WesBanco - Q4 2023
January 24, 2024
Transcript
Operator (participant)
Good day, and welcome to the WesBanco 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.
John Iannone (SVP and Director of Investor Relations)
Thank you. Good morning, and welcome to WesBanco 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 1 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, wesbanco.com. All statements speak only as of January 24, 2024, and WesBanco undertakes no obligation to update them. I would now like to turn the call over to Jeff. Jeff?
Jeff Jackson (President and CEO)
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. Maintained 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, WesBanco 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 31, 2023, we reported net income available to common shareholders of $32.4 million and diluted earnings per share of $0.55. 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%, 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, WesBanco 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 WesBanco One 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 WesBanco 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 billion 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 teams.
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 earned several business deposit accounts totaling 7 figures, a $multi-million-dollar family trust, and additional personal deposit accounts. This example highlights our commitment to winning complete banking relationships through a deep understanding of client needs, and we expect to continue these strong efforts at deepening relationships going forward. We continue to make important growth-oriented strategic investments that will generate positive operating leverage. 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 payment. 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 MultiCard transaction control, MultiCard 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, MultiCard 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?
Dan Weiss (Senior Executive VP and CFO)
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 31, 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 continued 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, brokered deposits totaled $211 million at December 31, a decrease of $53 million from September 30. Excluding brokered 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 continued 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 leading 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 31 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 31, 2023, was 7.62%, up 34 basis points year-over-year, or 7.07% when including unrealized losses on a held to maturity securities, as shown on slide 7 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 to meet changes in loan demand, unexpected outflows in deposits and other borrowings, as well as take advantage of market opportunities as they arise.
Turning to our current 2024 outlook, we continue to model Fed funds 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. 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. 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 $1 million and $1.5 million 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 healthcare costs, and technology investments during the back half of the year. The provision for credit losses under CECL will depend upon the changes of macroeconomic forecasts and qualitative factors, as well as various credit quality metrics, including potential charge-offs, criticized and classified loan balances, delinquencies, changes in prepayment speeds, and future loan growth. 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?
Operator (participant)
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Please limit yourself to one question and one follow-up, and if you have further questions, you may reenter the question queue. At this time, we'll pause momentarily to assemble our roster.
The first question will come from Karl Shepherd with RBC Capital Markets. Please go ahead.
Karl Shepard (Assistant VP)
Hey, good morning, guys.
Jeff Jackson (President and CEO)
Good morning.
Dan Weiss (Senior Executive VP and CFO)
Morning, Carl.
Karl Shepard (Assistant VP)
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?
Jeff Jackson (President and CEO)
Yeah, sure. As we mentioned, we're seeing really strong loan growth from our LPOs. A lot of that is it's a nice mix of C&I businesses and CRE business. I would say that it's obviously a big portion of our pipeline going into this year. You know, as far as differences, you know, I would say it's no different than really what we're seeing across the rest of our footprint. It's just that, you know, obviously these 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'll be part of our strategy this year. I think as we move forward, it's a nice cost-effective way that we continue to grow our loans by using the LPO method.
Karl Shepard (Assistant VP)
Okay. 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?
Dan Weiss (Senior Executive VP and CFO)
Yeah. So, Carl, as you know, we do, you know, try to generally maintain a pretty neutral posture. But if we think about, you know, just the kind of the headwinds and tailwinds, without any cuts or with cuts, I think, you know, kind of working off of December, I would say, you know, our spot margin came in at 2.97. And we, 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 2.90, you know, outlook that we provided, you know, on our prepared commentary.
We'll expect deposits to continue to reprice upward, but we are seeing some noticeable decline in exception pricing, and certainly to the extent that we see new deposit growth, that would come on, you know, at a higher, you know, higher than our average as well. We're also anticipating, of course, a little bit of, you know, non-interest-bearing remix as we continue into 2024, but at a much slower pace. So I would call those kind of the headwinds, you know, to margin. But if we think about tailwinds here, particularly, you know, as we think about other funding sources, for example, we do have $200 million in brokered deposits that are scheduled to roll off, here, $100 million in April, $100 million in May.
Those are priced at Fed Funds plus 30 basis points, roughly. So that would be certainly a headwind. 70% of our CD book, or about $800 million, a little more than that, is repricing in the next 12 months. That's repricing from about 3.75%. So to the extent that we see an up or down, we can adjust from there, but most of that cost is already kind of baked into the margin. And then we also, as you know, have about $1 billion in FHLB borrowings that are also very short-term in nature. They're 1-month advances. So to the extent that we see any, you know, rate cuts, those would reprice downward very quickly.
And then I would say, you know, if we continue on, on the asset side, you know, as, as you know, and you can see this in our slide deck, that 70% of the portfolio is variable rate, thirty percent 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 on, you know, neutral on the, on the asset side, that represents, you know, about $3.5 billion or about. That's currently priced right around 7.75%. And of course, in a, in a, you know, a cut scenario, those would, those would reprice downward.
The remaining variable rate portfolio or adjustable rates, and 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, you know, keeping in mind that we've got new loan growth today, that's coming on with an 8% handle.
And then we're also rolling our cash flows from our securities portfolio, that's currently yielding that 2.5% and, you know, repricing up to the, to the 8% handle. So again, kind of lots of positive momentum as we, as we head into kind of the back half of the year of 2024, but I would say, you know, that's a long-winded way of answering, of, of basically saying we really think that we're going to be pretty neutral, you know, with three cuts or, or six.
Russell Gunther (Managing Director)
That's, that's great. Lots, 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.
Operator (participant)
The next question will come from David Bishop with Hovde Group. Please go ahead.
David Bishop (Director)
Yeah. Good morning, gentlemen.
Jeff Jackson (President and CEO)
Hey, good morning, Dave.
David Bishop (Director)
Hey, hey, Jeff. Obviously, you know, you have a focus on operating expenses. Probably some of the growth this year reflected, you know, the aggressive LPO expansion and lender hires, you know, employee benefits up. Just curious, within the compensation and maybe employee benefits, is there anything specific you can do other than maybe slowing the rate of growth or restrain that? Just curious how you're thinking this year to really, you know, keep a lid on expense growth overall.
Jeff Jackson (President and CEO)
Yeah, Dave, we're looking at everything, and you know, we just went through a retail transformation, and we're hoping to wrap that up in the next month or two. You may have seen we're down 65 employees in retail. We're looking to take down another 20. We are reinvesting some of that into the business banking space. The other thing we're looking to do is there are some processes across the bank that we're looking to see if we can make them more efficient. And then going back to the retail space, you know, we always evaluate kind of our bottom-performing branches, and so we expect to do that again this year and also look at our hours as well.
So, I think there are a couple of 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.
David Bishop (Director)
Remind me, in terms of the ATM fleet upgrade, is that. Are those expenses down behind you? Is that fully in the run rate?
Dan Weiss (Senior Executive VP and CFO)
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, my prepared commentary there, I, I expect somewhere around about $1 million of impact, on a quarterly basis in that software and equipment line item, related to, basically ATMs and, and some other investments.
David Bishop (Director)
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.
Jeff Jackson (President and CEO)
It's usually $100 million a quarter.
David Bishop (Director)
Yeah, that's where it still is.
Jeff Jackson (President and CEO)
Yeah, it's still $100 million a quarter. We'll still continue to use that, obviously, to fund loan growth.
David Bishop (Director)
Got it. And then finally, you know, you mentioned the success, obviously, on the loan side from the new LPOs. Just curious if you're seeing any traction yet in terms of the deposit and funding side out of these new locations? Thanks, and I'll hop back into the queue.
Jeff Jackson (President and CEO)
Yes, we, we are seeing a little bit of traction. It's more of a, obviously, a loan funding, but yes, we are seeing some deposit growth there, especially as we continue to focus on expanding our C&I focus. So, that's one of our main strategic goals is really to expand our C&I lending because it does bring deposits. It also brings fees, opportunities, and, between that and obviously continuing our swap fees as well, as Dan mentioned, we, we overachieved our goal of $8 million last year. We feel like those LPOs are really driving some nice returns for us.
David Bishop (Director)
Great. Thank you.
Operator (participant)
The next question will come from Russell Gunther with Stephens. Please go ahead.
Russell Gunther (Managing Director)
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 2024?
Dan Weiss (Senior Executive VP and CFO)
Sure. So, we generally try to stay away from disclosing betas, as you knew, Russell, but I would say, you know, we are anticipating the peak in deposit costs really to occur here in the first half of the year. But on the way down, you know, within our own modeling, we're right in that 25% range in terms of beta. And really, the question, there's a couple of questions that come to mind. One is, you know, is that an immediate, is that immediate? Is that lagged? Is that after, you know, one or two or three cuts? And so I think that's all, you know, potentially up for debate. But what we see in our modeling is under multiple scenarios, we benefit in terms of margin.
We see core deposit costs coming down at a faster rate than asset pricing.
Russell Gunther (Managing Director)
Okay. That's great, Dan. I, 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.
Jeff Jackson (President and CEO)
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 in 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.
Russell Gunther (Managing Director)
All right, Jeff, that's great. Thank you, guys. That's it for me.
Jeff Jackson (President and CEO)
Thank you.
Operator (participant)
The next question will come from Daniel Tamayo with Raymond James. Please go ahead.
Daniel Tamayo (VP)
Hey, good morning, guys. Thanks for taking my question.
Jeff Jackson (President and CEO)
Hey, good morning.
Daniel Tamayo (VP)
Maybe just starting on, you know, you guys talked a lot about the treasury management investments and as that comes online, I guess, over the course of the year and into next year, just your thought on, you know, the ultimate goal there. Like, what, how big do you want that contribution in terms of fee revenue? And maybe if you could put a little finer point on what may be the contribution in the back half of 2024 that you're expecting to grow off of.
Jeff Jackson (President and CEO)
Sure. You know, I think we're always looking to be less reliant on spread revenue, and so for me, targeting total fee revenue would be around 30%. That's a multi-year target, but, you know, for us, that's what we're looking to try to do. As it relates to our TM products, we mentioned we're continuing to build out the pipeline. We are getting these products in place, and so I do believe the pipeline's starting to build pretty strong. As far as the second half of the year, I don't really want to give out any guidance on what that would be as far as revenue, but we think it would be pretty significant over the second half of the year.
Once again, we are changing our treasury management team to be more sales-like, transitioning it from 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.
Daniel Tamayo (VP)
Okay. Terrific. Thanks for that. And then my second question, just on capital. You're benefiting, as everyone is, from lower rates here, and then, you know, assuming that we do get a soft landing or, you know, you continue to build capital, just curious your thoughts on how share purchases could fit into the capital priorities.
Jeff Jackson (President and CEO)
Yeah, I think we look at, you know, our capital deployment, kind of starting with dividends. We obviously put that at the top of our capital deployment. Then we look at, obviously, loan growth, then 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.
Daniel Tamayo (VP)
Okay, understood. That's it for me. Thanks, guys. Appreciate it.
Jeff Jackson (President and CEO)
Thank you.
Operator (participant)
The next question will come from Catherine Mealor with KBW. Please go ahead.
Catherine Mealor (Managing Director)
Thanks. Good morning.
Jeff Jackson (President and CEO)
Hey, good morning, Catherine.
Daniel Tamayo (VP)
Good morning.
Catherine Mealor (Managing Director)
Maybe just sort of a follow-up to the M&A comment you just made. Just talk to us about how you're thinking about M&A versus LPOs and team lift outs. It feels like that's been a little bit of a priority recently, just given M&A has been slower. But what do you think it takes to get more active in M&A, and what kind of potential deals would you put at the top of your strategy list?
Jeff Jackson (President and CEO)
I would lay in basically the same comments I just made about LPOs of where we're looking. Typically, it would be Tennessee, Virginia, filling in in Ohio. And so for us, you know, our target size is usually that $2 billion-$5 billion range of asset bank. That's kind of a nice fit for us. It's, you know, in a, you know, 10%-15% of our asset size. But, yeah, I think it's definitely an option for us. We do have a great capital position and are in a good position to do a acquisition should one come along. So I think, you know, our history has shown that we create these LPOs to kind of test the waters in the market and then potentially do deals after that.
So I would not see us changing that course. 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.
Catherine Mealor (Managing Director)
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. You're starting to turn, but still really low. So just generally, how you're thinking about provision cost and credit cost over the next year.
Jeff Jackson (President and CEO)
Yeah, for us, related to credit, we obviously continue to look at all our portfolio to make sure they're doing well. We obviously look at office and do a deep dive on our office, which is in great shape there. I would see for this year, our credit provisioning and costs 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 wanna add anything on the provision?
Dan Weiss (Senior Executive VP and CFO)
Yeah, no, I think you covered it, Jeff. I mean, certainly provisioning is gonna be dependent upon loan growth, which is probably the biggest thing, absent you know credit events. And you know today a big portion of our provision or allowance is based on you know the forecast of unemployment rates. And based on those forecasts we you know we're not seeing anything really significantly out of the ordinary. So we're kind of anticipating something similar to what we experienced here in 2023.
Catherine Mealor (Managing Director)
On just, as you think about commercial real estate maturities, can you give any just anecdotes or commentary on what you're seeing as, you know, some of your fixed rate CRE loans are coming due and repricing? You know, are you seeing any credit stress in those moments or, you know, just kind of rental rates big enough to kind of offset the impact of higher interest rates? Just kind of any commentary on what you're seeing just with your borrowers, would be helpful.
Jeff Jackson (President and CEO)
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 2008 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.
Catherine Mealor (Managing Director)
Great. Very helpful. Thank you.
Jeff Jackson (President and CEO)
Thank you.
Operator (participant)
The next question will come from Casey Whitman with Piper Sandler. Please go ahead.
Casey Whitman (Managing Director)
Hey, good morning.
Jeff Jackson (President and CEO)
Good morning, Casey.
Dan Weiss (Senior Executive VP and CFO)
Morning.
Casey Whitman (Managing Director)
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 so, or what do you see as the right level for WesBanco?
Jeff Jackson (President and CEO)
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%-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 it, 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.
Casey Whitman (Managing Director)
Got it. And how low are you comfortable with the securities book getting to, I guess, as a percentage of assets or is there a target range?
Dan Weiss (Senior Executive VP and CFO)
Yeah, it.
Casey Whitman (Managing Director)
Yeah.
Dan Weiss (Senior Executive VP and CFO)
Casey, it's right around 17. I would say mid-teens, so I would say 17% of total assets is kind of the probably our bottom end.
Casey Whitman (Managing Director)
All right, thanks.
Jeff Jackson (President and CEO)
Thank you.
Operator (participant)
Again, if you have a question, please press Star, then one. Our next question will come from Manuel Navas with D.A. Davidson. Please go ahead.
Manuel Navas (SVP)
Hey, good morning. Most of my questions have been answered, too. Just could you touch on loan growth pace across the year? Would rates kind of help accelerate it, or would that pay down normalization on CRE kind of slow it? Like, just kind of walk me through the dynamics you're thinking on loan growth across the year.
Jeff Jackson (President and CEO)
Yeah, sure. I actually believe that with a few cuts that we have modeled, as mentioned, we're modeling 3 cuts. I'm not sure it would really increase pay down speeds. I think you're gonna 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 gonna 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, it's. I don't think it impacts it either way dramatically, if that makes sense.
Manuel Navas (SVP)
No, that's helpful. With the securities book, it seems like you're gonna need to fund some of that loan growth with deposits. Has there been any better or has there been opportunities for any like restructuring the securities book, and are you constantly thinking of that to pay down borrowings, perhaps?
Dan Weiss (Senior Executive VP and CFO)
Yeah, so we obviously, you know, we've had those discussions, probably, you know, every quarter for the last 6, 6 quarters. Today, there is not. We feel that, you know, we're comfortable with where the loan deposit ratio is. We're comfortable, you know, with the liquidity that we have. We don't feel that we need to necessarily, you know, enter into that kind of loss trade. And we feel that, you know, with rate cuts, we think that, you know, in the nearer term, those unrealized losses are gonna improve. So I'm a little hard-pressed today to go in and take a loss on, you know, the loss trade, selling securities.
I'd rather, you know, wait it out a couple more quarters and, you know, see where we're at then.
Manuel Navas (SVP)
Thank you. I appreciate that. Thank you for the comments today.
Operator (participant)
This concludes our question and answer session. I would like to turn the conference back over to Mr. Jeff Jackson for any closing remarks. Please go ahead, sir.
Jeff Jackson (President and CEO)
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.
Operator (participant)
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.