WesBanco Inc
NASDAQ:WSBC
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Good morning and welcome to WesBanco, Inc's First Quarter 2022 earnings conference call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. To ask a question you may [Operator Instructions], to withdraw your question, [Operator Instructions].
Please limit questions to one and a follow-up and then you can return to the queue. Please note this event is being recorded. I would now like to turn the conference over to John Iannone, Senior Vice President Investor Relations and Public Relations. Please go ahead.
Thank you. Good morning. And welcome to WesBanco, Inc. 's First Quarter 2022 Earnings Conference Call. Leading the call today are Todd Clossin, 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 27th, 2022. And WesBanco undertakes no obligation to update them. I would now like to turn the call over to Todd. Todd?
Thank you, John. Good morning, everyone. On today's call, we're going to review our results for the first quarter of 2022 and provide an update on our operations and current 2022 outlook. Key takeaways from the call today are; WesBanco remains a well-capitalized financial institution which was enhanced by our tier-2 capital raise and continued to return capital to our shareholders.
We continue to make appropriate investments, including strategic hires and our new loan production offices to enhance our ability to leverage growth opportunities while remaining focused on expense management. The successful execution of our strategies has positioned us well for continued success and we're excited about our growth opportunities. We're pleased with our performance during the first quarter of 2022, as we reported net income available to common shareholders of $42.9 million and diluted earnings per share of $0.70 when excluding after-tax mergers and restructuring charges.
We exhibited strong expense management as our operating expenses were roughly consistent with the year-ago period. Furthermore, we enhanced our capital position to provide further financial flexibility, while also enhancing shareholder value through effective capital management, which includes the appropriate balancing of share repurchases, dividends, and M&A. While M&A is still not a major focus for us, we remain opportunistic and if we found the right opportunity that fit our well-defined strategy, we would act upon it.
During the first quarter, we successfully completed a Tier-2 capital raise through our public offering of a $150 million of 10-year fixed to floating rate subordinated debt priced at 3.75%. In addition, our Board of Directors approved the adoption of a new stock repurchase plan for the purchase of up to an additional $3.2 million shares of WesBanco common stock, as well as a 3% increase in our quarterly dividend, which was our 15th increase since 2010. We also repurchased approximately $1.7 million shares of our common stock on the open market during the quarter.
The combination of these efforts reflected our commitment to returning capital to our shareholders. As I've said previously, our focus remains firmly on the organic growth potential within our markets, but we will carefully balance the risk reward proposition between growth and credit quality. As we have clearly demonstrated, our credit strategy continues to generate strong metrics and loan portfolios and enables us to make prudent long-term decisions for our shareholders.
Driven by our residential mortgage and commercial loan portfolios which generated annualized loan growth of 10.62% and 2.9% respectively, we reported total loan growth of 3.6% annualized when excluding SBA PPP loans. The growth in our residential loan portfolio reflects both our efforts to retain more loans on our balance sheet and continued relative strength in originations. Total commercial loan growth was driven by both our commercial real estate portfolio, despite continued high payoffs and our C&I portfolio, despite line utilization still roughly 10 percentage points below our historical range.
Regarding our residential lending group, we continue to see good growth from our team of mortgage loan originators as their books of business have shifted significantly to home purchases and construction, which accounted for approximately 75% of the originations during the first quarter. As of March 31st, our residential mortgage pipeline, while down slightly from a year ago, has grown to approximately $215 million, an increase of 33% from the fourth quarter.
Further, we'll continue to prudently add additional originators, in particular, within our newest markets of Northern Virginia, Nashville, and Indianapolis, which I will comment upon in a few minutes. In fact, our office in Northern Virginia has accounted for approximately 15% of mortgage origination volumes the last few quarters. The combination of our solid pipeline and new loan production offices, which will ramp up over the coming months, bode well for our residential lending program this year.
We also continue to see good production from our commercial lending teams. Based on our strong commercial pipeline as we entered the first quarter, these experienced teams generated gross loan production of roughly $640 million during the first quarter, nearly double the year-ago period. In addition, they have continued to seek new business opportunities, which has helped our commercial pipeline reach a record $990 million as of March 31st, a nearly 70% increase from the pipeline year-end, with our Mid-Atlantic region accounting for approximately 28% of our current pipeline.
We continue to make appropriate long-term investments, including strategic hires in our new loan production offices to enhance our ability to leverage growth opportunities while remaining focused on expense management. Regarding costs associated with these investments; we continue to review our financial center network to find opportunities for both improvements and optimization. Reflecting the adoption of our digital services by our customers, as well as the proximity of another location of ours, we have recently identified 11 more locations across our markets that could be consolidated, allowing us to fund these strategic investments.
As I mentioned last quarter, we made more than 45 revenue-producing hires during 2021 and implemented a plan to hire an additional 20 commercial lenders over the next 12 to 18 months in both our existing and adjacent metro markets. To date, we've accomplished 50% of this goal, including a lender in our Akron-Canton market, we'll be focused on the Cleveland area. We also hired a new Director of commercial and industrial lending.
In this new role, this season later, we'll develop our C&I infrastructure plan, lead strategic initiatives around developing products, and identify necessary resources and internal changes required to enhance this business segment. We also recently announced the opening of two new loan production offices, one each in the Nashville and Indianapolis areas. On March 1st, we announced the opening of our Nashville office, which will initially focus on residential lending as we've hired a very experienced individual who has a lot of success building mortgage teams throughout his career.
Then on April 18th, we announced the opening of our Indianapolis office, which will focus on both commercial and residential lending, as we have hired to commercial lenders and our residential sales manager. In fact, this new commercial team has already started to get on opportunities within the first week. We're excited about the long-term growth opportunities of these two new offices.
These investments continue to enhance our evolution into a strong regional financial services institution that is built upon distinct growth strategies, unique long-term advantages, and a strong credit and risk culture. Furthermore, none of this would be possible if not for the hard work, dedication, and passion of our employees. I'm extremely proud of our entire organization as our employees have adhered to our community banking roots.
By focusing on providing top-tier service to our customers. Their efforts have allowed us to receive numerous national accolades so far this year. We were recognized by Forbes as one of the best banks in America based upon financial performance, and an independent survey of our employees voted us one of America's Best Midsized Employers, reflecting our efforts to create an environment where they are supported and positioned to succeed.
In fact, we were the only midsize bank in the country to receive top-ten honors for both employee satisfaction and financial success. Lastly, for the fourth consecutive year, WesBanco was named one of the best banks in the world in a ranking based on customer satisfaction and consumer feedback. The culmination of all these accolades in our employees living our Better Banking Pledge daily allowed us to be recognized as one of America's Most Trustworthy Companies by Newsweek through an independent survey of U.S. residents. This has truly been a great start to the year. 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 2022. Dan?
Thanks, Todd, and good morning. During the quarter, we recognized record trust fees, record securities brokerage revenue, and record demand deposit levels, as well as positive sequential quarter loan growth, while maintaining our discipline over expenses. We continued to make important growth-oriented investments and experienced improvements in the [Indiscernible] reserve for macroeconomic forecasts. And we believe our balance sheet is well-positioned for future loan growth and we look forward to margin improvement as rates rise.
As noted in yesterday's earnings release, we reported improved GAAP net income available to common shareholders of $41.6 million, and earnings per diluted share of $0.68 for the first quarter of 2022. Excluding restructuring and merger-related charges, results were $0.70 per share for the quarter as compared to $1.06 last year. It's important to note that the first quarter of 2021 was favorably impacted by a negative provision of $22.1 million net of tax or $0.33 per share.
Total assets of 17.1 billion as of March 31st, 2022 included total portfolio loans of $9.7 billion and total securities of $4.1 billion. Total securities increased 13.3% year-over-year due mainly to excess liquidity related to our customers ' higher personal savings. Loan balances, for the first quarter, reflected the continuation of both SBA PPP loan forgiveness and elevated commercial real estate payoffs, partially offset by efforts to keep more one to four family residential mortgages on the balance sheet, as well as sequential quarter commercial loan growth.
Commercial real estate payoffs during the first quarter continued to decline as expected, totaling approximately $136 million, and we expect these payoffs to continue to decline throughout 2022. As Todd mentioned, the real story this quarter was the sequential quarter loan growth. As of March 31st, 2022, total portfolio loans excluding PPP loans, increased 3.6% annualized when compared to December 31st, 2021 due to growth from both commercial and residential real estate loans.
Commercial real estate increased 3% annualized quarter-over-quarter, and commercial and industrial, excluding PPP loans increased 2.5% annualized. Strong deposit growth continues to be a key story as total deposits increased, both sequentially and year-over-year to $13.8 billion driven by growth in total demand deposits, which represent approximately 59% of total deposits, as well as growth in savings.
We continue to use excess liquidity to strengthen our balance sheet by reducing higher cost CDs, and wholesale borrowings, which in total declined $654 million or 33% year-over-year. The net interest margin in the first quarter was 2.95%, decreasing 32 basis points year-over-year, primarily due to the low interest rate environment, as well as the mix shift on the balance sheet to more securities, which now represent approximately 24% of total assets versus 21% last year. Further, additional cash held on the balance sheet negatively impacted the net interest margin by approximately 15 basis points for the quarter.
Reflecting the low interest rate environment, we reduced the cost of total interest-bearing liabilities by 18 basis points year-over-year to 19 basis points as we've lowered deposit rates including certificates of deposit and continued to reduce higher-cost FHLB borrowings. Despite record trust fee income and record securities brokerage income this quarter, non-interest income for the first quarter of 2022 was $30.4 million down 8.5% primarily due to lower swap fee income and lower mortgage banking income from our continued efforts to retain more residential mortgages on the balance sheet.
Reflecting the rising rate environment and general lack of inventory, residential mortgage originations declined 17% year-over-year to $271 million during the first quarter, with mortgage refinancing representing 26% of production compared to 57% in the first quarter of last year. Furthermore, the amount retained on our balance sheet increased from 40% of originations last year to approximately 75% this quarter, which we expect to return to a more historical 50% range over time.
As I mentioned, we prudently manage our expense base in order to make appropriate investments in support of long-term organic growth potential within both our existing and new adjacent markets. For example, we utilized the expense savings from our branch optimization efforts to fund our recent loan production office strategy, as well as our hiring of key revenue-producing personnel across our markets. Excluding restructuring and merger-related expenses, non-interest expense for the first quarter of 2022 increased $0.5 million, less than 1% to $86 million compared to the prior year.
Salaries and wages, which increased at $2 million, or 5.5% compared to the prior year, reflect our new hire strategy, normal merit increases, and the hourly wage increase that we implemented last year, partially offset by lower deferred loan origination costs. As compared to the linked fourth quarter expenses of $88.1 million, expenses were down $2.1 million due to salaries reduced from lower day count and reductions in healthcare, pension, and market adjustments on the deferred compensation plan.
Turning to capital, we continue to maintain strong regulatory capital ratios as both consolidated and bank level regulatory capital ratios are well above the applicable well-capitalized standards. And we enhanced our capital structure during the quarter with the issuance through a public offering of $150 million of fixed-to-floating rate sub-debt, which qualifies as Tier 2 capital. Our solid capital position allowed us to continue to return capital to our shareholders through both a $0.01 dividend increase and the repurchase of approximately 1.7 million shares during the first quarter.
As of March 31st, 2022, we reported Tier 1 risk-based capital of 13.25%, Tier1 leverage of 9.67%, CET1 of 12.01%, and total risk-based capital of 16.32%, as well as tangible common equity to tangible assets ratio of 7.92%. Due to the rising rate environment, the impact on our tangible common equity ratio from unrealized losses on our available-for-sale portfolio, which are recognized in accumulated other comprehensive income, reduced the tangible common equity ratio by 61 basis points or approximately 7%.
We believe we are well-positioned, given our held-to-maturity portfolio makes up 28% of the securities portfolio. Further 25% of our available-for-sale portfolio is variable rate, which is less sensitive to rising rates, resulting in a lesser impact to AOCI. Now I'll provide some thoughts on our current outlook for the remainder of 2022. We remain an asset-sensitive bank and subject to factors expected to affect industry-wide net interest margins in the near term, including a relatively flat spread between the two-year and 10-year treasury yields and the current overall rising rate environment.
We're currently modeling 175 basis points of increases in the federal funds rate with the expectation that we will see two 50 basis point increases over the next three Fed meetings. Our GAAP net interest margin in the second quarter is expected to remain flat due to lower purchase accounting accretion and lower PPP accretion offset by improvements in earning asset yields as rate increases begin to make an impact.
We anticipate some margin accretion from PPP loan forgiveness, and the majority of the remaining balance to run off by mid-year, including the remaining net deferred fees of $2.9 million that would accrue to income. Furthermore, we expect the low deposit beta benefit that we experienced during the last rising rate environment roughly four years ago from our core deposit funding base, to provide similar benefits and the expected rising rate environment this year, and anticipate our betas to be lower compared to peers as they have been historically.
Our static Alco models indicate an intermediate 100 basis point rate shock scenario, net interest income increases 5.3%, while in a 200-basis-point intermediate rate shock scenario, an 11% increase. Residential mortgage originations should remain strong due to our new loan production offices and hiring initiatives, but at lower levels than the record volumes realized during 2021. In addition, we continue to anticipate selling approximately 50% into the secondary market. Trust fees, which are seasonally higher during the first quarter, and securities brokerage revenue should continue to benefit from organic growth.
Electronic banking fees and service charges on deposits will most likely remain in a similar range as the last few quarters. Similar to the rest of the industry, we're not immune from inflationary pressures during 2022, but we'll maintain our diligent focus on discretionary expense management. We will continue to make long-term growth investments through our LPO and hiring strategies, most of which will be funded by the anticipated expense savings from our branch optimization efforts.
We are planning our annual mid-year merit increases, and currently anticipate somewhat higher marketing spend during 2022 to supplement our focus on organic growth. Overall, operating expenses will continue to be impacted by the factors just mentioned, predominantly investments in our loan production offices and people, as well as general inflationary pressures. And we're comfortable with the current consensus range for operating expenses.
The provision for credit losses under CSL will depend upon changes to the macroeconomic forecasts and qualitative factors, as well as various credit quality metrics, including potential charge-offs criticized and classified loan balances, delinquencies, and future loan growth. In general, reductions in the allowance as a percentage of total loans will depend on the possibility of continued improvements in industries impacted by COVID, unemployment rates and other macroeconomic factors, including increases in interest rates and inflation expectations.
Share repurchase activity is expected to continue at a relatively similar pace as during the first quarter, subject to pricing levels, volume restrictions, and future share repurchase authorizations. Lastly, we currently anticipate our full-year effective tax rate to be between 18%, 19% subject to changes in tax legislation. Deductions and credits and taxable income levels. We are now ready to take your questions, Operator, would you please review the instructions?
We will now begin the Q&A session. To ask a question [Operator Instructions] If at any time your question has been addressed and you would like to withdraw your question [Operator Instructions] Please limit questions to one and a follow-up and then you can return to the queue. At this time, we will pause momentarily to assemble our roster. The first question comes from Casey Whitman with Piper Sandler. Please go ahead.
Hey, good morning.
Morning.
Morning.
I guess first, Dan, just the commentary you just made around the margin, especially in the second quarter, maybe can you walk us through what that means for the core margin for that quarter? I'm not sure what you're assuming for accretion income and I think you just gave a PBP number that should be around $2.9 million if I just heard correctly. But so does that assume the core margin is somewhat flat as well or maybe can you just dumb that down for us?
Yeah. Sure, Casey. I think the -- probably the best way to work off this, I was -- I'm referring to GAAP margin here. So if we maybe just quickly compare the first quarter GAAP margin of 295 compared to the fourth quarter margin of 297, if we exclude 15 basis points from both purchase accounting accretion, which was eight basis points in the quarter and PPP, which was another seven basis points, we get down to what we call core margin excluding PPP that comes in right at 2.80%. That compares to 2.79% in the fourth quarter.
So we're actually up a basis point on a core basis. And we expect second quarter margin on the same basis to really be a couple of basis points higher when you exclude purchase accounting accretion and PPP accretion. So couple of basis points rolling off on purchase accounting and PPP, couple of basis points of improvement on the core. And I think when you think about this, there are a couple of things that factor into this. First, the interest expense on the sub debt will weigh on second quarter margin relative to the first quarter.
So that's 3.75% on $150 million that really was only in play for two weeks in the first quarter. And then also, you can see on Slide 4, we're still seeing that loan runoff is coming off right around 3.74% and it's -- new loans are coming one right around 3.33%. So we're continuing to see that mix. That 40 basis points spread, we'll call it, has come down from the fourth quarter and even from the third quarter of last year and we expect in the second quarter for the spread there to tighten quite a bit. But those would be, I guess, the headwinds, if you will, to why we wouldn't see something more than two basis points in the second quarter.
Maybe third quarter we could see more of a list, I guess without the sub-debt and potentially with this [Indiscernible] spread?
Yeah. Absolutely. So the real pickup in our margin comes really in the back half of the year, third quarter and fourth quarters. In particular, once the rate increases are fully baked in for a period of three full months, that's when we really expect to see the improvements. So right now, just to kind of ball packet, let's call it for every 25-basis point -- for every 25-basis point increase in rates, we're projecting between a three to five basis point improvement in the quarterly margin after it's been in place -- after that 25 basis points has been in place for a full three months, since a lot of our loans reprice every three months.
Yeah. And that's on a quarterly basis. If you think about full rate increases or a 100 basis points increase in the second quarter, shows itself in the third quarter.
Okay. Appreciate that. Thank you. Just your comments around expenses with everything going on with new hires, branch closures etc. Sorry, when you were talking about the consensus range you're talking about the full year, 2022 to look at or the quarterly range going forward being somewhere in that range consensus?
We're in the range.
The quarterly range. Okay. I will let someone else jump on. Thank you.
The next question comes from Karl Shepard with RBC Capital Markets. Please go ahead.
Morning guys. How is everyone doing?
Morning.
Morning.
I wanted to start, I guess, with the question on the loan pipelines. I heard record levels and that's because it's good. I wanted to ask if you could expand a little bit on the color respect that the new hires are contributing in some of the efforts in newer markets too. But more curious in an update on general customer sentiment, demand, and any shift in thinking about your borrower base in the last three months?
I'll answer that. This is Todd. If you look at pipeline right now, it's just under $1 billion. I wish I could say it was $1 billion, but it's $980 million, $990 million. So it's hovering right around that, which as we mentioned, is up significantly from where it was in the fourth quarter. And we've never quite frankly seen pipeline numbers as big as we have right now. It is pretty much across the footprint, but we are seeing outsized pipeline opportunities in our newer markets acquired into higher-growth markets, Maryland, Mid-Atlantic market being at the top of that list and then also in some of our Kentucky markets as well too.
We're glad to see that because that's -- the reason for going into those markets was to take our bank from a historical low mid-single-digit grower to eventually a mid-upper single-digit grower. So we're seeing the growth there that we would expect to see. I would say we're starting to see opportunities from people that we've hired in the past because this hiring has been going on for over a year. We mentioned we're about 50% of the way through our 20 years of hires over the next 12 to 18 months.
We feel really good about the people we brought on board, but they came on during the mid to latter part of the first quarter after they've gotten incentives and bonuses and things like that where they were and then they've come over to us. So we would expect to see that be additive to the pipeline from here. And I guess in response to the last part of the question in terms of what are we seeing across the footprint,
I would say I think sentiment is good. I think sentiment is very, very positive. We do see supply challenges out there, labor supply challenges on the part of a number of businesses, but I think they're looking through that and looking at this as temporary. Inventory build seemed to be going on even though we did see growth in C&I, we're still about 10 -- 10 basis points or so below the average or 10% below the average line usage that we would have seen pre -pandemic. So we think that lift is yet to come.
And I think everybody's watching inflationary pressures and trying to figure out whether or not they can pass those on in their sales prices and what not. So they are kind of figuring that out. But overall, I would say it's been really positive and we're not hearing a lot of negative signs really in any parts of our footprint.
Okay that's helpful. And then I guess one follow-up. You mentioned the progress on new hires and kind of the seasonality of getting that done after year-end.
I think you're implying that --Fair to say that there's a lot of capacity among those come aboard here than to deliver in the next quarter or two quarters or is it more of a year-end pull-through, I guess on that production or --
No, we would expect them to produce pretty quickly. Loan production office in Northern Virginia was last July or so that we get that going and that's been representing about 15% of our quarterly Company-wide production in residential mortgage so that came on really quickly and you know with the new hires and Nashville, and if we mentioned in the prepared remarks and in Indianapolis, already starting to see deal flow on the commercial side. So we would expect to see that build throughout the second, third quarters and then be part of our permanent run rate going forward.
Okay. Great. Thanks for the help.
Sure.
The next question comes from Stuart Lotz with KBW. Please go ahead.
Hey, guys. Good morning.
Good morning, Stuart.
Morning, Stuart.
Appreciate all the color on the expense outlook. But as I think about the $86 million run rate, this quarter, expense savings from the 11 branch closures in that you identified, and I think that met your commentary last quarter. Just help me piece together how we get from the $86 million to the higher, I guess, what consensus is implying on the expense run rate, closer to $88 million or $89 million per quarter.
Dan, maybe you want to go through that. Some of it is just a lower benefit expense in the first quarter that we're not going to see most likely in the second quarter. But we are bringing on more people and we do have mid-year merit increases and things like that that will take place. But a lot of it's really what we're looking at in the first quarter, not a typical run rate as you would typically have in the first-quarter. Dan?
Yeah. Yeah, Stuart. So if we -- maybe the best way to walk through this is to think about how expenses move, particularly on salaries and wages and employee benefits on a linked-quarter basis from fourth quarter's numbers to first quarter. So focusing in on salaries and wages here, as compared to the linked fourth quarter, salaries and wages were down about $1.5 million. So there's really two drivers there; first, the day count that we mentioned in the earnings release, that accounted for about $900,000 right there. There's just two fewer days in the first quarter versus the fourth quarter.
And then the second would be just lower mortgage broker commissions, they were down about $500,000, $600,000, so naturally due to the lower production volumes on the mortgage side. So that more or less covers the salary side and of course, as Todd mentioned, the hiring initiatives and even the hires that we've made to date in the first quarter aren't fully baked in for a full quarter. And then if we look at benefits, they were also about $1.7 million lower and there's really, again, three drivers there.
First, market adjustments on the equity securities in our deferred compensation plan moved about $900,000 downward, and you can actually see the offset in securities gains losses in non-interest income. So those move inverse to each other. So those equity securities were down $900,000 and you can see the loss on the net -- on interest income side. And then it's -- it actually reflects as a credit to employee benefits $900,000 within that line. The second piece -- the second component here was pension expense. It was down by $400,000.
And this is really due to the funded status of our plan and the projected return on plan assets. And this is a fully baked in benefit that we'll see about $400,000 per quarter of benefit, lower pension expense quarterly for the rest of 2022. And then the all-other employee benefits, I would say we're down $300,000 and there were two main drivers there. First, we saw lower healthcare relative to the fourth quarter. Fourth-quarter was actually exceptionally higher and first quarter is always seasonally lower just because you've got employees that are still working through their deductibles.
Also, we changed providers as well, changed to a different PPO that's supposed to be a little bit more cost-friendly there. And then also that was partially -- those employee benefit or there's healthcare expenses were partially offset by seasonally higher unemployment, social security, and 401 k match. That's due to the timing of the 2021 bonuses that were paid in the first quarter. So you see some seasonality there. Also kind of offsetting some of the healthcare expense were just higher recruiting associated with our hiring initiatives.
I think helps to explain the kind of the delta relative to fourth quarter and a lot of those factors are -- with the hiring that we have in place and the plans we expect to see us to return back, cover the spread if you will through hiring.
That's very helpful. And I guess my follow-up regarding capital and your outlook for the buyback, I think this quarter, $1.7 million -- you've got about $2.9 million left in the current authorization. But just given the thinner TC, how comfortable are you bringing that lower if we do get another AOCI ahead next quarter and maybe would you look at possibly re-upping that authorization if you were to exhaust in the mid-year? just any color there. Thanks.
You go first.
I would just say as it relates to share buyback in my prepared comments, I mentioned we are anticipating similar levels of buyback here in the second quarter and that's core subject pricing volumes.
capital levels, liquidity and timing. But I think from a TCE perspective there's a couple of factors at play here. First, we think that the rising rate environment is going to be a significant benefit to the bank. We also view that TCE as deterioration as temporary versus permanent and we really don't plan to sell any AFS securities. So really, there's not going to be any impact to interest income. If we did see a similar impact, that was 61 basis points this quarter, given where we are at on the curve and some of the sensitivity analysis that we've performed, it would take about a 100 basis points of increase in the 10-year to see about a 50-basis point decline in our TCE ratio.
So that provides us some insulation in, generally speaking -- our capital targets longer terms ought to have a TC ratio right around 7.5%. We're still running about 42 basis points above that. Certainly, the AFCI impact is getting us down closer at a faster rate, but we're pretty comfortable with where we're at and what exposure there is there
He answered it, [Indiscernible] very, very, well and we do like to have slightly more capital than peers, just our conservative nature and we continue to take that into consideration and evaluating buy-back activity.
Great, thanks for taking my questions.
Sure.
The next question comes from Russell Gunther with D.A. Davidson. Please go ahead.
Morning, Russell.
Hey, good morning, guys.
Good morning.
Wanted to circle back to the loan growth commentary there. Very solid results, very strong commentary. And Todd, you touched on the strategic goals of migrating from the low-to-mid to the mid-to-upper single-digit range. I guess based on the start to the year and a lot of what we've already discussed, is that a goal you think you can achieve this year?
I guess the way I would answer that is, the long-term plan is the mid to upper single-digit growth because that's why we went into the markets that we did, and did the acquisitions that we did. And we are pleased to see that. And I think if we had a more normalized, typically $85 million a quarter commercial real estate payoff to the secondary market, we were up above that a 130 -- $536 million or so, if we had a more normalized $85 million, we actually would've been around 5.5% annualized loan growth for the quarter.
So we feel good about the numbers that we're getting to know. We did put a little more [Indiscernible] on the books than we probably would in the future, but we feel like we're starting to approach that mid-to-upper single-digit of some of those other things were to normalize. I guess the big wildcard on that is the Commercial real estate loans going to the secondary market would need to continue to come down. We expect them to, but our growth overall would be somewhat dependent upon that.
And then also you know what happens with economic growth, overall. If the economic growth slows, I'm not sure we see a recession, but if there is a slowdown that occurs, is there going to be an impact on the lending overall. So these are some of the things that we really just don't have a lot of control over. That's why I like to say the mid to longer-term view is to be in that, mid to upper single-digit because then that takes the variables that we can't control out of it and the strategic things that we're doing to get the longer-term growth starts to show through. starts to show through over time.
Something I will mention, we are very careful about making sure that we're maintaining our credit profile with the growth that we're seeing and the pipelines that we have. As you guys know, we don't purchase portfolios, we want to originate everything that's on our books because we like our credit underwriting and we're not adjusting our credit profile at all to manufacturer loan growth or anything like that.
So with the solid pipelines we have, with what we expect on the commercial real estate payoffs, just to start to decline the LPO as we talked about, we do expect there to be good high-quality growth going forward, but I can't speak to the variables around economic growth overall. Our plan and going to the markets that we went into because we acquired into markets that were slightly higher growth than the national average. And our legacy markets maybe didn't grow as much as the national markets did, but as you guys know, strong deposit franchise, trust franchise.
We make a lot of money in our legacy markets. But to layer on some of those growth markets to get a higher growth profile associated with it, we feel like we've done that. And -- and now we want to see that flow through over the next several quarters, next several years to validate that overall strategy.
I appreciate your thoughts there, Todd. Thank you for that. And then as my follow-up, along the same lines, you mentioned halfway through the targeted hires for this year and national Indianapolis LPO s. Are you in the newer markets where you want to be and those new hires would bulk up there or are there contemplated other LPO s? And if so, just a reminder of what would be attractive.
We're not really looking at other LPO s at this point. We identified Northern Virginia last year, we're there, we identified Nashville and Indianapolis, we're there now. We already have a team in Akron-Canton, which is 20 minutes south of Cleveland. So we're building that out a little bit too. But those are the markets that we liked and with the liquidity we have, and those are markets that are close enough to markets that we're already in that we feel comfortable with them. I mean, I spent most of my career in Cleveland and spent time in Nashville and head oversight of Indianapolis from a board perspective and stuff.
So they're not unknown markets to me and other people on the team. But we're comfortable with those because we can get a car, we can drive to them. And they are markets that we could get bigger in at some point in the future through potential M&A like we did in Pittsburgh. Set up an LPO there for a number of years, 10, 15 years ago and then did two acquisitions to build that into a market. So I could see that happening in some of the markets where we have LPOs right now. But we don't have any plans to go to St. Louis or Atlanta or something like that and continue to do more LPOs. We're in the markets we want to be in right now.
That's very helpful. Thank you, guys, for taking my questions.
Sure.
The next question comes from Steve Moss with B. Riley Securities. Please go ahead.
Hey, this is Steve associate, [Indiscernible], sitting in for him today, a lot of my questions have unfortunately been knocked out, but asset sensi -- asset sensitivity seems to be a big key here. So I'm just curious if you guys can roll through deposit beta assumptions as well as just curious if we could get an update on the duration of the securities portfolio as well.
Sure Dan, do you want to handle that?
Yes. So I will take your duration on the securities portfolio first. The total duration on the entire portfolio, including both AFS and HTM, is 4.8 years. AFS is 4.6 years, HCM is 5.4 years. It's probably important to note here as well that about 26% of the available for sale portfolio is floating rate, so that is going to re-price much faster certain than something that's fixed rate there. And that's also been kind of a key component driver to helping us with the deterioration in TCE and the AOCI, much less of an impact on AOCI on available-for-sale portfolio, given that about 26% of the AFS portfolio is floating rate.
As it relates to betas, generally speaking, go back and look to where we were back in 2018, we saw -- we experienced about 20% beta. We're anticipating a similar level over the cycle, but would anticipate early on probably no change in deposit rates. And as we get later in the cycle, we would begin to probably see betas a bit higher than 20%, but through the cycle, 20% beta is what we've modeled in and that's what we've experienced in the past. So you should think about today, we've got a loan-to-deposit ratio of 71%. Our target is right around 95%.
We've got excess balance sheet liquidity, cash representing about 8% of the balance sheet. So we do have a pretty long runway to allow deposit rates to continue at their current levels. But I do think that the betas are going to be a little bit harder to predict in this cycle, particularly given the anticipated speed of rate increases. So -- but that's where we stand today.
And our legacy footprint I mentioned earlier, were in Shale Country as we brought up, each of you guys knows. So we do get $15 million, $20 million, $25 million a month worth of deposits falling into our bank just by opening the doors and turning the lights on. It's just pretty amazing to watch it. But it's there, it's very consistent. It is somewhat dependent upon price and natural gas which you guys all know is up.
But we benefit a lot from that. And as Dan mentioned, the loan-to-deposit ratio in the low 70% range, we have a lot of room there. But we're also continue to get a significant amount of deposit flow into the organization. And that's pretty much -- that's going to continue.
And that's pretty much -- that's going to continue. I think that's a decade, multi-decade type of benefit that we're going to have. So we're aware of that as well too and that gives us the ability to have a lower deposit beta. And as we've said, that was a big benefit to us in the last rising rate cycle. If go back to 2018, you saw the benefit that that played out for us and we're hoping that to replay again, as Dan mentioned, it's a little different animal this time because of the rapid increases that are expected to happen. But I think the same dynamic is going to play out.
We would be one of the last to really need to go in there and start to raise deposit rates. We'll continue to be selective where we need to with certain customers and making sure we're taking care of our customers. But in general, I think you'll see the same thing from us you saw in the last time the rates went up.
Thank you. Very helpful. And I guess last question from me, it's going be like you guys have a nice pipeline here. You guys have gone through a lot of how you plan on harvesting that. I'm just curious how are roll on yields holding up nowadays and if there's any changes there.
Dan, I know we've got a slide on that. You've mentioned a little bit already in terms of the difference between what's coming on versus what's coming off and if you want to handle that again.
Yeah. If you look at slide 4, you can see that the bottom graph on the left-hand side. In the -- during the quarter, we saw a roll-off coming off right around 374 and loans coming on right around 3.33%. I would tell you that that's the average for the quarter. Here just in the month of March, we saw that about four or five basis points higher, so right around 337, 338 rolling on.
Okay. Awesome. Thank you. Very helpful. And great quarter.
Thank you.
Thank you.
The next question comes from Brody Preston with Stephens Inc. Please go ahead.
Morning, Brody.
Hey. Good morning, everyone.
Morning, Brody.
Hey. I just wanted to ask Dan just on the -- on that commercial, that slide where you go into the commercial loan portfolio mix, could you just -- up to 64% is variable rate you have the re-pricing schedule there. Is that -- I guess is that the contractual re-pricing schedule? I guess I'm trying to tease out how much of the 64% that's variable rate is floating rate in nature, meaning that it kind of reprices immediately, or is that what's implied by the 46% that's up three months there?
Yeah. You're you're exactly right, Brody, it's 46%. That's the portion -- 46% of the variable rate loans will reprice within three months. That's just the re-pricing term.
Got it. Okay. And I did have one follow-up on the yield question, but it related more to your -- the LPOs that you-all are on. Are you doing any -- I guess is there any difference in the competitive nature of those markets? Obviously, Nashville is a pretty [Indiscernible] market, that are causing you to maybe have to reduce your pricing or accept thinner spreads on pricing?
I'd say the Northern Virginia one we got the most experience with, this has been up since July of last year. And my answer would be no. It's competitive, but all our markets seem to be very competitive. Still early on Nashville and Indianapolis, but my expectation would it'd be similar competitiveness to what we're seeing in other parts of the footprint. Look at Cincinnati for example, it's probably one of the most competitive markets in the country given the number of banks and good banks that are located there and the population base and whatnot, so I wouldn't expect other markets to be more competitive.
I know with -- when I was down in Nashville for a couple of years, it was good competitive market, obviously, it's changed since I've been there, but I wouldn't expect it to be more competitive than any of our other markets. If it is, we would, we would adjust probably on the price side, we wouldn't -- we're not going to go into those markets with a different risk appetite. We're going to keep the same risk appetite and if we did have to adjust, we'd just on price. But at this point we haven't seen that we needed to do that and I would be surprised if we did.
And Todd, I did want to follow-up on that, what you just said on the natural gas and shale customers that you have just just given some of the upwards swings in natural gas prices that you see, are those royalties that your customers are seeing, those fixed pricing and do they adjust at any point within the contract's life? I'm just looking at it saying, if there is any flexibility there, it's a little bit of a perfect storm for you guys because you've got another source of outsize non-interest bearing deposit growth just from the price swings alone.
Yeah. Typically what you see when the leases are initially done, again, these are homeowners, the -- we don't finance or bank the big natural gas companies or anything like that. But when the leases are struck, there's a bonus payment that's made, and then there's the royalty fees. The bonus payment is behind it, that was done a number of years ago. And then they typically would have a five-year or so time period as associated with that, so they get a chance to renegotiate it probably several times over the life of the fracking that's going on.
So there could be more of an upside opportunity there, but I think what we've seen most is that it's based upon the throughput. It's really the amount of natural gas that's being taken out of the ground multiplied by whatever that current price is that's going on. So we see a trend up and then we see a trend down. We've been to a couple of different up and down cycles. We've seen over the last eight to 10 years. And I think on the low side, maybe it got down as low as $4 million or $5 million a month. And then we're probably at the higher end of it now, and that $20 million to $25 million a month range.
So it moves back and forth between that, but I don't expect there to be any big changes one way or the other on that. If there are new leases that come on, kind of the way it works that they've got to drill within five-years or if they lose they lose the right to the lease. And a lot of the drilling companies are more focused on profitability now than they were in the past.
But with natural gas prices up and the demand for natural gas kind of as a transition fuel being as strong as it is, there's just seems to be a lot more activity, not just in terms of price going up, but in terms of expectations that the band and companies are going to make more money. And I think when that happens, the brand owners make more money too, because they get higher royalties.
Got it. Okay. And if I could just sneak one last one in. Hey, Dan, how much of the increase in taxable security yields was due to lower premium amortization?
That's a tough one. I do not have that in front of me.
No worries.
Yes. I don't have that one.
That's okay. I'll follow up if I feel like I really need it. Thanks, guys.
Thank you.
Thank you.
The next question comes from Daniel Cardenas with Boenning and Scattergood. Please go ahead.
Good morning, guys IDN.
Morning, Dan.
Most of my most of my questions have been asked and answered. Just a couple of small follow-ups. As it relates to the $990 million pipeline that you have at the end of the first quarter, what's your anticipated conversion rate on that and how does that compare to historical conversion rates?
I think with regard to the -- we tend not to put it on the pipeline unless we feel pretty confident about it. We have a separate pipe dream report which is a lot bigger, but the pipeline report is those things that we would expect there to be a pretty high level pulled through on you know and we'll do. Remember we did last year in terms of maybe as the year before we originations like $1 billion -- 7 to $2 billion or so in commercial loans so I think when you look at that, I think the pipe -- the pull-through would be well above 50% and I would imagine that would continue.
So if we keep the pipeline up at $900 million and/or $1 billion, and continue to roll that through the year, I'd hope that we would convert above 50% of that, maybe quite a bit above 50% of that actually.
Okay, good. And then just a quick question on the fee income, the [Indiscernible] number that we saw this quarter, how much of that was related to the debt benefit?
Dan, do you have that?
$1.9 million.
Okay. All right. That's all I have. I'll step back. Thank you guys.
Thanks, Dan.
Thanks.
The next question comes from Dave Bishop with Hovde Group. Please go ahead.
Hey, good morning, gentlemen.
Morning.
Some of the [Indiscernible] most of my questions have been asked and answered, but one follow-up question in terms of the hiring outlook here, I think you said you're halfway through. Given the strong production growth and the strong pipeline, any chance you might up your hiring targets as you move through the year from that 20 to get closer back to the 2021 level?
I think talent, you can find good talent. You take all the good talent that you can find. I think we feel like we're on a bit of a roll here. I think some of the accolades that we got that we mentioned, some of the third-party accolades on things, I think has helped us because it's gotten us known, maybe in some markets that people didn't know who WesBanco was, in Nashville, Indianapolis, markets like that, and now they do, so I'm hoping that that continues to build. And we would bring on additional -- but you would see the production from that. We focus a lot on positive operating leverage.
And as long as we feel we can get positive operating leverage and see that demonstrated through our hires then we would continue to do that? I'd like nothing more than to come out a year from now and be able to say maybe we were a little higher on salary expense than we thought, but we were significantly higher on loan growth and fee income. I think that's a good story from a positive operating leverage standpoint. But I think we did get some success in the first quarter because of the timing associated with things, but we also are continuing to talk to a number of good people.
And I think we'll have complete, the rest of our hiring plan in the second, third, and fourth quarters. We're a growing bank, we're a growing company, and I'm not going to stop the teams from hiring a good person or a good team if they can come on and they can produce for us because I think that's in the long-term best health of the company.
Got it. I appreciate the color.
Sure.
This concludes our question-and-answer session. I would like to turn the conference back over to Todd F. Clossin for any closing remarks.
Great. Thank you. And appreciate everyone joining us today. Hopefully, I know we're doing more in-person conferences and visits and things now than we were over the last year or two. And so I'm hoping to get a chance to see many of you in person. Many of you haven't met Dan Weiss yet, our CFO in person. So looking forward to doing that as well too. And please continue to stay safe, have a good day, and appreciate your continued interest in our story.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.