Q4 2024 WesBanco Inc Earnings Call
Speaker Change: Good afternoon and welcome to the West Banco fourth quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star and zero on your telephone keypad.
After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. 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 John Iannone.
Speaker Change: Senior Vice President, Investor Relations. Please go ahead. Thank you. Good afternoon and welcome to West Banco, Inc.'s fourth quarter 2024 earnings conference call.
Speaker Change: Leading the call today are Jeff Jackson, President and Chief Executive Officer, and Dan Weiss, Senior Executive Vice President and Chief Financial Officer.
Speaker Change: Today's call, an archive of which will be available on our website for one year, contains forward-looking information.
Speaker Change: Questionary 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.
Speaker Change: These materials are available on the Investor Relations section of our website, westbanca.com.
Speaker Change: All statements speak only as of January 23rd, 2025, and West Banco undertakes no obligation to update them.
Jeff Jackson: I would now like to turn the call over to Jeff. Jeff?
Speaker Change: Thanks, John, and good afternoon. On today's call, we will review our strong fourth quarter and full year 2024 results and provide an update on our operations and initial outlook for 2025.
Speaker Change: Key takeaways from the call today are strong loan growth that has been fully funded through deposit growth.
Speaker Change: Improved net interest margin, which is expected to meaningfully improve through 2025.
Speaker Change: We remain focused on organic growth and efficiency gains to achieve positive operating leverage.
Speaker Change: Our transformative acquisition of Premier Financial Corp remains on track pending Fed and FDIC regulatory approvals.
2024 was an excellent year for West Banco.
Speaker Change: We delivered strong loan growth of $1 billion, which was fully funded by deposit growth.
We also announced our transformative merger with Premier Financial.
Speaker Change: and continued to earn national recognitions for stability, trustworthiness, and workplace excellence.
Speaker Change: We have achieved a compound annual loan growth rate of 9% over the past three years.
Speaker Change: raised $200 million of common equity and paid down higher cost borrowings.
Speaker Change: Key successes in our strategy to strengthen our balance sheet and net interest margin.
Speaker Change: Additionally, we continue to focus on cost control while enhancing our wealth and treasury management businesses to deepen client relationships and drive positive operating leverage.
Speaker Change: With the pending premier financial merger and the strength of our proven strategies and balance sheet
Speaker Change: We are well positioned to build on our momentum and continue delivering value for our customers and stakeholders.
Speaker Change: For the quarter ending December 31st, 2024, we reported net income excluding merger and restructuring expenses available to common shareholders of $47.6 million.
and diluted earnings per share of 71 cents.
which increased 29% year-over-year.
Speaker Change: On a similar basis, we reported full-year net income of $146.4 million and diluted earnings per share of $2.34.
Speaker Change: Furthermore, the strength of our financial performance during the past year was reflected in our fourth quarter return on tangible common equity of 13%.
Non-performing assets to total assets of just 0.22 percent.
Speaker Change: and a capital position that continues to provide financial and operational flexibility as demonstrated by our tangible common equity ratio of 8.7%.
Speaker Change: 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 our communities, customers, and employees.
These accolades, which recognize our commitment to sustainability and excellence,
Speaker Change: are also a testament to the hard work and dedication of our employees. So I extend a heartfelt thank you to them.
Just to highlight a few of our accomplishments.
Speaker Change: We launched a renewed mission, vision, and pledge which defines our purpose, aspirations, and the values that guide our business, which include respect, exceptional customer experiences, soundness and stability, accountability, and stewards of our communities.
Speaker Change: Our MVP unites us in a shared sense of purpose and guides our strategy towards sustained success.
Speaker Change: In conjunction with the announcement of the pending acquisition of Premier Financial, we successfully raised $200 million of common equity that further strengthened our capital levels and positioned us for future growth.
Speaker Change: We retooled our treasury management function and developed new products and services to make it a key component of our relationship banking philosophy and help drive our fee income to a larger percentage of our total revenue.
Speaker Change: Through the strength of our wealth management teams and our services,
Speaker Change: We realize record levels of trust and investment services assets under management of $6 billion.
Speaker Change: and broker-dealer security account values of $1.9 billion, all through organic growth and market appreciation.
Speaker Change: Lastly, we continue to receive top rankings the past year reflecting our strength and stability and efforts of our employees every day to serve our customers and communities with excellence.
We were recognized for soundness, safety, and profitability.
Employer of choice and a great workplace.
Positively impacting our communities.
Speaker Change: and recently we were named one of Forbes most trusted companies based on customer investor and employee trust.
Speaker Change: The key story for both the fourth quarter and full year remains strong deposit and loan growth.
Speaker Change: as DepositGrowth fully funded loan growth on both a year-over-year and sequential quarter basis.
Speaker Change: Further, our total and commercial loan growth and deposit growth continued to significantly outperform the monthly H-8 data for all domestically chartered commercial banks on both a year-over-year and quarter-over-quarter basis.
again just demonstrating the success of our strategies and teams.
Speaker Change: Our total deposits increased $1 billion year-over-year and $300 million quarter-over-quarter to more than $14 billion.
Speaker Change: Importantly, this growth was mainly driven by deposit categories other than Certificate of Deposits, as total demand deposits continue to represent 54% of total deposits, with the non-interest bearing component representing 27%.
Speaker Change: reflecting our team's focus on deepening existing and new customer relationships.
Speaker Change: Our underwriting and credit standards are a 155-year legacy of our company, and we are achieving our strong loan growth without sacrificing credit quality, as confirmed by key metrics that are favorable to the average of all banks with assets between $10 and $25 billion.
Speaker Change: Since year-end 2021, we have achieved a strong compound annual loan growth rate of 9%.
Speaker Change: which has been achieved with roughly the same number of bankers thanks to the success of our recruitment and go-to-market strategies combined with the products and services of a large bank but with the customer focus and support of a community bank.
Fourth quarter growth was nine percent year-over-year.
Speaker Change: and nearly 7% quarter-over-quarter annualized driven by a strong performance of our banking teams across our markets.
Speaker Change: Further, total commercial loans increased 11% year over year and almost 9% sequentially on an annualized basis driven by commercial real estate.
Speaker Change: Our four newest loan production offices accounted for nearly 30% of the commercial loan growth year-to-date led by our Chattanooga and Indianapolis offices.
Our Commercial Loan Pipeline as of December 31st.
was approximately $763 million.
Speaker Change: up roughly 11% from a year ago, but down 8% from September 30th.
Speaker Change: as our teams converted the pipeline into another quarter of solid loan growth.
Speaker Change: However, in the three weeks since year-end, the pipeline has grown approximately $80 million.
Speaker Change: Based on the current pipeline and strength of our teams and markets, we expect mid-single-digit loan growth during 2025.
Speaker Change: Our Louisville, Southern Indiana commercial banker and credit team recently celebrated successfully winning a unique opportunity with a customer in a specialized industry.
Speaker Change: A $45 million construction loan and over $350,000 in relationship-based fee income.
While the opportunity presented many challenges,
Speaker Change: The team persevered through complex negotiations to secure this resounding win.
Speaker Change: which was made possible by our deep understanding of the client's needs and our team living our values of accountability and soundness and stability in support of the bank's day-to-day and long-term performance.
Turning to our pending acquisition of Premier Financial.
Speaker Change: We have received approval from the shareholders of both companies, as well as the state of West Virginia.
Speaker Change: We previously filed all necessary bank regulatory applications and remain on track for a first quarter closing pending Fed and FDIC approvals.
Speaker Change: Through this transformative acquisition, we expect to accelerate our positive momentum, build on Premier's legacy of community engagement and support, and together bring the resources of a larger and stronger financial services organization to benefit all our communities.
Speaker Change: I would now like to turn the call over to Dan Weiss, our CFO, for an update on our fourth quarter financial results and a current outlook for 2025.
Dan!
Dan Weiss: Thanks, Jeff, and good afternoon. For the quarter ending December 31, 2024, we reported GAP, Net Income Available to Common Shareholders, of $47.1 million, or $0.70 per share.
Dan Weiss: And when excluding after-tax restructuring and merger-related expenses, net income was $47.6 million, or $0.71 per share, representing an increase of 47% from $32.4 million, or $0.55 per share, in the prior year period.
Dan Weiss: On a full-year basis, 2024 net income available to common shareholders, excluding after-tax
Dan Weiss: restructuring and merger-related expenses was $146.4 million, or $2.34 per share as compared to $151.9 million, or $2.56 per share, reflecting the impact of the common stock during the third quarter of 2024.
Dan Weiss: To highlight a few of the fourth quarter's accomplishments, we generated strong year-over-year pre-tax, pre-provision earnings growth of 29% that was built upon loan growth of $1 billion that was fully funded by deposit growth.
and Improving Net Interest Margin
Dan Weiss: Strong fee income growth of 21% and continued management of operating expenses with fourth quarter expenses increasing just 1% over the length third quarter as well as the prior year period.
Dan Weiss: These positives, combined with a slight negative provision for credit losses, a pension benefit that's not expected to recur, and a positive fair value adjustment on swaps, resulted in a 15 cent increase in earnings per share.
Dan Weiss: Despite the increase in the share count from the third quarter's capital raise
Dan Weiss: As of December 31st, total assets of $18.7 billion included total portfolio loans of $12.7 billion.
Dan Weiss: and total securities of $3.4 billion. And as Jeff mentioned, loan growth remained robust over the last three years and has been driven by the success of our strategies and the strong performance by our banking teams across our markets.
Dan Weiss: We remain optimistic about future loan growth with our Strong Loan Pipelines.
Dan Weiss: Banking teams and markets combined with roughly $1 billion in unfunded land construction and development commitments
Dan Weiss: that are expected to fund over the next 12 to 18 months and relatively low CRE payoffs.
Dan Weiss: Commercial real estate payoffs totaled approximately 350 million dollars for the year as compared to an annual level in the 500 million dollar range in a more normal operating environment.
Dan Weiss: And we anticipate that the pace of payoffs may increase over time as more CRE projects move into the secondary market for permanent financing or are sold, particularly if rates decline.
Dan Weiss: Deposits of $14.1 billion were up 7.3% versus the prior year, an 8.6% annualized linked quarter, reflecting our efforts on deposit gathering and retention.
Dan Weiss: The composition of total deposits continue to have some mixed shift. However, total demand deposits, as well as non-interest bearing deposits, as a percentage of total deposits, remain consistent with the range prior to the pandemic.
Dan Weiss: As is typical during a higher rate environment, we've experienced strong growth in CDs during 2024. However, when excluding them, we realized deposit growth of 3.9% year-over-year and 7.7% quarter-over-quarter annualized.
Dan Weiss: Furthermore, we anticipate roughly 70% of our CD book to mature or reprice lower over the next six months, mainly in the March to May timeframe.
Dan Weiss: Turning to credit quality, credit quality continues to remain stable as key metrics have remained low from a historical perspective and within a consistent range over the last three plus years.
Dan Weiss: The allowance for credit losses to total portfolio loans at the end of the quarter decreased slightly to 1.10% of total loans due to improvements in the macroeconomic forecast.
Dan Weiss: related to lower unemployment assumptions and a more normalized yield curve offsetting loan portfolio growth and office portfolio reserves.
Dan Weiss: The fourth quarter margin of 3.03% improved both quarter over quarter and year over year through a combination of higher loan and securities yields and lower funding costs as we continue to execute upon our strategies to strengthen our balance sheet.
Dan Weiss: Also benefiting the margin was the $175 million paydown of federal home loan bank borrowings from deposit growth which exceeded loan growth, bringing total paydowns since June 30th to $475 million.
Dan Weiss: And as a reminder, the majority of our federal home loan bank borrowings are short-term borrowings such that approximately 80% will mature during the first quarter of 2025 and should continue to reprice lower from additional Fed fund rate cuts.
Dan Weiss: Our interest-bearing deposit beta on the September-November rate cuts of 75 basis points was 19%.
Dan Weiss: And our total deposit funding cost of 197 basis points declined eight basis points from the third quarter, reflecting the higher mix of non-interest bearing deposits and the recent rate cuts.
Dan Weiss: For the fourth quarter, non-interest income totaled $36.4 million, a 23% length quarter increase and a 21% increase over the prior year period due to higher swap fee income and valuation income.
Service charges on deposits and trust fees.
Dan Weiss: The increase in the swap fees and valuation income reflected fair value adjustments of 1.9 million dollars
which were a $2.5 million loss in last year period.
and gross swap fees of 1.3 million dollars.
Dan Weiss: Service charges on deposits increased due to fee income from new products and services, increased general consumer spending and treasury management.
Dan Weiss: which is continuing to gain traction from our strategic repositioning of this business line in late 2023.
Dan Weiss: It's also important to note that other income included a $2.3 million gain from the transfer of certain liabilities for future pension payments to a third-party insurance company, which is not expected to repeat.
Dan Weiss: Turning to expenses, non-interest expense excluding restructuring and merger related costs for the three months ended December 31st, 2024 were $100.5 million, an increase of just 1% year over year, which benefited from company-wide efficiency efforts.
as we've remained focused on achieving positive operating leverage.
Dan Weiss: The primary driver of this increase was the $1 million increase in equipment and software expenses which reflect the impact of the prior year ATM upgrades.
Dan Weiss: Salaries and wages also increased primarily due to our standard mid-year merit increases offset somewhat by lower staffing levels associated with the efficiency improvements in the mortgage and branch staffing models in the prior year.
Dan Weiss: Our regulatory capital ratios have remained above the applicable well capitalized standards and reflecting our strong capital position in net income, our board of directors approved a one cent dividend increasing to 37 cents during the fourth quarter.
Turning to our current outlook for 2025.
Dan Weiss: which is for West Banco standalone and does not include any potential benefit from our acquisition of Premier Financial.
Dan Weiss: We are currently modeling two additional Fed Fund rate cuts in March and September.
Dan Weiss: And given our relatively neutral rate-sensitive position, we do not expect a significant difference between one or two cuts on our net interest margin.
Dan Weiss: We anticipate approximately four to six basis points of continued improvement in the first quarter's net interest margin from the fourth quarter, as our spot margin for the month of December was 3.08 percent.
Dan Weiss: And we expect more meaningful improvement during the second quarter, as more than a billion dollars in CDs mature during that March through May period and reprice lower. And then we anticipate more modest margin improvement during the second half of 2025.
Dan Weiss: Trust fees should benefit modestly from organic growth but will be impacted by equity and fixed income market trends. And as a reminder, first quarter trust fees are seasonally higher due to tax preparation fees.
Dan Weiss: Securities brokerage revenues anticipated to grow slightly from the range over the last few quarters due to modest organic growth but also will be dependent upon the economy and equity and fixed income markets.
Dan Weiss: Service charges on deposits are expected to remain consistent with the amounts that we've earned in the second half of 2024, as they are dependent on general consumer spending, but could benefit slightly from continued growth in treasuring management.
Dan Weiss: Mortgage banking should remain in the range of the second half of 2024, but will continue to be impacted by the overall residential housing market trends and interest rates.
Dan Weiss: and then gross commercial swap fee income excluding market adjustments should be in the range of five to seven million dollars.
Dan Weiss: And then we continue to anticipate some modest benefit during 2025 from our new purchasing card, integrated payables and receivables, treasury management products.
Dan Weiss: Turning to expenses, as we stated in the past, we remain focused on disciplined expense management to drive positive operating leverage and will continue our efforts throughout 2025.
Dan Weiss: As we previously disclosed, we successfully consolidated 11 branches into nearby locations during the fourth quarter and anticipate annual savings of approximately $4 million.
Dan Weiss: will begin to be realized during the first quarter of 2025 to help offset general inflationary pressures.
Dan Weiss: Equipment and software is expected to continue to increase at a faster pace than overall expenses as we continue to invest in products, services, and technology to improve the customer experience and drive revenue growth.
Dan Weiss: Marketing and FDIC expenses will increase slightly in support of our loan and deposit growth.
Dan Weiss: And based on what we know today, we believe our expense run rate during the first half of 2025 to be roughly consistent with the fourth quarter's reported $101 million and then grow modestly.
Dan Weiss: due to the annual mid-year merit increases and higher healthcare and software costs during the back half of the year.
Thank you.
Dan Weiss: The provision for credit losses will depend upon changes to the macroeconomic forecast.
Dan Weiss: as well as qualitative factors, credit quality metrics, including potential charge-offs, criticized and classified loan balances, delinquencies, changes in prepayment speeds, and future loan growth.
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.
Speaker Change: Operator, we're now ready to take questions. Would you please review the instructions?
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.
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 then you can return to the queue. At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Russell Gunther with Stevens. Please go ahead.
Hey, good afternoon guys.
Hey, good afternoon, Russell. Hey, Russell.
Jeff Jackson: Hey, Jeff. Hey, Dan. Hey, I wanted to start on the margin and appreciate all the color with regard to legacy West Banco. A bunch of tailwinds. It sounds like on both sides of the balance sheet to the name. So, Dan, as we
Russell Gunther: Think about moving into the second quarter with the CD benefit. Could you just share where those are repricing off of what you would expect to reprice them into and then what the duration of the offerings are?
Dan Weiss: Yeah sure Russell and so you know first second quarter it's about a billion two
Dan Weiss: in CDs and those are weighted average rate is about four and a quarter percent and we we anticipate those repricing downward by 75 to 100 basis points.
Dan Weiss: So that's where we kind of see, particularly the second quarter, where we think we're going to have a little bit more outsized lift in margin and those right now we have slated to remain in that kind of seven month CD special.
Dan Weiss: So that's your, the kind of jewelry you're looking at. Okay.
Speaker Change: I appreciate it. Okay and then switching gears as we think about sort of the pro-forma margin with Premier given the rate backdrop we sit in today also your two Fed cut expectations you know does that put us in a pro-forma range of
Speaker Change: call it, I don't know, 345 to 350, or given your kind of legacy outlook and improvement with the West Banco margin as you layer in Premier, is there any change to how we should be thinking about that margin upon deal close?
Speaker Change: Yeah, Russell, I think you're pretty close to what we're modeling right now, I'd say. I think one of the things that we, if you recall back when we announced the deal in July, we had a kind of a pro forma margin of, it was like 346.
Speaker Change: and if I were to think about what has changed since then...
Certainly the right environment and I would say
Speaker Change: That 346 at the time was based off of, you know, analyst consensus.
Speaker Change: That would have been the first quarter analyst consensus forecast for 2025 for West Banco on a standalone basis. That would have been the foundation.
than that today.
[inaudible]
Very helpful guys. Thanks for taking my question.
bridge.
I appreciate it. I'll step back. Thanks very much, guys.
Speaker Change: The next question comes from Carl Shepard with RBC Capital Markets. Please go ahead.
Hey good afternoon guys. Hey good afternoon Carl. Hey Carl.
Carl Shepard: I wanted to pick up on deposits a little bit more. A lot of opportunity in 2Q, but could you just sketch out the whole year a little bit and what you think an appropriate deposit growth rate is and if some of the stabilization and mix we saw this quarter can continue? Thanks.
Carl Shepard: Yeah, so what I would say is, you know, one of the bigger assumptions that we're modeling today is that, you know, the loan growth would be fully funded by deposit growth, and that deposit growth could be a little lumpy.
Carl Shepard: You know quarter to quarter, but generally speaking for the year. We expect deposits to fully fund loans
and so working backwards you know I think we've
Carl Shepard: You know, we've been pretty clear about what our expectations are for loan growth, you know on an annual basis
Carl Shepard: targeting that kind of mid to upper single-digit loan growth. So that's about, you know, $800 million or so, $850 million in loan growth. And so that can kind of help to inform you on what our expectations are for deposit credit.
Okay and then just on the mixed piece of it
Carl Shepard: Do you think we'll see a little less city growth, or is that still area see a kind of similar composition?
Carl Shepard: I think I think we could see probably a little less concentration and CD growth than what we saw this year like 2024 in 2025 I think it could be a little bit more evenly mixed
Okay, thanks for the help.
Dave Bishop: The next question comes from Dave Bishop with Hubby Group. Please go ahead.
Yeah, good afternoon, gentlemen.
Hey, good afternoon Dave. Hello Dave.
Dave Bishop: Hey Jeff, quick question. You noted the success in sort of revamping some of your treasury management products on the commercial side of the house.
Speaker Change: Just curious, and I don't know if you disclosed this, but maybe give like a percentage increase of maybe new commercial accounts added this year. Are you seeing, are you able to win bigger commercial accounts average size? And just curious, any color you can provide there on a commercial deposit growth.
Speaker Change: Yeah, sure, we are seeing some larger account wins. I think we're continuing to ramp it up. I will tell you that Treasury management fees year-over-year grew pretty nicely. And once again, we're...
I believe we ramped up around 40 new multi-cards.
Speaker Change: that were implemented toward the middle of the end of last year, so obviously that spin would flow through this year. And then we are targeting at least that many or more for this year, so it's really getting started, but we are seeing the revenue lift there, and the teams, the commercial teams are really
Speaker Change: adding it to their repertoire, which is allowing us to bank additional C&I business. I believe in the fourth quarter you saw us grow C&I about $70 million, and so that was a big positive for us as well from a loan perspective. And then we've had a tremendous growth in
Thank you.
Speaker Change: Great and then a follow-up question I think in the preamble, it sounds like you're still confident of a first quarter close the premier acquisition just curious is the Fed and DC reviewing this just curious we have to get the final regulatory approval thanks
Yes.
Speaker Change: So we are very confident that we'll close in the first quarter, and it is in D.C. The Fed and the FDIC are both in D.C. We have had correspondence with both, answering some questions and going back and forth on a few minor items that they've asked about. At this point, I see no issues that have arisen, and we still feel very comfortable about closing in the first quarter.
Thank you.
Great, thank you.
Speaker Change: The next question comes from Daniel Tameo with Raymond James. Please go ahead.
Thank you.
Thank you. Good afternoon, guys.
Speaker Change: First, just a clarification, the loan growth guidance that you talked about, I know you mentioned expecting an increase in payoffs in 2025. Does that assume an increase in payoffs in 2025 in terms of what you gave us on the mid-single-digit loan growth?
Speaker Change: That would be a net, that's net, that's a net number.
Speaker Change: So with payoffs still in that mid to upper single digits.
Speaker Change: So it includes, you're assuming that payoffs increase within that net loan growth number you're talking about, is what you're saying? Yes. That's right.
If there were...
You know payoffs were to exceed
Speaker Change: expectations and loan growth were to come in a little bit lighter and you had a similar situation that
Speaker Change: In the fourth quarter where deposit growth exceeded loan growth, would you be inclined to pay down FHLB borrowings again? I'm just curious how that scenario would play out if it were to occur.
Speaker Change: Yes, we would. So all our deposit growth is that we're bringing in less than what we're paying to the FHLB. So we would, if we weren't able to grow loans at the same rate of deposits, we would pay down the FHLB borrowings, which would have a positive impact, I believe, on our net interest margin.
Speaker Change: Yeah, we really saw that here in the fourth quarter, the deposit growth came kind of early in the fourth quarter and we were able to pay down those, put our home loan back.
Speaker Change: Barnes earlier in the quarter and we actually you know picked up a few basis points in margin as a result
So, yeah.
Yeah, we finish December at 3 o'clock.
Okay, terrific.
Speaker Change: And then maybe just switching gears here to credit, certainly it's been strong for you guys, but there has been an uptick in MPLs and criticized and classified. Just curious if you have any more color on kind of what is driving the uptick in those categories.
Speaker Change: Just kind of normal quarterly ebbs and flows. I believe one credit slightly raised it up a little bit. I think
Speaker Change: We plan on getting that resolved probably by the end of this quarter early next quarter And if you look at our historical trends We're still well within our historical trends and still in all categories at least average of our peer groups or most the times better So I wouldn't read anything into those numbers They as you know fluctuate quarter over quarter and at this point. There's no trends that we're seeing at all
Speaker Change: Okay, so we should still be kind of comfortable with where net charge-offs have been historically looking forward, is what sounds like what you're saying? Yes.
Speaker Change: Got it. All right, I'll step back. Thanks for having all the color guys.
Thank you.
Speaker Change: The next question comes from Katherine Kneeler with KBW. Please go ahead.
Thanks, good afternoon. Hey, good afternoon, Catherine. Hey, Catherine.
Speaker Change: I want to circle back just to kind of moving rates and your comment here on the margin.
It feels like...
The move-in rates have been good.
Speaker Change: for West Bank on a stand-alone basis, and then it looked like Premier also had a higher margin this quarter. So it feels like...
Speaker Change: Does that move in rates kind of push you to need to sell more loans, or is there something that you're kind of solving for, for where you want ratios to be at close, that we should just think about as we get nearer to the close date? Thanks.
Peace.
Speaker Change: Yeah, I think you hit on a number of things and a lot of great questions and
and Phil out there. What I would tell you...
Speaker Change: you know from from our perspective one of the things that we did do is we had the the commercial of the entire interest loan mark
Speaker Change: revalued as of December 31st, 2024 to compare that to, you know, what the original assumption was. It actually came down slightly, you know, so and but I would tell you
Speaker Change: at the end of the year are still kind of in that, you know, rough range, I would say.
and, you know, the interest mark.
Speaker Change: on a stand-alone basis actually went from kind of $325 million down to about $250 million to down $75 million. That's kind of, I think, about 5% interest more.
added fuel amounts to a 4% mark.
Speaker Change: based on where rates were at the end of the year.
Speaker Change: And so that's actually, moves in the opposite direction of kind of what we were kind of just discussing there. In fact, in that scenario, we see a little less tangible book value dilution.
And with the lower TBB dilution, it actually takes...
overall field map down from kind of that 13
13.5% dilutive to just under 10% dilutive.
which we view very positively.
I don't say, you know, the CRE.
Speaker Change: ratio is something that we're very focused on, as you kind of alluded to there, and we want to, you know, keep that
Yeah, we want to work very mindful of that 300%.
guidelines, and we want to, you know, maintain
Speaker Change: and I will tell you, with the fourth quarter, the growth in capital that we experience here premieres very nice numbers that they reported as well.
combined with
Speaker Change: The lower interest mark all kind of bode well for better capital ratios.
across the board by about
50 basis points, about half, like half a percent.
Speaker Change: It's really interesting. It's so helpful. So then this looks like since deal announcement.
Speaker Change: We're getting less book dilution and then less accretable yield, but our core margins are coming in higher, so actually kind of probably net neutral, maybe a little bit better to the margin, you know, all in. Is that a fair way to think about it? Yes.
Yep, that's exactly right.
Speaker Change: That's great. Okay. And then on expenses, can you just remind us just kind of the timing of cost savings and, you know, if there's any kind of upside to this cost savings that you might see now that you're a few months in from announcing the deal?
Speaker Change: Yeah, so cost savings, typically we would anticipate to begin after core conversion and typically that's a good month or two after core conversion.
Speaker Change: You know right now we've got a tentative date of the middle of May for that that core conversion to a CARP
And then there's certainly cleanup.
Speaker Change: for a month or two thereafter, where we're still kind of running parallel. And so after that period of time, that's when we would expect to really begin to realize the full kind of 26% cost saves.
Speaker Change: We're still obviously evaluating, but we do feel very good about that assumption. We feel that that was a nice conservative assumption at announcement and still feel that we're well on track to meet that.
Iannone.
Speaker Change: The next question comes from Manuel Navas with D8 Davidson. Please go ahead.
Manuel Navas: Hey, good afternoon. So just to follow up on that capital, I'm part of that capital question.
the moving rates
likely improve the CRE concentration at close and actually
Manuel Navas: is no longer a headwind at all to your legacy growth prospects. Is that kind of even a stronger takeaway?
Manuel Navas: Well, it is. It really is. And you're right. I didn't say that. I kind of meant to imply that. But it does improve the CRE concentration ratio on day one.
Manuel Navas: for sure, and it does remove some of, you know, if there were any, you know, ceiling on growth, it does certainly help there.
Thanks for joining us. Have a great day.
Speaker Change: Just remind me on the, are there any other updates to premiere
targets
Speaker Change: accretion or I guess we've kind of covered most things. But anything, anything, any other noteworthy updates about the pending transaction?
Speaker Change: I mean, maybe the only other thing I might add, you know, I think Catherine touched on.
you know, the CRE sale of $100 million roughly.
Speaker Change: and we'll adjust that accordingly depending on what we have and what we see at the time the deal closes.
Speaker Change: sell more and reinvest, maybe take on a little duration, a little more duration, and that basically has the impact of kind of
Speaker Change: We have here an opportunity that we want to make sure that we take advantage of to restructure the security portfolio how we want it.
Speaker Change: So, you know, we still anticipate right now they have a 1.2 billion dollar securities book we anticipate You know reducing that by a couple hundred million dollars But we we also anticipate restructuring
Speaker Change: the remaining securities book to fit our investment profile and to pick up some additional yield where we can. So, I think that's kind of another...
tailwind to margin and future growth.
That's great, just on margin, on the legacy basis.
Speaker Change: When you talk about a little bit more expansion in the first quarter, is that off of the December number of 3.08% or is that off of the full quarter number?
It's off of the full quarter number.
Okay.
You're kind of almost expecting at close you could...
Were you previously expected it for the deal?
Speaker Change: That's correct. I would say, when I say that, you know, I go back to that kind of 346 that we disclosed.
Speaker Change: back when we announced the deal, at that time, West Banco's stand-alone margin, I think, for 2025 was right around $3.10.
Speaker Change: That was the projection for 2025, and so from July, that was actually first quarter consensus number. That's what we used. We just used the consensus estimates.
Speaker Change: Since that time, we can see it, it's real, we anticipate that we're going to outperform the 310 that would have been baked into that 346 guidance.
apply 10 to 15 basis points. Yes.
Speaker Change: That's really, that's great, that's a good update. One last question, kind of
Speaker Change: What regions are you the most excited about? Anywhere that you were looking to add and how in timeline were you looking to add new lending teams in terms of like the legacy?
and the West Banco Commercial Lending Team.
Sure.
Speaker Change: Yeah, so, you know, we grew last year a billion dollars in loans, a billion dollars in deposits, which is, if you think about our acquisition of Your Community Bank, that's basically, we built organically a Your Community Bank last year. And so, when we look at future growth, obviously, the LPOs have driven a good portion of that. So, what I would tell you is,
Speaker Change: looking to fill out more in Nashville and then also looking to add more in Knoxville and Indianapolis.
Speaker Change: I should say start Knoxville and then add more to Indianapolis. Those would be the markets I would say we're looking at. Of course, we're always looking for great talented bankers that fit in with our processes and how we do things in our culture, but I would go Nashville, Knoxville, and Indianapolis.
Speaker Change: That's great. Thank you for the commentary. I'll step back into the queue.
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Thank you.
Speaker Change: And our last question today will be from Russell Gunther with Stevens. Please go ahead.
Russell Gunther: Hey guys, thank you for the follow-up. I just want to clarify, Dan, the 350 to 355 proformin-m with Premier, one, is that based off the updated mark you talked about receiving December 31st, and then two, does that contemplate the potential securities restructuring?
Russell Gunther: It is based off of the updated market. It does not contemplate fully the restructuring of securities.
So there's that. Okay, great.
I appreciate it. Thanks, guys. Thanks, Russ.
Russell Gunther: This concludes our question and answer session. I would like to turn the conference back over to Jeff Jackson for any closing remarks.
Jeff Jackson: Thank you. During the past year we delivered strong loan growth of a billion dollars that was matched by deposit growth of a billion dollars.
while maintaining strong capital levels and credit quality.
Jeff Jackson: Our successful balance sheet strategies have and should continue to improve our net interest margin.
Jeff Jackson: We remain focused on organic growth and efficiency gains to achieve positive operating leverage and position us well to deliver shareholder value.
Jeff Jackson: Thank you for joining us today and we look forward to speaking with you at one of our upcoming investor events.
Have a great day.
Jeff Jackson: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.