savings to grow our business banking program and generate additional revenue through loans and deposits and merchant and treasury management fees. We expect a slow build on the business banking investment through the 1st year with the potential expansion in coming years. Lastly, the transformation of our treasury management business into a sales oriented organization primed to be more comprehensive and profitable, Customer relationships is progressing nicely. We are completing the rollout of a couple of new products during the first half of the year. Integrated Payables is a business to business payment solution designed to streamline the accounts payable process for our customers by migrating traditional check payments to more efficient forms of payment.

Speaker 2

Customers will benefit from reduced AP costs, Elimination of errors, enhanced fraud mitigation and potential rebates generated from virtual card payments. Multi Card is a pay in full card issued to employees of established companies combining travel and entertainment, fleet cards and Employee controls designed to reduce fraud and enhance accountability. In addition to robust transaction reporting and multi card Transaction control. Multi card clients will receive an annual rebate based on their total card spend. Due to the complexity of integrated payables, onboarding new clients take somewhat longer after service agreement documentation is completed.

Speaker 2

However, Multi Card has a shorter timeframe after the service agreement documentation is completed. As industry experts estimate that 40% of all business to business payments in the U. S. Are still made with a check, we believe this is an untapped market for our commercial and small business clients. And we have great opportunities to deepen our commercial banking relationships.

Speaker 2

We are currently focused on building a strong pipeline with revenue beginning to be generated during the second half of twenty twenty four. These are examples of commitment to innovation and investments that serve customers better and drive sustainable growth. I 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 4th quarter financial results and a current outlook for 2024. Dan?

Speaker 2

Thanks, Jeff, and good morning.

Speaker 3

Our 4th quarter results continued to demonstrate loan and deposit growth, strong capital levels and credit quality and a stable net interest margin. For the quarter ending December 31, 2023, we reported GAAP net income available to common shareholders of $32,400,000 or $0.55 per share and $148,900,000 or $2.51 per share for the full year. Net income available to common shareholders excluding after tax restructuring and merger related expenses for 2023 was $151,900,000 or $2.56 per diluted share as compared to $183,300,000 or $3.04 per diluted share in the prior year period. The primary driver of year over year results was the impact of the higher interest rate environment, the recording of a provision this year as compared to a provision release in the prior year and inflation. As of December 31, total assets of $17,700,000,000 including total portfolio loans of $11,600,000,000 and securities of $3,400,000,000 Total portfolio loans grew nearly 9% year over year, reflecting the strength of our markets and lending teams combined with our strategic lending initiatives.

Speaker 3

We continue to use our securities portfolio to fund loan growth as the regular cash flow from the portfolio funded roughly 40% of the nearly $1,000,000,000 of loan growth during the year. Commercial real estate loan payoffs totaled $276,000,000 during the year as compared to an anticipated annual level in the $500,000,000 range within a more normal operating environment. As interest rates continue to stabilize and potentially decline, we anticipate the pace of CRE payoffs to pick up meaningfully as we progress throughout 2024. Residential mortgage originations totaled approximately 690,000,000 for the full year with roughly 43% of the originations sold into the secondary market as compared to $1,000,000,000 23%, respectively for 2022. Our retail and commercial teams continue to grow deposits by winning new accounts and deepening relationships with existing As total deposits of $13,200,000,000 increased both sequentially and year over year.

Speaker 3

Further, brokered deposits totaled $211,000,000 at December 31, a decrease of $53,000,000 from September 30. Excluding broker deposits, total deposits increased approximately $134,000,000 over the 3rd quarter, representing a 4% annualized growth rate. Consistent with the higher interest rate environment, we continue to experience some shift in the mix of our deposits With non interest bearing demand deposits down 5% from the 3rd quarter, however, total demand deposits and non interest bearing demand Deposits as percentages of total deposits continue to remain consistent with the ranges and averages since 2019. The 4th quarter's net interest margin of 3.02% remained stable to the 3rd quarter, but similar to the industry declined year over year due to higher funding costs from increased deposit costs and continued deposit remix into higher rate money market and CD accounts. Total deposit funding costs, including non interest bearing deposits for the Q4 of 2023 were 161 basis An increase of 25 basis points over the linked quarter.

Speaker 3

We mostly offset these higher funding costs through the reinvestment of cash from Our 4th quarter loan yield of 5.61 percent is up 93 basis points year over year and 15 basis points sequentially as yields on new commercial loans have exceeded 8% during the quarter. Non interest income for the quarter ending December 31 totaled $30,000,000 an 8.3% increase from the prior year period that was driven by commercial swap and wealth management fees as well as higher bank owned life insurance income. Swap valuation losses totaled $2,500,000 during the 4th quarter, more than offsetting the $2,200,000 in new For the full year, we generated $9,000,000 of new swap fees, more than doubling the amount earned during the prior year and exceeding the $8,000,000 target. Operating expenses continue to reflect nationwide inflationary pressures as well as long term growth investments, including previously completed elements of our strategic loan production office and lender hiring initiatives. Excluding restructuring and merger related expenses, non interest expense for the 3 months ended December 31, 2023 totaled $99,500,000 up $9,000,000 year over year due to higher employee related expenses, equipment and software, marketing and FDIC insurance.

Speaker 3

Salaries and wages were higher due to midyear merit increases, equipment and software was up from our ATM upgrade project and marketing expense increased in support of our loan and deposit campaigns. FDIC insurance was higher due to the increase in the minimum rate for all banks, But it's also worth noting that we were not subject to the special FDIC assessment that some other banks incurred. Lastly, employee benefits expense increased due to higher deferred compensation expense and health care costs. And just as a reminder, Market fluctuations in equity securities and the deferred compensation plan are recognized within employee benefits expense And added $1,000,000 in the 4th quarter. The offsetting gain is recorded within net securities gains.

Speaker 3

Excluding these market fluctuations, the 4th quarter run rate would have been $98,500,000 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 December 31, 2023 was 7.62%, up 34 basis points year over year or 7.07% when including unrealized losses on a held to maturity As shown on Slide 7 of the supplemental earnings presentation, we continue to believe that we're well positioned for any operating environment and 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 Turning to our current 2024 outlook, we continue to model Fed funds to remain unchanged at 5.5 percent until mid year with 3 25 basis point rate cuts in June, September December, Reflecting the current operating environment of higher funding costs and some deposit mix shift into higher yielding deposit products, We expect some slight net interest margin contraction in the first half of the year into the mid to upper 290s and then stabilizing throughout the rest of the year.

Speaker 3

Trust fees should benefit modestly from organic growth, but will be impacted by equity and fixed income market trends. As a reminder, 1st quarter trust fees are seasonally higher due to tax preparation fees. Securities brokerage revenue is Expected to remain consistent with the amount generated during 2023, but could benefit modestly from organic growth dependent upon the economy and equity and fixed Electronic banking fees, which are subject to overall consumer spending behaviors, are anticipated to grow slightly from the range over the last few quarters, And service charges on deposits are expected to remain positive. Mortgage banking income will continue to be impacted by the overall residential housing Market trends, but should see some improvement if interest rates begin to move lower. Depending on customer preferences, we intend to sell approximately 50 percent of our mortgage originations into the secondary market.

Speaker 3

Gross commercial swap fee income excluding market adjustments should be in a similar range to 2023. And regarding the new treasury management products Jeff highlighted, we're focused on building the pipeline and anticipate Some modest benefit during the second half of twenty twenty four. We remain focused on delivering disciplined expense management to Drive positive operating leverage. And as Jeff mentioned in support of this, we're well into the transformation of our financial center network to optimize branch level staffing and reallocate resources into additional revenue generating hires. The cost savings from the staffing adjustments are partially in the Q4 run rate and we plan to make additional business banker hires.

Speaker 3

So we expect salaries and wages in the first half of the year to be relatively flat. Software and equipment will be higher throughout the year due to the ongoing related costs related to the upgrade of our ATMs and other product and service Enhancements, which are expected to add between $1,000,000 $1,500,000 per quarter to this line item. We currently anticipate modest increases in employee benefits and occupancy, offset by a decrease in marketing and other expenses, while maintaining our loan and deposit growth plans. Based on what we know today, we believe our expense run rate during the first half of twenty twenty four to be roughly consistent with the 4th quarter's reported 99,500,000 And then grow modestly due to annual midyear merit increases, higher healthcare costs and technology investments during the back half of the year. The provision for credit losses under CECL will depend upon the changes in macroeconomic forecast and qualitative factors as well as various credit quality metrics, including potential charge offs, Criticize and classified loan balances, delinquencies, changes in prepayment speeds and future loan growth.

Speaker 3

And lastly, we currently anticipate our full year effective tax To be between 17.5% and 18.5%, subject to changes in tax regulations and taxable income levels. Operator, we are now ready to take

Operator

Thank you. We will now begin the question and answer session. And if you have further questions, you may reenter the question queue. And the first question will come from Carl Sheppard with RBC Capital Markets. Please go ahead.

Speaker 1

Hey, good morning guys.

Speaker 2

Good morning.

Speaker 1

Good morning, Carl. I wanted to start on loan growth. It was obviously a very strong quarter for you guys. Could you talk a little bit about Production you're getting in these new markets, just kind of the industry verticals, loan size and just anything different about what you're seeing there versus the rest of the book?

Speaker 2

Yes, sure. As we mentioned, we're seeing really strong loan growth from our LPOs. A lot of that is it's a nice mix of C and I businesses and CRE Business. I would say that it's obviously a big portion of our pipeline going into this year. As far as differences, I would say it's no different than really what we're seeing across the rest of our footprint.

Speaker 2

It's just that obviously these LPOs are new and so there's newer opportunity a lot more opportunity for them to bring over their customers from other banks. And so we're seeing a nice pickup there. We expect to see continued pickup as we move forward this year. The other thing I would add is we are always evaluating opening New LPO is up. That will be part of our strategy this year.

Speaker 2

And I think as we move forward, it's a nice cost effective way that we continue to Grow our loans by using the OPO method.

Speaker 1

Okay. And then on the margin guidance, Dan, I was hoping you could touch a little bit on how sensitive it is to different rate scenarios. If we don't get cuts, Do you still expect improvement in the second half? And if cuts come a little earlier, what would that do to the margin guidance?

Speaker 3

Yes. So, Carl, as you know, we do try to generally maintain a pretty neutral posture. But if we think about just the kind of the headwinds and tailwinds without any cuts or with cuts, I think kind of working off of December, I would say, our spot margin Came in at $2.97 And we do think that at least in terms of margin trajectory that in the short term that our deposit costs will come in Slightly higher than our asset yields and that will get us into that mid to upper 2.90 percent outlook that we provided On our prepared commentary, we'll expect deposits to continue to reprice upward, but we are seeing some noticeable Decline in exception pricing and certainly to the extent that we see new deposit growth that would come on At a higher than our average as well. We're also anticipating, of course, a little bit of non interest bearing remix as we continue into 2024, but at a much slower pace. So I would call those kind of the headwinds to margin.

Speaker 3

But if we think about tailwinds here,

Speaker 4

particularly

Speaker 3

as we think about other funding sources, for Example, we do have $200,000,000 in broker deposits that are scheduled to roll off here, $1,000,000 in April, dollars 100,000,000 in May. Those are priced at Fed Funds plus 30 basis points roughly. So that would be certainly Headwind, 70% of our CD book or about $800,000,000 a little more than that is repricing in the next 12 months. That's Coming that's repricing from about 3.75%. So to the extent that we see an up or down, We can adjust from there, but most of that cost is already kind of baked into margin.

Speaker 3

And then we also, as you know, have about $1,000,000,000 in FHLB borrowings that are also very short term in nature. They're 1 month So to the extent that we see any Rate cuts, those would reprice downward very quickly. And then I would say, If we continue on, on the asset side, as you know and you can see this in our slide deck that 70% of the portfolio is variable rate, 30% being obviously fixed and of that variable rate 60% of that variable rate commercial portfolio reprice every 3 months or less. So that helps To kind of keep neutral on the asset side, that represents about 3,500,000 Dollars are about that's currently priced right around $7.75 And of course, in a cut scenario, Those would reprice downward. The remaining variable rate portfolio is or adjustable rates, And we see about $300,000,000 there repricing in the next 12 months coming off of 5.25%.

Speaker 3

So we would expect those generally to reprice upward. And then if we look even just at the fixed About 30% of that of our overall commercial portfolio is fixed, 10% matures Here in the next 12 months right around 4.9%. So lots of momentum there. And then keeping in mind that we've got new loan growth today that's coming on with an 8% handle. And then we're also rolling our cash flows from our securities portfolio that's currently yielding that 2.5% and re pricing up to the 8% handle.

Speaker 3

So again, kind of lots of positive momentum as we head into kind of the back half Of 2024. But I would say that's a long winded way of answering of basically We really think that we're going to be pretty neutral with 3 cuts or 6.

Speaker 1

That's great. Lots of puts and takes for sure, but it sounds like you guys have

Speaker 3

your arms around it. So thank

Speaker 1

you very much. I'll step back.

Operator

The next question will come from David Bishop with Duchovde Group. Please go ahead.

Speaker 4

Yes. Good morning, gentlemen.

Speaker 2

Hey, good morning,

Speaker 5

Dave. Hey, Jeff. Obviously,

Speaker 4

you have a focus On operating expenses, probably some of the growth this year reflected the aggressive LPO expansion and lender hires, employee benefits up. Just curious within the compensation to maybe employee benefits, is there anything specific you can do other than maybe slowing The rate of growth to restrain that, just curious how you're thinking this year to really keep a lid on expense growth overall?

Speaker 2

Yes, Dave. We're looking at everything and we just went through a retail transformation and we're hoping to wrap that up In the next month or 2, you may have seen we're down 65 employees in retail. We're looking to take down another 20. We are reinvesting some of that into the business banking space. The other thing we're looking to do is there are some processes across the bank that we're looking to see if we can make them more efficient.

Speaker 2

And then going back to the retail Space, we always evaluate kind of our bottom performing branches, and so we expect to do that again this year and also look at our hours as well. So I think there are a couple of things where we're really looking to do that we think we can reduce expenses and become more efficient. We're always looking to do that, but I do think we have some opportunities as we move forward this year.

Speaker 4

And remind me in terms of the ATM fleet upgrade, is that are those expenses down behind you? Is that fully in the run rate?

Speaker 3

Yes. I would say the 50 ATMs the final 50 ATMs were put into place here in the 4th quarter. So they're not fully baked into the run rate. I think on my prepared commentary there, I expect somewhere around about $1,000,000 of impact on a quarterly basis in that software and equipment line item related to Basically ATMs and some other investments.

Speaker 6

Got it. And then circling back

Speaker 4

to the margin and the funding of loans, remind us what The prospect for quarterly securities cash flow is entering 2024?

Speaker 2

It's usually $100,000,000 a quarter.

Speaker 3

That's where it still is.

Speaker 2

Yes, it's still $100,000,000 a quarter. And we'll still continue to use that obviously to fund loan growth.

Speaker 4

Got it. And then finally, you mentioned the success obviously on the loan side from the new LPOs. Just curious if you're Any traction yet in terms of the deposit and funding side out of these new locations? Thanks and I'll hop back into the queue.

Speaker 2

Yes, we are seeing a little bit of traction. It's more of a obviously a loan funding, but yes, we are seeing some deposit growth there, especially as we Continue to focus on expanding our C and I focus. So that's one of our main strategic goals is really to expand our C and I Lending, because it does bring deposits, it also brings fees, opportunities. And between that and obviously continuing Our swap fees as well as Dan mentioned, we overachieved our goal of $8,000,000 last year. We feel like those LPOs are really driving some nice

Operator

The next question will come from Russell Gunther with Stephens. Please go ahead.

Speaker 5

Hey, good morning, guys. I wanted to follow-up on the margin discussion. Dan, I appreciate all the puts and takes. Maybe just sticking with the deposit data, could you give us a sense for where you expect that to peak In the first half of the year. And then what are you assuming for the way down?

Speaker 5

And what's kind of baked into your 3 cut That fund cut guidance for 2024.

Speaker 3

Sure. So we generally try to stay away from disclosing betas, As you knew Russell, but I would say we are anticipating the peak in deposit costs really to occur here in the first half of the year. But on the way down, within our own modeling, we're right in that 25% range In terms of beta and really the question there's a couple of questions that come to mind. One is, is that an immediate is that immediate? Is that lagged?

Speaker 3

Is that after 1 or 2 or 3 cuts? And so I think that's all potentially up for debate. But What we see in our modeling is under multiple scenarios, we benefit in terms of margin. So We see deposit costs coming down at a faster rate than asset pricing.

Speaker 6

Okay.

Speaker 5

That's great, Dan. I appreciate that. And then just switching gears for my follow-up. Jeff, I believe you mentioned the potential for new LPOs as a part of the growth strategy this year. Just any color on geographic appetite would be great.

Speaker 2

Sure. We evaluate a lot of different geographies, but really our focus This is on Tennessee continuing to fill in there. We have Nashville and Chattanooga. We would look at potentially Knoxville or continuing to fill out the Nashville and Chattanooga areas. Virginia is another expansion state for us, Richmond, Northern Virginia.

Speaker 2

And then I would say potentially in Ohio, we always look at opportunities in Ohio. Obviously, we have a good presence there in part of the state, but continue to look There as well. I would say those are our 3 main areas. North Carolina could be a possibility down the road, but once again, mainly either filling in where we're at Or potentially continuing to move south.

Speaker 5

All right, Jeff. That's great. Thank you, guys. That's it for me.

Speaker 1

By duty.

Operator

The next question will come from Daniel Tamayo with Raymond James. Please go ahead.

Speaker 7

Hey, good morning guys. Thanks for taking my question.

Speaker 2

Hey, good morning.

Speaker 7

Maybe just starting on, you guys Talked a lot about the treasury management investments and as that comes online, I guess, over the course of the year and into next year, just Your thought on the ultimate goal there, like how big you want that contribution in terms of fee revenue? And maybe If you could put a little finer point on what maybe the contribution in the back half of twenty twenty four that you're expecting to grow off of?

Speaker 2

Sure. I think we're always looking to be less reliant on spread revenue. And so for me, targeting total fee revenue would be around 30%. That's a multiyear target. But for us, that's what we're looking to try to do.

Speaker 2

As it relates to our TM products, we mentioned we're continuing to build out the pipeline. We are getting these products in place. And so I do believe the pipeline is starting to build pretty strong. As far as the second half of the year, I don't really want to Give out any guidance on what that would be as far as revenue, but we think it would be pretty significant over the second half of the year. Once again, We are changing our treasury management team to be more sales like, transitioning it from more of a support Operational function.

Speaker 2

And so I do believe we'll see a nice pickup in the second half of the year based on that transition and the new products and the incentives we've put together for

Speaker 7

Okay, terrific. Thanks for that. And then my second question just on capital. You're benefiting as everyone is from lower rates here. And then assuming that We do get a soft landing or you continue to build capital.

Speaker 7

Just curious your thoughts on how share repurchases could fit into the capital priorities.

Speaker 2

Yes, I think we look at our capital deployment Starting with dividends, we obviously put that at the top of our capital deployment. Then we look at obviously loan growth, Then would be M and A and then would be buybacks. We're always actively out talking to other banks, but looking for different opportunities. But at this point, we're not really looking at buybacks if Something may change in the back half of the year, but right now, I would say it's down on the capital deployment priority list.

Speaker 7

Okay, understood. That's it for me. Thanks guys. Appreciate it.

Operator

Thank you. The next question will come from Catherine Mealor with KBW. Please go ahead.

Speaker 8

Thanks. Good morning.

Speaker 1

Hey, Good morning, Catherine. Good morning.

Speaker 8

Maybe just as a follow-up to the M and A comment you just made. Just talk to us about how you're thinking about M and A versus LPOs and team lift outs, it feels like that's been a little bit of a priority recently just given M and A has been slower, but what do you think it takes to get more active in M and A and what kind of potential deals would you put at the top of your strategy list?

Speaker 2

I would lay in basically the same comments I just made about LPOs of where we're looking. Typically, it would be Tennessee, Virginia filling in Ohio. And so for us, our target size Eyes is usually that $2,000,000,000 to $5,000,000,000 range of asset bank. That's kind of a nice fit for us. It's in a 10% to 15% of our asset size.

Speaker 2

But I think it's definitely an option for us. We do have a great capital position and we're in a good position to do an acquisition should one come along. So I think our history has shown that we create these LPOs to kind of test the waters in the market and then potentially do deals after that. So I would not see us changing that course. But once again, I think as you mentioned, the M and A market It has been difficult.

Speaker 2

I do believe sellers are looking for interest rates to decline and so that may make it more difficult because they Seemingly want to wait to see rates decline, potentially their valuations go up, but we will continue to be out there talking.

Speaker 8

That's great. And then on credit, your credit just remains really strong. Just any outlook for You think provisioning may trend this year. You've had a lot of negative provisions over the past couple of years and that you're starting to turn, but still really low. So just generally how you're thinking about provision cost and credit cost over the next year?

Speaker 2

Yes. For us, related to credit, we obviously Continue to look at all our portfolio to make sure they're doing well. We obviously look at office And do a deep dive on our office, which is in great shape there. I would see for this year, our credit Provisioning and costs to continue to stay relatively the same. We have seen, like Free Bank, you have a credit here or there, but so far we've been able to fix those credits and And restructure and rightsize those credits based on the strength of our borrowers.

Speaker 2

Dan, you want to add anything on the provision?

Speaker 3

Yes. No, I think you covered it, Jeff. I mean, certainly provisioning is going to be dependent upon loan growth is probably the biggest Absent credit events and wouldn't today a big portion of our provision And our allowance is based on the forecast of unemployment rates. And based on those forecasts, We're not seeing anything really significantly out of the ordinary. So we're just as Jeff said, we're

Speaker 1

kind of

Speaker 3

And that's anticipating something similar to what we experienced here in 2023.

Speaker 8

And on your on just if you think about commercial real estate maturities, can you give any just anecdotes or commentary on what you're seeing as Yes. Some of your fixed rate CRE loans are coming due and repricing. Are you seeing any credit stress in those moments or just kind of rental rates big enough And offset the impact of higher interest rates. Just kind of any commentary on what you're seeing just with your borrowers would be helpful.

Speaker 2

Yes, we have not really seen any stress. I mean, we've had, obviously, like every bank, a few deals here or there that has caused stress. But The nice thing is we've done a great job in picking the customers we lend to. And as I've said, people forget that since the 'eight crisis, It's been a great run for real estate developers. And so fortunately for us, our customers have had a lot of liquidity.

Speaker 2

And so when we do run into a situation, which has been rare, they have been able to step in and provide the additional equity to right size The refinance of the deal based on the higher rates.

Speaker 8

Great. Very helpful. Thank you.

Speaker 1

Thank you.

Operator

The next question will come from Casey Whitman with Piper Sandler. Please go ahead.

Speaker 5

Good morning, Casey. Good morning.

Speaker 8

Good morning. So most of my questions were answered, but maybe can you walk us through the assumption you have for deposit growth this year Against your comments around mid to upper single digit loan growth, how comfortable are you with the loan deposit ratio here at 88% or so? Or what do you see as the right level for Westbank Gold?

Speaker 2

Yes, I do believe we will have solid deposit growth. As far as it relates to the loan to deposit ratio, I could see that creeping up to near 90% to 92%. I do believe potentially our loan growth might outrun a little bit of our deposit growth. But once again, we do have the $100,000,000 a quarter that helps fund The loan growth. So I could see it slightly moving up because I do believe loans will outgrow deposits, but I don't think it will be by a wide margin and I do believe the securities $100,000,000 a quarter will help fund that gap.

Speaker 8

Got it. And how low are you comfortable with the securities book getting to, I guess, as a percentage of assets or is there a target range?

Speaker 3

Yes, Casey, it's right around 17%, I would say mid teens. So I would say 17% of total assets is kind of the Probably our bottom

Speaker 8

end. All right. Thanks.

Operator

Thank you. Our next question will come from Manuel Neves with D. A. Davidson. Please go ahead.

Speaker 6

Hey, good morning. Most of my questions have been answered too. Just could you touch on loan growth pace across the year? Would rates Kind of help accelerate it or would that pay down normalization on CRE kind of slow it? Like just kind of walk me through The dynamics you're thinking on loan growth across the year?

Speaker 2

Yes, sure. I actually believe that with a few cuts that we have modeled, As mentioned, we're modeling 3 cuts. I'm not sure it would really increase pay down speeds. I think you're going to need bigger cuts. When I think about pay downs, I think about obviously our CRE book, but going to the permanent market.

Speaker 2

And so to me, I think A couple of cuts here or there isn't going to make it worth moving a lot of CRE to the permanent market. So for me, I think Reductions in rates might help speed up our loan growth slightly, but I think if you see 3 25 basis Point cuts. I don't think it impacts it either way dramatically, if that makes sense.

Speaker 1

No, that's helpful.

Speaker 6

With the securities book, It seems like you're going to need to fund some of this loan growth with deposits. Has there been any That are or has there been opportunities for any like restructuring in the securities book? And are you constantly thinking of that to pay down borrowings perhaps?

Speaker 3

Yes. So we obviously, we've had those discussions probably every quarter for the last 6 quarters. Today, there is not. We feel that we're comfortable with where the loan to deposit ratio is. We're comfortable With the liquidity that we have, we don't feel that we need to necessarily enter into that kind of loss trade.

Speaker 3

And we feel that with rate cuts, we think that in the nearer term, Those unrealized losses are going to improve. So I'm a little hard pressed today to go in and take a loss On the loss trade and selling securities, I'd rather wait it out a couple more quarters and see where we're at then.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Mr. Jeff Jackson for any closing remarks. Please go ahead, sir.

Speaker 2

Thank you for joining us today. During the past year, we achieved sustained loan deposit and fee income growth, while maintaining strong capital levels and credit quality. We remain committed to continuing these growth trends while leveraging new products And expense management to deliver positive operating leverage. We look forward to speaking with you in the near future at one of our upcoming investor events. Please have a good day.

Speaker 2

Thank you.

Operator

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

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Key Takeaways

  • Strong 2023 Results: Despite record Fed rate hikes, WesBanco delivered sustained loan, deposit and fee income growth, reported Q4 net income of $32.4 million (EPS $0.55) and full‐year net income of $151.9 million (ex‐charges), with a 13% return on tangible common equity and NPAs at just 16 bps.
  • Robust Loan Growth: Total portfolio loans grew 9% year‐over‐year in Q4, driven by commercial and residential lending, and the loan pipeline reached $820 million; new commercial loan yields exceeded 8%, underpinning an expected mid‐ to upper‐single‐digit loan growth in 2024.
  • Deposit & Fee Income Expansion: Total deposits increased 2.4% annualized in Q4, while non‐interest income rose 8.3% year‐over‐year—highlighted by $9 million in new commercial swap revenue and organic trust and wealth management growth.
  • Operational Transformation: WesBanco cut 65 retail FTEs in 2023 (20 more planned) and is redeploying half of the savings into business banker hires; it is also launching new treasury management products—Integrated Payables and Multi Card—with revenue expected in H2 2024.
  • 2024 Outlook: Management anticipates net interest margin contraction to the mid‐ to upper‐2.90% range in H1, stabilizing thereafter with three 25 bp Fed cuts; expenses are expected to run near Q4’s $99.5 million run rate, delivering positive operating leverage, stable credit provisions, and an effective tax rate of 17.5–18.5%.
AI Generated. May Contain Errors.
Earnings Conference Call
WesBanco Q4 2023
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