Good day, and welcome to the WesBanco Third Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to John Iannone. Please go ahead.

Thank you, Sarah. Good afternoon, and welcome to WesBanco, Inc.’s third quarter 2019 earnings conference call. Our third quarter 2019 earnings release, which contains consolidated financial highlights and reconciliations of non-GAAP financial measures, was issued yesterday afternoon 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 on 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, 2018 and Form 10-Q for the quarters ended March 31 and June 30, 2019, 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 fact, 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 I, Item 1A. Such statements are subject to important factors that could cause actual results to differ materially from those contemplated by such statements. WesBanco does not assume any duty to update forward-looking statements. Todd?

Thanks, John. Good afternoon, everyone. On today's call, we’ll be reviewing our results for the third quarter of 2019. Key takeaways in the call today are key credit quality metrics remained at, or near, historic lows, loan growth continues to demonstrate positive trends across a number of our lending categories, the pending merger with Old Line Bancshares continues to progress and is on track to be completed during the fourth quarter. Supported by strong underlying fundamentals, we remained focused upon and well-positioned for a long-term sustainable and profitable growth on that sacrificing long-term shareholder value for near-term gains. During the quarter, we experienced the flat in a times inverted yield curve, multiple Federal Reserve interest rate cuts, revived tick up in commercial real estate projects going to the secondary market or being sold outright earlier than expected due to the current rate environment and our mandatory limitation on interchange fees for banks with more than $10 billion in total assets. Despite these changes, we are encouraged by the continued support and strength of our distinct long-term strategies and unique advantages. When excluding the merger costs and the reflected impacts of the items I just mentioned, net income for the three months ended September 30 was $39 million or $0.71 per diluted share and for the nine-month period increased 13% to $126 million or $2.31 per diluted share. These earnings generated year-to-date core returns on average assets and average tangible equity of 1.35% and 15.42% respectively. Overall, we believe our credit quality ratios remained strong as we balanced discipline loan origination in the current environment with our prudent lending standards and key credit quality metrics and ratios such as non-performing assets, past due loans, allowance for loan losses, and net loan charge-offs continue to remain at/or near historic lows. I'm very…

Thanks, Todd, and good afternoon to our listeners. During the third quarter, our core performance continued to perform well within our expectations, while we also display positive lending trends, historically low credit quality measures and solid expense management. As Todd mentioned, during the third quarter of 2019, we experienced a flat and at times inverted yield curve from multiple Federal Reserve interest rate cuts, revived pickup in commercial estate projects going to the secondary market or being sold outright earlier than expected due to the current rate environment, and the mandatory limitation on interchange fees for banks with more than $10 billion in total assets. For the three months ended September 30, 2019, we reported GAAP net income of $37.3 million and earnings per diluted share of $0.68 as compared to $32.5 million and $0.64 respectively in the prior year period. Excluding after-tax merger related expenses from both of these periods, net income decreased 5.7% to $38.7 million and earnings per diluted share decreased at 12.3% to $0.71 reflecting a decrease in the net interest margin as well as the additional shares issued for last year's two acquisitions. In addition, for the nine months ended September 30, we reported GAAP net income of $122.5 million and earnings per diluted share of $2.24 as compared to $99.2 million and $2.11 respectively in the prior year period. Again, excluding after-tax merger related expenses from both periods, net income increased 12.6% to $126.3 million, while earnings per diluted share decreased 2.9% to $2.31. As a reminder, financial results for both First Sentry and Farmers Capital have been included in WesBanco’s results subsequent to their respective merger dates of April 5 and August 20, 2018. Federal assets as of September 30, 2019 of $12.6 billion, were roughly flat year-over-year as both First Sentry and…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Casey Whitman with Sandler O’Neill. Please go ahead.

Good afternoon. Just circling back to some of your margin comments you just made, Bob, I think you said maybe 3 basis points to 5 basis points core margin impact from an additional cut. And just curious if we do get a cut in I guess next week, could we assume I guess even more compression than in the fourth quarter than that 3 basis points to 5 basis points, if a technically we have kind of two cuts impact in the quarter. Thanks.

Yes, Casey. Well, you'll note that we reduced our core margin or saw a reduction about 6 basis points in the second quarter, which would be indicative of 3 basis points per cut. Some of it's on a lag though because you have the September cut that really impacts the fourth quarter. And if there were to be a December cut that would be likewise true next year. I think one thing that would be different would be that that the yield curve really did shift very significantly in the third quarter. For instance, at budget time, late last year, we were anticipating a 3.2% tenure yield in 2019. And you were at the low, at the end of the quarter 168, I believe ad today 180. So the shift of the yield curve downward, particularly in the valley section, the intermediate portion of the curve, I think we have found that's really impacted banks in general and certainly we're not immune from that. But beyond that I would tell you that we're becoming more aggressive after the second cut with rate decreases in some of our larger public and institutional funds, customers, here early in the third quarter that should be reflective or reflected in the margin here in the fourth quarter. But my guidance is really thinking about if there are no increases, no decreases next year and one or two here in the fourth quarter or one this quarter, one in January. However, you want to model that, there is some reduction that would occur thereafter subject to the deposit beta that we're able to influence or some of those higher tiers in now accounts, private clients savings and for public funds and institutional customers as well as on the CD side.

All right. And then I guess my next question would be in the first quarter with Old Line, how does that remind us sort of what you're assuming the blended margin is going to be there?

Well, I'll just brief, we haven't remodeled batch. We haven't adjusted our model I should say for our earlier assumptions that we would get a few basis points of accretion from the Old Line acquisition. Hearkened back to farmers, I think we got it to mid-single digits that ended up being substantially higher than that in terms of the margin accretion last year. I don't anticipate that kind of a pickup with Old Line. But I would tell you that they are more neutral to assets sensitivity than we are currently. They have more fixed rate term loans and the commercial side that I think would help in a declining interest rate environment. And then we have the opportunity from a revenue enhancement perspective to reduce some of their higher cost deposit rates as well. So that's not in that, that guidance relative to purchase accounting and just blending the two balance sheets. But I think its an opportunity for us to enhance the margin when those two – when the two companies are blended together here later this quarter hopefully. Is that helpful?

It is, thank you. I'll just ask one more and let someone else jump on. Maybe this is probably for you Todd, just a little bit bigger picture question. Just all the moving parts this quarter, the impact of the challenging rate environment, Durbin higher provision, your profitability profile is down from where I'd been running over the first half of the year. So maybe just help us understand what you guys are targeting maybe in terms of ROA or ROTC or whatever you look at in 2020 with Old Line kind of what it takes to get there. Do you think you can get the ROA back to 1.3%, 1.4%, or have you said any sort of profitability targets or anything you can help us out there. Thank you.

Yes. I just – maybe just mentioned we're 1.35% now. So we are already pretty well above peer group average is on that, but we like being in that range. There would be some puts and takes. Obviously Bob mentioned some things we're going to do on the kind of repositioning in the balance sheet a little bit with our lower cost deposits. This as well as there some higher costs borrowings that they've got. So we think we've got some levers to pull there. Obviously, one of the keys at this merger is to get home growth out of their markets as well. So I think they're trending well and I think that bodes well for us as well too. So I really think it's going to be pretty smooth. I really don't expect again, but we know today based upon interest rates and the economy inflation, economic GDP growth and all that, we wouldn't expect to be materially different. I'd still like to be able to maintain those type of ratios that that we've historically had. There are always one, 1.2%, which is also pretty good for a banker size, very good actually. So I don't see where I see any big significant differences in terms of the level of profitability of our bank, because again they're very good well-run bank, low-50s efficiency ratio and we're still going to hit our cost takeouts there as well too. So they've got an average branch deposit size of $60 million or so. So I mean I think there's an awful lot of benefits kind of coming together for the two of them. That kind of looked at the quarter, there's some aspects of this just kind of being an emerging regional bank, right. You got $0.03 or so with Durbin…

And the fully facing cost savings should give us an enhancement to ROA by a few basis points off of our current run rate.

Yes.

Very helpful. Thank you, guys.

Sure.

Our next question comes from Russell Gunther with D. A. Davidson. Please go ahead.

Hi, Russell.

Hey, good afternoon, guys. The first one, Bob, bear with me a margin follow-up for you. So the incremental guide, the roughly 3 basis points to 5 basis points per cut, should we layer on top of that your guidance for purchase accounting to be down 1 basis point to 2 basis points or is that all inclusive of the purchase accounting moving parts?

No, it is not. You'll see that end market risk in the 10-Q. We would still guide to continued reduction until we get past Old Line, just in terms of where you stand today. And it really has played out as we anticipated, there were 13 basis points of core accretion here in the third quarter, was 15 in the second quarter, I believe 14 or 15 in the first quarter. So it is coming down by that leveled off. But obviously the lower you get its SKUs towards 1 basis point per quarter versus 2 basis points, as opposed to here in the third quarter was 2 basis points plus those 3 extra basis points. The one difference in CECL that you probably understand, Russell is that those 3 extra basis points, the first and second quarter in the future on a purchase credit deteriorated loans would go through the allowance as opposed to coming through a net interest income. Although, the accretion on the good book and an acquisition will still come through net interest income. So hopefully that was responsive to your question.

Yes, very much. So thanks, Bob. And then just circling back to the risk rating change, I appreciate the color you guys are trying to share. Yes, I think there maybe was an initial jump to think about any incremental deterioration be it within a particular geography asset class energy shale. We’ve rent a lot of that troubles in that neck of the wood. So could you give us, again, just a general sense for the asset quality outlook here and then again, just this quarterly provision in the $4 million-ish range. I mean is that a decent run rate to think about going forward?

Yes, I appreciate getting the question. The answer is no. Again, we don't see any significant deterioration across any markets or any product types or any industry classifications or anything else. And again, didn't have any deterioration of any credit of any size that's occurred in the last quarter or so. I mentioned I think two loans in the first quarter, one in the hospitality business and one in kind of a manufacturer of retail products and talked about that back in April. And one of those has gotten better improved and it's come off the list and the other still an issue. But we're well collaterized, and have a good solid management team supporting us with that one. But I mentioned that back in the first quarter, right, so I mean there's nothing new since that. I mean there aren't any – is not any deterioration that's there. It's just a function again moving more heavily toward more quantitative measures than qualitative measures, where in the past you might've given more weight to a guarantor sport, you might've given more weight to repayment history, made payments every time for the last five years type of thing. And we're just not going to do that given the size organization we are moving into new markets Maryland, Kentucky, places like that as well too. So we want to make sure that we've got things graded according to the way our peers are grading things. And we're viewed – we view ourselves, still view ourselves and continue to view ourselves as a very conservative underwriting organization that has a very low risk profile. And I don't think that changes this. It's just that, again, as a large bank. We've got different criteria that we're going to implement that we're going to work…

I appreciate your thoughts, Todd. Thank you guys for taking my question.

Sure.

Our next question comes from Catherine Mealor with KBW. Please go ahead.

Thanks. Good afternoon.

Hi, Catherine.

Hi, one more question on the re-class, the – its follow-up Russell's question, was there any certain asset class where you saw more of the re-class more than others?

No, really not. No, it wasn't related to any particular area. And then I'll give you a feel for it. For example, we might look at a credit historically that would cover debt service coverage. Let's say one to one, but we might include other income that might be in the P&L statement that might show up some years and not be there other years. What we've done in terms of putting more emphasis on the debt service and how we guide, we would exclude that now, right. It's income, it's used to pay debt, but you're not sure it's going to show up every year, because it moves around a lot. So the change in methodology that would create a change in the risk grade, again same credit always paid things like that. But the way we would calculate a debt service coverage and more heavily weight debt service coverage would be the way that we would approach that. But there isn’t a geography or an asset class, we’re not seeing any deterioration in any areas, you don’t have much energy to begin with as you know, it’s less than 1%, but we’re not seeing anything there. We’re not seeing anything in commercial real estate, multifamily, hospitality, all of its performing well and as expected, not seeing anything on the manufacturing side. We don’t have much of a presence at all in retail. We don’t have the big box retail at all. So we really – you can see it reflected in 4 basis point charge off, that’s pretty low. So – and our delinquencies are well controlled and well-managed too. So we just don’t see a lot there. We’ve taken some pretty proactive steps, I think is a company that are going to benefit us in the long-term.…

No, no, that’s really helpful. And I think it’s clear that it’s not, this is more a risk weighting change in terms of your methodology now that there’s been a deterioration in any of your credits. I guess the follow-up to that is more just there hasn’t – to be clear, there hasn’t been a change necessarily in the debt service coverage ratio. That’s the one example that you’ve given. It’s more just you’re giving more of a weighting towards a certain level of debt coverage ratios that would give you a certain risk waiting for certain loans, right. There’s been no change in the debt service coverage ratios, because of weakness. It’s just the weightings towards that qualitative factor or quantitative factor has changed.

Yes. I think that’s correct, very correct. I think when you go back and you look at WesBanco’s charge-off ratio and delinquency and all that kind of stuff over the last go back even to the Great Recession in the last 10 years. And you can see how strong the performance has been on the credit quality side. I would tell you that we operate like a lot of other community banks and this is prior to my getting out of really good people that have good understanding of the markets we’re in. The people we do business with. So you rely more heavily as a community bank on repayment history, guarantor support, all those types of things. Those are all still very present in the loans that we make. But what I’ll tell you is we are just waiting them less than we are waiting them now. So having a good strong guarantor behind the deal is still very important to us, but it may not necessarily up the grade, right, whereas in the past it might have. So it’s just more awaiting difference than anything else. But we haven’t changed ratios. I think we’re more closely following the policies that we were putting in place and the matrix we’re putting in place and I think, if I had insight into some of our peers, I’d be willing to bet it’s probably fairly similar to what they’re using right now as well too, but not a change in ratios and things just a methodology change and awaiting change.

Got it, okay. That’s really helpful. And then maybe I’ll circle back to one of the margin. Can you remind us in your loan portfolio, how much of your loan book is floating rate to immediately repricing with that funds and then fixed rate. The color on Old Lines more fixed rate loans, I think was really helpful. And just trying to think about how that marries with your portfolio.

Yes. So I do get this question quite frequently, we go out on the road Catherine. So we have a business loan book today that’s about $5.2 billion. So this is endemic to that portfolio, obviously, you have other sectors, but we don’t have that much of consumer and that’s a low average maturity, weighted average maturity. Home equities are obviously variable. Residential mortgages have typically four to five year average life. So excluding those sectors, just looking at business about 65% to 70% of the portfolio is CRE and the rest is C&I. If you want to take total fix from both of those portfolios, you’re basically looking at about $2.5 million and then the rest is variable over some period of time. It could be immediately re-priceable off of prime or LIBOR or it could be adjustable after a period of three to five years. So without the long gating the answer and giving you all the breakdowns in variable, hopefully, that’s helpful to your question.

Okay. So $2.5 billion fixed, $2.7 billion variable on the $5.2 billion business book. All right.

I quoted that wrong. It’s more variable than that. The variable is $3.7 billion and then the rest $1.5 billion is business. Sorry.

$1.5 billion, okay.

No, that’s my fault, not yours.

Okay, got it. So $1.5 billion fixed, $3.7 billion variable, okay. So that explains why the loan yield sell as much as it did this quarter. Can you give us any kind of outlook or color around where new loan yields are coming on versus where the portfolio is today?

Well, the portfolio today is right around 4.65%, between 4.65% and 4.70%, new businesses coming on the books, generally right around that level to slightly above.

Okay. All right. Thank you for all of the clarity. Appreciate it.

[Operator Instructions] Our next question comes from Steve Moss with B. Riley FBR. Please go ahead.

Hi, good afternoon guys. I wanted to touch – ask for a commercial – C&I growth this quarter. It was pretty good and I apologize if I missed it, but just wondering what were the drivers there and the color you can give there.

Yes. It wasn’t do the increase usage on existing facilities, I can tell you that. It was a 9.7% annualized. I think just a result of the timing of deals that we’ve closed. Good teams out there, people that we’ve hired and this has been part of our longer term strategy is to get more growth through C&I and balance out the commercial real estate growth piece of it. So it’s nice to see it coming through. I like to see it come through on a more regular basis and be in the low double digits on a pretty consistent basis. But it’s across the board all markets again and it’s new relationships that have come into the bank. I can tell you I would echo what I’ve seen other, CEO say in the last week in terms of kind of caution on the part of business customers, in terms of going out there and making capital expenditures or building inventory, whether it’s just uncertainty around tariff talks and the economy and everything else. But we do see that. So this is market share. We’re taking market share in the C&I space. And I’m happy to see that. It was 3.3% annualized year-over-year, so – 3.3% year-over-year, it was 9.7% annualized. I’ll get real excited if I see 9.7% or 10%, four quarters in a row. Then I’ll know that we’re really clicking where we need to be. So it was a good quarter, but I’d still like to see more of that. And I think it’s a result of the teams that we’ve hired to meet. For example, in Cincinnati, we’ve got five additional C&I lenders more than we have a year ago, right. So very strong ads and hires and they’re bringing business in.

That’s helpful. And then on the expense side, just wondering if you give any color around expense expectations for the fourth quarter, excluding Old Line, if it is want to close.

Yes, let me just – I’m sorry, I’m shuffling papers, modern day CFOs be able to find this right on their iPad, right, Steve. Apologize for that. So in the fourth quarter – and we’re not ready to provide guidance yet for next year, but in the fourth quarter. So the run rate in the third quarter, we reported little bit less $72 million [indiscernible] get back to $2.4 million for the FDIC, the rest of that 700,000 would come in the fourth – the run rate on FDIC for us is about currently $1.2 million a quarter. So it gives you an idea what the normalized amount would be on that particular line item. And if you factor that in then you’d be looking at somewhere around that same $73 million, $74 million run rate here in the fourth quarter without merger related expenses. Expect to still get a few cost savings in the Farmers side, primarily in some other categories other than salaries and benefits. I would say one of the things in the third quarter that hurt us a little bit out of the ordinary was it was a higher amount of health insurance. You pick that up by looking at the benefits line item that was higher than our expectation. We’ve seen a number of larger claims that have hit our stop loss limit and while we get insurance back on the stop loss, we are seeing some higher health insurance claims overall. But otherwise, most of the categories we’re well under control and we would expect that similar level of control to exhibit here in the fourth quarter before, we put on Old Line.

We started back actually in the first quarter, where we saw margins starting to react a little differently than what the thinking was at the end of last year. On the last year rates were still going up. And then there was a pretty abrupt about face, starting beginning of this year in terms of fed starting to look to decrease. So we knew right then, margin was going to be a question this year for the industry. So we undertook some expense initiatives back then and some of those came out pretty quickly, some of those will come out over time, but it was several million dollars in size. And then also, we don’t – we’re not going to see in the fourth quarter, what we’ve seen in terms of merit increase adjustments and things like that that would have happened in mid-year that would show up in the third quarter as well too. So we don’t anticipate those type of things in the fourth quarter.

That helps. And then one last question, just circling back to the margin. In particular purchase accounting accretion it was down 5 basis points over quarter, more than typical 1 to 2. I know it’s a bit of a day count do we think about 1 to 2 from the 13 bps this quarter?

Yes. You might have missed the comments, Steve, but we had 18 bps in the second quarter, 3 of which was a purchase credit impaired loan from a prior acquisition, that paid off. And so that picked up 3 bps. So I’m analyzing it is, you didn’t have a similar situation of third quarter, that’s 3. And then 2 bps for going from a normalize 15, call it, down to 13. So think about it in terms of 11 or 12 for the fourth quarter.

Okay, perfect. Thank you very much.

Unless, there’s something unusual. We have one more quarter and if there were another purchase credit impaired loan that would come through and pay off otherwise next year, that’ll go through the reserve as you know.

All right. Well, thank you very much Bob and Todd.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Todd Clossin for any closing remarks.

Thank you. The successful execution of our growth and diversification plans has enabled us to transform into a emerging regional financial institution, again, built upon century-old trust business and we’re going to be celebrating our 150th anniversary as a community bank next year. During the last three years, we’ve significantly diversified our institution into some new higher growth markets, really good demographics, maintaining a critical focus on expense management and credit quality. And we think we’re well positioned for long-term success and we do remain positive about the opportunities in the future. I want to thank you for joining us today and look forward to seeing you at an upcoming investor events. Have a good afternoon.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.