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spk00: 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 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 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 Iannone. Please go ahead, sir.
spk05: 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 24th, 2024, and WestBanco undertakes no obligation to update them. I would now like to turn the call over to Jeff. Jeff?
spk04: 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 outlook. Key takeaways from the call today are successfully navigated industry-wide headwinds through the strength of our teams and our strategies, sustained loan, deposit, and fee income growth, maintain strong capital levels, and key credit quality measures, focused on delivering positive operating leverage through new products and services and expense management. Despite the industry-wide headwinds caused by the Federal Reserve's record interest rate escalation, WestBanco performed well during 2023 through our continued focus on customer service and sustainable growth strategies. We achieved sustained loan, deposit, and fee income growth, maintained strong capital levels and credit quality, and remained focused on ensuring a strong organization for our shareholders while investing appropriately for long-term sustainable growth. Through successful operational execution, we generated solid annual net income while remaining a well-capitalized financial institution with sound liquidity, balance sheet, and credit quality metrics built upon well-defined strategies and core advantages, which will ensure success regardless of the economic environment. As we begin 2024, we remain well-capitalized with solid liquidity and capacity to fund loan growth, positioning us well to continue generating value for our shareholders. For the quarter ending December 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 13 percent, non-performing assets to total assets of just 16 basis points, and a capital position that continues to provide financial and operational flexibility. as demonstrated by our tangible common equity ratio 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. Just to highlight a few of our accomplishments, West Banka was awarded its eighth consecutive composite outstanding rating by the FDIC for its Community Reinvestment Act performance, a period spanning more than 20 years. We expanded our commercial loan production office strategy into the fast-growing Chattanooga market, representing another step in the execution of our long-term sustainable growth strategy. 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 to date. 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 markets. Lastly, we continued 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. The key story for the fourth quarter, as well as the year, was 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. 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 team. Total commercial loans increased 8% year over year and 13% sequentially annualized, driven by our banker hiring and loan production office strategies. In fact, our 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, 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. 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 cross-sell. During the fourth quarter, we had a nice team win in our western Pennsylvania market. A team comprised of retail, commercial, and treasury management associates significantly expanded our relationship with a commercial customer. After several discussions to understand the client's unique needs, the team recommended a number of tailored financial solutions, including ICS accounts, wealth management, and perks at work to better serve the client and its employees and win more of the relationship. Ultimately, we earn several business deposit accounts totaling seven figures, a multimillion-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. 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. We intend to use about half of the overall savings to grow our business banking program and generate additional revenue through loans and deposits and merchant and treasury management fees. We expect a slow build on the business banking investment through the first year with a potential expansion in coming years. Lastly, the transformation of our treasury management business into a sales-oriented organization primed to be more comprehensive and profitable customer relationships is progressing nicely. We are completing the rollout of a couple 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 payments. Customers will benefit from reduced AP costs, elimination of errors, enhanced fraud mitigation, and potential rebates generated from virtual card payments. MultiCard is a pay-in-full card issued to employees of established companies combining travel and entertainment, fleet cards, and purchasing cards into one. 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 spend. 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 timeframe after the service agreement documentation is completed. As industry experts estimate that 40% of all business-to-business payments in the U.S. are still made with a check, we believe this is an untapped market for our commercial and small business clients, and we have great opportunities to deepen our commercial banking relationships. We are currently focused on building a strong pipeline with revenue beginning to be generated during the second half of 2024. These are examples of commitment to innovation and investments that serve customers better and drive sustainable growth. I believe in the long-term growth prospects we are building for our customers, communities, employees, and shareholders. I would now like to turn the call over to Dan Weiss, our CFO, for an update on fourth quarter financial results and a current outlook for 2024. Dan?
spk02: 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 GAAP 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. 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, and inflation. As of December 31st, total assets of $17.7 billion included total portfolio loans of $11.6 billion and securities of $3.4 billion. Total portfolio loans grew nearly 9% year-over-year, reflecting the strength of our markets and lending teams combined with our strategic lending initiatives. 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 in the $500 million range within a more normal operating environment. As interest rates continue to stabilize and potentially decline, we anticipate the pace of CRE payoffs to pick up meaningfully as we progress throughout 2024. Residential mortgage originations totaled approximately $690 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. Further, broker deposits totaled $211 million at December 31st, a decrease of $53 million from September 30th. Excluding broker deposits, total deposits increased approximately $134 million over the third quarter, representing a 4% annualized growth rate. Consistent with the higher interest rate environment, we continue to experience some shift in the mix of our deposits, with non-interest-bearing demand deposits down 5% from the 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 2019. 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 fourth quarter of 2023, were 161 basis points, an increase of 25 basis points over the length 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 have 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. 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. 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 merit increases, equipment and software was up from our ATM upgrade project, and marketing expense increased in support of our loan and deposit campaigns. FDIC insurance was higher due to the increase in the minimum rate for all banks, but it's also worth noting that we were not subject to the special FDIC assessment that some other banks incurred. Lastly, employee benefits expense increased due to higher deferred compensation expense and healthcare 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 gains. 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 31st, 2023 was 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 seven of the supplemental earnings presentation. We continue to believe that we're well positioned for any operating environment, and we actively manage our liquidity risk to ensure adequate funds that meet changes in loan demand, unexpected outflows and deposits in other borings, as well as take advantage of market opportunities as they arise. 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. 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. 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 fees. Securities brokerage revenue is expected to remain consistent with the amount generated during 2023, but could benefit modestly from organic growth dependent upon the economy and equity and fixed 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. 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. 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 be relatively flat. Software and equipment will be higher throughout the year due to the ongoing related costs related to the upgrade of our ATMs and other product and service enhancements, which are expected to add between one and one and a half million dollars per quarter to this line item. We currently anticipate modest increases in employee benefits and occupancy, offset by a decrease in marketing and other expenses while maintaining our loan and deposit growth plans. Based on what we know today, we believe our expense run rate during the first half of 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 changes 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 loan growth. 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?
spk00: Thank you. 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. 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 Shepherd with RBC Capital Markets. Please go ahead.
spk08: Hey, good morning, guys.
spk00: Good morning.
spk08: Morning, Carl. I wanted to start on loan growth. It was obviously a very strong quarter for you guys. Could you talk a little bit about 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?
spk04: Yeah, sure. Sure. As we mentioned, we're seeing really strong loan growth from our LPOs. A lot of that is a nice mix of C&I businesses and CRE business. I would say that it's obviously a big portion of our pipeline going into this year. As far as differences, I would say it's no different than really what we're seeing across the rest of our footprint. 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.
spk08: 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?
spk02: Yeah. So, Carl, as you know, we do try to generally maintain a pretty neutral posture. But if we think about just the kind of the headwinds and tailwinds without any cuts or with cuts. I think kind of working off of December, I would say our spot margin came in at 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. outlook that we provided on our prepared commentary. We'll expect deposits to continue to reprice upward, but we are seeing some noticeable decline in exception pricing, and certainly to the extent that we see new deposit growth, that would come on at a higher than our average as well. We're also anticipating, of course, a little bit of non-interest-bearing remix as we continue into 2024, but at a much slower pace. So I would call those kind of the headwinds to margin. But if we think about tailwinds here, particularly as we think about other funding sources, for example, we do have $200 million in broker 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 repricing from about 3% and 3.25%. So to the extent that we see an up or down, we can adjust from there. but most of that cost is already kind of baked into margin. 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 rate cuts, those would reprice downward very quickly. And then I would say if we continue on on the asset side, As you know, and you can see this in our slide deck, that 70% of the portfolio is variable rate, 30% being obviously fixed. And of that variable rate, 60% of that variable rate commercial portfolio reprices every three months or less. So that helps to kind of keep neutral on the asset side. That represents about $3.5 million or about, that's currently priced right around 775. 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 5.25%. 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. And then keeping in mind that we've got new loan growth today that's coming on with an 8% handle. And then we're also rolling our cash flows from our securities portfolio that's currently yielding that 2.5%. and 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 that's a long-winded way of basically saying we really think that we're going to be pretty neutral with three cuts or six.
spk07: 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.
spk00: The next question will come from David Bishop with the HubD group. Please go ahead.
spk01: Yeah, good morning, gentlemen.
spk04: Hey, good morning, Dave.
spk01: 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. employee benefits up. Just curious within the compensation to maybe employee benefits, is there anything specific you can do other than maybe slowing the rate of growth to restrain that? Just curious how you're thinking this year to really keep a lid on expense growth overall.
spk04: Yeah, Dave, we're looking at everything. And we just went through a retail transformation, and we're hoping to wrap that up in the next month or 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, 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 and remind me in terms of the
spk01: The ATM fleet upgrade, are those expenses down behind you? Is that fully in the run rate?
spk02: 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.
spk01: 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's still at.
spk04: Yeah, it's still $100 million and a quarter. And we'll still continue to use that, obviously, to fund loan growth.
spk01: Got it. Then finally, 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 into the queue.
spk04: 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 CNI focus. So that's one of our main strategic goals is really to expand our CNI 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.
spk01: Great, thank you.
spk00: The next question will come from Russell Gunther with Stevens. Please go ahead.
spk06: 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 24?
spk02: Sure. So, we generally try to stay away from disclosing betas, as you knew, Russell. I would say, you know, we are anticipating the peak in deposit costs really to occur here in the first half, in the first half of the year. But on the way down, you know, within our own modeling, we're right in that 25 percent 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 one or two or three cuts? And so I think that's all potentially up for debate. But what we see in our modeling is under multiple scenarios, we benefit in terms of margin. So we see deposit costs coming down at a faster rate than asset pricing. Okay.
spk06: That's great, Dan. I appreciate that. And then just switching gears for my follow-up, Jeff, I believe you mentioned the potential for new LPOs as a part of the growth strategy this year. Just any color on geographic appetite would be great.
spk04: 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 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.
spk06: All right, Jeff. That's great. Thank you, guys. That's it for me. Thank you.
spk00: The next question will come from Daniel Tomeo with Raymond James. Please go ahead.
spk03: Hey, good morning, guys. Thanks for taking my question. Hey, good morning. 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 the ultimate goal there, how big 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.
spk04: 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, but 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, 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 teams.
spk03: Okay, terrific, thanks for that. And then my second question, just on capital, you're benefiting, as everyone is, from lower rates here, and then assuming that we do get a soft landing or you continue to build capital, just curious your thoughts on how share purchases could fit into the capital priorities.
spk04: Yeah, I think we look at 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.
spk03: Okay, understood. That's it for me. Thanks, guys. Appreciate it.
spk00: Thank you. The next question will come from Catherine Miller with KBW. Please go ahead. Thanks.
spk10: Good morning. Hey, good morning, Catherine.
spk05: Good morning.
spk10: 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 LTOs and team lift-outs. It feels like that's been a little bit of a priority recently just given the 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?
spk04: 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, 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 10% to 15% of our asset size. 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. So I think our history has shown that we create these LPOs to kind of test the waters in the market and then potentially do deals after that, so I would not see us changing that course. But once again, I think, as you mentioned, the M&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.
spk10: 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 cost and credit cost over the next year.
spk04: Yeah, for us, related to credit, we obviously continue to look at all our portfolio to make sure that 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 know, 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?
spk02: 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, you know, credit events. And wouldn't, you know, today a big portion of our provision or allowance is based on, you know, the forecast of unemployment rates. And, you know, based on those forecasts, you know, we're not seeing anything really significantly out of the ordinary. Just as Jeff said, we're anticipating something similar to what we experienced here in 23.
spk10: If you think about commercial real estate maturities, can you give any just anecdotes or commentary on what you're seeing as some of your fixed rate CRE loans? 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.
spk04: 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 rates.
spk10: Great. Very helpful. Thank you.
spk04: Thank you.
spk00: The next question will come from Casey Whitman with Piper Sandler. Please go ahead.
spk11: Hey, good morning. Good morning, Casey.
spk00: Good morning.
spk11: Good morning. So most of my questions were answered, but maybe can you walk us through the assumption you have for deposit growth this year against your comments around mid to upper single-digit loan growth? How comfortable are you with the loan deposit ratio here at 88%, or what do you see as the right level for West Van Gogh?
spk04: 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%. 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'll be by a wide margin, and I do believe the securities, $100 million a quarter will help fund that gap.
spk11: Got it. And how low are you comfortable with the securities book getting to, I guess, the percentage of assets, or is there a target range?
spk02: Yeah, Casey, it's right around 17. I would say mid-teens, so I would say 17% of total assets is kind of probably our bottom end.
spk11: All right. Thanks.
spk00: Thank you. Again, if you have a question, please press star, then 1. Our next question will come from Manuel Navas with DA Davidson. Please go ahead.
spk09: 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 CRE kind of slow it? Just kind of walk me through the dynamics you're thinking on low growth across the year.
spk04: Yeah, sure. I actually believe that with a few cuts that we have modeled, as mentioned, we're modeling 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. 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.
spk09: 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 better or has there been opportunities for any restructuring in the securities book? Are you constantly thinking of that to pay down borrowings, perhaps?
spk02: Yes. Obviously, we've had those discussions probably every quarter for the last six six quarters. Today, there is not. We feel that 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 improve. So I'm a little hard-pressed today to go in and take a loss on the loss trade and sell insecurities. I'd rather wait it out a couple more quarters and see where we're at then.
spk09: Thank you. I appreciate that. Thank you for the comments today.
spk00: 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.
spk04: 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. Thank you.
spk00: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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