WesBanco Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 24, 2024

There are 10 speakers on the call.

Operator

Hello, and welcome to the WesBanco Third Quarter 2024 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, Investor Relations. Please go ahead.

Speaker 1

Thank you. Good afternoon, and welcome to WesBanco Inc. Q3 2024 earnings conference call. Leading the call today are Jeff Jackson, President and Chief Executive Officer and Dan Weiss, Senior 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 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 afternoon. On today's call, we will review our strong Q3 2024 results and provide an update on our operations and current outlook for the Q4. Key takeaways from the call today are continued strong deposit and loan growth combined with solid credit quality. We focused on organic growth and efficiency gains to achieve positive operating leverage. Our transformative acquisition of Premier Financial Corp.

Speaker 2

Remains on track pending regulatory and shareholder approvals. WesBanco marked strong momentum in the 3rd quarter, driven by strategic actions that continue to strengthen our balance sheet. These include robust deposit and loan growth and the pay down of higher cost borrowings. Over the last year, WesBanco has grown loans by $1,100,000,000 and deposits by $750,000,000 reflecting the continued strength of our teams, markets and strategies. For the quarter ending September 30, 2024, we reported net income, excluding restructuring expenses available to common shareholders of $36,300,000 and earnings per share of $0.56 We successfully raised $200,000,000 of common equity during the quarter to position WesBanco for future growth.

Speaker 2

Reflecting this capital raise and strong earnings, our tangible common equity ratio increased 132 basis points quarter over quarter to 8.84%. The key story for the Q3 was our continued strong deposit and loan growth as sequential quarter deposit growth of 12% annualized was double annualized loan growth of 6%. Impressively, our total and commercial loan growth and deposit growth significantly outperformed the monthly data for all domestically chartered commercial banks on both a year over year and quarter over quarter basis. These proof points demonstrate the success of our strategies and teams. On the deposit gathering side, our recent Summer of One campaign, named for our well received West Bank of 1 account, was a great success, thanks to the partnership between our retail, commercial, marketing and strategy teams.

Speaker 2

We opened more than 6,000 new consumer accounts, helping to drive our 12% annualized deposit growth. Additionally, our teams grew total deposits by $750,000,000 or 6% during the last 12 months, reflecting their ongoing success and engaging current and prospective customers. On the loan side, 3rd quarter loan growth was 10% year over year and 6% quarter over quarter annualized, again driven by our commercial and residential lending teams. Total commercial loans increased 12% year over year and 8% sequentially on an annualized basis, driven by commercial real estate. Our 4 newest loan production offices accounted for nearly 20% of the commercial loan growth year to date, led by our Nashville and Chattanooga, Tennessee offices.

Speaker 2

These are proof points of the success of our LPO strategy. Our commercial loan pipeline as of September 30 was approximately $830,000,000 up slightly from a year ago, but down from June 30 as our teams converted the pipeline into another solid quarter of loan growth. Based on the current loan pipeline, we expect solid loan growth during the Q4 as well. Since year end 2021, we have achieved a strong compound annual loan growth rate of 9.4%. It's important to note that we achieved this impressive growth with roughly the same number of bankers, thanks to our talented team's continued productivity gains and great recruiting.

Speaker 2

What makes this growth even more notable is our banker success in delivering comprehensive relationship banking solutions, including deposits, ancillary products and services and wealth management solutions. These relationship focused efforts position WesBanco as a strong financial services partner, helping further our mission of fostering lasting prosperity for our customers and our organization. A great example of our relationship banking success occurred in August when a financial center manager observed that an existing client was having difficulty managing their line of credit and capital position. A team spanning retail, business and commercial banking, along with treasury, set out to work with the client understanding their issues, educating them on options and crafting a tailored solution. Their collaborative efforts resulted in opening of multiple deposit accounts with 6 figure balances, an improvement in the client's credit line management and a reduction in their cost of capital.

Speaker 2

Our deep understanding of the client's needs and our personalized approach strengthened the client relationship and resulted in a winning solution for both the client and WesBanco. Our underwriting and credit standards are a legacy of our company and we are achieving our strong loan growth without sacrificing credit quality. Our non performing assets decreased to 0.17% of total assets, which as can be seen in our supplemental earnings presentation, is less than half the level for all banks with asset size between $10,000,000,000 $25,000,000,000 dollars Criticized and classified loans as a percent of total loans have remained in a consistent range for the last 9 quarters. While total loans past due increased roughly 20 basis points during the 3rd quarter to 0.44 of total loans. We expect these loans to be resolved by the end of the 4th quarter.

Speaker 2

Turning to our pending acquisition of Premier Financial. We have filed all necessary bank regulatory applications as well as the initial filings with the SEC to schedule the shareholder meetings and remain on track for a Q1 closing pending regulatory and shareholder approvals. Through this transformative acquisition, we expect to accelerate our positive momentum, build on Premier's legacy of community engagement and support and together bring the resources of a larger, stronger financial services organization to benefit all of our communities. Lastly, I am proud that WesBanco has again been recognized for our success in building a workplace culture where purpose, belonging and opportunity thrive. In August, we were named 1 of America's greatest workplaces for parents and families by Newsweek.

Speaker 2

We were one of just 7 banks to receive a 5 star rating, Newsweek's highest performance mark. By fostering a supportive and family friendly workplace, we enhance the well-being of our team members and contribute to our broader vision of making every community we serve a better place for people and businesses to thrive. When our employees and our families thrive, so do our organization and communities. 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 for the Q4. Dan?

Speaker 2

Thanks, Jeff, and good afternoon.

Speaker 3

For the quarter ending September 30, 2024, we reported GAAP net income available to common shareholders of $34,700,000 or $0.54 per share. And when excluding after tax restructuring and merger related expenses, net income was $36,300,000 or $0.56 per share as compared to $34,800,000 or $0.59 per share in the prior year period. To highlight a few of the 3rd quarter's accomplishments, we achieved strong loan and deposit growth both year over year and sequentially, raised $200,000,000 of common equity in support of future growth, improved net interest income and effectively managed discretionary and personnel costs. All of this resulted in a $0.07 increase in earnings per share over the linked Q2 despite an increase in share count from the capital raise. As of September 30, total assets of $18,500,000,000 included total portfolio loans of $12,500,000,000 and total securities of $3,400,000,000 As Jeff mentioned, loan growth remained robust and was driven by our commercial and residential lending teams.

Speaker 3

With a strong pipeline, nearly $1,000,000,000 in unfunded LCD commitments expected to fund over the next 12 to 18 months and CRE payoffs at historically low levels, we continue to be optimistic about future loan growth. Commercial real estate payoffs totaled approximately $185,000,000 year to date as compared to an annual level in the $500,000,000 range in a more normal operating environment. Deposits of $13,800,000,000 which were up 5.7% versus the prior year and 12.1% annualized linked quarter reflected the success of our summer deposit retention and gathering campaigns. The composition of total deposits continues to experience mix shift, but at a slower pace than experienced in prior quarters as most deposits have already repriced upward. As is typical during a higher rate environment, we have experienced strong growth in CDs.

Speaker 3

However, when excluding them, we realized deposit growth of 2.2% year over year and 4.3% quarter over quarter annualized. Credit quality stability continues as key metrics have remained low from a historical perspective and within a consistent range through the last 2 plus years. The allowance for credit losses to total portfolio loans at the end of the quarter increased slightly to 1.13% of total loans, primarily due to higher unemployment assumptions and other qualitative adjustments. The 3rd quarter margin of 2.95 percent remained stable compared to the 2nd quarter and reflected both higher loan yields and higher funding costs, while the year to date margin increased 1 basis point to 2.94% as compared to the 2nd quarter. The margin also benefited from the pay down of $300,000,000 of Federal Home Loan Bank borrowings from deposit growth exceeding loan growth and the $200,000,000 of equity raised during the 3rd quarter.

Speaker 3

Of the $1,200,000,000 of Federal Home Loan Bank borrowings, approximately 75% with an average rate of 5.2% mature during the 4th quarter, and that should benefit our 2025 net interest margin as they reprice at lower rates. Total deposit funding costs, including non interest bearing deposits for the Q3 of 2024 were 205 basis points, an increase of 10 basis points over the linked quarter. Non interest income in the 3rd quarter totaled $29,600,000 a 4.1% decrease from the prior year period due to lower net swap fee and valuation income, which was driven by a negative fair value adjustment this year as compared to a gain last year. When excluding these adjustments, non interest income would have increased 6% to 31,300,000 dollars Trust fees and securities brokerage revenue increased a combined $1,100,000 year over year, driven by record levels of assets under management of $6,100,000,000 and brokerage securities account values of $1,900,000,000 both of which rose from organic growth and market appreciation. We are focused on organic growth and efficiency gains to achieve positive operating leverage and managing our discretionary and personnel costs are a key component.

Speaker 3

Excluding restructuring and merger related expenses, non interest expense for the 3 months ended September 30, 2024 totaled $99,200,000 a 2% increase year over year, primarily due to increases in other operating expenses and equipment and software expenses. Other operating expenses increased $1,500,000 primarily due to higher costs and fees in support of loan growth and higher other miscellaneous expenses. And equipment and software expense increased $1,000,000 reflecting the impact of the prior year ATM upgrades, which as we know were phased in throughout the prior year. Salaries and wages decreased $500,000 compared to the prior year period due to lower staffing levels associated with efficiency improvements in the mortgage and branch staffing models, partially offset by normal compensation merit increases. Employee benefits decreased $400,000 due to lower health insurance costs driven by lower staffing levels compared to the prior year period.

Speaker 3

Turning to capital. We enhanced our capital structure on August 1 through successfully raising $200,000,000 of common equity in conjunction with the announcement of the pending acquisition of Premier Financial. Our already strong capital position benefited from the equity raise, strong earnings and as a result, we've demonstrated favorable tangible equity levels compared to our peers, while regulatory capital ratios have remained above the applicable well capitalized standards. Turning to our outlook for the Q4, and please note that we will provide our 2025 outlook during the January call. We are modeling 2 additional Fed rate cuts in November December, which is not expected to have a significant impact on 2024 results due to timing, followed by 4 more cuts in 2025.

Speaker 3

We continue to model the 4th quarter's net interest margin to improve modestly in the upper 290s as our funding costs reprice down at a faster pace than our assets. We anticipate non interest income and non interest expense to remain relatively consistent with 3rd quarter trends. And as previously disclosed, we successfully consolidated 11 branches in the nearby locations earlier this month to ensure optimal distribution to best serve our customers. The anticipated annual savings is approximately $4,000,000 the majority of which will be realized during 2025. And finally, the provision for credit losses will mostly be dependent upon loan growth, economic factors and charge offs, and our effective tax rate should be in 17.5% range for the year.

Speaker 3

Operator, we're now ready to take questions. Would you please review the instructions?

Operator

Thank you. Today's first question comes from Daniel Tamayo with Raymond James. Please go ahead.

Speaker 4

Hi, sorry about that. Good afternoon, everyone. Maybe first on the margin as it relates to net interest income. You talked about a little bit of expansion in the Q4 up to the upper 290s. Maybe you could just remind us, you talked about the 2025 guidance coming out next quarter, but you're baking in 4 cuts.

Speaker 4

Just remind us what the impact from each one of those cuts maybe?

Speaker 3

Yes, Danny, I can take that. I mean, I would tell you that that's a long complicated calculation that I could probably spend an hour or so talking through. But I would say at a high level, just for the Q4 alone, if we think about the deposits growth that we experienced just here in the Q3 and our ability to pay down federal home loan bank borrowings with those deposits as well as the $200,000,000 in capital that we raised, that alone provides some margin improvement above the 2.95% reported here in the 3rd quarter. And so if we really tried to boil things down, that would probably be the primary driver today for that margin guidance in the 4th quarter.

Speaker 4

Okay. And then, maybe switching over to the credit side. So, clearly, the early stage numbers look good for you guys, NPLs down at a good number and maybe a little bit of an increase in criticized and classified, but not too much. But it's been a couple of very strong quarters from a net charge off perspective. Forecasts are my forecasts were kind of well above where you guys have been coming in.

Speaker 4

Just curious, I guess, on the near term, what you're able to see, visibility wise from a credit perspective, if things look relatively similar to what you've produced over the last couple of quarters?

Speaker 2

Yes, sure. I'll take that one. I think that we're still seeing great credit quality. I would expect it to be somewhere in the range of where we've been over Q3, Q2, somewhere in that range between the 2 of them. But once again, we're not really seeing any issues out there.

Speaker 2

We like others, we have a one off here and there, but those seem to be getting resolved. So we feel really good about where we're at with the credit quality and I don't foresee any dramatic changes going forward.

Speaker 4

Terrific. Thanks, Jeff. And then maybe just on the topic of the increase on the criticizedclassified side, just if you have any color on what type of loans those are comprised of that's driving that?

Speaker 2

Yes, it's a broad swath of different industries and different C and I, CRE. There's not really one area I'd pinpoint. And like I said, we feel really good about where we're at and I think some of those will migrate over the next several quarters. So there's not one area I can really pinpoint to say it's driving that, but I feel very confident that it will continue to move in the right direction going forward.

Operator

Thank you. The next question comes from Russell Gunther with Stephens. Please go ahead.

Speaker 5

Hey, good afternoon, guys. I would like I'd like to follow-up on the margin commentary, Dan, you provided. I appreciate the color there. You mentioned the positive catalyst of the FHLB maturities in the Q4 as a benefit to the 25 NIM. So could you help us with where you'd expect that kind of core NIM to step up to early next year?

Speaker 5

And then as we layer in the acquisition, how you'd expect that pro form a margin to shake out as we start the year?

Speaker 3

Yes. So I'll try to dive here a little bit deeper into the margin for your question here, Russell. If we think about kind of funding sources, so over the next month, we have about $900,000,000 in Federal Home Loan Bank borrowings at a weighted average rate of about 5.2% that will reprice. These are 1 month advances that will continue to provide benefit to our interest expense as we move forward. We also have about $800,000,000 in indexed insured cash sweep product that will reprice down.

Speaker 3

That reprice it down immediately another $700,000,000 in tiered private client money market accounts as well. Kind of continuing on the funding side, dollars 2,100,000,000 in interest bearing deposits that have repriced down a full 50 basis points and will also be very reactive to any future rate cuts. And as I said, we're anticipating a 25 basis point cut in November December and then basically 1 in each quarter in 2025. And then kind of on top of that, we've got another $200,000,000 in broker deposits, there at Fed Funds plus 20 basis points also indexed and repricing immediately. They'll actually mature here at the end of the Q1.

Speaker 3

And then the other kind of big catalyst as we think kind of more into 2025 would be we do have $1,300,000,000 in CDs, which is about 85% or so of the CD book will mature and or reprice here by Q2 of 20 25 and that's coming off of a 4.2% handle. And then if we look on the asset side for a moment, as you know and as you can see on Slide 8 there, about 75% of our commercial portfolio is variable rate, 25% is fixed. Of that variable rate, the variable rate loans about 2 thirds of that or about $4,200,000,000 reprises 3 months or less, every 3 months or less. And that's currently a kind of a weighted average rate of 7.6%. So that $4,200,000,000 is roughly half of the commercial book.

Speaker 3

And then if we think about kind of the adjustable rate, which reprice is really every kind of in that 48 to 60 month timeframe, What would be coming up in the next 12 months to adjust would be about $300,000,000 and that would be repricing upward. And then the fixed of the fixed rate about 10% per year kind of matures at least in the first year early years, that's $250,000,000 roughly that would mature here in the next 12 months at 4.5%. So that will also would reprice upward. So if we keep in mind with kind of the new loan growth that's coming on right around today 7.5% to 8%, you saw we're just under 8% here in the Q3 and we're continuing to reinvest cash flows from securities back into securities. And those cash flows, those yields are coming off at 2.5% and we're coming along at 4.5%.

Speaker 3

So we're picking up 200 basis points to 2.50 basis points in yield there. We do have we do feel that we've got a lot of kind of positive momentum as we head into 2025. And I would tell you, if we're thinking, what we're modeling would be kind of a similar increase today in NIM from Q3 to Q4 as we might see in Q4 to Q1. And then, if looking even deeper with the CDs maturing, by that time, we would anticipate 4 more cuts, 4 more 25 basis point cuts, so that'd be down 150 bps from the peak, we would anticipate there to be some more sizable margin benefit there in this kind of beginning in the Q2 of 2025. And then if we flare on top of that the Premier deal, of course, we talked last quarter about the margin benefit being right in that kind of 345 to 350 range we quoted in the slide deck 346.

Speaker 3

There can also be a few moving parts there. But generally speaking, I would say that's still pretty good estimate. That number still stands.

Speaker 5

Dan, I appreciate it. Very comprehensive. Thank you. And then just switching gears for my last question, the $4,000,000 of savings to be realized from the branch consolidation, Could you just give us a sense if any of that is spoken for in terms of franchise reinvestment or should all drop to the bottom line? And as a piece of that, prior to layering in the deal, what do you think is a good kind of core expense growth rate for WesBanco?

Speaker 3

Yes. I would tell you that well, first, we're always reinvesting, right? So but generally speaking, I would tell you that that $4,000,000 which is about $1,000,000 a quarter, call it, should be more or less dropping to the bottom line. If we think about expense run rate kind of forward, I would tell you and I said in my prepared remarks that you're not anticipating much difference from what we reported here in the Q3. The one thing or a couple of things I would tell you though that would be different from Q3 versus Q4 on expense run rate is for our salaries and wages, our hourly employees, their merit increases occur in August.

Speaker 3

And so we'll have a full quarter's worth of merit increases in the 4th quarter versus kind of having 2 thirds of that merit increase in the Q3. Also healthcare can be very difficult to predict, but I would say typically in that Q4 healthcare expenses are a bit higher just because employees have kind of burned through their deductibles. And at that point, the cost for any additional medical procedures is on the company. And then I would just tell you it's kind of some offsetting things that we had a pretty big marketing campaign as we talked about on our prepared commentary. Wouldn't expect marketing expense to be quite as high as what we experienced in the Q3.

Speaker 3

So some puts and takes, but I think overall pretty close to Q3, maybe a little bit heavier.

Speaker 5

Really helpful. Thanks, Dan. Thank you guys for taking my questions.

Speaker 3

Thanks, Russell.

Operator

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

Speaker 6

Thanks. Good afternoon.

Speaker 5

Hey, good afternoon, Catherine. Hey, Catherine.

Speaker 6

Just this is a small question, but on fees, I noticed that other income was down a little bit. What was the driver there? And should we expect that to bounce back to that kind of $5,000,000 level we've seen in the past few quarters?

Speaker 3

Yes. On non interest income, the driver really was in swap fees. The valuation adjustment this quarter was a negative $1,700,000 compared to a positive $1,400,000 in the Q3 of 'twenty three. So that swing is really what's causing probably if you're looking kind of year over year or even quarter over linked quarter for that matter, that's what's driving it. We don't expect that to occur here again in the Q4.

Speaker 3

But again, that is that's pure valuation. That's not necessarily indication of anything other than just movement in interest rates relative to where those back to back swaps were booked.

Speaker 6

That makes sense. Okay. I had that lumped together in others, so that makes sense. Okay. And then back to the margin, the 3.70 to 3.80 NIM that you mentioned, just wanted to confirm that, that is where you were thinking that the pro form a margin goes kind of at close with Premier including accretable yield?

Speaker 3

No. To kind of

Speaker 6

a second okay, go ahead.

Speaker 3

No. I'm not I don't believe I quoted $370,000,000 to $380,000,000

Speaker 6

I'm sorry, dollars 345 to $350,000,000 I misspoke.

Speaker 3

Yes, yes. Okay. I'm sorry, what was the question?

Speaker 6

The 345 to 350, pro form a margin that you mentioned, that what can you what exactly are you pointing to with that 345, 350 comment?

Speaker 3

Yes. So that's what we're kind of that's what we modeled. That was what we presented in our Q2 slide deck that kind of laid out the details of the deal. And that's how that's kind of what we modeled based the projections based on the loan accretion primarily with loan accretion that was driving that. I don't know if you recall from Q2, we did talk about the loan accretion being about $65,000,000 per year.

Speaker 3

And one of the things and so obviously that's playing into that upsized kind of margin guidance.

Speaker 6

Okay, got it. So that's just is kind of a pro form a margin at close. And then is it fair as we kind of think about the trajectory and I know we're now taking you past 2Q and past the close of it. As we think about just conceptually your balance sheet, so you see if you see a few bits of kind of core expansion in the next few quarters, which makes sense given all the puts and takes you gave, then we add Premier Inn and we're around 3.45, 3.50. And so that makes sense.

Speaker 6

And then as you move past that, if we still get some rate cuts to the back half of the year, is there a case for still expansion from there with things that you can do on the balance sheet? Or is it kind of you're stable for a while until rates kind of settle in?

Speaker 3

Yes, that's I mean, I would say that's tough to answer this far out. So I would say, yes, generally speaking though, there are a lot of different scenarios that really can play out. I would say one of the things that we do have is the opportunity to kind of restructure the balance sheet as we talked about last quarter. And depending on the rate environment at the time of legal merge, we may take advantage of that. We did talk about potentially sell under exploring $100,000,000 of CRE loans on their books and a couple of 100,000,000 in securities.

Speaker 3

And we'll certainly take the opportunity to maximize long term shareholder value as we get to legal merge. But I'd probably be speaking giving you an incorrect answer if I gave you anything at this point beyond the Q2.

Speaker 6

That's fair. And I wasn't trying to get you down to a number, just kind of trying to think directionally because the deal does lessen your asset sensitivity. And so conceptually, I would think you should be in a position where you could still see some margin expansion. So I was just curious if there was anything you were kind of seeing that was in plain sight in the back half of next year?

Speaker 3

Yes. No, I mean generally speaking, I would say in a down rate environment, we believe that both us and Premier are positioned to benefit even beyond kind of the forecast that we were using back in the Q2, which was basically a consensus estimate forecast for 2025. So I think that there is some upside there. Yes. And the offsetting component, as you know, that accretion begins to run down some on a quarterly basis.

Speaker 3

It's not overly significant though, a couple of basis points.

Speaker 6

Okay, got it. Perfect. And then maybe just one more on just the deal. Just big picture with more rate cuts in our modeling now between now and close, Is there a big change that you expect with initial tangible book value dilution and accretion? How do you think about that give and take?

Speaker 3

Yes, that's a great question. And it kind of goes back to the question your last question as well. And that's kind of what I was thinking in terms of when we modeled the deal and when we priced the deal or rather the fair values of the loans, we had about $65,000,000 in accretion. That was calculating fair value based on kind of May 31 forward curve, if you will. So if we think about where we are today, we know that there certainly has been a more aggressive down rate environment than what it was back in May June timeframe.

Speaker 3

And so I would anticipate to your point to see a little less TBV dilution, which is a positive and a little less accretion as a result with the offset coming on the actual on the balance or on the income statement through higher yields.

Operator

Thank you. The next question comes from Manuel Nieves with D. A. Davidson. Please go ahead.

Speaker 7

Hey, good afternoon.

Speaker 8

You were considering managing to a CRE concentration ratio of just under 300% and potentially thinking about that in the context of your back half this year loan growth. Is that less of an issue with kind of the rate trajectory and since the May mark? Can you just kind of talk through how you're thinking about loan growth with that CRE concentration level in mind?

Speaker 3

Yes. I would tell you, you're on to it, Manuel. Certainly, with the rate environment being lower, that puts that relieves some pressure from that 300% concentration ratio for sure.

Speaker 2

Yes. No, I would agree. We talk about it all the time. And that is obviously a driver of the previous question as well, right, with the rates coming down, where does the accretion dilution land, but it does provide relief for the 300% ratio. So, yes, to sum it up, it does make it easier, yes.

Speaker 8

Okay. Is the strong deposit growth, can you talk about it in terms of what regions were strongest? The one account is really helping, but just kind of what regions and what's coming out of the commercial lenders?

Speaker 2

Yes, sure. So, we're really excited about the tremendous deposit growth that we've shown. It's really coming across the entire footprint. The nice thing and I think you've heard me talk about this is a year ago we really started putting nice incentives for our commercial bankers to grow deposits and these are the fruits that we've basically seen from these type of programs along with our new consumer checking account, the Westbank One account. Obviously, we added about 6,800 accounts with the new summer of 1.

Speaker 2

And then we've seen tremendous commercial loan growth I mean deposit growth, which is really driving a lot of this additional NIM help. But it's all across the footprint and I would say it's kind of been a cultural change for us, but it's one that's really we're really benefiting from.

Speaker 8

Is there any additional commentary around the talent pipeline or is kind of the focus more on PFC going forward? Can you just touch on where you are on talent across the footprint?

Speaker 2

Yes. So obviously a big attention to the Premier acquisition and that's going really, really well. They've got a great amount of talent at that bank and we're very pleased and working through that. But outside of that, we are still recruiting. As I've mentioned before, we're still looking to add talent in Nashville.

Speaker 2

We're also looking at Knoxville and other potential LPOs. But those would be the 2 areas I would say we're definitely looking for additional talent along with our existing markets. We are looking at replacing a couple of market presidents who have retired and working through that as well. So we're always out trying to recruit and retain the best talent. And that's why we've seen such tremendous loan and deposit growth is we have retooled our teams and changed a lot of things that have really turned on the growth for this company.

Speaker 8

Thank you for the color. I'll step back into the queue.

Speaker 2

Thanks, Manuel.

Operator

Thank you. The next question comes from Karl Sheppard with RBC Capital Markets. Please go ahead.

Speaker 7

Hey, good afternoon, guys.

Speaker 5

Hey, good afternoon, Carl. Hey, Carl.

Speaker 7

Just to this might touch on your last answer a little bit, but loan growth obviously is a good story for you guys. You keep outpacing the industry. Can you expand a little bit on your optimism by continuing to do that into next year? And maybe some comments on the environment too, not just the new hires and production offices?

Speaker 2

Sure. Sure. No, I think we're very optimistic on continuing loan growth. Once again, I think you've heard me say this, but we're doing about double the amount of loans with the same amount of people we had about 3 years ago. And a lot of that has been our talent management and recruitment.

Speaker 2

Our loan production offices, the expansion there is doing about 20% of the loan growth that we've had in loan production. I see the environment continuing to be pretty strong for us. I don't see it slowing down. I mean, I think with rates coming down, that gives people opportunities to potentially do more things that maybe they've been holding off on or it also provides refinance opportunities. And so when you combine that with our continued recruitment of great talent people and the way we go to market and the products we put out there and our local decision making and our company culture, I still foresee a very strong loan growth for us in the future.

Speaker 2

I think with the addition of Premier and pulling that company into our culture and in our sales models, I think it's just going to accelerate even more.

Speaker 7

Okay. That's helpful. And Dan, we've talked a lot about the margin. It seems like your balance sheet is positioned pretty well for a series of 25 basis point cuts. But I'm just curious, do you have any preference really where rates go or just how sensitive some of those assumptions are?

Speaker 3

I would tell you that generally speaking, no. We are very much neutral as it relates to short term asset and liability repricing. So whether we see 25 or 50 over one of these meetings, that's not going to be that's not going to have much of an impact. Quite frankly, I think a 50 would be more helpful than a 25 slightly, but not we don't have that in our forecast and that would just be that would be the cherry on top.

Speaker 7

Okay. And then maybe I'll slip one more in. You guys did the borrowing repay down the common equity offering this quarter. Anything you want to do ahead of near closing? I know there's a few actions depending on what rates are at that time, but anything between now and then you want to do to tinker with the balance sheet?

Speaker 3

There is nothing specifically that we have in mind. I mean, we certainly have talked about some of the restructuring that we have planned for on a combined basis, particularly like I said securities, some CRE loans. We do have 16% of our securities portfolio is variable rate. We've not talked deeply about this, but there could be if we really felt strongly that we're going to be on a long term down rate environment, that's an area that one could explore in terms of selling basically at no gain or loss and locking in fixed rate for a longer term, but nothing specific at this point.

Speaker 7

Thanks guys.

Speaker 5

Thanks.

Operator

Thank you. Today's last question comes from Dave Bishop with Hovde. Please go ahead.

Speaker 9

Hey, good afternoon gentlemen.

Speaker 5

Hey, good afternoon Dave. Hey, Dave. Hey, Jeff or Dan, probably

Speaker 7

more to Dan. You gave us some

Speaker 4

good color in terms of the

Speaker 9

You gave us some good color in terms of the anticipated maturation or expiration of some of the flood borrowings and CDs and the weighted average rates. Just curious what current market rates you think you could sort of roll those into currently? Is that on CDs? CDs and the flub curve.

Speaker 3

Yes. So right now FHLB is running we've got the $900,000,000 and we're continuing to keep that in kind of 1 month advances. And that's running about 10 to 15 basis points above Fed funds. So that would be the reinvestment rate I would tell you today. Certainly to the extent that we can generate additional deposits and pay down FHLB sooner that would certainly be desirable.

Speaker 3

We're not necessarily projecting that nor are we projecting the kind of deposit success 12.1% annualized in the Q3. In the Q4 or anytime in the near future, we're very happy with that. But yes, I would say the estimate the expectation there would be kind of Fed funds plus 10 or 15 basis points for FHLB. Those are repricing like I said every month. And then on the CD book, we have lowered those rates quite substantially about 75 basis points from where we were.

Speaker 3

At one point, we were as high as 5.25%. We came down to 4.75%. Today, we're right around 4% on the 7 month special.

Speaker 9

4%. Okay. Great. And then, Jeff, you mentioned obviously the compensation revamp driving some really stellar deposit growth there on the incentive side. I assume is that sort of fully baked into the incentive run rate?

Speaker 9

Would there be any sort of Q4 catch up in terms of like bonus accruals or such? Just curious how that impacts compensation maybe next quarter?

Speaker 2

No, it wouldn't impact any sort of quarterly. What we did was we took the commercial banker incentive program and just rechanged some of the categories and what we pay for them. And so you may have heard me say last year we added deposits. And so the amounts of the incentives would be the same and those are typically paid out in Q1, accrued for obviously this year. But it wouldn't change any expenses for us in the future quarters.

Speaker 2

It's already accounted for.

Speaker 9

Okay, great. And then final question here. Jeff, a lot of your peers I guess have been dealing with it seems like pretty outsized payoffs, especially in commercial real estate this quarter. Just curious how you've been you think you've been able to sidestep it? And it sounds like you've got line of sight to no large looming larger payoffs here in the Q4, if I read the TV correct?

Speaker 2

Yes. I would say, we work with our customers very well. You're right. We haven't seen a lot of large payoffs. I think Q4, we might see a little more than Q3, slightly more, a few different payoffs.

Speaker 2

But no, we don't see any major large looming momentous payoffs coming so far. We do talk to our customers all the time. And like I said, Q4 might be a little heavier than Q3. But no, we keep a very close tab on that and feel very good about it.

Speaker 9

Great. Appreciate the color.

Speaker 5

Thanks, Dave.

Operator

Thank you. This concludes our question and answer session. Would now like to turn the conference back over to Mr. Jeff Jackson for any closing remarks.

Speaker 2

Thank you. During the past quarter, we again achieved strong deposit and loan growth, while maintaining strong capital levels and credit quality. We are focused on organic growth and efficiency gains to achieve positive operating leverage and remain well positioned for future growth. Thank you for joining us today and we look forward to speaking with you in the near future at one of our upcoming investor events. Have a great day.

Speaker 2

Thank you.

Operator

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

Powered by Quartr
Earnings Conference Call
WesBanco Q3 2024
00:00 / 00:00