WesBanco Inc (WSBCP) 2024 Q1 法說會逐字稿

Good morning and welcome to the West Banco first-quarter 2024 earnings conference call.

(Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to John Iannone, Senior Vice President, Investor and Public Relations.

Please go ahead.

Thank you.

Good morning, and welcome to WesBanco Inc's first-quarter 2024 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, wesbanco.com. All statements speak only as of April 24, 2024, and WesBanco undertakes no obligation to update them.

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

Jeff?

Thanks, John, and good morning.

On today's call, we will review our results for the first quarter of 2024 and provide an update on our operations and current 2024 outlook.

Key takeaways from the call today are continued strong deposit and loan growth, combined with good progress on new fee income opportunities, a sustained focus on controlling discretionary costs.

We remain well capitalized with solid credit quality and liquidity.

Our first quarter results marked a strong start to 2024.

We grew loans and deposits while smartly managing borrowings, controlling costs, and advancing our efforts to diversify our revenue streams and drive non-interest income growth.

For the quarter ending March 31, 2023, we reported net income available to common shareholders of $33.2 million and diluted earnings per share of $0.56.

Furthermore, the underlying strength of our financial performance is demonstrated by our return on average tangible common equity of 11%, non-performing assets to total assets of just 0.19%, and a capital position that continues to provide financial and operational flexibility as demonstrated by our tangible common equity ratio of 7.63%.

The key story for the first quarter was our strong deposit growth that both funded loan growth and paid down borrowings on a sequential quarter basis.

We reported deposit growth of 5% year over year and 10% quarter-over-quarter annualized across our business, consumer, and public funds customers.

This deposit growth funded both our loan growth and the 19% decrease in FHLB borrowings from the fourth quarter of 2023.

We remain encouraged by the ability of our teams to grow our deposit base.

First-quarter loan growth was 9% year over year and 8% quarter over quarter annualized, which was again driven by our commercial and residential lending teams.

Total commercial loans increased 9% year over year and 10% sequentially annualized, driven by our banker, hiring, and loan production office strategies.

Our four newest loan production offices accounted for roughly 20% of the commercial loan growth year to date as they continue to demonstrate a strong return on investment.

Our commercial loan pipeline as of April 15 was approximately $1.2 billion, a 69% increase from the level at year-end 2023, and roughly flat to March 31, as our teams continue to find business opportunities to replenish the pipeline that has been driving our strong loan growth.

Our pipeline highlights the strength of our commercial strategies as our banking teams are able to maintain a $1 billion pipeline while generating high single-digit loan growth.

In addition, our new loan production offices account for 29% of the current pipeline with Tennessee continuing to represent a meaningful percentage.

Based on the ongoing success of our LPOs, we continue to evaluate opportunities to expand this strategy into new metro markets adjacent to or within our footprint.

Representative of the strong efforts of our teams across our markets is a nice win in our mid-Atlantic market during the first quarter.

A team comprised of commercial bankers, treasury management, and credit associates won a new business relationship from a large financial institution.

This win was led by our mid-Atlantic leadership team as this company was known for long-standing business partnerships and loyalty to their partners and vendors alike.

After a business focus shift by the customer's previous bank, WesBanco earned a complete banking relationship with this premier customer that included both low eight-figure deposits and credit facility as well as a full suite of treasury management products and services.

Because the customer's business model is complex, it took a coordinated and collaborative effort amongst the team to provide the customer with the ideal solution that would help to optimize their business model.

This is yet another example of our commitment to exceptional service and winning complete banking relationships through a deep understanding of their clients' needs.

As you heard in our customer win example, our treasury management team is partnering very well with our commercial banking team to help us win deep banking relationships.

To further highlight the success of this reorganized group into a sales-oriented business, they sold roughly 300 of our products and services to our business customers during the first quarter, including receivables, payables, reporting, anti fraud, investment sweep services, and encouragingly, several multi-card relationships.

As I mentioned last quarter, we are making progress on building a strong pipeline for our new multi-card and integrated payables products with revenue expected to begin to be generated during the second half of 2024.

Lastly, we remain diligent on managing expenses.

While some of the sequential quarter decline was due to the timing of marketing campaigns, our non-interest expenses decreased approximately $2 million from the fourth quarter.

We have completed our retail transformation initiative, which focused on ensuring appropriate staffing models for all of our financial centers, including staff and our reductions and the hiring of business bankers to drive additional growth.

We have reduced retail staffing by approximately 100 people over the past year through a combination of attrition and retirements and have strategically adjusted operating hours to ensure we are available at peak times for our customers and reducing or eliminating hours when customers do not need our help.

As I mentioned last quarter, we are using about half of this savings to grow our business banking program and generate additional revenue through loans and deposits and merchant and treasury management fees and are in the process of making these hires.

Furthermore, we continue to seek additional levers to pull or to help efficiencies in our functions and drive positive operating leverage.

These efforts are still in the early planning stages, and I expect to provide updates on future calls.

Our commitment to customer service, sustainable growth strategies, and strong credit quality earned us yet another national accolade for this quarter.

For the 14th time, WesBanco was named to the Forbes list of Best Banks in America, which evaluated 10 metrics measuring growth, credit quality and profitability for the 2023 calendar year.

During a year that tested the resilience and adaptability of the banking industry, WesBanco remains a strong and sound financial institution well positioned to serve our customers, communities, and shareholders.

This latest accolade reinforces the trust and confidence our customers place in their banking relationship with us, and we are proud to continue to help advance their financial journeys.

I would now like to turn the call over to Dan Weiss, our CFO, for an update on our first-quarter financial results and current outlook for 2024.

Dan?

Thanks, Jeff, and good morning.

Just to highlight a few accomplishments, during the first quarter, we achieved strong loan growth of 8% annualized; grew deposits 10% annualized, which outpaced loan growth by almost $100 million; and paid down higher cost wholesale borrowings.

We also grew fee revenue and managed expenses down $2.3 million on a linked quarter basis.

We were pleased to demonstrate our ability to execute on our strategic initiatives that translated meaningfully into the results for this quarter.

For the quarter ending March 31, 2024, we reported GAAP net income available to common shareholders of $33.2 million or $0.56 per share.

Net income available to common shareholders, excluding after-tax restructuring and merger-related expenses, was also $33.2 million or $0.56 per diluted share as compared to $42.3 million or $0.71 per diluted share in the prior-year period.

As of March 31, total assets of $17.8 billion included total portfolio loans of $11.9 billion and securities of $3.3 billion.

Total portfolio loans grew 9% year over year and 8% linked quarter annualized, which reflected the strength of our markets, teams, and lending initiatives.

We continue to fund loan growth through a combination of deposit growth and regular cash flow from the securities portfolio.

We still anticipate the pace of CRE payoffs to pick up as we progress through 2024 as interest rates remain steady and potentially decline.

Residential mortgage originations totaled approximately $105 million for the first quarter with roughly 45% of originations sold into the secondary market as compared to $160 million and 28%, respectively last year.

While residential mortgage production has been challenging in this environment, we're encouraged to see pipelines build recently.

As Jeff mentioned, we're pleased with the deposit gathering and retention efforts of our consumer and commercial teams as these efforts have funded roughly two-thirds of our year-over-year loan growth and more than 100% of sequential quarter loan growth.

As of March 31, total deposits were $13.5 billion, up 4.8% from the prior-year period and up 2.5% from December 31, 2023, or 10% annualized.

Consistent with the higher interest rate environment and similar to the industry, we continue to experience some shift in the mix of our deposits.

However, total demand deposits and non-interest-bearing deposits as percentages of total deposits remained consistent with the percentage range prior to the pandemic.

Credit quality stability continues.

The allowance coverage ratio remained flat from a year ago at 1.09% and declined 3 basis points from the fourth quarter.

Charge-offs were slightly elevated at 20 basis points, which was mostly related to one C&I relationship.

Qualitative factors within our CECL model improved mainly due to the reduction in office portfolio loan balances resulting from the payoff of two larger office loans during the quarter.

The resulting provision for credit losses was $4 million.

First quarter's net interest margin of 2.92% decreased 10 basis points sequentially and 44 basis points year over year, primarily due to higher funding costs from increasing deposit costs and associated remix from non-interest-bearing deposits into higher-tier money market and certificate of deposit accounts.

Total deposit funding costs, including non-interest-bearing deposits for the first quarter of 2024 were 181 basis points, an increase of 20 basis points over the linked quarter.

We mostly offset these higher funding costs through the reinvestment of securities into higher-yielding loans and the paydown of higher-cost FHLB borrowings late in the quarter.

Non-interest income for the first quarter totaled $30.6 million, a 10.8% increase from the prior-year period that was driven by net swap fee and valuation income, service charges on deposits, and trust fees, all of which are benefiting from organic growth.

Trust assets under management increased $600 million over the prior-year period to $5.6 billion, resulting in 8% higher trust fee income.

Further reflecting the solid performance of our securities brokerage team, we've begun disclosing the quarter-end values of securities brokerage accounts, including annuities, which totaled $1.8 billion as of March 31, as compared to $1.6 billion in the prior-year period.

Excluding restructuring and merger-related expenses, non-interest expense for the three months ended March 31, 2024, totaled $97.2 million, down $2.3 million from the linked fourth quarter.

The sequential quarter decline resulted from lower quarterly average staffing levels from efficiency improvements in the mortgage and branch staffing models.

Full-time equivalent employees are down 170 from a year ago and down 37 from the fourth quarter.

Marketing was also down compared to the linked fourth quarter due to the timing of seasonal marketing campaigns.

But we expect an increase in the second quarter as we kick off spring marketing initiatives.

Other operating expense reflects various costs and fees associated with our loan growth, as well as other revenue-generating initiatives across a number of miscellaneous expense categories.

Our capital position remains strong as demonstrated by regulatory ratios that are above the applicable well-capitalized standards.

Our tangible common equity to tangible assets as of March 31, 2024, was 7.63%, up 19 basis points year over year or 7.05% when including unrealized losses on held-to-maturity securities as shown in slide 7 of the supplemental earnings presentation.

We continue to believe that we're well positioned for any operating environment as 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 the outlook, in the current operating environment, we expect net interest margin to stabilize in the mid-290s as our assets continue to reprice higher, particularly through loan growth, fixed-rate loan maturities, and securities runoff, while funding costs also move higher from continued deposit mix shift into higher-yielding products but at a slower pace than what we've experienced over the past year.

Trust fees should benefit modestly from organic growth and will be impacted, of course, by equity and fixed income market trends.

And 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 in the last several quarters but could benefit modestly from organic growth.

Digital banking income, which is subject to overall consumer spending behaviors, will remain in a similar range as the last few quarters.

And service charges on deposit are expected to expand modestly over 2023 from enhanced products and fee-based services.

Mortgage banking will continue to be impacted by the overall residential housing market trends but could improve if interest rates begin to move lower and we continue to see pipeline improvement.

Our expectation is to sell approximately 50% or more of mortgage originations into the secondary market.

Gross commercial swap fee income, excluding market adjustments, is expected to trend similar to 2023 in the $9 million annual range.

And as Jeff detailed, we're making good progress building the pipeline for our new multi-card and integrated receivables and payables products and continuing to expect some modest benefit during the second half of 2024.

We remain focused on disciplined expense management and have successfully transformed our financial center network to optimize branch level staffing by more than 100 retail employees since March of last year.

The benefit of these cost saves are reflected in our first-quarter run rate.

However, we do expect to hire additional revenue producers here during the second quarter.

Therefore, we anticipate salaries and wages to increase some during the second quarter and to also be impacted by mid-year merit increases, but mostly impacting the back half of the year.

As I mentioned, marketing will increase during the second quarter due to the timing of campaigns.

Software and equipment and other expense categories may be up slightly in the second quarter as we implement our strategic plans to improve long-term efficiency and revenue-producing capacity.

And based on what we know, we believe our expense run rate during the second quarter of 2024 to be in the $99 million range and then grow modestly due to annual merit increases, higher healthcare costs, and technology investments during the back half of the year.

Provision for credit losses under CECL will depend upon changes to the macroeconomic forecast and qualitative factors as well as various credit quality metrics, including potential charge-offs, criticized and classified loan balances, delinquencies changes and prepayments fees and future loan growth.

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

Operator, we're now ready to take questions.

Would you please review the instructions?

(Operator Instructions) Daniel Tamayo, Raymond James.

Hey, good morning, guys.

Thanks for taking my questions.

Maybe we start first on just the deposit side.

Just curious how you're thinking about growth as it relates to obviously deposits, but then how the loan-deposit ratio may shake out going forward as well?

Yes.

Good morning, Dan.

When we look at deposit growth, as you may recall, we really put a big push at -- starting in Q3 last year, we added incentives for our commercial bankers, and we came out with some campaigns.

So we've seen some nice growth third quarter, fourth quarter, and now this previous quarter related to the deposit growth.

We also rolled out a new consumer checking account, WesBanco One account, that we've seen tremendous demand for.

And so we continue these campaigns going forward, and we feel like we're still going to see some pretty nice growth.

The other piece of it in relation to non-interest bearing, obviously, we saw a very limited decline in our non-interest-bearing balances in the first quarter.

I think they declined about $20 million.

So basically, almost flat there.

And we've put a nice focus as well on non-interest-bearing deposits.

So while I look at the loan-to-deposit ratio, I would expect us to continue to remain in that high 80s realm because I do believe we're going to have a pretty strong year in loan growth as well as we look at kind of mid to upper single-digit loan growth also.

Okay, terrific.

Thanks for that color.

And I guess switching to the margin here, did I hear correctly that you said the margin is going to stabilize in the mid-290s, Dan?

Yes, that's correct.

That's correct.

So you're expecting -- sorry, go ahead.

Yes, we're expecting it to increase going throughout the rest of the year.

Okay.

Any -- so there's no -- I mean that kind of immediately is -- starting in the second quarter, you think that you'll see a snapback of the margin and then kind of a slow a slow build off of that number and stabilizing mid-290s, and that's assuming what in terms of non-interest-bearing concentration.

Yes, Danny.

So as I said in the prepared commentary, mid-290s, that's where we think will stabilize here over the next kind of three quarters in terms of non-interest bearing, included in that kind of modeling would be -- despite the fact that we only saw about, as Jeff said, $20 million, $23 million in runoff in non-interest bearing.

We are projecting or modeling at least between $50 million and $75 million of remix into interest bearing within that guidance.

So we get down to -- from 29% of total deposits down to, call it, in that 27% range.

Okay, great.

All right.

I'll step back.

Thanks for the answers, guys.

Thank you.

Mark Shutley, KBW.

Hey, good morning.

Good morning.

Good morning.

Just a follow up on the margin discussion, I was wondering at what level we should expect those money market and interest-bearing deposit costs to peak at before we start to see some rate cuts?

Sure.

So what I would tell you is that we -- generally speaking, until we see rate cuts, at least right now, we've run a couple of different scenarios, one with as many as three cuts, one with as few as zero cuts.

But what I would tell you is that we expect until we see rate cut for there to be some continued increase but at a slower rate than what we've seen on both money markets and the interest-bearing deposits.

We're seeing maybe 7 basis points of increase per month.

And we would expect that though to slow here as we continue out throughout the quarter as most of the back book at this point has really repriced what we're thinking -- what we're seeing as this would be to the extent that we're adding any additional growth in terms of money market and interest-bearing deposits.

Yes, the other thing I would just add quickly, obviously, if we continue to grow deposits faster than loans, we'll continue to pay down our FHLB borrowings, which are currently at 5.5%.

So we're definitely not bringing in new deposits anywhere near that rate and expect to obviously get some benefit to that if we continue to grow deposits faster than loans.

Maybe just to add on to that even further, with that $250 million in FHLB borrowings that we paid down, that was, as Jeff mentioned, 5.5%, 5.6%.

The new -- the deposits that we brought on, the $330 million call it, that came on at a weighted average rate of right around $360 million.

And a lot of that deposit growth actually occurred in the back half of the first quarter.

So we haven't yet -- we're not -- we're going to see a benefit here into the second quarter and beyond to the extent we can maintain those deposit balances just because we're saving 200 basis points, the alternative being FHLB borrowings.

Yes, that's super helpful.

And maybe just switching gears here for one more.

So you mentioned the $1.2 billion pipeline and how a good chunk of that is LPOs.

I was wondering if you could give any additional color on maybe the loan type mix in there and sort of what we should be expecting for 2024 as far as CRE and C&I growth?

Sure.

We're striving, and as I've mentioned before, to get a 50-50 mix going forward.

What I would say on the pipeline, currently, I'm going to guess it's around 60% CRE, 40% C&I.

But we're striving for 50-50 production, but I would say, probably, it will end up by the end of the year being a little more heavily weighted on the CRE.

Thanks for taking my questions.

Thank you.

Russell Gunther, Stephens.

Hey, good morning, guys.

I wanted to just start following up on the margin discussion.

If you guys could just share what your assumptions are for the Fed funds outlook within the kind of mid-290s guide?

And then maybe just help quantify what that fixed repricing opportunity is on the asset side this year.

And lastly, just when we get cuts, if we get cuts, what that could mean for the WesBanco margin?

Yes, Russell.

So I would say we've modeled, as I said, with three cuts.

We've modeled with zero cuts.

And interestingly, it's not as significant of a difference as you might expect.

So if we the guidance that we provided you last quarter, we assume the June cut, a September and a December cut.

And of course, December doesn't really impact the '24 at all.

September is very pretty minimal as well just because of the time the cut takes effect and we've run through the loans and the deposits.

There's really not much of an effect there.

It's really the June cut that that has some impact on the margin.

And it actually doesn't -- you don't see that until the fourth quarter.

So the difference for us between three cuts and zero cuts is about 2 to 3 basis points of margin improvement or decline, depending on how you look at it in the fourth quarter.

So working off of that mid-290s, we would say -- we would still be pretty much in line with that mid-290s, whether there are three cuts or whether there are zero cuts.

To answer the second part of your question, if we think about the assets that would be improved -- that we'd be repricing, we've got obviously, securities, which I talked about, $100 million roughly per quarter.

Those cash flows are kicking off, and we're reinvesting 2.5% yield into 8%, call it yield in terms of funding loan growth.

We've got fixed-rate loan maturities over the next 12 months of about 10% of our fixed rate book, which is roughly $250 million.

And so that's currently priced at about 460.

So think about 4.6% increasing to somewhere in the high sevens, low eights.

And then we've also got adjustable-rate loans, about $300 million of adjustable rates there.

That's part of our variable rate loan balances, but they are just anywhere from six months up to five years.

So you've got $300 million there with a weighted average rate of about 5.25% that would also reprice over the next 12 months.

So I think, from an asset standpoint, that's what I would expect the fixed rate assets to be repricing upward.

And I think the third part of your question, I think I answered it earlier.

You did, and I'm impressed.

That's my way of trying to sneak in one more, which is on the event side.

I appreciate your guidance and commentary for the near term.

Jeff, you kind of teased the potential for some efficiencies in the back half.

And while we'll wait for that announcement, just given the steps you've already taken, could you address kind of potentially where you'd expect to get those, whether that could include branch rationalization, which we haven't seen in some time?

And then does this relate -- result in the step down in expenses or does this help keep the growth engine going while keeping the bottom line pretty tight?

Thank you, guys.

Yes, thanks, Russell.

No, I think as you mentioned before, branch optimization, we are always looking at that.

Last year, we did a couple of branches, but we're definitely looking at that for potentially something we would potentially take action on this year.

There are some other things we're looking at as well on some of our operational functions for some cost saves.

And then the one other thing we've kind of mentioned in the past is printing statements.

We basically printed and mailed customer statements, business and customer statements for free.

We have changed the business to where now they get them electronically.

That's saving us anywhere from $70,000 to $100,000 a month.

And then we're also looking at that on the consumer side as well, planning to roll something out in May, once again, which I think should be a nice cost save for us as well.

Those are just some of the things we're looking at.

We have a few other things that we're obviously taking a look at.

But yes, we've got a few cost-save initiatives we're working on.

I appreciate it, Jeff.

Thank you, guys.

Casey Whitman, Piper Sandler.

Hey, good morning.

Good morning, Casey.

Good morning.

Can you address how you are currently stacking just your capital priorities?

What are your thoughts on potentially buying back shares this year?

And then remind us what you might look for in an M&A partner.

Is there any update there from what you've discussed previously with us?

Sure, sure.

So just starting with our basically capital management strategy, obviously, our number one, we're committed to the dividend.

We feel like shareholders really appreciate the dividend, and we're very committed to that.

Second is funding loan growth.

As I mentioned, before we're looking at mid to upper single-digit loan growth.

And as the securities roll off, about $100 million a quarter, we use that to fund loan growth.

Although with our deposit growth as well, we benefited from being able to pay down FHLB borrowings was some of that.

Then third would be M&A and then fourth would be buybacks.

I would say, as it relates to your M&A question, nothing's really changed.

We're always going to be very optimistic if the opportunistic, I should say -- if the right deal comes along at the right price and meets all our return hurdles.

We are still looking in Tennessee, Virginia and then potentially filling in Ohio.

Nothing has changed there.

Obviously, I feel very optimistic about this year as it relates to M&A, but nothing to announce at this point.

All right, just a follow on for that would be, can you remind us the size range and the target that you might be interested in?

Yes.

Our typical target we look at is about $2 billion to $5 billion in assets.

Not to say we wouldn't look a little bit bigger or a little bit smaller, but I would target $2 billion to $5 billion in assets.

Okay.

I'll sneak just one more in there.

I think you mentioned some larger office loans paying off during the quarter.

Can you just quantify those numbers and maybe remind us just the size of the non-owner-occupied office book?

I recall it's relatively small, but can you confirm that for us?

Yes, so non-owner occupied represents about 3% of total loans.

So relatively small to begin with and nearly, I think, 98% is pass rated.

The two loans that paid off, I believe -- I think one was in the Louisville area.

The other was of North Central West Virginia, and I believe they totaled about $20 million.

Yes, that did have an impact to the provision.

The other thing I would add, just to give you a full sizing, we have about $300 million -- 300 loans totaling about $425 million, which gives you an average loan size of $1.4 million on our office portfolio.

Yes.

So I'd say -- when I say larger loans totaling $20 million, given our relative average size, it's $1.4 million.

They're larger for our portfolio.

Great.

Thank you.

Thank you.

Manuel Navas, D.A. Davidson.

How should I think about the strong start of the year versus the mid single digits to high single digits loan guide?

Could you kind of get to the high end?

Or are you also talking about some CRE payoffs rising?

Just kind of let me know how you think about that range.

Sure.

Good morning, Manuel.

No, we definitely think there's a possibility we could get to the high end, for sure.

I mean, you never know what the year brings.

But as we stated before, I mean, our pipelines are basically at all-time highs around $1.2 billion.

So I definitely think that is definitely in reach.

You talked about potential for more talent, I think, talking in the expense guidance.

Where are you kind of targeting some of that talent on the lending side?

Any new regions?

Just adding to current regions?

Just any more color there would be great.

Sure.

I think we're looking at both.

So we've had very good success with our LPOs.

I know we've looked in Knoxville and Nashville; continuing to add in Cleveland, Chattanooga, Indianapolis; and then we're also looking at various parts of Virginia as potential openings of LPOs as well.

But then if you look at our existing markets, we're always out looking and talking to new talent that could potentially be additive to our company.

I appreciate that.

How much of the deposit growth has come in from commercial lenders?

Do you do have that type of specific data?

I know that 34% of total deposits are business, but how much of the new deposit growth is coming from the commercial lenders.

It's about 50%.

As I mentioned before, we really had not intended them until third quarter of last year to bring in deposits, and now we're kind of seeing the fruits of that labor in the last three quarters.

Thank you.

I'll step back into the queue.

Karl Shepard, RBC Capital Markets.

Hey, good morning, guys.

Hey, good morning, Karl.

Good morning.

I wanted to pick up on Casey's question on M&A.

I think you said optimistic or getting something done.

Can you just touch on -- has the environment changed at all?

Are you getting more looks at things?

Are sellers starting to raise their hands?

Can you just walk us through that?

Yes, I would say the reason I'm optimistic is I do believe we're starting to see more opportunities.

I do think that with this potentially hire for longer, that may have triggered some Boards and CEOs to rethink potentially is now a time to sell and partner up with a great bank like us.

So I do believe the environment has changed.

Obviously, the math has not really gotten any easier, but I think there has been a mindset.

Once again, I think a lot of that is interest rate driven, where potentially, six months ago, we might have seen -- three to six months ago, we might have seen banks that were on the fence on selling, thinking, all right, I have been through the worst of it.

But I think we're going to get some rate cuts, and that's going to help me through now, I think, more uncertainty.

If you're sitting with a higher loan-to-deposit ratio and thinking of how difficult it might be over the next several years versus partnering up, I think maybe Boards have started to become more open to partnering up with someone like ourselves.

Okay.

And then kind of pivoting here, I wanted to follow up from a loan growth commentary.

The paydowns in CRE, because it relates to new offices and new lenders, do you think a higher rate environment kept a lid on what might be available for business with some of these new offices?

And if that starts to thaw, does that take a lid off kind of what's possible, or has that not really had an impact on some of the newer contributions?

I think higher rates have definitely had an impact on some projects overall in the CRE space.

But as it relates to office, I think there's just -- based on what we went through with COVID and the work-at-home movement and different things going on in that environment, I just think, potentially, there's just so much office space online available today that if you're a developer, you're looking to put money in some other different type of property whether that's a retail development, multifamily, or some other type.

So I think part of it is availability today in the office space is kind of keeping a lid on some of that.

And I think it's also opportunity and what's better for a developer to invest and put their money into.

But outside of office, like I mentioned before, I think higher interest rates have slowed and stopped some projects, but we still see a nice healthy flow depending on which market we look at.

Thanks for the help.

Thank you.

Dave Bishop, Hovde Group.

Yes.

Good morning, gentlemen.

Hi.

Good morning, Dave.

Good morning, Dave.

Hey, Jeff.

Maybe -- most of my questions have been asked and answered, but maybe a little color on the uptick in classified loans.

I think it was up 35% on a dollar basis.

Maybe what you're seeing in terms of the underlying trends in credit quality?

Yes, so the uptick -- and as you know, we've had over the last several years incredibly low C&C ratios.

That uptick really relates to one C&I credit that really increased our percentage for first quarter.

We do believe that should be worked out and restructured by the end of second quarter.

So we do believe that is a blip, but it's really basically one C&I credit that we feel like should be resolved by the end of this quarter.

I'd say overall, though, when we look at the credit quality, we have one-offs here and there but no systemic issues.

We're not seeing anything that's changed over the last several quarters and feel very good about where our credit quality stands today.

And then maybe a follow up somewhat to the margin.

You guys have been doing a good job of expanding on the commercial side.

You have the pipelines up.

Loan yields, as you mentioned, are high 7% to 8%.

In terms of reconciling that within guidance, where should we think about loan yields and average earning asset yields trending over the near term?

The loan yields I would expect to continue where they've been for the most part absent rate cuts, which is -- generally speaking, has an eight handle on it.

You can see in the slide deck we report weighted average loan yield of 7.96%.

I'd just point out that that is not tax equivalent.

You'd have to add about 10 basis points onto that to get to a tax equivalent rate.

So yes, we would expect to continue to see upward momentum on average earning assets -- or I'm sorry, average -- weighted average yields on earning assets, mainly due to that continued improvement.

And as I said earlier, to answer Russell's question, we do have a number of fixed-rate maturities, adjustable rate, et cetera.

And we're continuing, as I said, to use cash flow from the securities portfolio to reinvest into that 8% loan.

So I would certainly expect those yields on earning assets to continue to increase.

Appreciate the color.

Daniel Cardenas, Janney Montgomery Scott.

Good morning, guys.

Hey, good morning.

Yes, most of my questions have been answered, but just quickly on the multi-card contributions, I mean, you're -- it sounds like you're expecting to see some positive contributions in the back half of '24.

When do you think the multi-card will be a more significant contributor to the fee-based income?

Is that that's kind of a second half of '25 or '26 event?

So right now, we just launched it, and we have about six multi-cards that we've just closed.

We've got about 18 in the pipeline.

And then we've also got about nine integrated payables opportunities right now that we're working on.

So I believe you'll start seeing some good contribution toward the end of this year.

But I think 2025 is where you'll really see some nice pickup contribution from all of our new treasury opportunities that we're working on.

Great.

And then, can you remind me how big is your, in terms of personnel, is your treasury management function right now?

And what are your expectations for additions to that team?

I think the treasury management team, I'm going to say, is probably just -- and this is just salespeople and management.

I think it's around 12 to 15 people.

But no, we're looking for significant contributions from that team this year and then going forward in the future, not really detailing specific numbers.

But no, we believe it's going to be very significant, not only from a fee-based generation but also deposit gathering opportunity as well.

But that's one of our key priorities this year that we feel like we've started off really strong so far and feel like by the end of the year, it will be a significant portion of our fee business.

Great.

Thanks, guys.

I'll step back.

Thank you.

This concludes our question-and-answer session.

I would like to turn the conference back over to Jeff Jackson for any closing remarks.

Thank you for joining us today.

During the past quarter, we achieved solid loan, deposit, and fee income growth while managing costs and maintaining strong capital levels and credit quality.

With the solid start to the year and the continued strength of our team's markets and strategies, we are well positioned to continue delivering value for our shareholders.

We look forward to speaking with you in the near future at one of our upcoming investor events and have a great day.

Thank you.

The conference has now concluded Thank you for attending today's presentation.

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