WesBanco, Inc.

Hello and welcome to the West Bank of third quarter 2024 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 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 one on your telephone keypad. And to withdraw your question, you may press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to John Iannone, Senior Vice President, Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to WestBanco, Inc.' 's third quarter 2024 earnings conference call. Leading the call today are Jeff Jackson, President and Chief Executive Officer, and Dan Weiss, Senior Executive Vice President and Chief Financial Officer. Today's call, an archive of which will be available on our website for 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 October 24, 2024, and WestBanco undertakes no obligation to update them. I would now like to turn the call over to Jeff. Jeff?

Thanks, John, and good afternoon. On today's call, we will review our strong third quarter 2024 results and provide an update on our operations and current outlook for the fourth quarter. Key takeaways from the call today are continued strong deposit and loan growth combined with solid credit quality. We focused on organic growth and efficiency gains to achieve positive operating leverage. Our transformative acquisition of Premier Financial Corp. remains on track pending regulatory and shareholder approvals. West Banco marked strong momentum in the third quarter, driven by strategic actions that continue to strengthen our balance sheet. These include robust deposit and loan growth and the paydown of higher-cost borrowings. Over the last year, West Banco has grown loans by $1.1 billion and deposits by $750 million. reflecting the continued strength of our teams, markets, and strategies. For the quarter ending September 30, 2024, we reported net income, excluding restructuring expenses available to common shareholders of $36.3 million and earnings per share of $0.56. We successfully raised $200 million of common equity during the quarter to position WestBanco for future growth. Reflecting this capital raise and strong earnings, our tangible common equity ratio increased 132 basis points quarter over quarter to 8.84%. The key story for the third quarter was our continued strong deposit and loan growth, as sequential quarter deposit growth of 12% annualized was double annualized loan growth of 6%. Impressively, Our total and commercial loan growth and deposit growth significantly outperformed the monthly HA data for all domestically chartered commercial banks on both a year-over-year and quarter-over-quarter basis. These proof points demonstrate the success of our strategies and teams. On the deposit gathering side, our recent Summer of One campaign named for our well-received West Bank of One account, was a great success thanks to the partnership between our retail, commercial, marketing, and strategy teams. We opened more than 6,000 new consumer accounts, helping to drive our 12% annualized deposit growth. Additionally, our teams grew total deposits by $750 million, or 6%, during the last 12 months, reflecting their ongoing success and engaging current and prospective customers. On the loan side, third quarter loan growth was 10% year-over-year and 6% quarter-over-quarter annualized, again driven by our commercial and residential lending teams. Total commercial loans increased 12% year-over-year and 8% sequentially on an annualized basis, driven by commercial real estate. Our four newest Loan production offices accounted for nearly 20% of the commercial loan growth year-to-date, led by our Nashville and Chattanooga, Tennessee offices. These are proof points of the success of our LPO strategy. Our commercial loan pipeline as of September 30th was approximately $830 million, up slightly from a year ago but down from June 30th, as our teams converted the pipeline into another solid quarter of loan growth. Based on the current loan pipeline, we expect solid loan growth during the fourth quarter as well. Since year-end 2021, we have achieved a strong compound annual loan growth rate of 9.4%. It's important to note that we achieved this impressive growth with roughly the same number of bankers thanks to our talented team's continued productivity gains and great recruiting. What makes this growth even more notable is our bankers' success in delivering comprehensive relationship banking solutions, including deposits, ancillary products and services, and wealth management solutions. These relationship-focused efforts position WestBanco as a strong financial services partner, helping further our mission of fostering lasting prosperity for our customers and our organizations. A great example of our relationship banking success occurred in August when a financial center manager observed that an existing client was having difficulty managing their line of credit and capital position. A team spanning retail, business, and commercial banking, along with Treasury, set out to work with the client, understanding their issues, educating them on options, and crafting a tailored solution. Their collaborative efforts resulted in opening of multiple deposit accounts with six-figure balances, an improvement in the client's credit line management, and a reduction in their cost of capital. Our deep understanding of the client's needs and our personalized approach strengthened the client relationship and resulted in a winning solution for both the client and West Banco. Our underwriting and credit standards are a legacy of our company. and we are achieving our strong loan growth without sacrificing credit quality. Our non-performing assets decreased to 0.17% of total assets, which, as can be seen in our supplemental earnings presentation, is less than half the level for all banks with assets sized between $10 and $25 billion. Criticized and classified loans as a percent of total loans have remained in a consistent range for the last nine quarters. While total loans past due increased roughly 20 basis points during the third quarter to 0.44 of total loans, we expect these loans to be resolved by the end of the fourth quarter. Turning to our pending acquisition of Premier Financial, we have filed all necessary bank regulatory applications as well as the initial filings with the SEC to schedule the shareholder meetings and remain on track for a first quarter closing pending regulatory and shareholder approvals. Through this transformative acquisition, we expect to accelerate our positive momentum, build on Premier's legacy of community engagement and support, and together bring the resources of a larger, stronger financial services organization to benefit all of our community. Lastly, I am proud that West Banco has again been recognized for our success in building a workplace culture where purpose, belonging, and opportunity thrive. In August, we were named one of America's greatest workplaces for parents and families by Newsweek. We were one of just seven banks to receive a five-star rating, Newsweek's highest performance mark. By fostering a supportive and family-friendly workplace, we enhance the well-being of our team members and contribute to our broader vision of making every community we serve a better place for people and businesses to thrive. When our employees and our families thrive, so do our organization and communities. I would now like to turn the call over to Dan Weiss, our CFO, for an update on our third quarter financial results and current outlook for the fourth quarter.

Dan. Thanks, Jeff, and good afternoon. For the quarter ending September 30, 2024, we reported gaps in net income available to common shareholders of $34.7 million, or $0.54 per share. And when excluding after-tax restructuring and merger-related expenses, net income was $36.3 million, or $0.56 per share, as compared to $34.8 million, or $0.59 per share, in the prior year period. To highlight a few of the third quarter's accomplishments... We achieved strong loan and deposit growth, both year-over-year and sequentially, raised $200 million of common equity in support of future growth, improved net interest income, and effectively managed discretionary and personnel costs. All of this resulted in a $0.07 increase in earnings per share over the length second quarter, despite an increase in share count from the capital raised. As of September 30th, total assets of $18.5 billion included total portfolio loans of $12.5 billion and total securities of $3.4 billion. As Jeff mentioned, loan growth remained robust and was driven by our commercial and residential lending teams. With a strong pipeline, nearly $1 billion in unfunded LCD commitments expected to fund over the next 12 to 18 months and CRE payoffs at historically low levels we continue to be optimistic about future loan growth. Commercial real estate payoffs totaled approximately $185 million year-to-date as compared to an annual level in the $500 million range in a more normal operating environment. Deposits of $13.8 billion, which were up 5.7% versus the prior year and 12.1% annualized length quarter, reflected the success of our summer deposit retention and gathering campaigns. The composition of total deposits continues to experience mixed shifts, but at a slower pace than experienced in prior quarters, as most deposits have already repriced upward. As is typical during a higher-rate environment, we have experienced strong growth in CDs. However, when excluding them, we realized deposit growth of 2.2% year-over-year and 4.3% quarter-over-quarter annualized. Credit quality stability continues as key metrics have remained low from a historical perspective and within a consistent range through the last two-plus years. The allowance for credit losses to total portfolio loans at the end of the quarter increased slightly to 1.13% of total loans, primarily due to higher unemployment assumptions and other qualitative adjustments. The third quarter margin of 2.95% remained stable compared to the second quarter and reflected both higher loan yields and higher funding costs, while the year-to-date margin increased one basis point to 2.94% as compared to the second quarter. The margin also benefited from the paydown of $300 million of federal home loan bank borrowings from deposit growth exceeding loan growth and the $200 million of equity raised during the third quarter. Of the $1.2 billion of federal home loan bank borrowings, approximately 75%, with an average rate of 5.2%, mature during the fourth quarter. And that should benefit our 2025 net interest margin as they reprice at lower rates. Total deposit funding costs, including non-interest-bearing deposits for the third quarter of 2024, were 205 basis points, an increase of 10 basis points over the linked quarter. Non-interest income in the third quarter totaled $29.6 million, a 4.1% decrease from the prior year period due to lower net swap fee and valuation income, which was driven by a negative fair value adjustment this year as compared to a gain last year. When excluding these adjustments, non-interest income would have increased 6% to $31.3 million. Trust fees and securities brokerage revenue increased a combined $1.1 million year over year, driven by record levels of assets under management of $6.1 billion and brokerage securities account values of $1.9 billion, both of which rose from organic growth and market appreciation. We are focused on organic growth and efficiency gains to achieve positive operating leverage, and managing our discretionary and personnel costs are a key component. Excluding restructuring and merger-related expenses, non-interest expense for the three months ended September 30, 2024, totaled $99.2 million, a 2% increase year-over-year, primarily due to increases in other operating expenses and equipment and software expenses. Other operating expenses increased $1.5 million, primarily due to higher costs and fees in support of loan growth and higher other miscellaneous expenses. And equipment and software expense increased $1 million, reflecting the impact of the prior year ATM upgrades, which, as we know, were phased in throughout the prior year. Salaries and wages decreased $500,000 compared to the prior year period due to lower staffing levels associated with efficiency improvements in the mortgage and branch staffing models, partially offset by normal compensation merit increases. Employee benefits decreased $400,000 due to lower health insurance costs driven by lower staffing levels compared to the prior year period. Turning to capital, we enhanced our capital structure on August 1st through successfully raising $200 million of common equity in conjunction with the announcement of the pending acquisition of Premier Financial. Our already strong capital position benefited from the equity raise strong earnings, and as a result, we've demonstrated favorable tangible equity levels compared to our peers, while regulatory capital ratios have remained above the applicable well-capitalized standards. Turning to our outlook for the fourth quarter, and please note that we will provide our 2025 outlook during the January call, we are modeling two additional Fed rate cuts in November and December. which is not expected to have a significant impact on 2024 results due to timing, followed by four more cuts in 2025. We continue to model the fourth quarter's net interest margin to improve modestly in the upper 290s as our funding costs reprice down at a faster pace than our assets. We anticipate non-interest income and non-interest expense to remain relatively consistent with third quarter trends, And as previously disclosed, we successfully consolidated 11 branches in the nearby locations earlier this month to ensure optimal distribution to best serve our customers. The anticipated annual savings is approximately $4 million, the majority of which will be realized during 2025. And finally, the provision for credit losses will mostly be dependent upon loan growth, economic factors and charge-offs, And our effective tax rate should be in 17.5% range for the year. Operator, we're now ready to take questions. Would you please review the instructions?

Thank you. To ask a question, you may press star then 1 on your telephone keypad. If you are 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 2. please limit yourself to two questions, and then you are welcome to return to the queue. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Daniel Tamayo with Raymond James. Please go ahead.

Hi, sorry about that. Good afternoon, everyone. Maybe first, you know, on the margin as it relates to net interest income. You talked about a little bit of expansion in the fourth quarter up to the upper 290s. Maybe if you could just remind us, you know, you talked about the 2025 guidance coming out next quarter, but you're baking in four cuts. Just remind us what the impact from each one of those cuts may be.

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

Okay. And then maybe I'm switching over to the credit side. So really the early stage numbers look good for you guys. NPL is down at a good number and, you know, maybe a little bit of an increase in the criticized and classified, but not too much. But, you know, it's been a couple of very strong quarters from a charge-out perspective. Forecasts are, my forecasts were, kind of well above where you guys have been coming in. Just curious, I guess, on the near term, what you're able to see visibility-wise from a credit perspective, if things look relatively similar to what you've produced over the last couple quarters.

Yeah, sure. I'll take that one. I think that we're still seeing great credit quality. I would expect it to be somewhere in the range of where we've been over, you know, third quarter, second quarter, somewhere in that range. between the two of them. But once again, we're not really seeing any issues out there. We like others, you know, we have a one-off here and there, but those seem to be getting resolved. So we feel really good about where we're at with the credit quality, and I don't foresee any dramatic changes going forward.

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

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

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

Hey, good afternoon, guys. I'd like to follow up on the margin commentary, Dan, you provided. I appreciate the color there. You mentioned the positive catalyst of the FHLB maturities in the fourth quarter as a benefit to the 25 NIM. So could you Help us with where you'd expect that kind of core NIM to step up to early next year, and then as we layer in the acquisition, how you'd expect that pro forma margin to shake out as we start the year.

Yeah, so I'll try to dive here a little bit deeper into the margin for your question here, Russell. If we think about kind of funding sources, so over the next – month, we have about $900 million in federal home loan bank borrowings at a weighted average rate of about 5.2% that will reprice. These are one-month advances. That will continue to provide benefit to our interest expense as we move forward. We also have about $800 million in indexed insured cash sweep product that will reprice down. That reprices down immediately another $700 million to your private client money market accounts as well. Kind of continuing on the funding side, $2.1 billion in interest-bearing deposits that have repriced down a full 50 basis points and will also be very reactive to any future rate cuts. And as I said, we're anticipating a 25 basis point cut in November and December. and then basically one in each quarter in 2025. And then kind of on top of that, we've got another $200 million in broker deposits. They're Fed funds plus 20 basis points also indexed and repricing immediately. They'll actually mature here at the end of the first quarter. And then the other kind of big catalyst, as we think kind of more into 2025, would be we do have $1.3 billion in CDs, which is about 85% or so of the CD book will mature and or reprice here by second quarter of 25. And that's coming off of a 4.2% handle. And then if we look on the asset side for a moment, as you know and as you can see on slide eight there, about 75% of our commercial portfolio is variable rate, 25% is fixed. Of that variable rate, the variable rate loans, about two-thirds of that, or about 4.2 billion, reprices three months or less, every three months or less. And that's currently kind of a weighted average rate of 7.6%. So that 4.2 billion is roughly half of the commercial book. And then if we think about kind of the adjustable rate, which reprices really every, kind of in that 48 to 60 month timeframe, what would be coming up in the next 12 months to adjust would be about $300 million, and that would be repricing upward. And then of the fixed rate, about 10% per year kind of matures, at least in the early years. That's $250 million roughly that would mature here in the next 12 months at 4.5%. So that also would reprice upward. So if we keep in mind with kind of the new loan growth that's coming on right around today, 7.5% to 8%. You saw we're just under 8% here in the third quarter. And we're continuing to reinvest cash flows from securities back into securities. And those cash flows, those yields are coming off at 2.5%, and we're coming on at 4.5%. So we're picking up 200 to 250 basis points in yield there. we do feel that we've got a lot of kind of positive momentum as we head into 2025. And I would tell you, if we're thinking, you know, what we're modeling would be kind of a similar increase today in NIM from third quarter to fourth quarter, as we might see in fourth quarter to first quarter. And then if you're looking even deeper with the CDs maturing, by that time we would anticipate four more cuts, four more 25 basis point cuts, so you'd be down 150 BIPs from the peak. We would anticipate there to be some more sizable margin benefit there in the kind of beginning in the second quarter of 2025. And then if we layer on top of that the – The premier deal, of course, we talked last quarter about the margin benefit being right in that kind of 345 to 350 range. We quoted in the slide deck 346. You know, there can also be a few moving parts there. But generally speaking, you know, I would say that's still pretty good to estimate. That number still stands.

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

yeah I would tell you that well first we're always reinvesting right so but generally speaking I would tell you that that four million dollars which is about a million dollars a quarter call it should be more or less drop into the bottom line if we think about expense run rate kind of forward I would tell you and I said in my prepared remarks that you're not anticipating much difference from what we reported here in the third quarter. The one thing, or a couple of things I would tell you though, that would be different from third quarter versus fourth quarter on expense run rate is, you know, for our salaries and wages, our hourly employees, their merit increases occur in August. And so we'll have a full quarter's worth of merit increases in the fourth quarter versus kind of having two, two, two thirds of that merit increase in the third quarter. Also healthcare, can be very difficult to predict. But I would say typically in that fourth quarter, healthcare expenses are a bit higher just because employees have kind of burned through their deductibles. And at that point, you know, the cost for any additional medical procedures is, you know, is on the company. And then I would just tell you it's kind of some offsetting things, you know, that we had a pretty big marketing campaign as we talked about on our prepared commentary. Wouldn't expect marketing expense to be you know, quite as high as what we experienced in the third quarter. So some puts and takes, but I think, you know, overall pretty close to third quarter, maybe a little bit heavier.

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

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

Thanks. Good afternoon.

Hey, good afternoon, Catherine. Hey, Catherine.

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

Yeah, on non-interest income, the driver really was in swap fees. The valuation adjustment this quarter was a negative $1.7 million increase. compared to a positive $1.4 million in the third quarter of 23. So that swing is really what's causing probably, if you're looking kind of year over year, or even quarter over quarter, late quarter for that matter, that's what's driving it. We don't expect that to occur here again in the fourth quarter. But, again, that's pure valuation. That's not necessarily, you know, indication of anything other than just movement in interest rates relative to where those, you know, back-to-back swaps were booked.

That makes sense. Okay, I had that lumped together in others, so that makes sense. Okay. And then back to the margin issue. The 370 to 380 NIM that you mentioned, just wanted to confirm that that is where you were thinking that the pro forma margin goes kind of at close with Premier, including a credible yield.

No.

To kind of a second. Okay, go ahead.

No, I don't believe I quoted 370 to 380. Oh, I'm sorry. I'm sorry.

I'm sorry. 345 to 350. I misspoke.

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

The 345 to 350 pro forma margin that you mentioned. What exactly are you pointing to with that 345, 350 comment?

Yeah. So that's what we modeled. That was what we presented in our second quarter slide deck that kind of laid out the details of the deal. And that's kind of what we modeled based on the projections, based on the loan accretion primarily. It was loan accretion that was driving that. I don't know if you recall from second quarter, we did talk about the loan accretion being about $65 million per year. And one of the things, and so obviously that's playing into that upsized kind of trend margin, guidance.

Okay, guidance. So that just is kind of a pro forma margin at close. And then is it fair as we kind of think about the trajectory, and I know now I'm taking you past 2Q and past the close of it, as we think about just conceptually your balance sheet. So you see a few bits of kind of core expansion the next few quarters, which makes sense given all the puts and takes you gave. Then we add premiering and we're around 345, 350. And so that makes sense. And then as you move past that, if we still get some rate cuts to the back half of the year, is there a case for still expansion from there with things that you can do on the balance sheet? Or is it kind of you're stable for a while until rates kind of settle in?

Yeah, I mean, I would say that's tough to answer this far out. So, you know, I would say yes. Yeah, generally speaking, though, there are a lot of different scenarios that really can play out. I would say one of the things that we do have is the opportunity to kind of restructure the balance sheet, as we talked about last quarter. And depending on the rate environment at the time of legal merge, we may take advantage of that. We did talk about potentially selling or exploring $100 million of CRE loans on their books and a couple hundred million in securities and you know, we'll certainly take the opportunity to maximize, you know, long-term, you know, shareholder value as we get to liquid merge. But, you know, I'd probably be speaking, giving you an incorrect answer if I gave you anything at this point beyond that second quarter.

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

Yeah. Now, I mean, generally speaking, I would say in a down rate environment, we believe that both us and Premier are position to benefit, even beyond kind of the forecast that we were using back in the second quarter, which was basically a consensus estimate forecast for 2025. So I think that there is some upside there, yeah. And the offsetting component, as you know, that accretion begins to run down some on a quarterly basis. It's not overly significant, though, a couple basis points here.

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

Yeah, that's a great question. And it kind of goes back to the question, your last question as well. And that's kind of what I was thinking in terms of, you know, When we modeled the deal and when we priced the deal, or rather the fair values alone, we had about $65 million in accretion. That was calculating fair value based on kind of May 31st forward curve, if you will. So if we think about where we are today, we know that there certainly has been a more aggressive down rate environment than what it was back in, you know, May-June timeframe. And so I would anticipate, to your point, to see a little less TBV dilution, which is, you know, a positive and a little less accretion as a result, with the offset coming on the actual, you know, on the balance or on the income statement through higher yields.

Thank you. The next question comes from Manuel Navas with DA Davidson. Please go ahead.

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

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

Yeah, I would agree. We talk about it all the time. And that is obviously a driver of the previous question as well, right, with the rates coming down. Where does the accretion dilution land? But it does provide relief for the 300% ratio. So, yeah, to sum it up, it does make it easier, yes.

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

Yeah, sure. So we're really excited about the tremendous deposit growth that we've shown. It's really coming across the entire footprint. The nice thing, and I think you've heard me talk about this, is a year ago we really started putting nice incentives for our commercial bankers. to grow deposits. And these are the fruits that we've basically seen from these type of programs, along with our new consumer checking account, the WestBanco One account. Obviously, we added about 6,800 accounts with the new summer of one. And then we've seen tremendous commercial loan growth, I mean, deposit growth, which is really driving a lot of this additional NIM help. But it's all across the footprint, and I would say it's kind of been a cultural change for us, but it's one that we're really benefiting from.

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

Yes. Yeah, so obviously a big attention to the Premier Acquisition, and that's going really, really well. They've got a great amount of talent at that bank, and we're very pleased and working through that. But outside of that, we are still recruiting. As I've mentioned before, you know, we're still looking to add talent in Nashville. We're also looking at Knoxville and other potential LPOs. But those would be the two areas I would say we're definitely looking for additional talent, along with our existing markets. We are looking at replacing a couple of market presidents – who retired and working through that as well. So we're always out there trying to recruit and retain the best talent. And that's why we've seen such tremendous loan and deposit growth is we have retooled our teams and changed a lot of things that have really turned on the growth for this company.

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

Thank you. The next question comes from Carl Shepard with RBC Capital Markets. Please go ahead.

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

Sure. Sure. Sure. No, I think we're very optimistic on continuing loan growth. Once again, I think you've heard me say this, but we're doing about double the amount of loans with the same amount of people we had about three years ago. And a lot of that has been our talent management and recruitment. You know, our loan production offices, the expansion there is doing about 20% of the loan growth that we've had in loan production. I see the environment continuing to be pretty strong for us. I don't see it slowing down. I mean, I think with rates coming down, that gives people opportunities to potentially do more things that maybe they've been holding off on, or it also provides refinance opportunities. And so when you combine that with our continued recruitment of great talented people and the way we go to market and the products we put out there and our local decision-making and our company culture, I still foresee a very strong loan growth for us in the future. I think with the addition of Premier and pulling that company into our culture and in our sales models, I think it's just going to accelerate even more.

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

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

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

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

Thanks, guys.

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

Hey, good afternoon, gentlemen.

Hey, good afternoon, Dave.

Hey, Dave. Hey, Jeff or Dan, probably more to Dan, you gave us some good color in terms of the anticipated maturation or expiration of some of the flood barrings and CDs and the weighted average rates. Just curious what current market rates you think you could sort of roll those into currently? Is that on CDs? CDs and the flood curve.

Yeah, so right now, you know, FHLB is, you know, running – we've got the $900 million, and we're continuing to keep that in kind of one-month advances. And that's running about 10 to 15 basis points above, you know, Fed funds. So – That would be the reinvestment rate I would tell you today, certainly to the extent that we can generate additional deposits and pay down FHLB sooner. That would certainly be desirable. We're not necessarily projecting that, nor are we projecting the kind of deposit success, you know, 12.1% annualized in the third quarter. In the fourth quarter or, you know, anytime in the near future, we're very happy with that. But, yeah, I would say, you know, The expectation there would be kind of Fed funds plus 10 or 15 basis points for FHLB. Those are repricing, like I said, every month. And then on the CD book, we have lowered those rates quite substantially, about 75 basis points from where we were. At one point, we were as high as 5.25. We came down to 4.75 today. We're right around 4%. On the seven-month special.

Four percent. Okay, that's seven months. Great. And then, you know, Jeff, you mentioned obviously the compensation revamp, you know, driving some really stellar deposit growth there on the incentive side. I assume is that sort of fully baked into the incentive run rate? Would there be any sort of fourth quarter catch-up in terms of like bonus accruals or such? Just curious how that impacts compensation maybe next quarter.

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

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

Yeah, I would say, you know, we work with our customers very well. You're right. We haven't seen a lot of large payoffs. I think fourth quarter, we might see a little more than third quarter, slightly more, a few different payoffs. But no, we don't see any major large looming, you know, momentous payoffs coming so far. We do talk to our customers all the time. And like I said, fourth quarter might be a little heavier than third quarter. But no, we've We keep a very close tab on that and feel very good about it.

Great. Appreciate the color.

Thanks, Dave.

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

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

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