Q4 2023 WesBanco Inc Earnings Call

January 24, 2024

Thank you.

Good day and welcome to the West Bank of 4th Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touchtone phone. And to withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Mr. John Iannone. Please go ahead, sir.

Good day and welcome to the West Bank of fourth quarter 2023 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone.

Phone and to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mr. John <unk>. Please go ahead Sir.

John Iannone: Thank you. Good morning, and welcome to West Banco Inc.'s fourth quarter 2023 earnings conference call.

John: Thank you good morning, and welcome to West Bancorp Inc's fourth quarter 2023 earnings Conference call.

John Iannone: Leading the call today are Jeff Jackson, President and Chief Executive Officer, and Dan Weiss, Executive Vice President and Chief Financial Officer.

John: Leading the call today are Jeff Jackson, President and Chief Executive Officer, and Dan Weiss Executive Vice President and Chief Financial Officer.

John Iannone: Today's call, an archive of which will be available on our website for one year, contains forward-looking information.

John: Today's call archive of which will be available on our website for one year contains.

John: Contains forward looking information.

John: Cautionary statements about this information and reconciliations of non-GAAP measures are included in our earnings related materials issued yesterday afternoon.

John Iannone: Cautionary statements about this information and reconciliations of non-GAAP measures are included in our earnings-related materials issued yesterday afternoon.

John Iannone: as well as our other SEC filings and investor materials.

John: As well as our other SEC filings and Investor materials.

John Iannone: These materials are available on the Investor Relations section of our website, WestBanco.com.

John: These materials are available on the Investor Relations section of our website <unk> com.

John Iannone: All statements speak only as of January 24, 2024, and West Banco undertakes no obligation to update them.

John: All statements speak only as of January 24, 2024.

John: It was Banco undertakes no obligation to update them.

John: I would now like to turn the call over to Jeff Jeff.

Speaker Change: I would now like to turn the call over to Jeff. Jeff?

Jeff Jackson: Thanks, John and good morning.

Jeff Jackson: Thanks, John, and good morning.

Jeff Jackson: On today's call, we will review our results for the fourth quarter of 2023.

On today's call, we will review our results for the fourth quarter of 2023.

Jeff Jackson: and provide an update on our operations and our current 2024 outlets.

Jeff Jackson: And provide an update on our operations and our current 'twenty 'twenty four outlook.

Jeff Jackson: The key takeaways from the call today are

Jeff Jackson: He takeaways from the call today are.

Jeff Jackson: successfully navigated industry-wide headwinds through the strength of our teams and our

Jeff Jackson: Successfully navigated industry wide headwinds through the strength of our teams and our strategies.

Jeff Jackson: Abstain Loan, Deposit, and Fee Income Growth.

Jeff Jackson: Sustained loan deposit and fee income growth.

Jeff Jackson: Maintain strong capital levels and key credit quality measures.

Jeff Jackson: focused on delivering positive operating leverage through new products and services and expense management.

Jeff Jackson: Focused on delivering positive operating leverage through new products and services and expense management.

Jeff Jackson: Despite the industry-wide headwinds caused by the Federal Reserve's record interest rate escalation,

Jeff Jackson: Despite the industry wide headwinds caused by the federal reserve's record interest rate escalation.

Jeff Jackson: Wes Banco performed well during 2023 through our continued focus on customer service and sustainable growth strategy.

Jeff Jackson: What's Banco performed well during 2023 through our continued focus on customer service and sustainable growth strategies.

Jeff Jackson: We achieve sustained loan, deposit, and fee income growth.

Jeff Jackson: We achieved sustained loan deposit and fee income growth.

Jeff Jackson: maintained strong capital levels and credit quality.

Jeff Jackson: We maintained strong capital levels and credit quality.

Jeff Jackson: and remain focused on ensuring a strong organization for our shareholders.

Jeff Jackson: And remain focused on ensuring a strong organization for our shareholders, while investing appropriately for long term sustainable growth.

Jeff Jackson: while investing appropriately for long-term sustainable growth.

Jeff Jackson: Through successful operational execution we.

Jeff Jackson: through successful operational execution.

Jeff Jackson: 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.

Jeff Jackson: 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.

Jeff Jackson: which will ensure success regardless of the economic environment.

Jeff Jackson: Which will ensure success regardless of the economic environment.

Jeff Jackson: As we begin 2024, we remain well capitalized with solid liquidity and capacity to fund loan growth

Jeff Jackson: As we began 2024, we remain well capitalized with solid liquidity and capacity to fund loan growth positioning us well to continue generating value for our shareholders.

Jeff Jackson: positioning us well to continue generating value for our shareholders.

Jeff Jackson: For the quarter ending December 31st 2023, we reported net income available to common shareholders of $32 4 million.

Jeff Jackson: For the quarter ending December 31st, 2023, we reported net income available to common shareholders of $32.4 million.

Jeff Jackson: and diluted earnings per share of 55 cents.

Jeff Jackson: And diluted earnings per share of 55 cents.

Jeff Jackson: and for the full year, we reported net income available to common shareholders of $151.9 million.

Jeff Jackson: And for the full year, we reported net income available to common shareholders of $151 9 million.

Jeff Jackson: and diluted earnings per share of $2.56.

Jeff Jackson: And diluted earnings per share of $2.56 when excluding after tax merger and restructuring charges.

Jeff Jackson: when excluding after-tax merger and restructuring charges.

Jeff Jackson: Furthermore, the strength of our financial performance during the past year as demonstrated by our return on tangible common equity of 13%.

Jeff Jackson: Furthermore,

Jeff Jackson: The strength of our financial performance during the past year is demonstrated by our return on tangible common equity of 13%.

Jeff Jackson: Non-performing assets to total assets of just 16 basis points?

Jeff Jackson: Nonperforming assets to total assets of just 16 basis points.

Jeff Jackson: and a capital position that continues to provide financial and operational flexibility.

Jeff Jackson: And our capital position that continues to provide financial and operational flexibility as demonstrated by our tangible common equity ratio of 762%.

Jeff Jackson: as demonstrated by our tangible common equity ratio of 7.62%.

Jeff Jackson: Throughout the past year, we accomplished several milestones and continued to receive numerous national accolades that resulted from our strong performance, operational strengths, and focus on communities, customers, and employees.

Jeff Jackson: Throughout the past year, we accomplished several milestones and continue to receive numerous national accolades that resulted from our strong performance operational strengths and focus on communities customers and employees.

Jeff Jackson: 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.

Jeff Jackson: 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.

Jeff Jackson: Just to highlight a few of our accomplishments.

Jeff Jackson: Westbanker was awarded its eighth consecutive composite outstanding rating by the FDIC for its Community Reinvestment Act performance.

Jeff Jackson: Let's banker was awarded its eighth consecutive composite outstanding rating by the FDIC for its community Reinvestment Act performance a period spanning more than 20 years.

Jeff Jackson: A period spanning more than 20 years.

Jeff Jackson: 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.

Jeff Jackson: We introduced new products and services to better serve our customers, including the new West Bank of one account.

Jeff Jackson: We introduce new products and services to better serve our customers.

Jeff Jackson: including the new West Bank 01 account.

Jeff Jackson: which continues to exceed adoption expectations with more than 90,000 new and migrated accounts today.

Jeff Jackson: Which continues to exceed adoption expectations with more than 90000, new and migrated accounts today.

Jeff Jackson: We continued our commitment to building a diverse and inclusive workforce by hosting three in-person West Banco equity conferences in our Upper Ohio Valley, Mid-Atlantic,

Jeff Jackson: We continued our commitment to building a diverse and inclusive workforce by hosting three in person Westvaco equity conferences, and our upper Ohio Valley mid Atlantic.

Jeff Jackson: and Southwestern Ohio, Northern Kentucky Market.

Jeff Jackson: And southwestern Ohio, and Northern Kentucky markets.

Jeff Jackson: Lastly, we continue to receive top rankings this past year.

Jeff Jackson: reflecting our strength and stability and the efforts of our employees every day to maintain our community banking roots and customer-focused philosophy.

Jeff Jackson: Reflecting our strength and stability and the efforts of our employees every day to maintain our community banking roots and customer focused philosophy.

Jeff Jackson: We were recognized for strong customer service, digital services, and financial advice.

Jeff Jackson: We were recognized for strong customer service digital services and financial advice.

Jeff Jackson: Soundness, Safety, and Profitability.

Jeff Jackson: Soundness safety and profitability.

Jeff Jackson: employer of choice.

Jeff Jackson: Employer of choice.

Jeff Jackson: and recently we were named one of Newsweek's best regional banks based on soundness, profitability and customer reviews.

Jeff Jackson: And recently, we were named one of Newsweek's best regional banks based on soundness profitability and customer reviews.

Jeff Jackson: The key story for the fourth quarter, as well as the year, was solid loan growth and deposits.

Jeff Jackson: The key story for the fourth quarter 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 and 25 billion.

Jeff Jackson: while maintaining our strong credit standards, which remain at relatively low levels and favorable to average of all banks with assets between 10 and 25 billion.

Jeff Jackson: We reported fourth quarter loan growth of nearly 9% year-over-year and 11% quarter-over-quarter annualized.

Jeff Jackson: We reported fourth 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.

Jeff Jackson: which was driven by both our commercial and residential lending

Jeff Jackson: Total commercial loans increased 8% year-over-year and 13% sequentially annualized.

Jeff Jackson: Total commercial loans increased 8% year over year, and 13% sequential E annualized.

Jeff Jackson: driven by our banker hiring and loan production office strategy.

Jeff Jackson: Driven by our banker hiring and loan production office strategies.

Jeff Jackson: In fact, our four newest loan production offices accounted for more than 20% of the commercial loan growth during the year.

Jeff Jackson: as they continue to demonstrate a strong return on investment.

Jeff Jackson: As they continue to demonstrate a strong return on investment.

Jeff Jackson: Furthermore, we continue to ensure that we earn an appropriate return on the loans we are generating.

Jeff Jackson: 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%.

Jeff Jackson: as new commercial loan yields are topping 8%.

Jeff Jackson: Our commercial loan pipeline as of January 15th was approximately $820 million.

Jeff Jackson: A 19% increase from the level at December 31st and roughly flat to September 30th.

Jeff Jackson: Our teams continue to find business opportunities to replenish the pipeline that has been driving our strong loan growth.

Jeff Jackson: Our new loan production offices account for 28% of the current pipeline.

Jeff Jackson: with Tennessee representing a meaningful percentage.

Jeff Jackson: Tennessee, representing a meaningful percentage.

Jeff Jackson: Dependent upon the economy, we expect to generate continued loan growth in the mid to upper single digit range. During 'twenty 'twenty four as our loan production offices and Baker hiring initiatives gain additional traction.

Jeff Jackson: 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.

Through the strong efforts of our retail and commercial teams, we successfully navigated the industrywide terminal earlier in 2023 and grew total deposits year over year.

Jeff Jackson: Building upon the success of our companywide deposit generation and retention campaign. We again grew total deposits during the fourth quarter, which increased two 4% annualized from the third quarter.

Jeff Jackson: Building upon the success of our company-wide deposit generation and retention campaign,

Jeff Jackson: We, again, grew total deposits during the fourth quarter, which increased 2.4% annualized from the third quarter.

Jeff Jackson: 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 million of new commercial swap revenue and organic growth in our trust and wealth management business during this past year.

Jeff Jackson: In addition, our focus on diversifying our revenue streams with new fee based services is driving positive noninterest income trends as demonstrated by $9 million of new commercial swap revenue and organic growth in our trust and wealth management business. During this past year.

Jeff Jackson: Our bankers continue to work diligently on deepening our commercial relationships.

Jeff Jackson: Our bankers continue to work diligently on deepening our commercial relationships with a focus on deposit and fee business Cross sell.

Jeff Jackson: with a focus on deposit and fee business cross-sector.

Jeff Jackson: During the fourth quarter, we had a nice team win in our Western Pennsylvania market.

Jeff Jackson: A team comprised of retail, commercial, and treasury management associates significantly expanded our relationship with a commercial customer.

Jeff Jackson: A team comprised of retail commercial and Treasury management associates significantly expanded our relationship with a commercial customer.

Jeff Jackson: 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.

Jeff Jackson: After several discussions to understand the clients' 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 their relationship.

Jeff Jackson: and win more of the relationship.

Jeff Jackson: Ultimately, we earn several business deposit accounts totaling seven figures, a multi-million dollar family trust, and additional personal deposit accounts.

Jeff Jackson: Ultimately, we earn several business deposit accounts totaling seven seven figures a multi million dollar family Trust and.

Jeff Jackson: Personal deposit accounts. This example highlights our commitment to winning can play banking relationships through a deep understanding of client needs and we expect to continue the strong efforts at deepening relationships going forward.

Jeff Jackson: 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.

Jeff Jackson: We continue to make important growth-oriented strategic investments that will generate positive operating leverage.

Jeff Jackson: We continue to make important growth oriented strategic investments that will generate positive operating leverage.

Jeff Jackson: During the past year, we implemented our retail transformation initiative, which we expect to complete during the first quarter of 2024.

Jeff Jackson: During the past year we implemented our Retail Transformation Initiative.

Jeff Jackson: which we expect to complete during the first quarter of 2024.

Jeff Jackson: 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.

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.

Jeff Jackson: We reduced staffing by 65 employees throughout 2023 through a combination of attrition and retirements and currently expect another 20 reductions during the first quarter.

Jeff Jackson: We intend to use about half of the overall savings to grow our business banking program and generate additional revenue through loans and deposits in merchant and Treasury management fees.

Jeff Jackson: We expect a slow build on the business banking investment through the first year with a potential expansion in coming years.

Jeff Jackson: We expect a slow build on the business banking investment through the first year with the potential expansion in coming years.

Jeff Jackson: Lastly, the transformation of our treasury management business into a sales oriented organization primed to be more comprehensive and profitable.

Lastly, the transformation of our Treasury management business into a sales oriented organization primed to be more comprehensive and profitable.

Jeff Jackson: Customer Relationships is progressing nicely.

Jeff Jackson: Customer relationships is progressing nicely.

Jeff Jackson: We are completing the rollout of a couple new products during the first half of the year.

Jeff Jackson: We are completing the rollout of a couple of new products during the first half of the year.

Jeff Jackson: 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.

Jeff Jackson: Integrated payables as 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.

Jeff Jackson: Customers will benefit from reduced AP costs, elimination of errors, enhanced fraud mitigation,

Jeff Jackson: Customers will benefit from reduced a pea cost elimination of errors enhance fraud mitigation.

Jeff Jackson: and potential rebates generated from virtual card payment.

Jeff Jackson: And potential rebates generated from virtual card payments.

Jeff Jackson: MultiCard is a pay-in-full card issued to employees of established companies combining travel and entertainment, fleet cards, and purchasing cards into one.

Jeff Jackson: Multi card is a painful card issued to employees of established companies, combining travel and entertainment fleet cards and purchasing cards into one.

Jeff Jackson: Customers will benefit from optimizing payable efficiency while benefiting from robust employee controls designed to reduce fraud and enhance accountability.

Jeff Jackson: Customers will benefit from optimizing payable efficiency, while benefiting from robust employee controls designed to reduce fraud and enhance accountability.

Jeff Jackson: In addition to robust transaction reporting and multi-card transaction control, multi-card clients will receive an annual rebate based on their total card size.

Jeff Jackson: 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.

Jeff Jackson: due to the complexity of integrated payable.

Jeff Jackson: Due to the complexity of integrated payables Onboarding, new clients take somewhat longer after service agreement documentation is completed however, multi card has a shorter timeframe. After the service agreement documentation is completed.

Jeff Jackson: Onboarding new clients takes somewhat longer after service agreement documentation is completed. However, multi-card has a shorter time frame after the service agreement documentation is completed.

Jeff Jackson: 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.

Jeff Jackson: and we have great opportunities to deepen our commercial banking relationships.

Jeff Jackson: We are currently focused on building a strong pipeline with revenue beginning to be generated during the second half of 2025.

Jeff Jackson: We are currently focused on building a strong pipeline with revenue beginning to be generated during the second half of 'twenty 'twenty four.

Jeff Jackson: These are examples of commitment to innovation and investments that serve customers better and drive sustainable growth.

Jeff Jackson: 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.

Jeff Jackson: I believe in the long-term growth prospects we are building for our customers, communities, employees, and shareholders.

Speaker Change: I would now like to turn the call over to Dan Weiss, our CFO, for an update on fourth quarter financial results and a current outlook for 2024. Dan?

Speaker Change: I would now like to turn the call over to Dan Weiss, our CFO for an update on fourth quarter financial results and current outlook for 2020 for Dan.

Dan Weiss: Thanks, Jeff, and good morning. Our fourth quarter results continued to demonstrate loan and deposit growth, strong capital levels and credit quality, and a stable net interest margin.

Dan Weiss: Jeff and good morning.

Dan Weiss: Our fourth quarter results continued to demonstrate loan and deposit growth strong capital levels and credit quality and a stable net interest margin.

Dan Weiss: For the quarter ending December 31, 2023, we reported gap net income available to common shareholders of $32.4 million, or $0.55 per share, and $148.9 million, or $2.51 per share, for the full year.

Dan Weiss: For the quarter ending December 31, 2023, we reported GAAP net income available to common shareholders of $32 4 million or 55 per share and $148 9 million or $2 51 per share for the full year.

Dan Weiss: Net income available to common shareholders, excluding after tax restructuring and merger related expenses for 2023 was $151 9 million or $2 56 per diluted share as compared to $183 3 million or $3.04 per diluted share in the prior year period.

Dan Weiss: The primary driver of year-over-year results was the impact of the higher interest rate environment, the recording of a provision expense this year as compared to a provision release in the prior year, and inflation.

Dan Weiss: The primary driver of year over year results was the impact of the higher interest rate environment. The recording of a provision expense this year as compared to a provision release in the prior year and inflation.

Dan Weiss: As of December 31st, total assets of $17.7 billion included total portfolio loans of $11.6 billion and securities of $3.4 billion.

Dan Weiss: As of December 31, total assets of $17 7 billion included total portfolio loans of $11 6 billion and securities of $3 4 billion.

Dan Weiss: Portfolio loans grew nearly 9% year over year, reflecting the strength of our markets and lending teams combined with our strategic lending initiatives.

Dan Weiss: We continued to use our securities portfolio to fund loan growth as the regular cash flow from the portfolio funded roughly 40% of the nearly $1 billion of loan growth during the year.

Dan Weiss: Commercial real estate loan payoffs totaled $276 million during the year as compared to an anticipated annual level in the $500 million range within a more normal operating environment.

Commercial real estate loan payoffs totaled $276 million during the year as compared to an anticipated annual level and the $500 million range within a more normal operating environment.

Dan Weiss: 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.

Dan Weiss: As interest rates continued to stabilize and potentially decline, we anticipate the pace of CRE payoffs to pick up meaningfully as we progress throughout 2024.

Host: Thank you. Good day and welcome to the West Bank of 4th Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode.

Dan Weiss: Residential mortgage originations totaled approximately $690 million for the full year, with roughly 43% of the originations sold into the secondary market, as compared to $1 billion and 23% respectively for 2022.

Dan Weiss: Residential mortgage originations totaled approximately $690 million for the full year with roughly 43% of the originations sold into the secondary market as compared to $1 billion and 23% respectively for 2022.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touchtone phone.

Dan Weiss: Our retail and commercial teams continue to grow deposits by winning new accounts and deepening relationships with existing customers as total deposits of $13.2 billion increase both sequentially and year-over-year.

Dan Weiss: Our retail and commercial teams continue to grow deposits by winning new accounts and deepening relationships with existing customers as total deposits of $13 $2 billion increased both sequentially and year over year.

Operator: And to withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Mr. John Iannone. Please go ahead, sir.

Thank you. Good morning, and welcome to West Banco Inc.'s fourth 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 one year, contains forward-looking information. 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, WestBanco.com. All statements speak only as of January 24, 2024, and West Banco undertakes no obligation to update them. I would now like to turn the call over to Jeff. Jeff?

Dan Weiss: Brokered deposits totaled $211 million at December 31, a decrease of $53 million from September 30.

Dan Weiss: Further broker deposits totaled $211 million at December 31, a decrease of $53 million from September 30th.

Dan Weiss: excluding broker deposits, total deposits increased approximately $134 million over the third quarter, representing a 4% annualized growth rate.

Dan Weiss: Excluding broker deposits total deposits increased approximately $134 million over the third quarter, representing a 4% annualized growth rate.

Dan Weiss: Consistent with a higher interest rate environment, we continued to experience some shift in the mix of our deposits with noninterest bearing demand deposits down 5% from the third quarter. However, total demand deposits and noninterest bearing demand deposits as percentages of total deposits continued to remain consistent with the ranges and averages since 2019.

Dan Weiss: Consistent with a 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 third 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 2020.

Dan Weiss: Yeah.

Dan Weiss: The fourth quarter's net interest margin of 3.02% remains stable to the third 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.

Dan Weiss: The fourth quarter's net interest margin of 3.2% remains stable to the third 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.

Dan Weiss: total deposit funding costs including non-interest bearing deposits for the fourth quarter of 2023 were 161 basis

Dan Weiss: Total deposit funding costs, including noninterest bearing deposits for the fourth quarter of 2023, or 161 basis points, an increase of 25 basis points over the linked quarter.

Jeff Jackson: Thanks, John, and good morning. On today's call, we will review our results for the fourth quarter of 2023 and provide an update on our operations and our current 2024 outlets. The key takeaways from the call today are that we successfully navigated industry-wide headwinds through the strength of our teams and our ability to Abstain 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, Wes Banco performed well during 2023 through our continued focus on customer service and sustainable growth strategy. 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.

Dan Weiss: an increase of 25 basis points over the one quarter.

Dan Weiss: We mostly offset these higher funding costs through the reinvestment of cash from securities and loan maturities into higher yielding loans.

Dan Weiss: Our fourth quarter loan yield of 5.61% 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.

Dan Weiss: Our fourth quarter loan yield of 561% 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.

Dan Weiss: Non-interest income for the quarter ending December 31st totaled $30 million, 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.

Dan Weiss: Noninterest income for the quarter, ending December 31 totaled $30 million and eight 3% increase from the prior year period that was driven by commercial swap in wealth management fees as well as higher bank owned life insurance income.

Dan Weiss: Swap Valuation Losses,

Dan Weiss: Swap valuation losses.

Dan Weiss: totaled $2.5 million during the fourth quarter, more than offsetting the $2.2 million in new commercial swap fees.

Dan Weiss: Totaled $2 5 million during the fourth quarter more than offsetting the $2 2 million in new commercial swap fees for the full year, we generated $9 million of new swap fees more than doubling the amount earned during the prior year and exceeding the $8 million target.

Dan Weiss: For the full year, we generated $9 million of new swap fees, more than doubling the amount earned during the prior year and exceeding the $8 million target.

Dan Weiss: 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.

Dan Weiss: 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 in lender hiring initiatives, excluding restructuring and merger related expenses noninterest expense for the three months ended December 31, 2023 totaled nine.

Dan Weiss: Excluding restructuring and merger-related expenses, non-interest expense for the three months ended December 31, 2023 totaled $99.5 million, up $9 million year-over-year due to higher employee-related expenses.

Jeff Jackson: We generated solid annual net income while remaining a well-capitalized financial institution with sound liquidity, a 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 31st, 2023, we reported net income available to common shareholders of $32.4 million, and diluted earnings per share of 55 cents, and for the full year, we reported net income available to common shareholders of $151.9 million, 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 1 Non-performing assets to total assets of just 16 basis points?

Dan Weiss: $9 $5 million up $9 million year over year due to higher employee related expenses.

Dan Weiss: equipment and software, marketing, and FDIC insurance.

Dan Weiss: Equipment and software marketing and FDIC insurance salary.

Dan Weiss: Salaries and wages were higher due to mid-year meriting.

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.

Dan Weiss: Equipment and software was up from our ATM upgrade project and marketing expense increased in support of our loan and deposit campaign.

Dan Weiss: 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.

Dan Weiss: 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 in the deferred compensation plan are recognized within employee benefits expense and added $1 million in the fourth quarter. The offsetting gain is recorded within net securities.

Dan Weiss: 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 in the deferred compensation plan are recognized within employee benefits expense and added $1 million in the fourth quarter. The offsetting gain is recorded within that.

Dan Weiss: Securities gains exclude.

Dan Weiss: Excluding these market fluctuations, the fourth quarter run rate would have been $98.5 million.

Excluding these market fluctuations the fourth quarter run rate would have been $98 $5 million.

Dan Weiss: 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.

Dan Weiss: 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.

Dan Weiss: are tangible common equity to tangible assets as of December 31st, 2023, with 7.62%, up 34 basis points year over year, or 7.07% when including unrealized losses on a held of maturity securities, as shown on slide 7 of the supplemental earnings presentation.

Jeff Jackson: and a capital position that continues to provide financial and operational flexibility, as demonstrated by our tangible common equity ratio of 7.62%. Throughout the past year, we accomplished several milestones and continued to receive numerous national accolades 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. Here are just a few of our accomplishments. Westbanker was awarded its eighth consecutive composite outstanding rating by the FDIC for its Community Reinvestment Act performance, a period spanning more than 20 years.

Dan Weiss: Our tangible common equity to tangible assets as of December 31, 2023, with 762% up 34 basis points year over year or seven point of 7% when including unrealized losses on our held to maturity securities as shown on slide seven of the supplemental earnings presentation.

Dan Weiss: 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 market opportunities as they arise.

Dan Weiss: We continue to believe that we're well positioned for any operating environment.

Dan Weiss: 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 market opportunities as they arise.

Dan Weiss: Turning to our current 2024 outlook, we continue to model Fed funds to remain unchanged at 5.5% until mid-year, with three 25 basis point rate cuts in June, September, and December.

Dan Weiss: Turning to our current 2024 outlook, we continue to model fed funds to remain unchanged at five 5% until mid year with 325 basis point rate cuts in June September and December.

Dan Weiss: 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

Dan Weiss: 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 two Ninety's and then stabilizing throughout the rest of the year.

Jeff Jackson: 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. We introduced new products and services to better serve our customers, including the new West Bank 01 account, which continues to exceed adoption expectations with more than 90,000 new and migrated accounts today. We continued our commitment to building a diverse and inclusive workforce by hosting three in-person West Banco equity conferences in our Upper Ohio Valley, Mid-Atlantic, and Southwestern Ohio, Northern Kentucky Market. 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. Soundness, Safety, and Profitability, Employer of choice, and recently, we were named one of Newsweek's best regional banks based on soundness, profitability, and customer reviews.

Dan Weiss: Trust fees should benefit modestly from organic growth, but will be impacted by equity and fixed income market trends.

Dan Weiss: Trust fees should benefit modestly from organic growth, but will be impacted by equity and fixed income market trends. As a reminder, first quarter trustees are seasonally higher due to tax preparation fees securities brokerage revenue is expected to remain consistent with the mountain generated during 2023, but could benefit modestly from organic growth.

Dan Weiss: As a reminder, first quarter trust fees are seasonally higher due to tax preparation.

Dan Weiss: 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 income market.

Dan Weiss: Dependent upon the economy and equity and fixed income markets.

Dan Weiss: 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 consistent with the amount that we earned during 2023.

Dan Weiss: 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 consistent with the amount that we earned during 2023.

Dan Weiss: 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.

Dan Weiss: Depending on customer preferences, we intend to sell approximately 50% of our mortgage originations into the secondary market.

Dan Weiss: It's dependent on customer preferences, we intend to sell approximately 50% of our mortgage originations into the secondary market.

Dan Weiss: Gross Commercial Swap Fee Income Excluding Market Adjustment,

Dan Weiss: Gross commercial swap fee income excluding market adjustments should be in a similar range to 2023.

Dan Weiss: should be in a similar range to 2023.

Dan Weiss: 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 2024.

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 2024.

Dan Weiss: 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 hire.

Dan Weiss: 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 the branch level staffing and reallocate resources into additional revenue generating hires the cost savings from the staffing adjustments are.

Jeff Jackson: The key story for the fourth quarter, as well as for the year, was solid loan growth and deposits while maintaining our strong credit standards, which remain at relatively low levels and favorable to the average of all banks with assets between 10 and 25 billion. We reported fourth-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. Total commercial loans increased 8% year-over-year and 13% sequentially annualized, driven by our banker hiring and loan production office strategy. In fact, our four 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 15th was approximately $820 million.

Dan Weiss: The cost savings from the staffing adjustments are partially in the fourth quarter run rate, and we plan to make additional business banker hires, so we expect salaries and wages in the first half of the year to be relatively flat.

Dan Weiss: Partially in the fourth quarter run rate and we plan to make additional business banker hires. So we expect salaries and wages in the first half of the year to be relatively flat.

Dan Weiss: 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 and $1.5 million per quarter to this lineup.

Dan Weiss: Software and equipment will be higher throughout the year due to the ongoing related.

Dan Weiss: Costs related to the upgrade of our Atms and other product and service enhancements, which are expected to add between one and one $5 million per quarter to this line item.

Dan Weiss: 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 plan.

Dan Weiss: 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.

Dan Weiss: Based on what we know today, we believe our expense run rate during the first half of 2024 to be roughly consistent with the fourth quarter's reported 99.5 million and then grow modestly due to annual mid-year merit increases.

Dan Weiss: Based on what we know today, we believe our expense run rate during the first half of 2024 to be roughly consistent with the fourth quarter's reported $99 5 million and then grow modestly due to annual midyear merit increases higher health care costs and technology investments during the back half of the year.

Dan Weiss: higher health care costs, and technology investments during the back half of the year.

Dan Weiss: The provision for credit losses under CECL will depend upon the change of the macroeconomic forecast and qualitative factors, as well as various credit quality metrics, including potential charge-offs, criticized and classified loan balances, delinquencies, changes in prepayment speeds, and future loans.

Dan Weiss: The provision for credit losses under Cecil will depend upon the change of the macroeconomic forecasts and qualitative factors as well as various credit quality metrics, including potential charge offs criticized and classified loan balances delinquencies changes in prepayment speeds and future loan growth.

Jeff Jackson: A 19% increase from the level at December 31st and roughly flat to September 30th. Our teams continue to find business opportunities to replenish the pipeline that has been driving our strong loan growth. Our new loan production offices account for 28% of the current pipeline, with Tennessee representing a meaningful percentage.

Dan Weiss: And lastly, we currently anticipate our full-year effective tax rate to be between 17.5% and 18.5% subject to changes in tax regulations and taxable income levels.

Dan Weiss: Lastly, we currently anticipate our full year effective tax rate to be between 17, and a half and 18, 5% subject to changes in tax regulations in taxable income levels.

Speaker Change: Operator, we are now ready to take questions. Would you please review the instructions?

Jeff Jackson: 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 fourth quarter, which increased 2.4% annualized from the third 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 million of new commercial swap revenue and organic growth in our trust and wealth management business during this past year. Our bankers continue to work diligently on deepening our commercial relationships, with a focus on deposit and fee business across-sector. During the fourth quarter, we had a nice team win in our Western Pennsylvania market.

Speaker Change: Operator, we're now ready to take questions would you. Please review the instructions.

Speaker Change: Thank you.

Speaker Change: So we now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two please limit yourself to one question and one follow up and if you have further questions.

Speaker Change: If at any time your question has been addressed, and you would like to withdraw your question, please press star then 2. Please limit yourself to one question and one follow-up, and if you have further questions, you may re-enter the question queue. And at this time, we'll pause momentarily to assemble our roster.

Speaker Change: <unk> you may reenter the question queue at this time, we'll pause momentarily to assemble our roster.

Speaker Change: And the first question will come from Carl Shepard with RBC Capital Markets. Please go ahead.

Speaker Change: And the first question will come from Karl Shepherd with RBC capital markets. Please go ahead.

Carl Shepard: Hey, good morning, guys.

Karl Shepherd: Hey, good morning, guys.

Speaker Change: Good morning. Morning, Carl.

Speaker Change: Good morning, good morning, Carl.

Carl Shepard: I wanted to start on loan growth. It was obviously a very strong quarter for you guys. Could you talk a little bit about the 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 books?

Karl Shepherd: I wanted to start on loan growth. It was obviously, a very strong quarter for you guys could.

Karl Shepherd: Could you talk a little bit about the production youre getting in these new markets just kind of the industry a burner cause loan size and just anything different about what youre seeing there versus the rest of the book.

Speaker Change: Yeah, 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&I businesses and CRE business.

Speaker Change: Yeah sure as we mentioned, we're seeing really strong loan growth from our L. P. Owes a lot of that is it's a nice mix of C&I businesses and CRE.

Jeff Jackson: 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 seven figures, a multi-million dollar family trust, and additional personal deposit accounts. 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. For example, during the past year, we implemented our Retail Transformation Initiative, which we expect to complete during the first quarter 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 first quarter.

Speaker Change: CRE business I would say that it's obviously, a big portion of our pipeline going into this this year.

Speaker Change: I would say that it's obviously a big portion of our pipeline going into this year.

Speaker Change: As far as differences, I would say it's no different than really what we're seeing across the rest of our footprint. It's just that obviously these LPOs are new, and so there's 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 LPOs up. That will be part of our strategy this year. 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 Change: You know as far as differences I would say, it's no different than really what we're seeing across the rest of our footprint. It's just that you know obviously these L. P. OS are new and so there's newer are a lot more opportunity for them to bring over their their customers from other banks and so we're seeing a nice pick up there we expect to see continued.

Speaker Change: Pick up as we move forward this year.

Speaker Change: Other thing I would add is we are always evaluating opening new L. P. OS up that'll be part of our strategy. This year and I think is as we move forward. It's a nice cost effective way that we continue to grow our loans are by using the <unk> method.

Speaker Change: 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 Change: 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 of the cuts come a little earlier, what would that do to the margin guidance.

Dan Weiss: Yeah, so Carl, as you know, we do

Dan Weiss: Yeah, So Karl as you know we do.

Dan Weiss: you know try to generally maintain a pretty neutral neutral posture but if we think about you know just the kind of the headwinds and tailwinds

Dan Weiss: Try to generally maintain a pretty neutral neutral posture.

Dan Weiss: But if we think about you know just the kind of the headwinds and tailwind.

Dan Weiss: Without any cuts or with cuts, I think, you know,

Dan Weiss: Without any cuts or with cuts.

Dan Weiss: I think you're kind of working off of December I would say Oh, you know our spot margin came in at $2 97.

Dan Weiss: kind of working off of December, I would say, you know, our spot margin came in at $297, 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'll get us into that mid to upper $290, you know, outlook that we provided, you know, 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, you know, at a higher, you know, higher than our average as well. We're also anticipating, of course, a little bit of, you know, non-interest-bearing remix as we continue into 2024, but at a much slower pace. So I would call those. So that's kind of the headwinds, you know, to margin, but if we think about tailwinds here, particularly, you know,

Jeff Jackson: 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. We expect a slow build on the business banking investment through the first year with a potential expansion in the coming years. Lastly, the transformation of our treasury management business into a sales-oriented organization primed to be more comprehensive and profitable. Customer Relationships are progressing nicely. We are completing the rollout of a couple 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. Customers will benefit from reduced AP costs, elimination of errors, enhanced fraud mitigation, and potential rebates generated from virtual card payment. MultiCard is a pay-in-full card issued to employees of established companies combining travel and entertainment, fleet cards, and purchasing cards into one.

Dan Weiss: 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.

Dan Weiss: And that'll get us into that mid to upper 290.

Dan Weiss: The outlook that we provided on our prepared commentary.

Dan Weiss: We will expect deposits to continue to reprice upward, but we are seeing some noticeable decline in an exception pricing and certainly to the extent that we see new deposit growth.

Dan Weiss: That would come on at.

Dan Weiss: At a higher you know higher than our average as well. We're also anticipating of course, a little bit of.

Dan Weiss: Noninterest bearing remix.

Dan Weiss: We continue into 2024, but at a much slower pace. So I would call those kind of the the headwinds to.

Dan Weiss: Margin, but if we think about tailwind here.

Dan Weiss: Particularly.

Dan Weiss: No.

Dan Weiss: and as we think about other funding sources, for example, we do have $200 million in brokered deposits that are scheduled to roll off here 100 million in April, 100 million in May, those are priced at Fed funds plus 30 basis points roughly, so that would be certainly a headwind. 70% of our CD book, or about $800 million, a little more than that, is repricing in the next 12 months. That's That's certainly a headwind.

Dan Weiss: As we think about other funding sources. For example, we do have $200 million and brokered deposits that are scheduled to roll off here how to 1 million in April 100 million in May those are priced at fed funds, plus 30 basis points roughly.

Jeff Jackson: Customers will benefit from optimizing payable efficiency while benefiting from robust 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 size due to the complexity of integrated payables. Onboarding new clients takes somewhat longer after service agreement documentation is completed. However, multi-card has a shorter time frame after service agreement documentation is completed.

Dan Weiss: That would be certainly a headwind 70% of our CD book.

Dan Weiss: We're about $800 million little more than that is is repricing in the next 12 months that's.

Dan Weiss: coming that that's repricing from about three and three quarter percent 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 to margin

Coming that's repricing from about three and three quarter percent.

So to the extent that we see in up or down.

Dan Weiss: We can adjust from there, but most of that.

Dan Weiss: Cost is already kind of baked into margin.

Dan Weiss: And then we also, as you know, have about a billion dollars in FHLB borrowings that are also very short term in nature. They're one month advances. So to the extent that we see any, you know,

And then we also as you know have about $1 billion in <unk> borrowings that are also very short term in nature of their one month advances so to.

Jeff Jackson: 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. We are currently focused on building a strong pipeline with revenue beginning to be generated during the second half of 2025. These are examples of commitment to innovation and investments that serve customers better and drive sustainable growth.

Dan Weiss: To the extent that we see any you know.

Dan Weiss: rate cuts, those were repriced downward very quickly.

Dan Weiss: Rate cuts those was repriced downward very quickly.

Dan Weiss: and then I would say

Dan Weiss: And then I would say if.

Dan Weiss: 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 reprices every three months or less. So that helps to kind of keep neutral on the asset side. That represents about three and a half billion dollars or about, that's currently priced right around 775.

Dan Weiss: If we continue on the asset side.

You know as you know and you can see this in our slide deck that 70% of the portfolio is variable rate.

Dan Weiss: 30% being obviously fixed and all of that variable rate, 60% of that variable rate commercial portfolio re prices every three months or less so that helps.

Jeff Jackson: 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 fourth-quarter financial results and a current outlook for 2024. Dan?

Dan Weiss: To kind of keep on it neutral on the on the asset side that represents about $3 $5 billion or about that's currently priced right around 775.

Dan Weiss: and of course in a cut scenario those would reprice downward. The remaining variable rate portfolio or adjustable rates we see about $300 million there repricing in the next 12 months coming off of five and a quarter percent so we would expect those generally to reprice upward.

Dan Weiss: And of course in a in a you know a cut scenario, where those would those would reprice downward.

Dan Weiss: Thanks, Jeff, and good morning. Our fourth 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 a gap net income available to common shareholders of $32.4 million, or $0.55 per share, and $148.9 million, or $2.51 per share, for the full year.

Dan Weiss: The remaining variable rate portfolio is adjustable rates.

Dan Weiss: We see about $300 million, they're repricing.

Dan Weiss: In the next 12 months coming off of a 5.25%. So we would expect those generally two to reprice upward.

Dan Weiss: and then if we look even just at the fixed portfolio about 30% of that of our overall commercial portfolio is fixed 10% matures here in the next 12 months right around 4.9%

Dan Weiss: And then if we look even just at the fixed portfolio about 30% of that of our overall commercial portfolio is fixed 10% matures.

Dan Weiss: Net income available to common shareholders excluding after-tax restructuring and merger-related expenses for 2023 was $151.9 million, or $2.56 per diluted share, as compared to $183.3 million, 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 expense this year as compared to a provision release in the prior year, As of December 31st, total assets of $17.7 billion included total portfolio loans of $11.6 billion and securities of $3.4 billion. We continued to use our securities portfolio to fund loan growth as the regular cash flow from the portfolio funded roughly 40% of the nearly $1 billion of loan growth during the year. Commercial real estate loan payoffs totaled $276 million during the year as compared to an anticipated annual level of $500 million in the $500 million range within a more normal operating environment.

Dan Weiss: Here in the next 12 months right around four 9% so lots of lots of momentum there and then you know keeping in mind that we've got new loan growth.

Dan Weiss: So lots of lots of momentum there. And then, you know, 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, you know, repricing up to the 8% handle. So, again, kind of lots of positive momentum as we as we head into kind of the back half of 2024. But I would say, you know, that's a long winded way of answering of basically saying we really think that we're going to be pretty neutral, you know, with three cuts or six.

Dan Weiss: Today, that's coming on with an 8% handle and then we're also rolling our cash flows from our securities portfolio.

Dan Weiss: Currently yielding that two 5% and repricing.

Dan Weiss: Up to the 8% handle so again kind of lots of positive momentum as we as we head into kind of the back half of 2024, but I would say that's a long winded way of answering basically saying, we really think that we're going to be pretty neutral.

Dan Weiss: With three cuts or six.

Dan Weiss: Yeah.

Speaker Change: That's that's great lots of lots of puts and takes for sure but it sounds like you guys have your arms around it. So thank you very much I'll step back.

Speaker Change: That's great. Lots of puts and takes for sure, but it sounds like you guys have your arms around it. So thank you very much. I'll step back.

Speaker Change: The next question will come from David Bishop with the Hovde Group. Please go ahead.

Speaker Change: The next question will come from David Bishop what they have the group. Please go ahead.

David Jason Bishop: Yeah, good morning, gentlemen.

David Jason Bishop: Yes, good morning, gentlemen.

David Jason Bishop: Hey, good morning, Dave.

David Jason Bishop: Hey Jeff, obviously

David Jason Bishop: Hey, Jeff obviously.

Speaker Change: You know, you have a focus on operating expenses probably.

Speaker Change: You have a focus on operating expenses probably.

Dan Weiss: 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 million for the full year, with roughly 43% of the originations sold into the secondary market, as compared to $1 billion and 23%, respectively, for 2022. Our retail and commercial teams continue to grow deposits by winning new accounts and deepening relationships with existing customers as total deposits of $13.2 billion increased both sequentially and year-over-year. Brokered deposits totaled $211 million at December 31, a decrease of $53 million from September 30, but excluding broker deposits, total deposits increased approximately $134 million over the third quarter, representing a 4% annualized growth rate. Consistent with a higher interest rate environment, we continue to experience some shifts in the mix of our deposits, with non-interest bearing demand deposits down 5% from the third quarter.

Speaker Change: Some of the growth this year reflected, you know, the aggressive LPO expansion and lender hires, you know, employee benefits up. Just curious within the compensation and 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, you know, keep a lid on expense growth overall.

Speaker Change: Some of the growth this year reflected the aggressive expansion.

Speaker Change: Fashion and lender hires.

Speaker Change: You know employee benefits up just curious within the compensation that may be employee benefits or anything specific you can do other than may be slowing the rate of growth of restrained that just curious how are you thinking this year to really keep a lid on expenses worth overall.

Speaker Change: Yeah, Dave, we're looking at everything. And, you know, we just went through a retail transformation, and we're hoping to wrap that up in the next month or two. 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. And then going back to the retail space, you know, 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 things 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 Change: Yeah, Dave we're looking at everything and you know, we just went through our retail transformation.

Speaker Change: And we're hoping to wrap that up in the next month or two.

Speaker Change: May have seen where that were down 65 employees.

Speaker Change: In retail we're looking to take down another 20.

Speaker Change: We are reinvesting some of that into the business banking space.

Speaker Change: The other thing we're looking to do is there some processes across the bank debt. We're looking to see if we can make them more efficient and then going back to the retail.

Speaker Change: Space, we always evaluate kind of our bottom performing branches and so we expect to do that again this year and I 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.

Speaker Change: We're always looking to do that but I do think we have some opportunities as we move forward this year.

Speaker Change: and remind me in terms of the

Speaker Change: And remind me in terms of the.

Dave: The ATM fleet upgrade, are those expenses down behind you? Is that fully in the run rate?

Speaker Change: The ATM fleet upgrades is that are those expenses now behind you is that fully in the run rate.

Speaker Change: Okay.

Speaker Change: Yeah, I would say the 50 ATMs, the final 50 ATMs were put into place here in the fourth quarter, so they're not fully baked into the run rate. I think on my prepared commentary there, I expect somewhere around about a million dollars of impact on a quarterly basis in that software and equipment line item related to basically ATMs and some other investments.

Speaker Change: Yeah, I would say the <unk>.

Dan Weiss: 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 2020. The fourth quarter's net interest margin of 3.02% remains stable to the third 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 fourth quarter of 2023 were 161 basis points, an increase of 25 basis points over the first quarter. We mostly offset these higher funding costs through the reinvestment of cash from securities and loan maturities into higher-yielding loans. Our fourth quarter loan yield of 5.61% is up 93 basis points year over year and 15 basis points sequentially as yields on new commercial loans exceeded 8% during the quarter. Non-interest income for the quarter ending December 31st totaled $30 million, 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 $2.5 million during the fourth quarter, more than offsetting the $2.2 million in new commercial swap fees.

Speaker Change: 50, Atms the final 50, Atms were put into place here in the fourth quarter.

Speaker Change: So they're not fully baked into the run rate I think on my in my prepared commentary there.

Speaker Change: I expect somewhere around about $1 million of impact on.

Speaker Change: On a quarterly basis in that software and equipment line item related to basically Atms and some other investments.

Speaker Change: Got it. And then circling back to the margin and the funding of loans, remind us what the prospect for quarterly securities cash flow is entering 2024.

Speaker Change: Got it and then.

Speaker Change: Coming back to the margin.

Speaker Change: The funding of loans remind us what the prospect for a quarterly securities cash flow.

Speaker Change: Is entering 2024.

Speaker Change: It's usually $100 million a quarter.

Speaker Change: It's usually a $100 million a quarter.

Speaker Change: That's where it still is. Yeah, it's still $100 million and a quarter. And we'll still continue to use that, obviously, to fund loan growth.

Speaker Change: Yeah, It's still 100, and 100 million a quarter and we will still continue to use that obviously to fund loan growth.

Speaker Change: Got it. And then finally, you know, you mentioned the success, obviously, on the loan side from the new LPO. Just curious if you're seeing any traction yet in terms of the deposit and funding side out of these new locations. Thanks, and I'll hop back in.

Speaker Change: Got it Thats, probably you know you mentioned the success, obviously on the loan side from the new Lps, just curious if you're getting any traction yet in terms of the deposit funding side.

Speaker Change: Location, Thanks, and I'll hop back into the queue.

Speaker Change: Yes, we are seeing a little bit of traction. It's more of obviously a loan funding, but yes, we are seeing some deposit growth there, especially as we continue to focus on expanding our C&I focus. So that's one of our main strategic goals is really to expand our C&I lending because it does bring deposits. It also brings fees, opportunities, and

Speaker Change: 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&I focus. So that's one of our main strategic goals is really to expand our C&I lending because it does bring deposits and also bring fees.

Speaker Change: Opportunities and.

Speaker Change: Between that and obviously continuing our swap fees as well, as Dan mentioned, we overachieved our goal of $8 million last year. We feel like those LPOs are really driving some nice returns for us.

Speaker Change: That and obviously, continuing our swap fees as well as Dan mentioned, we over achieved our goal of $8 million last year, we feel like those L. P. O is really driving some nice returns for us.

Dan Weiss: For the full year, we generated $9 million in new swap fees, more than doubling the amount earned during the prior year and exceeding the $8 million 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 three months ended December 31, 2023 totaled $99.5 million, up $9 million year-over-year due to higher employee-related expenses, equipment and software, marketing, and FDIC insurance. Salaries and wages were higher due to mid-year meriting. Equipment and software were up from our ATM upgrade project, and marketing expenses increased in support of our loan and deposit campaign. 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.

Speaker Change: Great.

Speaker Change: Great, thank you

Speaker Change: The next question will come from Russell Gunther with Stevens. Please go ahead.

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

Russell Gunther: Hey, good morning, guys. I wanted to follow up on the margin discussion. Dan, I appreciate all the puts and takes.

Russell Gunther: Hey, good morning, guys I wanted to follow up on the margin discussion.

Speaker Change: Dan I appreciate all the puts and takes.

Dan Weiss: 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 and what's kind of baked into your three cut, Fed Fund cut guidance for 2015?

Speaker Change: Maybe just sticking with the deposit data could you give us a sense for where you expect that to peak.

Speaker Change: In the first half of the year and then what are you assuming for the way down and what's kind of baked into your three cut fed funds cut guidance for 'twenty four.

Speaker Change: 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.

Speaker Change: Sure. So we generally try to stay away from disclosing betas as you knew Russell, but.

Speaker Change: I would say we are anticipating the peak in deposit costs really do occur here in the first half and the first half of the year.

Speaker Change: the first half of the year but on the way down you know within our own modeling we're right in that 25% range in terms of beta and really the question there's a couple questions that come to mind one is you know is that an immediate is that immediate is that lagged is that after you know one or two or three cuts and so I think that's all you know potentially up for debate but what we see in our modeling is under multiple scenarios we benefit for in terms of margin so we see deposit costs coming down at a faster rate than

Speaker Change: But on the way down within our own modeling, we're right in that 25% range.

Speaker Change: In terms of beta and really the question. There's a couple of questions that come to mind one is.

Speaker Change: Is that an immediate is that immediate is that lagged is that after.

Speaker Change: One or two or three cuts.

Speaker Change: And so I think that's all potentially up for debate, but what we see in our modeling is under multiple scenarios, we benefit for in terms of margin. So we see core deposit costs coming down at a at a faster rate than than than asset.

Dan Weiss: 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 in the deferred compensation plan are recognized within employee benefits expense and added $1 million in the fourth quarter. The offsetting gain is recorded within net securities. Excluding these market fluctuations, the fourth quarter run rate would have been $98.5 million. 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. Tangible common equity to tangible assets as of December 31st, 2023, with 7.62%, up 34 basis points year over year, or 7.07% when including unrealized losses on a held maturity securities, as shown on slide 7 of the supplemental earnings presentation.

Speaker Change: and the NASA prices.

Speaker Change: <unk>.

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Speaker Change: Okay.

Speaker Change: Okay, 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?

Speaker Change: That's great Dan I appreciate that and then just switching gears for my follow up.

Speaker Change: Jeff I believe you mentioned the potential for new L. P OS as a part of the growth strategy. This year, just any color on geographic.

Speaker Change: Geographic appetite that'd be great.

Jeff Jackson: Sure. We evaluate a lot of different geographies, but really our focus 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.

Speaker Change: Sure.

Jeff Jackson: We evaluate a lot of different geographies, but really our focus is on our 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.

Jeff Jackson: Virginia is another expansion state for us. Richmond, Northern Virginia. And then I would say potentially in Ohio, we always look at opportunities in Ohio. Obviously, we have a good presence there and part of the state, but continue to look there as well. I would say those are our three 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.

Jeff Jackson: Virginia is another expansion state for Us Richmond, Northern Virginia.

Jeff Jackson: And then I would say potentially in Ohio, we always look at opportunities in Ohio, Obviously, we have a good presence there and part of the state but continue to look there as well I would tell you those are our three main.

Jeff Jackson: 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.

Dan Weiss: We continue to believe that we are 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 of deposits, and other borrowings, as well as take advantage of market opportunities as they arise. Turning to our current 2024 outlook, we continue to model Fed funds rates to remain unchanged at 5.5% until mid-year, with three 25 basis point rate cuts in June, September, and 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. Trust fees should benefit modestly from organic growth but will be impacted by equity and fixed income market trends. As a reminder, first quarter trust fees are seasonally higher due to tax preparation.

Speaker Change: All right, Jeff, that's great. Thank you, guys. That's it for me.

Speaker Change: Alright, Jeff that's great. Thank you guys Thats it for me.

Speaker Change: Thank you.

Speaker Change: The next question will come from Daniel Tomeo with Raymond James. Please go ahead.

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

Daniel Tomeo: Hey, good morning, guys. Thanks for taking my question.

Speaker Change: Hey, good morning, guys. Thanks for taking my question.

Speaker Change: Thanks.

Speaker Change: Maybe just starting on.

Daniel Tomeo: Maybe just starting on, you know, 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, you know, the ultimate goal there. How big do you want that contribution in terms of fee revenue? And maybe if you could put a little finer point on what may be the contribution in the back half of 2024 that you're expecting to grow off of.

Speaker Change: You you guys talked a lot about the treasury management investments.

Speaker Change: As that comes online I guess over over the course of the year and into next year just your thought on the ultimate goal there like what.

Speaker Change: How big you want that contribution in terms of fee revenue and maybe if you could put a little finer point on on what.

Speaker Change: What maybe the contribution in the back half of 2024 that you're expecting to grow off of.

Speaker Change: Sure. You know, 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 multi-year target. But, you know, for us, that's what we're looking to try to do. 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's 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. We're transitioning it for more of a support operational function. 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 our commercial team.

Speaker Change: Sure you know.

Speaker Change: 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%.

Speaker Change: A multi year target, but for us that's what we're looking to try to do them.

Speaker Change: As it relates to our Tam products, we mentioned, we're continuing to build out the pipeline.

Speaker Change: We are getting these products in place and so I do believe the pipeline starting to build pretty strong.

Dan Weiss: 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 income markets. 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 consistent with the amount that we earned during 2023. 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.

Far as the second half of the year I don't really have when I 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 a transitioning it from more of a support operational.

Speaker Change: Function and so I do believe we will see a nice pick up in the second half of the year based on that transition in the new products and the incentives we put together for our commercial teams.

Speaker Change: 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, you know, assuming that we do get a soft landing or you continue to build capital, just curious your thoughts on how share purchases could fit into the capital priority.

Speaker Change: Okay terrific thanks for that.

Speaker Change: And then my second question just on capital.

Speaker Change: Are you benefiting as everyone is from from lower rates here and then.

Speaker Change: Assuming that we we do get a soft landing or you continue to build capital just curious your thoughts on on how share repurchases could fit into the capital priorities.

Dan Weiss: Depending on customer preferences, we intend to sell approximately 50% of our mortgage originations into the secondary market. Gross Commercial Swap Fee Income, Excluding Market Adjustment, 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 benefits during the second half of 2024. 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 fourth quarter run rate, and we plan to make additional business banker hires, so we expect salaries and wages in the first half of the year to Software and equipment costs 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 and $1.5 million per quarter to this lineup.

Speaker Change: Yeah, I think we look at, you know, kind of our capital deployment, kind of 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&A, and then would be buybacks. We're always actively out talking to other banks, but, you know, looking for different opportunities. But, you know, 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 Change: Yeah, I think we we look at.

Speaker Change: Our kind of our capital deployment kind of starting with dividends, we obviously put that at the top of our capital deployment than we look at obviously loan growth then would be M&A and then would be buybacks.

Speaker Change: We're always actively out talking to other banks, but.

Speaker Change: You know looking for different opportunities, but at this point, we're not really looking at buybacks.

Speaker Change: If something may change in the back half of the year, but right now I would say it's down on the <unk>.

Speaker Change: Capital deployment priority list.

Speaker Change: Okay, understood. That's it for me. Thanks, guys. Appreciate it. Thank you.

Speaker Change: Okay understood. That's it for me Thanks, guys I appreciate it thank you.

Speaker Change: Okay.

Speaker Change: The next question will come from Catherine Mealor with KBW. Please go ahead.

Speaker Change: The next question will come from Catherine Mealor with <unk>. Please go ahead.

Speaker Change: Thanks. Good morning. Hey, good morning, Catherine. Good morning.

Catherine Mealor: Thanks, Good morning, Hey, good morning, Kathryn good morning.

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

Catherine Mealor: Maybe just as a follow up to the M&A comment you just made.

Catherine Mealor: Just talk to us about how youre thinking about M&A versus L.

Catherine Mealor: Lps and team lift out it feels like that's been a.

Catherine Mealor: Our priority recently, just given and then I had been slower, but what do you think it takes to get more active in M&A and what kind of pet.

Catherine Mealor: Potential deals that Keith would you play at the top of the year got it he left.

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

Speaker Change: I would lay in basically the same comments I just made about L. P OS of where we're looking typically be Tennessee, Virginia.

Dan Weiss: 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 plan. Based on what we know today, we believe our expense run rate during the first half of 2024 to be roughly consistent with the fourth quarter's reported 99.5 million and then grow modestly due to annual mid-year merit increases, higher health care costs, and technology investments during the back half of the year. The provision for credit losses under CECL will depend upon the change in the macroeconomic forecast and qualitative factors, as well as various credit quality metrics, including potential charge-offs, criticized and classified loan balances, delinquencies, changes in prepayment speeds, and future loans.

Speaker Change: Filling in Ohio.

And so for US you know our target size is usually that $2 billion to $5 billion range of asset bank.

Speaker Change: That's kind of a nice fit for us it's you know in our.

Speaker Change: 10 to 15% of our asset size.

Speaker Change: 10% to 15% of our our asset size.

Speaker Change: But I think it's definitely an option for us. We do have a great capital position and are in a good position to do an acquisition should one come along.

But.

Speaker Change: It's definitely an option for us we do have a great capital position in a really good good position to do a acquisition should one come along.

Speaker Change: So I think, you know, 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&A market has been difficult. I do believe, you know, 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.

So I think you know our history has shown that we create these <unk> 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&A market has been difficult I do believe you know.

Speaker Change: Sellers are looking for interest rates to decline and so that may make it more difficult.

Speaker Change: Because they seemingly want to wait to see.

Speaker Change: <unk> decline potentially their valuations go up but we will continue to be out there talking.

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

Speaker Change: That's great.

Speaker Change: And then on credit.

Speaker Change: Yes.

Speaker Change: It remains really strong just kind of any outlook for how you think provisioning may trend this year you've had.

Speaker Change: Negative provisions over the past couple of years and that you are starting to turn but still really low, but just generally how you're thinking about provision costs and credit costs over the next year.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone.

Speaker Change: Yeah, 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 cost to continue to stay relatively the same. We have seen, like every bank, you have a credit here or there, but so far we've been able to fix those credits and restructure and right-size those credits based on the strength of our borrowers. Dan, you want to add anything on the provision? Yeah, no, I think you covered it, Jeff. I mean, certainly provisioning is going to be dependent upon loan growth is probably the biggest thing absent credit events.

Yeah for us.

Speaker Change: Related to credit, we obviously continue to look at all or.

Speaker Change: Portfolio to make sure they're doing well, we obviously look at office.

Operator: If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. Please limit yourself to one question and one follow-up, and if you have further questions, you may re-enter the question queue. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Carl Shepard with RBC Capital Markets. Please go ahead. Hey, good morning, guys. Good morning. Morning, Carl.

Speaker Change: And do a deep dive on our office, which is in great shape there.

Speaker Change: I would see for this year are our credit provisioning and cost are continuing to stay relatively the same.

Speaker Change: We have seen.

Speaker Change: Like like every bank you have a credit here or there, but so far we've been able to.

Speaker Change: Fix those credits and restructure and right size those credits based on the strength of our borrowers Dan do you want to add anything on the provision yeah. No I think I think you covered it Jeff I mean, certainly provisioning is going to be dependent upon loan growth is probably the biggest thing absent you know.

Dan Weiss: Credit events.

Speaker Change: and, you know, today,

Speaker Change: And wouldn't you know today.

Jeff Jackson: I wanted to start on loan growth. It was obviously a very strong quarter for you guys. Could you talk a little bit about the 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 books? Yeah, sure. As we mentioned, we're seeing really strong loan growth from our LPOs, and a lot of that is because it's a nice mix of C&I businesses and CRE businesses. I would say that it's obviously a big portion of our pipeline going into this year. As far as differences go, I would say it's no different than really what we're seeing across the rest of our footprint.

Dan Weiss: and a big portion of our provision or allowances based on the forecast of unemployment rates and based on those forecasts, we're not seeing anything

A big portion of our provision or allowance is based on.

Speaker Change: The forecast of unemployment rates.

Speaker Change: And based on those forecasts.

Speaker Change: No we're not seeing anything.

Dan Weiss: really significantly out of the ordinary. So just as Jeff said, we're kind of in that, anticipating something similar to what we experience here

Speaker Change: Really significantly out of the ordinary so we're just as Jeff said, we're kind of in that anti.

Speaker Change: Anticipating something similar to what we what we experience here in 'twenty three.

Speaker Change: And on your commercial real estate maturities, can you give any just anecdotes or commentary on what you're seeing as, you know, some of your fixed rate CRE loans are coming due and repricing, you know, are you seeing any credit stress in those moments or, you know, just kind of rental rates big enough to kind of 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 Change: And on your.

Speaker Change: Commercial real estate in its journey.

Speaker Change: Have any anecdotes or commentary on what Youre seeing is some of your fixed rate CRE loans or I mean Galen repricing.

Jeff Jackson: It's just that, obviously, these LPOs are new, and so there's a lot more opportunity for them to bring in 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 that we are always evaluating opening new LPOs. That will be part of our strategy this year, 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. Okay.

Speaker Change: Seeing any credit stress in this amendment or just kind of rental rates take enough to.

Speaker Change: The impact of higher interest rates, just kind of any commentary on what youre seeing with your borrowers.

Would be helpful.

Speaker Change: Yeah, 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, you know, people forget that since the 08 crisis, it's been a great run for real estate developers. And so fortunately for us, our customers have had a lot of liquidity. 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 rate.

Speaker Change: 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.

Speaker Change: The customers, we lend to and as I've said, you know people forget that since the OE crisis, it's been a great run for real estate developers and so Fortunately for us our customers have had a lot of liquidity liquidity and so when we do run into a situation, which has been rare are they have been able to step in and provide the additional equity to rightsize.

Dan Weiss: 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? Yeah, so Carl, as you know, we do, you know try to generally maintain a pretty neutral neutral posture but if we think about you know just the kind of the headwinds and tailwinds Without any cuts or with cuts, I think, you know, kind of working off of December, I would say, you know, our spot margin came in at $297, 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'll get us into that mid to upper $290, you know, outlook that we provided, you know, on our prepared commentary.

Speaker Change: The refinance of the deal based on the higher rates.

Speaker Change: Great, very helpful. Thank you.

Speaker Change: Great very helpful. Thank you.

Speaker Change: Thank you.

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

Casey Whitman: Hey, good morning. Good morning, Casey. Good morning.

Casey Whitman: Hey, good morning good.

Casey Whitman: Good morning, Casey good morning.

Casey Whitman: 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 what do you see as the right level for West Bank?

Casey Whitman: 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 and how comfortable are you with the loan deposit ratio here at 88% or so what do you see as the right level to let that go.

Speaker Change: Yes, I do believe we will have a solid deposit growth.

Speaker Change: As far as it relates to the loan to deposit ratio you know 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.

Speaker Change: Deposit growth, but once again, we do have the $100 million a quarter that helps fund it.

Dan Weiss: 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, you know, at a higher, you know, higher than our average as well. We're also anticipating, of course, a little bit of, you know, non-interest-bearing remix as we continue into 2024, but at a much slower pace.

Speaker Change: 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'll be by a wide margin and I do believe the securities.

Speaker Change: $100 million, a quarter will help fund that gap.

Speaker Change: Got it and how low are you comfortable with the security still getting to I guess as a percentage of assets or is there a target range.

Speaker Change: Yeah, Casey, it's right around 17, I would say mid-teen, so I would say 17% of total assets is kind of probably our bottom end.

Speaker Change: Yeah. It Casey is right around 17.

Speaker Change: Say mid teens.

Dan Weiss: So that's kind of the headwinds, you know, to margin, but if we think about tailwinds here, particularly, you know, and as we think about other funding sources, for example, we do have $200 million in brokered deposits that are scheduled to roll off here, $100 million in April, and $100 million in May. Those are priced at Fed funds plus 30 basis points roughly, so that would certainly be a headwind. 70% of our CD book, or about $800 million, a little more than that, is repriced in the next 12 months. That's certainly a headwind coming from that repricing from about three and three and a quarter percent, 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 the margin. And then we also, as you know, have about a billion dollars in FHLB borrowings that are also very short term in nature. They're one month advances.

Speaker Change: I would say 17% of total assets is kind of the part.

Speaker Change: Probably our bottom end.

Casey Whitman: All right, thanks.

Speaker Change: Alright. Thanks.

Speaker Change: Thank you.

Speaker Change: Again, if you have a question, please press star then 1. Our next question will come from Manuel

Speaker Change: Again, if you have a question. Please press Star then one our next question will come from manual.

Manuel: Navos with D.A. Davidson. Please go ahead.

Manual: Nave us with D. A Davidson. Please go ahead.

Manuel Navos: 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.

Manual: Hey, good morning, most of my questions have been answered too.

Manual: Could you touch on the loan growth pace across the year.

Manual: Good rates kind of help accelerate it.

Manual: Or would that pay down.

Manual: No amortization CRE kind of slowly like just kind of walk me through the dynamics youre thinking on loan growth across the year.

Speaker Change: Yeah, sure. I actually believe that with a few cuts that we have modeled, as mentioned, we've been modeling three cuts. I'm not sure it would really increase paydown speeds. I think you're going to need bigger cuts. When I think about paydowns, I think about obviously our CRE book, but going to the permanent market. And so to me, I think a couple 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

Speaker Change: Yes sure.

Speaker Change: I actually believe that with a few cuts that we have modeled and as mentioned we modeling three cuts I'm not sure. It would really increase paydown speeds, I think youre going to need bigger cuts.

Speaker: Page 9 of 9 Residential mortgage originations totaled approximately $690 million for the full year, with roughly 43% of the originations sold into the secondary market, as compared to $1 billion and 23%, respectively, for 2022. Our retail and commercial teams continue to grow deposits by winning new accounts and deepening relationships with existing customers as total deposits of $13.2 billion increase both sequentially and year over year. Furthermore, brokered deposits totaled $211 million at December 31st, a decrease of $53 million from September 30th.

Speaker Change: When I think about Paydowns I think about obviously, our CRE book, but going to the permanent market and so to me I think.

Speaker Change: Now 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.

Speaker Change: Reductions in rates might help speed up our loan growth slightly, but I think if you see three 25 basis point cuts, I don't think it impacts it either way dramatically, if that makes sense.

Speaker Change: Reductions in rates would might help speed up our loan growth slightly.

Dan Weiss: So to the extent that we see any, you know, rate cuts, those were repriced downward very quickly, and then I would say, 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 reprices every three months or less. So that helps to kind of keep things neutral on the asset side. That represents about three and a half billion dollars or about, that's currently priced right around 775, and of course, in a cut scenario, those would reprice downward.

Speaker Change: But I think if you see $3 25 basis point cuts, it's I don't think it impacts it either way.

Speaker Change: Dramatically if that makes sense.

Speaker Change: No, that's

Speaker Change: No that's.

Speaker Change: That's helpful.

Speaker Change:

Speaker Change: with the securities book.

Speaker: Excluding broker deposits, total deposits increased approximately $134 million in the third quarter, representing a 4% annualized growth rate. Consistent with the higher interest rate environment, we continue to experience some shifts in the mix of our deposits, with non-interest bearing demand deposits down 5% from the third 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

Speaker Change: With the Securities book.

Speaker Change: It seems like you're going to need to fund some of this loan growth with deposits.

It seems like Youre going to need to fund some of that this loan growth with deposits.

Speaker Change: Is there been any...

Speaker Change: Has there been any.

Speaker Change: Better or has it has there been opportunities for any like restructuring the securities book and are you constantly thinking of that to pay down borrowings perhaps?

Speaker Change: Better or has it has your bid opportunities for any like restructuring the securities book or you constantly thinking of that to pay down borrowings perhaps.

Speaker Change: yeah so we obviously you know we've had those discussions probably you know every quarter for the last six six quarters today there there is not we feel that you know we're comfortable with where the loan deposit ratio is we're comfortable you know with with the liquidity that we have we don't feel that we need to necessarily you know enter into that kind of loss trade and we we feel that you know with rate cuts we think that you know in the nearer term those unrealized losses are going to improve so I'm little hard-pressed today

Speaker Change: Yeah. So we obviously we've had those discussions.

Speaker Change: Probably.

Dan Weiss: The remaining variable rate portfolio or adjustable rates, we see about $300 million there repricing in the next 12 months coming off of five and a quarter percent, so we would expect those generally to reprice upward. And then if we look even just at the fixed portfolio, 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 lots of momentum there. And then, you know, 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 is currently yielding that 2.5% and, you know, repricing up to the 8% handle. So, again, kind of lots of positive momentum as we head into kind of the back half of 2024. But I would say, you know, that's a long winded way of answering basically saying we really think that we're going to be pretty neutral, you know, with three cuts or six. That's great!

Speaker Change: Every quarter for the last six six quarters.

Speaker Change: Today, there is not we feel that we're comfortable with where the loan to deposit ratio is we're comfortable.

Speaker: The fourth quarter's net interest margin of 3.02% remained stable to the third 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 4th quarter of 2023, for 161 bases, an increase of 25 basis points over the previous quarter. We mostly offset these higher funding costs through the reinvestment of cash from securities and loan maturities into higher-yielding loans. Our fourth-quarter loan yield of 5.61% is up 93 basis points year over year and 15 basis points sequentially, as yields on new commercial loans exceeded 8% during the quarter. Non-interest income for the quarter ending December 31st totaled $30 million, 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 $2.5 million during the fourth quarter, more than offsetting the $2.2 million in new commercial swap fees.

Speaker Change: With with the liquidity that we have we don't feel that we need to necessarily enter into that kind of loss trade and.

Speaker Change: And we feel that.

Speaker Change: With rate cuts, we think that.

Speaker Change: In the nearer term there was unrealized losses are going to improve.

So I'm little hard pressed today to to go in and take a take a loss on the loss trade and selling securities.

Speaker Change: go in and take a loss on the loss trade, selling securities.

Speaker Change: I'd rather wait it out a couple more quarters.

Speaker Change: I'd rather.

Speaker Change: Wait it out a couple more quarters.

Speaker Change: and see where we're at then.

Speaker Change: See where we're at then.

Speaker Change: Thank you. I appreciate that. Thank you for the comments today.

Speaker Change: Thank you I appreciate that.

Speaker Change: You for the comments today.

Speaker Change: 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.

Speaker Change: 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.

Jeff Jackson: 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.

Jeff Jackson: Thank you for joining us today.

Jeff Jackson: During the past year achieved we achieved sustained loan deposit and fee income growth, while maintaining strong capital levels and credit quality.

Operator: Lots of put and takes, for sure, but it sounds like you guys have your arms around it. So, thank you very much. I'll step back. The next question will come from David Bishop with the Hovde Group. Please go ahead. Yeah, good morning, gentlemen. Hey, good morning, Dave.

Jeff Jackson: We remain committed to continuing these growth trends while leveraging new products and expense management to deliver positive operating leverage.

Jeff Jackson: 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. Thank you.

Speaker: For the full year, we generated $9 million in new swap fees, more than doubling the amount earned during the prior year and exceeding the $8 million 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 three months ended December 31, 2023 totaled $99.5 million, up $9 million year-over-year due to higher employee-related expenses, equipment and software, marketing, and FDIC insurance.

Speaker Change: 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.

Jeff Jackson: Hey Jeff, obviously, you probably have a focus on operating expenses probably. Some of the growth this year reflected, you know, the aggressive LPO expansion and lender hires, and employee benefits. Just curious, within compensation and 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, you know, keep a lid on expense growth overall. Yeah, Dave, we're looking at everything. And, you know, we just went through a retail transformation, and we're hoping to wrap that up in the next month or two. You may have seen we're down 65 employees in retail.

Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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

Speaker Change: All right, let's get started. Let's get started. Let's get started. Let's get started.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker: Salaries and wages were higher due to mid-year meriting. Equipment and software were up from our ATM upgrade project, and marketing expenses increased in support of our loan and deposit campaign. 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.

Jeff Jackson: We're looking to take down another 20. And 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. And then, going back to the retail space, you know, we always evaluate 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 things 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. And remind me, in terms of the ATM fleet upgrade, are those expenses down behind you? Is that fully in the run rate?

Speaker: 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 in the deferred compensation plan are recognized within employee benefits expense and added $1 million in the fourth quarter. The offsetting gain is recorded within net security; excluding these market fluctuations, the fourth quarter run rate would have been $98.5 million. 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 held-to-maturity securities as shown on slide 7 of the Supplemental Earnings Presentation.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: [music].

Dan Weiss: Yeah, I would say the 50 ATMs. The final 50 ATMs were put into place here in the fourth quarter, so they're not fully baked into the run rate. I think, in my prepared commentary there, I expect somewhere around about a million dollars of impact on a quarterly basis in that software and equipment line item related to basically ATMs and some other investments. Got it. And then, circling back to the margin and the funding of loans, remind us what the prospect for quarterly securities cash flow is entering 2024. It's usually $100 million a quarter. That's where it still is.

Speaker Change: Thank you for watching!

Speaker Change:

Speaker: We continue to believe that we are well-positioned for any operating environment, and we actively manage our liquidity risks 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. Turning to our current 2024 outlook, we continue to model Fed funds rates to remain unchanged at 5.5% until mid-year, with three 25 basis point rate cuts in June, September, and 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. Trustees should benefit modestly from organic growth but will be impacted by the equity and fixed income markets. As a reminder, first quarter trust fees are seasonally higher due to tax preparation.

Speaker Change: Thank you for watching. Thank you for watching.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Dan Weiss: Yeah, it's still $100 million and a quarter. And we'll still continue to use that, obviously, to fund loan growth. Got it. And then finally, you mentioned the success on the loan side from the new LPO. Just curious if you're seeing any traction yet in terms of the deposit and funding side out of these new locations. Thanks, and I'll hop back in.

[music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Jeff Jackson: Yes, we are seeing a little bit of traction. It's more of obviously loan funding, but yes, we are seeing some deposit growth there, especially as we continue to focus on expanding our C&I focus. So that's one of our main strategic goals is really to expand our C&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 million last year. We feel like those LPOs are really driving some nice returns for us. Great, thank you. The next question will come from Russell Gunther with Stevens. Please go ahead.

Speaker Change: Okay.

Speaker Change: Thank you for watching. Thank you for watching.

[music].

Speaker: 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 in fixed income markets. 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 consistent with the amount that we earned during 2023. 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% of our mortgage originations into the secondary market. Gross Commercial Swap Fee Income, excluding market adjustments, should be in a similar range to 2023.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Thank you for watching. Thank you for watching.

Operator: 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 and what's kind of baked into your three cut, Fed Fund cut guidance for 2015? 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, the first half of the year but on the way down you know within our own modeling we're right in that 25% range in terms of beta and really the question there's a couple questions that come to mind one is you know is that an immediate is that immediate is that lagged is that after you know one or two or three cuts and so I think that's all you know potentially up for debate but what we see in our modeling is under multiple scenarios we benefit for in terms of margin so we see deposit costs coming down at a faster rate than and the NASA prices. Okay, that's great, Dan.

Speaker Change: [music].

Speaker: And regarding the new treasury management products Jeff highlighted, we're focused on building the pipeline and anticipate some modest benefits during the second half of 2024. 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 reflected in the fourth quarter run rate, and we plan to make additional business banker hires. So we expect salaries and wages in the first half of the year to be relatively flat. However, 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 and $1.5 million per quarter to this lineup.

Jeff Jackson: 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. Could you give me any color on the geographic appetite?

Jeff Jackson: Sure. We evaluate a lot of different geographies, but really, our focus is on Tennessee, continuing to fill in there. We have Nashville and Chattanooga.

Speaker: 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 plan. Based on what we know today, we believe our expense run rate during the first half of 2024 to be roughly consistent with the fourth quarter's reported $99.5 million and then grow modestly due to the annual mid-year merit increase, higher health care costs, and technology investments during the back half of the year. The provision for credit losses under CECL will depend upon changes in the macroeconomic forecast and qualitative factors, as well as various credit quality metrics, including potential charge-offs, crew size, and classified loan balances, delinquencies, changes in prepayment speeds, and future loan costs.

Jeff Jackson: We would look at potentially Knoxville or continuing to fill out the Nashville and Chattanooga areas. Virginia is another expansion state for us. Richmond, Virginia.

Jeff Jackson: 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 we continue to look there as well. I would say those are our three main areas. North Carolina could be a possibility down the road.

Jeff Jackson: But once again, mainly filling in where we're at or potentially continuing to move south. All right, Jeff, that's great. Thank you, guys. That's it for me.

Dan Weiss: The next question will come from Daniel Tomeo with Raymond James. Please go ahead. Hey, good morning, guys. Thanks for taking my question. 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 thoughts on, you know, the ultimate goal there. How big do you want that contribution in terms of fee revenue to be?

Operator: And lastly, we currently anticipate our full-year effective tax rate 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 questions. Would you please review the instructions? Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys.

Jeff Jackson: And maybe you could put a little finer point on what may be the contribution in the back half of 2024 that you're expecting to grow off of. 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 multi-year target.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Please limit yourself to one question and one follow-up, and if you have further questions, you may re-enter the question queue. And at this time, we'll pause momentarily to assemble our roster, and the first question will come from Carl Shepard with RBC Capital Markets. Please go ahead. Hey, good morning, guys. Good morning. Morning, Carl.

Jeff Jackson: But, you know, for us, that's what we're looking to try to do. 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's 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 in the second half of the year. Once again, we are changing our treasury management team to be more sales-like.

Speaker: I wanted to start on loan growth. It was obviously a very strong quarter for you guys. Could you talk a little bit about the 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? Yeah, sure. As we mentioned, we're seeing really strong loan growth from our LPOs, and a lot of that is because it's a nice mix of CNI businesses and CRE businesses. I would say that it's obviously a big portion of our pipeline going into this year. As far as differences go, I would say it's no different than really what we're seeing across the rest of our footprint.

Jeff Jackson: We're transitioning it to more of a support operational function. 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 our commercial team. Okay, terrific. Thanks for that.

Jeff Jackson: And then my second question, just on capital, you're benefiting, as everyone is, from lower rates here. And then, you know, assuming that we do get a soft landing or you continue to build capital, just curious about your thoughts on how share purchases could fit into the capital priority. Yeah, I think we look at, you know, our capital deployment, kind of starting with dividends. We obviously put that at the top of our capital deployment. Then we look at, obviously, loan growth. Then there would be M&A, and then there would be buybacks. We're always actively out talking to other banks, but, you know, looking for different opportunities. But, you know, at this point, we're not really looking at buybacks. If something might change in the back half of the year, but right now, I would say it's down on the capital deployment priority list. Okay, understood. That's it for me.

Speaker: It's just that, you know, obviously, these LPOs are new, and so there's 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 growth as we move forward this year. The other thing I would add is we are always evaluating opening new LPOs. That'll be part of our strategy this year.

Speaker: And I think as we move forward, it's a nice cost-effective way that we continue to grow our loans by using the LPO method. 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? Yeah, so Carl, as you know, we do try to generally maintain a pretty neutral posture.

Jeff Jackson: Thanks, guys. I appreciate it. Thank you. The next question will come from Catherine Mealor with KBW. Please go ahead.

Speaker: But if we think about, you know, just the kind of headwinds and tailwinds. Without any cuts or with cuts, I think, you know, kind of working off of December, I would say our spot margin came in at 297. And we do think that, at least in terms of margin trajectory, that in the short term, our deposit costs will come in slightly higher than our asset yields. And that'll get us into that mid to upper 290, you know, outlook that we provided in 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, you know, at a higher, you know, higher than our average as well. We're also anticipating, of course, a little bit of, you know, non-interest-bearing remix as we continue into 2024, but at a much slower pace. So I would call those kind of headwinds, you know, to the margin.

Operator: Thanks. Good morning. Hey, good morning, Catherine.

Jeff Jackson: Good morning. Maybe, as a follow-up to the M&A comment you just made, just talk to us about how you're thinking about M&A versus LPOs and team lift-outs. It feels like that's been a little bit of a priority recently, just given that M&A has been slower. But what do you think it takes to get more active in M&A, and what kind of potential deals would you put at the top of your strategy list? I would lay in basically the same comments I just made about LPOs and where we're looking. Typically, it would be Tennessee, Virginia, and filling in in Ohio.

Jeff Jackson: And so for us, you know, our target size is usually that $2 to $5 billion range of asset banks. That's kind of a nice fit for us. It's, you know, in the 10 to 15% of our asset size. But I think it's definitely an option for us.

Speaker: But if we think about tailwinds here, particularly, and as we think about other funding sources, for example, we do have $200 million in brokered deposits that are scheduled to roll off here, $100 million in April, and $100 million in May. Those are priced at Fed Funds plus 30 basis points, roughly, so that would be certainly a headwind. Seventy percent of our CD book, or about $800 million, a little more than that, is repricing in the next 12 months. That's... Coming, that's repricing from about three and three-quarter percent. So to the extent that we see an up or down, we can adjust from there.

Jeff Jackson: We do have a great capital position and are in a good position to do an acquisition should one come along. So I think, you know, 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.

Jeff Jackson: But once again, I think, as you mentioned, the M&A market has been difficult. I do believe, you know, 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, and potentially their valuations go up. But we will continue to be out there talking. That's great. And then on credit, you know, credit just remains really strong. Just give me any outlook for how you think provisioning may trend this year. You've had, you know, a lot of negative provisions over the past couple of years, and that's starting to change, but it's still really low.

Speaker: But most of that cost is already kind of baked into margin. And then, as you know, we have about a billion dollars in FHLB borrowings that are also very short-term in nature. They're one-month advances, so to the extent that we see any, you know, rate cuts, those were repriced downward very quickly. And then I would say...

Speaker: If we continue on, on the asset side, you know, 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 reprices every three months or less. So that helps to kind of keep the asset side neutral. That represents, you know, about three and a half million dollars or about. It's currently priced right around 775.

Jeff Jackson: So just generally how you're thinking about provision costs and credit costs over the next year. Yeah, for us, related to credit, we obviously continue to look at all our portfolios to make sure they're doing well. We obviously look at offices and do a deep dive on our office, which is in great shape there.

Jeff Jackson: I would see for this year our credit provisioning and cost continue to stay relatively the same. We have seen, like every bank, you have a credit here or there, but so far, we've been able to fix those credits and restructure and right-size those credits based on the strength of our borrowers. Dan, do you want to add anything to the provision? Yeah, no, I think you covered it, Jeff.

Speaker: And, of course, in a cut scenario, those would reprice downward. The remaining variable rate is the portfolio or adjustable rate. And we see about $300 million there repricing in the next 12 months, coming off of 5 and 14%. So we would expect those generally to reprice upward. And then if we look even just at the fixed portfolio, 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.

Dan Weiss: I mean, certainly, provisioning is going to be dependent upon loan growth, probably the biggest thing absent credit events, and, you know, today, and a big portion of our provision or allowances are based on the forecast of unemployment rates, and based on those forecasts, we're not seeing anything really significantly out of the ordinary. So just as Jeff said, we're kind of in that, anticipating something similar to what we experienced here. And on your commercial real estate maturities, can you give any anecdotes or commentary on what you're seeing as, you know, some of your fixed-rate CRE loans are coming due and repricing, you know, are you seeing any credit stress in those moments or, you know, just kind of rental rates big enough to kind of Just kind of any commentary on what you're seeing with your borrowers would be helpful. Yeah, we have not really seen any stress.

Speaker: And then, you know, 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, which is currently yielding that 2.5% and, you know, repricing up to the 8% handle. So, again, kind of lots of positive momentum as we head into kind of the back half of 2024. But I would say, you know, that's a long-winded way of basically saying we really think that we're going to be pretty neutral, you know, with three cuts or six. That's great. Lots of puts and takes for sure, but it sounds like you guys have your arms around it. So, thank you very much. I'll step back. The next question will come from David Bishop with The Hobby Group. Please go ahead. Yeah, good morning, gentlemen. Hey, good morning, Dave.

Jeff Jackson: I mean, obviously, like every bank, we've had a few deals here or there that have caused stress. But the nice thing is we've done a great job picking the customers we lend to. And as I've said, you know, people forget that since the 2008 crisis, it's been a great run for real estate developers.

Speaker: Hey Jeff, obviously... You know, you have a focus on operating expenses, probably. Some of the growth this year reflected, you know, the aggressive LPO expansion and lender hires, you know, employee benefits. Just curious, within the compensation and maybe employee benefits, is there anything specific you can do other than maybe slowing the rate of growth to restrain that?

Jeff Jackson: And so, fortunately for us, our customers have had a lot of liquidity. 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 rate. Great, very helpful. Thank you. Thank you. The next question will come from Casey Whitman with Piper Sandler. Please go ahead. Hey, good morning. Good morning, Casey. Good morning. This morning,

Speaker: Just curious how we're, how you're thinking this year to really keep a lid on expenses overall. Yeah Dave, we're looking at everything and, you know, we just went through a retail transformation and we're hoping to wrap that up in the next month or two. You may have seen we're down 65 employees in retail.

Operator: 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 what do you see as the right level for West Bank? Yeah, Casey, it's right around 17, I would say mid-teen, so I would say 17% of total assets is probably our bottom end.

Speaker: We're looking to take down another 20. And 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. And then, going back to the retail space, you know, we always evaluate 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 things 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. And remind me, in terms of the...

Dan Weiss: All right, thanks. Thank you. Again, if you have a question, please press star then 1. Our next question will come from Manuel Navos with D.A. Davidson.

Operator: Please go ahead. 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?

Speaker: The ACM fleet upgrade, are those expenses down behind you? Is that fully baked into the run rate? Yeah, I would say the 50 ATMs. The final 50 ATMs were put into place here in the fourth quarter, so they're not fully baked into the run rate. I think in my prepared commentary there, I expect somewhere around about a million dollars of impact on a quarterly basis in that software and equipment line item related to basically ATMs and some other investments. Got it.

Jeff Jackson: Like just kind of walk me through the dynamics you're thinking about for loan growth across the year. Yeah, sure. I actually believe that with a few cuts that we have modeled, as mentioned, we've been modeling three cuts.

Speaker: And then circling back to the margin and the funding of loans, remind us what the prospect for quarterly securities cash flow is entering 2024. It's usually a hundred million a quarter. That's where it still is.

Speaker: Yeah. It's still $100 million and a quarter. And we'll still continue to use that, obviously, to fund loan growth. Got it. And then finally, you mentioned the success on the loan side from the new LPOs. Just curious if you're seeing any traction yet in terms of the deposit and funding side out of these new locations. Thanks, and I'll hop back in.

Jeff Jackson: I'm not sure it would really increase paydown speeds. I think you're going to need bigger cuts. When I think about paydowns, I think about obviously our CRE book, but going to the permanent market. And so, to me, I think a couple cuts here or there isn't going to make it worth moving a lot of CRE to the permanent market.

Jeff Jackson: So for me, I think reductions in rates might help speed up our loan growth slightly, but I think if you see three 25 basis point cuts, I don't think it impacts it either way dramatically, if that makes sense. No, that's helpful 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...

Speaker: Yes, we are seeing a little bit of traction. It's more of, obviously, a loan funding. But yes, we are seeing some deposit growth there, especially as we continue to focus on expanding our C&I focus. So that's one of our main strategic goals is really to expand our C&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 million last year. We feel like those LPOs are really driving some nice returns for us, even if you can't see it. The next question will come from Russell Gunther with Stevens. Please go ahead. Hey, good morning, guys.

Dan Weiss: Better, or has it? Has there been opportunities for any like restructuring the securities book, and are you constantly thinking of that to pay down borrowings, perhaps? Yeah, so we obviously you know we've had those discussions probably every quarter for the last six six quarters, today there there is not. We feel that you know we're comfortable with where the loan 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, and we feel that with rate cuts, we think that in the nearer term those unrealized losses are going to I'd rather wait it out for a couple more quarters and see where we are then.

Speaker: 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, and what's kind of baked into your three-cut Fed Fund rate cut guidance for 2015? We generally try to stay away from disclosing betas, as you know, Russell, but I would say we are anticipating the peak in deposit costs really to occur here in the first half, first half of the year. But on the way down, you know, within our own modeling, we're right in that 25% range in terms of beta. And really, the question, there's a couple questions that come to mind. One is, you know, is that an immediate solution? Is that lagged?

Dan Weiss: Thank you. I appreciate that. Thank you for your comments today. 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. 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.

Jeff Jackson: 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. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: All right, let's get started. Let's get started. Let's get started.

Speaker: Is that after, you know, one, two, or three cuts? And so I think that's all, you know, really up for debate. But what we see in our modeling is that under multiple scenarios, we benefit in terms of margin. So we see deposit costs coming down at a faster rate than NASA prices. Okay. That's great, Dan.

Operator: Thank you for watching! Thank you for watching. Thank you for watching.

Speaker: 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. Could you give me any color on the geographic appetite?

Speaker: Sure, we evaluate a lot of different geographies, but really, our focus 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, and then I would say potentially in Ohio. We always look at opportunities in Ohio. Obviously, we have a good presence there and in part of the state, but we continue to look there as well. I would say those are our three 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: All right, Jeff, that's great. Thank you, guys. That's it for me.

Speaker: The next question will come from Daniel Tamayo with Raymond James. Please go ahead. Hey, good morning guys. Thanks for taking my question. 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 thoughts on, you know, the ultimate goal there, like, how big do you want that contribution in terms of fee revenue? And maybe if you could put a little finer point on what may be the contribution in the back half of 2024 that you're expecting to Sure.

Speaker: You know, 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 multi-year target.

Speaker: But, you know, for us, that's what we're looking to try to do. 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's 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 in the second half of the year. Once again, we are changing our treasury management team to be more sales-like, transitioning it to more of a support operational function.

Speaker: 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 put together for our commercial team. Okay, terrific. Thanks for that.

Speaker: And then my second question, just on capital, you are benefiting, as everyone is, from lower rates here. And then, you know, assuming that we do get a soft landing or you continue to build capital, just curious about your thoughts on how share purchases could fit into the capital priority. Yeah, I think we look at, you know, our kind of capital deployment, kind of starting with dividends, we obviously put that at the top of our capital deployment, then we look at obviously loan growth, then M&A, and then buybacks. We're always actively out talking to other banks, but, you know, looking for different opportunities. But, you know, at this point, we're not really looking at buybacks. Maybe that will change in the back half of the year, but right now, I would say it's down on the capital deployment priority list. Okay, understood. That's it for me.

Speaker: Thanks, guys. I appreciate it. Thank you. The next question will come from Catherine Mealor with KBW. Please go ahead.

Speaker: Thanks. Good morning. Hey, good morning, Catherine.

Speaker: Morning. Maybe, as a follow-up to the M&A comment you just made, just talk to us about how you're thinking about M&A versus LTOs and team lift-outs. It feels like that's been a little bit of a priority recently, just given that M&A has been slower. But what do you think it takes to get more active in M&A, and what kind of potential deals would you put at the top of your strategy list? 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 in Ohio, and so for us, you know, our target size is usually that $2-5 billion range of asset banks. That's kind of a nice fit for us, 10-15% of our asset size. But I think it's definitely an option for us.

Speaker: We do have a great capital position and are in a good position to do an acquisition should one come along. So I think, you know, 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.

Speaker: But once again, I think, as you mentioned, the M&A market has been difficult. I do believe, you know, 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. That's great.

Speaker: And then on credit, you know, credit just remains really strong. Just give me any outlook for how you think provisioning may trend this year. You've had, you know, a lot of negative provisions over the past couple of years, and that's, you know, starting to turn to still really low.

Speaker: So just generally how you're thinking about provision costs and credit costs over the next year. Yeah, for us as related to credit, we obviously continue to look at all our portfolios to make sure they're doing well. We obviously look at offices and do deep dives on our office, which is in great shape there.

Speaker: I would see for this year, our credit provisioning and cost continue to stay relatively the same. We have seen, like every bank, you have a credit here or there, but so far, we've been able to fix those credits and restructure and right-size those credits based on the strength of our borrowers. Dan, do you want to add anything to the provision? Yeah, no, I think you covered it, Jeff.

Speaker: I mean, certainly, provisioning is going to be dependent upon loan growth is probably the biggest thing absent credit events and wouldn't, you know, today... A big portion of our provision or allowance is based on the forecast of unemployment rates. Based on those forecasts, we're not seeing anything, really significantly out of the ordinary.

Speaker: So we're, just as Jeff said, we're kind of in that, anticipating something similar to what we experienced here. And if you think about commercial real estate maturity, can you give me just anecdotes or commentary on what you're seeing as some of your fixed rate theory loans are coming due and are repricing? Are you seeing any credit stress in those moments, or are rental rates big enough to kind of offset the impact of higher interest rates? Just kind of any commentary on what you're seeing just with your borrowers would be helpful. Yeah, we have not really seen any stress.

Speaker: I mean, obviously, like every bank, we've had a few deals here or there that have caused stress. But the nice thing is, we've done a great job picking the customers we lend to. And as I've said, you know, people forget that since the 2008 crisis, it's been a great run for real estate developers.

Speaker: And so fortunately for us, our customers have had a lot of liquidity. 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 rate. Great, very helpful.

Speaker: Thank you. Thank you. The next question will come from Casey Whitman with Piper Sandler, please go ahead. Hey, good morning. Good morning, Casey. Good morning, Piper. Good morning.

Speaker: 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 what do you see as the right level for West Bank?

Speaker: Yes, I do believe we will have solid deposit growth. As far as it relates to the loan-to-deposit ratio, you know, I could see that creeping up to near 90 to 92 percent. I do believe, potentially, our loan growth might outrun a little bit of our deposit growth. But once again, we do have the $100 million 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 million a quarter, will help fund that gap. 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? Yeah, in that case, it's right around 17, I would say mid-teens, so I would say 17% of total assets is kind of our bottom.

Speaker: All right, thanks. Thank you. Again, if you have a question, please press star, then 1. Our next question will come from Manuel. Navos with D.A.

Speaker: Davidson, please go ahead. Hey, good morning. Most of my questions have been answered. Could you touch on the 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 down, like just kind of walk me through the dynamics you're thinking about on loan growth across the year? Yeah, sure. I actually believe that with a few cuts that we have modeled, as mentioned, we modeled three 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. And so, to me, I think, you know, a couple cuts here or there isn't going to make it worth moving a lot of CRE to the permanent market.

Speaker: So for me, I think reductions in rates might help speed up our loan growth slightly, but I think if you see three 25-basis point cuts, I don't think it impacts it either way dramatically, if that makes sense. No, that's... That's helpful with the Securities book. It seems like you're going to need to fund some of that loan growth with deposits. Has there been any better, or has there been opportunities for any like restructuring the securities book, and are you constantly thinking of that to pay down borrowings perhaps? Yeah, so we obviously, you know, we've had those discussions probably every quarter for the last six, six quarters. Today there is not, we feel that, you know, we're comfortable with where the loan 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. And we feel that, you know, 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 lost trade selling securities. I'd rather wait it out for a couple more quarters and see where we are then.

Speaker: Thank you. I appreciate that. Thank you for your comments today. 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.

Jeff Jackson: 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. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Q4 2023 WesBanco Inc Earnings Call

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