Good afternoon, and welcome to the WesBanco Third Quarter 2018 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. At this time, I would like to turn the conference over to John Iannone, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Denise. Good afternoon, and welcome to WesBanco, Inc.'s third quarter 2018 earnings conference call. Our third quarter 2018 earnings release, which contains consolidated financial highlights and reconciliations of non-GAAP financial measures, was issued yesterday afternoon and is available on our website, wesbanco.com. Leading the call today are Todd Clossin, President and Chief Executive Officer; and Bob Young, Executive Vice President and Chief Financial Officer. Following our opening remarks, we will begin a question-and-answer session. An archive of this call will be available in our website for one year. Forward-looking statements in this report relating to WesBanco's plans, strategies, objectives, expectations, intentions and adequacy of resources are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The information contained in this report should be read in conjunction with WesBanco's Form 10-K for the year ended December 31, 2017 and Form 10-Q for the quarters ended March 31 and June 30, 2018 as well as documents subsequently filed by WesBanco with the Securities and Exchange Commission, which are available on the SEC and WesBanco websites. Investors are cautioned that forward-looking statements, which are not historical facts, involve risks and uncertainties, including those detailed in WesBanco's most recent annual report on Form 10-K filed with the SEC under Risk Factors in Part 1, Item 1A. Such statements are subject to important factors that can cause actual results to differ materially from those contemplated by such statements. WesBanco does not assume any duty to update forward-looking statements. Todd?

Thank you, John, and good afternoon, everyone. On today's call, we'll be reviewing our results for the third quarter of 2018. Key takeaways from the call today are continued execution upon our well-defined growth strategies that are ensuring long-term shareholder value; diligent focus on profitability and positive operating leverage, while maintaining our legacy of sound credit quality; the unique long-term benefit of our core funding advantage; and the successful completion of our merger with Farmers Capital Bank Corporation. We're pleased with our performance during the third quarter as we delivered record results by remaining focused on profitability, positive operating leverage through effective execution of our strategies. Net income, excluding merger-related expenses for the three months ended September 30, 2018, increased 56% year-over-year to $41 million or $0.81 per diluted share. And for the nine month period, net income, excluding merger-related expenses, increased 42% year-over-year to $112 million or $2.38 per share. The benefits of our diversification and expense management strategies on profitability is further evident through year-to-date improvements in several additional core measurements. We delivered positive operating leverage of 3x through a combination of M&A and organic growth. The efficiency ratio improved 191 basis points from the prior year to 55% despite the inclusion of FFKT's operating expenses since August 20th of this year. The combination of which help drive income before provision of credit losses and income taxes to $141 million, a 20% year-over-year increase. And solid profitability ratios with the core return on average assets of 1.37% and a core return on average tangible equity of 17.7%, which improved year over year by 30 and 396 basis points, respectively. Our long-term success remains dependent upon continued execution of our well-defined operational and growth plans. As a reminder, our long-term growth strategy is focused on several key pillars: building…

Thanks, Todd, and good afternoon, everyone. We reported strong profitability with year-over-year growth in both pretax and after-tax earnings, and displayed solid expense management, both quarter-over-quarter as well as year-over-year. For the nine months ended September 30, 2018, we reported GAAP net income of $99.2 million and earnings per diluted share of $2.11 as compared to $78.6 million or $1.07 per diluted share for the same period last year. Excluding after-tax merger-related expenses from both periods, net income increased 42.2% to $112.2 million, with earnings per diluted share up $0.60 to $2.38. For the three months ended September 30, 2018, we reported GAAP net income of $32.5 million and earnings per diluted share of $0.64 as compared to $26.4 million and $0.60, respectively, in the prior year period. Excluding after-tax merger-related expenses, net income increased 55.6% to $41 million, and earings per diluted share increased 35% to $0.81. And as a reminder, financial results for First Sentry and Farmers Capital have been included in WesBanco's results, subsequent to their merger dates of April 5 and August 20, 2018, respectively. Total assets as of September 30, 2018 grew to $12.6 billion year-over-year, reflecting approximately $2.3 billion of assets from the FTSB and FFKT acquisitions. Furthermore, total portfolio loans of $7.7 billion increased 21.2% compared to the prior year due to both acquisitions. Total organic loan growth was down slightly versus the prior year period, reflecting the factors that Todd mentioned earlier. The strength of our residential mortgage lending program continue to drive strong loan originations that are better than the residential mortgage market nationwide, as our total year-to-date originations are up 21% year-over-year. Furthermore, while we continue with our strategy to sell residential mortgage originations into the secondary market, as can be seen by the growth in mortgage banking fee income,…

[Operator Instructions] Your first question will come from Catherine Mealor of KBW. Please go ahead.

Hey, I just wanted to clarify your expense -- what you said about expenses, Bob. So we still have a little bit from First Sentry to come through in the fourth quarter, it sounds like. Can you -- is there a way to put a dollar amount on that instead of a percentage?

Well, I think I realize that's a public company that first Sentry wasn't a public complete. So you ought to be able to get prior-year information from SNL. But we basically look at their run rate as being around $2.1 million to $2.2 million a quarter of expenses that we inherited. And so if you figure 38% of that, that should be about $250,000 to $300,000 a month and then you multiply that by 75%. So that gets you into four quarters of about $600,000, $650,000 worth of savings on First Sentry from back in April. We did convert First Sentry in July. And so we did begin to experience cost savings from back office terminations and elimination of their prior IT service company, Jack Henry, beginning late in August. And then if you -- you do have a public company in Farmers and so that is available to you. They had about $53 million in expenses for 2017. We typically would figure about a 3% growth rate or, call it, $54 million, $54.5 million. And so you only have about one and a half months of those expenses in the third quarter. And then you would figure the full amount of one quarter -- one quarter's worth of those expenses in the fourth quarter. So that stands basically $4.5 million per month, give or take. No cost savings there until 2019.

So it's coming at a full run rate next quarter and then we'll start to see the cost savings coming through in the first quarter?

Yes, I think it's fair to say that we do have some cost savings. There were already experiencing there. It's just the bulk of those savings would occur after conversion. And that's when you would also shut down the different systems.

Remind me when conversion is for that?

We're looking at Q1.

And then, I think then just on the margin, you said early nice job holding the margin, expanding the margin in a really tough rate environment. How do you think about -- so it makes sense if we're going to see higher margin next quarter to said earlier on FFKT. But just bigger picture, how do you think about the trajectory of your margin as we move through next year? If we get more rate hikes, but we remain in the flat-curve environment? I think we've called you sneaky asset-sensitive in the past, just given the quality of your funding base. But is the flat curve enough to kind of offset that on the asset sides in this through next year? Any kind of color there would be super helpful.

Well, I'll take that. I obviously have the knowledge of what the margin is in the month only of September, and that would be higher than the $350 million for the whole quarter just simply based upon the fact you have a higher asset base from Farmers or a higher margin asset base. We got it to that back at the announcement. I would refer you back to their second quarter public release, where they had a 3.88% margin. So as you later those assets in, and then you assume purchase accounting on them, that does bolster -- and you saw that 7 basis point approximate core margin increase, net of purchase accounting, by end of third quarter. And the reality of that is when I'm guiding to 15 to 20 basis points of accretion in the fourth quarter, and then you see that kind of core increase throughout the quarter from the Farmers acquisition in the third quarter, you're experiencing both an increase in the margin on a core basis in the fourth quarter as well as from purchase accounting kind of based upon what we see late stage in the third quarter. Now we do believe that we could see some additional deposit pricing pressure in the fourth quarter. But yes, we've been very successful so far. We've highlighted some important facts for you in terms of both the increase in just total deposits related to demand deposits. And now those are 51% of the total. Note, as talked about, 16% of the four increases over the last year is our deposit beta on the interest-bearing deposit costs. But some of you -- some of the analysts are now looking at it when you add in noninterest-bearing. And that's been an important part of our strategy over the…

The next question will be from Casey Whitman of Sandler O'Neill. Please go ahead.

Just one more question on the margin here. Just your comments about accretion income being 15 to 20 basis points in the fourth quarter. What's your outlook for the level of accretion next year? Like how quickly do you think that's going to come down?

The loan accretion does not drop that dramatically in the quarters. In 2019, we actually have a projection on that. For us, the way that we estimate accretion is based upon initially our modeling in advance of the acquisition. And then we true that up when we get a third-party valuation, and we've done that here at the end of the third quarter. That gives us, not only what the total gross amount of loan accretion is going to be, but what the total discount is on the loan portfolio. But it also gives us a percentage of that, that is accretable versus non-accretable. And this acquisition's case, most all of it, except for the portion associated with the loans that we're selling, is accretable. So that's a good thing for us going forward. And that accretion will last over six to seven years. But generally speaking, the guidance that I'm providing on that 15 to 20, I would take that down by a basis point or 2 per quarter over the 2019 time frame. And some of that's Farmers and some of that's prior acquisitions.

And then, Todd, bigger picture here. What's your appetite for additional M&A at this point?

Yes. I think for the next year, 1.5 years, as we've said after we completed or announced the FFKT merger, we're really in an integration time period, a lot of opportunities to take our products and services to these new markets. At the same time, we're taking, obviously, a lot of costs out this year, but a lot of costs out next year as well, too. So I kind of see some pretty exciting things coming for us in terms of cost takeout and, at the same time, putting the revenue of the new products in there to drive some pretty strong positive operating leverage. So I'm really focused on that over the next year, 1.5 years. And we've doubled in size in the last four years. So we feel this is a good time to pause for a little bit, but still making a lot of contacts. And 2020 and things like that will be here before you know it. So I think the next 1.5 years will move by pretty quick, but we've got plenty on our plate to work on.

And I guess, given those comments with the pullback in bank stocks, we've seen some banks put buybacks in place. Is that something you guys would consider as a use of capital at this point?

Well, we haven't had a lot of those conversations yet because the pullback's been pretty recent. But we've got a lot of uses for capital long term. And obviously, buybacks is always an option. Dividends are an option, but also, again, future M&A just a couple of years away. So we'll have to evaluate all of that, but haven't made any definite determinations on that at this point.

And there is about 1.1 million shares in our current buyback program that's available.

The next question will be from Austin Nicholas of Stephens. Please go ahead.

Maybe just on the loan growth on a quarterly basis, could you give us a feeling of, I guess, the total dollar amount of loans that kind of came over after being marked from FFKT? And maybe just said another way, but what was the kind of core quarter-over-quarter organic kind of move in the loan book?

Yes. I think maybe I'll answer it from maybe a little different perspective. If -- I've seen some banks going to report what were some of the larger real estate paydowns, which is really what's driving a lot of the loan balance sheet growth or lack thereof, I guess, I should say. We're seeing some similar things to what I read about others have been reporting out there as well, too. We have $128 million in the third quarter of commercial real estate loans that either went to the secondary market earlier than we thought or that end up with just about the right sales. And to give you some perspective, that's about the same number we experienced in Q1 and Q2 combined that we saw in Q3 by itself. So we're definitely seeing the trends others are seeing. I'd tell you that I'm talking to our commercial people and our commercial head, even that doesn't continue forever, right? It's -- you're having a lot of opportunities for people to take things off balance sheet and to sell them. But at some point in time, you kind of reach the bottom of that. And we'll be looking at where that is. We don't think that's a trend that's going to continue indefinitely, but it definitely had an impact on the loan growth in the third quarter. With regard to the M&A activity and what we've brought over, we could dig through that and actually get the loan amount. But you can probably -- if I'm reading through with your question probably is it's, what was the unusual payoffs? And if you added the $128 million back, you can probably get a pretty good idea of what our organic loan growth would have been. We typically would see $40 million to $50 million in payoffs in a quarter of things that will go to the secondary market. So $128 million, that's another $75 million headwind we faced in the third quarter that we typically wouldn't have faced a year or two ago. Does that answer your question?

Yes, I think that was helpful. And then maybe, I guess, as you look forward and you think about the kind of trajectory of net loan growth in the fourth quarter and in '19 and excluding the acquisitions, how are you feeling about kind of net loan growth, given the payoffs may be picking up a little bit? And then any kind of runoff that you may expect from the acquisitions?

Yes, I would say, well, with the acquisitions, our approach has always been that if you do get some runoff -- but you want to outrun that, right? So through hiring C&I lenders and having a bigger balance sheet and doing bigger loans in the market. If you go in and you buy a community bank, and you do see just some customer attrition from that, my plan would be -- would just be to outrun that through the reasons you went to that market in the first place, which is to expand the product set, use the balance sheet and everything else. So I don't really model internally runoff from acquisitions. But what I would tell you with regard to kind of some of the balance sheet dynamics that we saw in the second quarter, and then obviously moving into the third quarter, I would see that -- don't see a reason for that to subside right away. I think a lot of the deleveraging is going on with businesses. And even consumers. At least they're deleveraging on the home equity side, which I don't think a bad thing long term, quite frankly. I think it's actually a pretty healthy thing for them to be doing that. I don't see those dynamics changing in the next quarter or so as well, too. So to me, I think that the industry as a whole, fourth quarter is going to be more of the same from the third quarter. But then as you get into 2019, they mentioned a few minutes ago, at some point that deleveraging stops, particularly on the business side where everything that was going to the secondary market's gone, and everything that had the better cap rates that was going to get sold -- gets sold. And I think there will be an end to that. And then you'll return to more normalized loan growth at some point over the next several quarters.

And that's -- and that's typically been in the kind of low-single digits to mid-single digits? Is that...

Low-to-mid single digits. And also, the consumer and direct strategy, which we talked about for a couple of years, kind of, looking at the risk-return and having that run down a little bit. That's starting to even out as well too. We're not getting out of that business. We just adjusted the risk-return profile, raised rates, improved credit standards, things like that a couple of years ago. So we're putting loans on the books, and now we seem to be putting on about as much as -- as coming off there. So that portfolio, I think, will stabilize more in the next year or two than it has in the last year or two, or we kind of intentionally run it down by really about $16 million a year. So about 1% of our loan portfolio a year was running off because of the indirect strategy and I think we're nearing the end of that.

And then just to be clear on, I guess, the FFKT, there is no real cost saves in the third-quarter numbers yet. Is that the message I was getting?

Yes, I think for the lion share that's correct. So we closed August 20th, so we had that in there through that part of the third quarter, and we'll have it for the fourth quarter. And we're carrying the full boat, everything's there. Even you get some attrition, people that aren't going to stay, that you're going to get [indiscernible] back just to find other jobs and go other places early anyway. There's a little bit of that, not a lot, but a little bit of that going on. So, we're starting to see some of that, but not the significant cost saves you're going to see in the first quarter, we actually complete the conversion. And we're very good at getting the costs out. So I've got no concerns at all that we're not going to have those costs from First Sentry, the remainder of this cost out in early '19 and a good chunk of that 75% out in early parts of '19 as well.

The next question will be from Steve Moss of B. Riley FBR. Please go ahead.

This is Zach Weiss filling in for Steve today. Thanks for taking my question. In terms of fees, they came in pretty strong this quarter, I was just curious outside of the impact of First Sentry and Farmers Capital. Was there anything in particular that got those numbers higher, and maybe your outlook there moving forward? And off of that too, mortgage banking was strong relative to the industry? Any color there on what you guys are doing to get that would be appreciated? Thank you.

Yes. I'll tackle the mortgage piece of it, and Bob will talk about the fee side as well too, but really nice thing happening for some of us in the mortgage side. Again, with the markets we've moved into going from not having a presence in Kentucky to being the ninth-biggest bank in the state over the last two years. The banks that we bought there had very little, almost no residential mortgage focus or efforts or production. That's an important business for us. So we've gone in there and we've put mortgage lenders -- the number of mortgage numbers has been up by 300% to 400% in, particularly in the Louisville markets and central Kentucky markets, Lexington markets, some of the stronger geographies in Kentucky. We've put mortgage loan originators there and good strong leader there, who is very good at attracting talent. So we've actually have been able to kind of outrun, which is kind of the comment I made earlier on what we'd like to do on the model loan runoff on the commercial side. Same thing on the residential side, and that is that we would expect the additions of staff and the productivity from that staff, get them up to the levels that we're used to seeing around the rest of our company. And that flows through. So even though the national trend is mortgages are down because rates are going up, refi-ed markets not there anymore. We're running against that because we're adding so many new mortgage loan originators that are bringing production on that didn't exist before. So we're able to counter that trend. And I think our originations were up 21% over the prior year. And that's pretty unusual, given what's going on with the mortgage market. And I would expect that to continue because we continue to look for more mortgage loan originators in Kentucky. But also Columbus, Cincinnati, Pittsburgh, Charleston, places like that, it's good business, and we think we've got a good function around on that. Our turnaround times are very good. We're able to attract lenders into that market, and realtors like us. So I think that should be a good story for us going forward. But on the rest of these, Bob?

Yes. I think, swapping, if you just -- going back to last quarter, I would tell you that in the other income category, there were some additional swap fees and -- as well. That is where we're characterizing the Farmers allotment businesses. So even though that's only 1.5 months that those two categories are in the income statement and the last item in noninterest income called other income. Trust fees, about half of the increase over the last quarter is related to Farmers' trust department, again, for 40 days. And then the rest would be the organic growth that we are experiencing ourselves. Service charges on deposits, that's gotten stronger for us throughout the year. And some of that is obviously related to the acquisition as well we layer in the strong retail deposits of Farmers. And likewise, that's true with electronic banking fees, although we've seen low double-digit growth in electronic banking fees throughout the year. So those are the other factors that influenced the 25.5% growth year-over-year in noninterest income. And most of the factors I just gave you were related to the second quarter to third quarter increase.

Got it. Just a quick follow-up on the mortgage piece. In the prepared remarks, you all mentioned a hedging gain. I was just curious, I guess, how material that was or how much of that comprised of the mortgage income disclosed on the income statement.

Yes. Well, I can tell you in general, it's been running around -- by around $50,000 a month or so. It's something we weren't doing a year ago. But we looked at it. We valuated it. We have a very strong and experienced set of residential mortgage lending that joined us a couple of years ago. So we rolled it in place. And it's been very good for us. It's really improved the profitability. And averaging around $50,000 a month is what we've been seeing.

That's the pipeline hedging element of it.

Got it. That's helpful. And then last question for me. Just curious on the credit side, if there's anything that you all are seeing out there on the ground, maybe what competitors are doing, just if there's anything worth noting there.

Yes. I think I would tell you from our portfolio standpoint, obviously, we feel very good about our portfolio and kind of where we're at with everything. We are seeing more opportunities, I guess, that are still getting done, but maybe with some looser structures, it seems. I mentioned before about things going to the secondary market. I think it's so aggressive. It's really amazing to see how soon properties are going to the secondary market. And I'm just not sure that's healthy, but it's what's going on right now. But we've been very selective. So I would tell you that our lenders kind of know what we like to do and don't like to do. So some of the things I used to see, we don't see any more like multifamily loans with guarantees that burn off real fast, things like that. They know we're not doing them. So we don't see them anymore. We kind of manage the expectations of our borrowers to some degree. So I think we've pulled our horns in a little bit a couple of years ago on multifamily and on the consumer side. And I think that'll stead well for us. So we're really not playing in the space that I think's getting a lot of attention right now, right? So the growth in indirect and RV and motorcycle and ATV and all that, the growth in multifamily and things like that, we're just not just really playing real aggressively in that market. So I just don't see a lot of those things. On the C&I side, we're keeping our credit standards where they're at. What's interesting there, though, is just the line usage that's going down. And people are just -- I'm not sure whether they're just cash-flushed from tax cuts or whether there's still an overhang from potential tariffs, things like that. People being just conservative or they're thinking there's going to be a recession in two to three years, and they're just being careful. I mean, it's a combination of all of that. But we're just not seeing the line usage that we expected before. Our production, though, has been very good. Our production this year is right on plan. And it's just the deleveraging. And those loans that we are making, they're just not being used as much as they were being used in the past. I read an article where there's a lot of banks were surveyed about losing C&I standards. And it said 100% of the banks they talked to are doing that. I think they didn't talk to us. We're not doing that. We've got the same credit standards regardless of the economy. And that's kind of stead us well really. Sometimes, maybe that's a little out of favor. But I think in times like this, the market starts to come back towards where you are.

[Operator Instructions] Your next questions will come from Russell Gunther of D.A. Davidson. Please go ahead.

Just one follow-up for me, I kind of appreciate the color you gave us on the paydowns this quarter and expectation that we could be looking at low to mid-single-digit organic growth for next year. Could you just give us your thoughts given bigger presence in some higher-growth markets, where that low to mid-single-digits could come from, both from an asset class perspective and geographically speaking?

Yes, I would say, obviously, we want to grow the businesses that we're in, but with special focus on C&I and home equity. I mean, those are still businesses that are important to us. And we would expect those to grow. I think our opening on our investor deck talks about the last number of years. The compound annual growth rate in those is around 90%, I think, over the last five years. So obviously, not that today, but it will return to that level at some point, I'm sure. So C&I and home equity markets, businesses that we really are going to continue to focus on. We still like commercial real estate. And we're just being -- obviously continue to be prudent in how we structure those and who we do business with, and make sure they got deep pockets and things like that. So when I look at geographically, really, all of our markets are pretty healthy. And this is the nice thing about having a geographic dispersion over five states, is that each market will give you something a little bit different. Obviously, our M&A strategy has been moving us into some markets that were higher growth. So I would expect, on a longer-term basis to get more loan growth out of markets that are growing faster. And that's part of the approach and part of the strategy. So when you look at the demographics, population growth of Louisville, Lexington, Columbus, Cincinnati, Pittsburgh, Morgantown parts of West Virginia, too, our plan would be is to grow in line with that or faster. And then they continue to become more meaningful in markets that have higher growth trajectories. I want us to be known as a growth company, a really good growth company that's got good solid quality credit standards as well, too. So to be meaningful in markets that are growing faster, I think that's going to be a prerequisite, which is why we're doing the acquisitions we did, why we want to take time to kind of settle and put our products and services and our operating philosophies into those markets, so that we can kind of get that growth. But I would tend to see -- if you look at the GDP growth, albeit to the different markets we're in, that's a pretty good indication of where we expect to get our growth. We're not stretching any one particular market over another.

And ladies and gentlemen, that will conclude our question-and-answer session. I would like to hand the conference back over to Todd Clossin for his final comments.

Thank you. There are many ways, obviously, to achieve profitability. But as I've mentioned several different times, doing that through changing our risk profile is it's just not one that we're going to do, particularly with this -- the 10th year of the elongated economic cycle. But there's a lot of ways to improve profitability, right? So looking at long-term profitability and shareholder value through the disciplined growth, meeting our customers' needs, we talked about our core deposit advantage, talked about our credit quality and standards and some of the things we're doing with regard to taking our products into other markets, and then taking expenses out. Like I say, there's a lot of ways to generate profitability. So I want to thank you for joining us today, and we look forward to seeing you at an upcoming investor event.

Thank you, sir. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. At this time, you may disconnect your lines.