Good day. And welcome to the WesBanco Fourth Quarter 2019 Earnings Conference Call and Webcast. 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, today’s event is being recorded. I would now like to turn the conference over to Mr. John Iannone, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you, Rocco. Good morning. And welcome to WesBanco, Inc.’s fourth quarter 2019 earnings conference call. Our fourth quarter 2019 earnings release, which contains consolidated financial highlights, 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 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 31st, June 30th and September 30, 2019, as well as documents subsequently filed at 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 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?

Well, good morning. Thank you, John. On today’s call, we will be reviewing our results for the fourth quarter of 2019. Key takeaways from the call today are, we reported record net income for 2019 of $172 million, excluding merger-related costs. Key credit quality metrics remained at low levels. We successfully consummated our merger with Old Line Bancshares and are excited about our opportunities in the Mid-Atlantic market. It’s important to note that 75% of our projected cost saves will not begin to be realized until after the systems conversion that will occur at the end of the first quarter of 2020. Since 2009, we have grown from $5 billion to nearly $16 billion in total assets, while generating positive operating leverage that lowered our efficiency ratio approximately 750 basis points to 56.7% during 2019. We accomplished this tripling in size by expanding from three to six states, spanning in the Midwest, the Mid-South and now the Mid-Atlantic, with substantial deposit market shares, while maintaining balanced loan and deposit distribution across this diverse regional footprint. This geographic expansion was done methodically, with a critical focus on shareholder return. During the last four years, we have moved into two fast-growing regions, the Louisville-Lexington Corridor in Kentucky and the Baltimore-Washington DC Corridor in Maryland. In fact, we have expanded many of our revenue generating functions into diversified major markets with growing populations and positive demographics, while keeping the majority of our back office and support staffs based in our Wheeling headquarters. We have focused on developing and expanding our earnings streams through the diversifying of our loan portfolio and enhancing of our fee-related businesses. Commercial and industrial loans have increased nearly 260% to represent 16% of loans, as compared to 13%, 10 years ago through a combination of acquisitions, entering major markets,…

Thanks, Todd, and good morning to all of you. Our fourth quarter core earnings performance improved and was above our expectations as execution of our fundamental strategies, control deposit costs and expenses and accretion from the Old Line acquisition, drove improved earnings over the third quarter and assisted in our record core net income performance of $159 million for all of 2019. During the fourth quarter, we experienced a continued declining rate environment and a relatively flat yield curve, although it did improve somewhat later in the quarter. The impact of another 25 basis point Federal Reserve short-term interest rate cut in October, a pickup in commercial real estate projects being refinanced or sold earlier than expected due to the current rate environment. And the full quarter’s impact of the mandatory limitation on interchange fees for large banks above $10 billion in total assets. For the three months ended December 31, 2019, we reported GAAP net income of $36.4 million and earnings per diluted share of $0.60, as compared to $43.9 million and $0.80, respectively, in the prior year period. Excluding after-tax merger related expenses from both periods, net income increased 1% to $45.5 million with earnings per diluted share of $0.75. The year-over-year decrease in earnings per diluted share was primarily due to the additional shares issued for the Old Line acquisition as well as before our anticipated expense savings. In addition, for the 12 months ended December 31, 2019, we reported GAAP net income of $159 million and earnings per diluted share of $2.83, as compared to $143.1 million and $2.92 respectively in the prior year period. Excluding after-tax merger-related expenses from both periods, net income increased 9.3% to $171.8 million with earnings per diluted share of $3.06. Financial Results for First Century and Farmers Capital have been…

Thanks, Bob. Before I open the call to your questions, I want to provide a brief update on the changes in our internal loan classification methodology. As we discussed last quarter, as well as bank was grown and transformed into a $16 billion institutions spanning six states, we believe it was important on a go-forward basis to heavily weight quantitative measures in our loan risk rating process, in particular debt service coverage. Therefore, we initiated a project during 2019 to review and re-grade all loans under this revised methodology. The shift in factory utilization, that’s what it was, it’s not credit deterioration is what drove most of the changes in the loan risk ratings and associated criticized and classified loan levels that we experienced the last few quarters. We have now completed the majority of this re-grading project, we have gone through all loans greater than $1 million and within criticized and classified, as well as two great levels above criticized and this is reflected in our fourth quarter results. For the quarter ending December 31, 2019, our criticized and classified loan to total loans ratio was 2.17%, which included approximately $31 million of criticized and classified loans from Old Line that declined 7 basis points sequentially from the third quarter and is still favorable when compared to the average of all banks with total assets between $10 billion and $25 billion. During the first quarter of 2020, we will apply the same revised methodology to the larger Old Line ones, and going forward, we will be utilizing the new methodology during the normal course of business. I’d like to personally welcome the customers and employees of Old Line into the WesBanco family. In addition to maintaining strong commitment to customer service and community banking, I am excited about our opportunities in the Mid-Atlantic market as we work to build on Old Line’s market presence and enhance customer relationships through new and expanded products and services. I am thrilled to have the Old Line employees as part of our new Mid-Atlantic market and I look forward to the longer term benefits of this merger. We celebrate our 150th Anniversary this year as an emerging regional financial institution ready to compete, not only in the Midwest, but also in the Mid-South, and the Mid-Atlantic markets. We have the markets, the employees, the products and the infrastructure to continue our evolution as a company. Now we are ready to take your questions. Rocco, would you please review the instructions.

Yes, sir. [Operator Instructions] Today’s first question comes from Casey Whitman of Piper Sandler. Please go ahead.

Good morning.

Good morning, Casey.

First question, I just wanted to touch on the swap income you guys got this quarter. Was that higher volume just a function of demand this quarter or was there something else that play in and just what do you think about the sustainability of those fees?

Yeah. It’s all driven by obviously the shape of the yield curve and there is a lot of demand out there on the part of customers. So it is a little bit bumpy quarter-to-quarter based upon the size of loans and whether it’s swap or a variable rate or fixed rate or whatever the case might be. But we have been seeing some nice trends with that and we are just introducing it into the Mid-Atlantic market now, actually it was out on calls last week with some of their lenders and some of their borrowers are utilizing swaps, but that’s not something that Old Line has offered in the past. So we think we have got some opportunity there as well. But it is going to move around a lot based upon the shape to yield curve, right now, it’s in a pretty positive area.

There also was a positive fair value adjustment associated with the existing book of sweeps -- swaps in addition to the higher fees for the quarter as compared to the prior quarter, Casey.

How big was that, Bob, the fair value adjustment?

It was $500,000. So and that was a negative adjustment in the third quarter due to the yield curve shape at that time.

Got it. Thank you. And then, Bob, maybe help us out a little bit with the expenses. So the growth this quarter was maybe a little more than I was thinking, and as you mentioned, you got the FDIC expense, some marketing expenses, annual merit increases. I guess, how should we think about a good range for the quarterly run rate for expenses once we have got the majority of the Old Line cost saves realized, so as we look at like the back half of 2020 or maybe if you don’t want to give a range just how should we think about maybe where the efficiency ratio kind of lands then?

Well, we have given prior guidance on the efficiency ratio being above the historical rate because of Durbin and I think with the margin being down last year, there is some adjustment to the efficiency ratio there as well. So I think that fourth quarter run rate for the efficiency ratio until we begin getting our cost savings is good for now, as we start the New Year. In terms of dollars, we spent some time analyzing both the third quarter run rate, as well as the fourth quarter run rate. And as is my want, I made some adjustments that you could either agree with or not, but we had -- I called out the deferred comp adjustment, which was different in the fourth quarter as compared to the third quarter. I think we were showing additional marketing expense in the fourth quarter. That’s probably going to run rate higher as compared to the total 2018 and so the amount you see there in the fourth quarter is probably a fair run rate, maybe a little bit less for 2020 as we did advance some customer surveys and market research work in the fourth quarter, so that’s item two. And then additional incentive comp, we adjust in the fourth quarter as we are going to provide an adjustment for our non-officer employees this quarter and so when you add all those items off and then you do a difference calculation on the FDIC, we come up with somewhere around $74 million in the fourth quarter for our own expenses. And Old Line has been relatively consistent at around $14 million for the last two quarters to three quarters. And so that basically puts you at $88 million to $88.5 million and [Technically Difficulty] New Year, with higher accruals and payroll taxes, in the first quarter, adjust for the day count and a couple of other minor savings. And so you kind of start the year just under $90 million, you get some cost savings beginning in the second quarter and as we have typically said in the past and as I have guided in the script, the second quarter is when we start our annual officer increases with the non-exempt then following in the third quarter. So there is that run rate difference as we proceed through the year. And so you are starting the year at around $89 million to $90 million and are consistent with that in the second quarter adjusted for the day count. And then the third quarters and the fourth quarters are slightly higher because of those aforementioned merit increases for the teams. I don’t know if that’s helpful or not.

No. It is. Sorry, in the second quarter you should see a slight decline though from the cost saves coming in from the $89 million or so in the first quarter, correct?

That’s right. You could see a slight decline in the second quarter as compared to the first quarter run rate.

Yeah.

But you do have an extra day in the second quarter as compared to the first even with leap year in the first. So, and as mentioned, the salary increases start basically in the middle of May for the officers, so there’s half the quarter.

Okay. Very helpful. I will let someone else jump on. Thank you.

Thank you.

And our next question today comes from Brody Preston of Stephens, Inc. Please go ahead.

Good morning, everyone. How are you?

Good morning, Brody.

Hey. Bob, I just want to follow up on the expenses real quick, I guess, just taking all your comments that you just provided Casey, it sounds like all-in, we should expect expenses to sort of bounce around between $88 million to $90 million per quarter through 2020, is that fair?

Yeah. A little bit higher in the back half of the year, but I do have 75% of cost savings in by the end of the year. So that number has -- to get there that number has been decreased by a total of about $13 million of cost savings related to Old Line and then the rest of it would be in 2021.

Okay. So, I guess, as I think about the run rate heading into 2021, is it -- I guess, that’s above or below $88 million per quarter?

For ‘21?

Yeah. Heading into ‘21.

So, I haven’t -- I don’t have that in front of me, but I have in the second half this year between $91 million and $92 million after typical midyear salary increases and stock compensation awards.

Okay. All right. Thank you very much for that.

And then I guided to the higher marketing for the 2021 year and you have got to put in a normal run rate on FDIC insurance for the year as well. That’s the guidance. I am just re-emphasizing those two factors as being different from 2019.

Okay.

I guess, I am telling you that for ‘20 but that’s run rate for ‘21.

Right. Okay. I guess, just real quick on the loan book, could you remind us what percent of the loan portfolio is tied to one month LIBOR and what percentage is tied to prime?

The loan book is -- this is all our loan book, I don’t have Old Line share. I can tell you, Old Line’s is primarily fixed rate and so it will reduce our asset sensitivity. We just don’t have the books combined yet on an instrument by instrument level. So I have had -- bear with me, but 30% of our portfolio -- commercial portfolio is fixed and 70% is variable. And of the variable, 48% re-prices less than three months and so that’s a proxy for both prime and LIBOR adjustment.

Okay. All right.

Okay? I can give you the whole book, but I think you are primarily interested in the commercial.

Yeah. That’s right. I guess, as I look at the loan yield this quarter 4.75% and think about the run rate moving forward. Just wanted to get a sense for what new origination yields were across the footprint?

So we have loans -- over the course of the year, loans paid off at a 4.97% rate, new loans came on to a 4.33%. So that gives you some idea where we ended up the year.

Okay. And then just thinking about the CD book, CD costs were down a little bit more than what I would have expected just given the higher cost nature of the Old Line portfolio. I just wanted to get a sense for what drove that and what current offerings are in legacy markets and in the newly acquired Old Line markets?

Yeah. I will start and Bob can add to that as well. But, yeah, part of what we are doing is kind of managing the loan to deposit ratio with the deposit flow, right? So we are about 93% -- 93.3% at the end of the year on the deposit ratio. So we still got a little bit of room to grow at the end of the year two of pretty robust loan growth, which hopefully we are going to get out of our legacy footprint in our acquisitions here in the next couple of years and our low-to-mid single-digit loan growth. If we did that and didn’t significantly grow deposits, that start pushing the mid to upper mid loan to deposit ratio. What we are seeing so far is in the Old Line book, we want to make sure that we are taking care of some of the strategic customers that they have got as well too. But, overall, we are not offering the kind of deposit rates that were being offered prior to the acquisition on CDs. So that is starting to have an impact. I don’t know what that’s going to do volume wise, but it will start having an impact on the margin to some degree, as Bob has talked about previously. So we are going to watch it on a monthly basis and one of nice things we have with our legacy footprint because of so deposit rich and we haven’t had to do a whole lot to try to generate deposits there. As I go a couple of years out and need to raise deposits, we can do so in our legacy footprint, I think fairly easily without having to do at a high-cost markets to raise deposits, because we have got still some relatively low cost deposit markets that we can use to raise deposits to continue to fund the bank long-term. So we are reducing CD rates in the Mid-Atlantic market across the Board that means selective with regard to some key customers.

Okay. And then, as I think about CD growth moving forward sort of taking your comments about being cognizant of the loan to deposit ratio and thinking about the run-off of some of those higher cost, Mid-Atlantic CDs, how do you sort of -- what’s the outlook for CD growth as we head forward into 2020, is it flattish or do you expect to see some low single-digit growth in that portfolio?

Yeah. That’s a great question. We have been able to hold off trying to, I guess, I’d say, stabilize or grow the CD book because we haven’t had to. There will be a date and time where we will probably need to do that although we will continue to focus on growing demand deposits and still 50% of our book post merger is demand deposits. We realize that at some point, we may need to raise some CD rates in order to fund our loan growth. One of the interesting things about doing that is it’s -- when you go into some of our legacy footprint and you go out there with a higher CD rate, you are going to price a lot of your existing book and your existing deposits that aren’t in CDs. So it’s not a matter of raising deposit rates a little bit on the CD side, it cost you more on the interest rates for the interest expense. It will cost you more than just the amount of the increase in the CD rate because again you are going to cannibalize some existing deposits that are going to start rolling into that. So that’s why we have kind of resisted it and used Federal Home Loan Bank, a little bit more, even though some of the CD rates might be a little bit lower at times then you would be able to get from the Federal Home Loan Bank. Federal Home Loan Bank, you don’t have to re-price a big chunk of your book by changing your interest rates. You are going to change your interest rates on deposits, again, you risk cannibalizing your existing book. So we are going to kind of balance that based upon the loan to deposit ratio, and I would say, once we get to mid to upper 90s on the loan to deposit ratio, then I think, we are going to start getting more aggressive on the CD side and we will pick the markets we want to do that in. The markets where I think we can generate a lot of deposit growth without maybe having a significant market share in that market, that way then we can attract deposits in, but not re-price the book in that market.

Okay. And then one last question from me, it’s a bit of a two-part about the day one CECL update, Bob. Just wanted to ask, is it fair to say that the delta between the 3Q guidance and the 4Q guidance is due primarily to include an Old Line in the analysis?

Yes. That’s exactly what it is. I have done some analysis on there. And yet, what you have to keep in mind is that, they are coming on with a zero reserve. So because in purchase accounting we are eliminating there basically $8 million to $9 million existing allowance. So you are starting from scratch if you will and the bulk of their loans are the good book clients, so there is a doubling up impact there between the credit mark of about 1% and the initial allowance. So there is about a $17 million addition to our guidance at the end of the third quarter. The increase for WesBanco alone is about little bit less than $10 million and the increase for Old Line is about $17 million. And yet what I am done with that, reflecting the quality of the Old Line portfolio, they are coming on at basically 71 basis points while our number would be 81 basis points. So the delta is just because of Old Line and because you are starting from zero there as opposed to having an existing $52 million reserve at legacy WesBanco. Is that helpful?

Yeah. That’s helpful. As I think about the entirety -- the entire company though, it sounds like $7 million is a bit of a true-up from a credit mark perspective and shifting it to the reserve bucket. But just with the other acquisitions, just wanted to get a sense for what the total dollar amount was in that increase in the reserve that was coming from credit marks versus an originated perspective?

Well, the bulk of the increase in WesBanco only, which is as I said, between $8 million and $10 million is all due to prior acquisitions, where you don’t have -- there is only about $4 million of that $52 million related to prior reserves or prior acquisitions and those are just reserves that have been booked after the acquisition on those loans. So you are adding between $8 million and $10 million. It’s actually a reduction in legacy WesBanco, I don’t have that memorized and an increase in the five or so prior acquisitions in the last few years that we have done prior to Old Line. And you could probably think about that the total amount again for WesBanco is $8 million to $10 million, all of that is related to prior deals, but because it’s a negative amount for legacy WesBanco and a slightly higher amount for the acquisition, it’s probably more like of that, let’s call it $10 million, be more like $15 million for the prior acquisitions and minus $5 million for legacy WesBanco. That’s probably throwing around too many numbers, but the thought is similar to Old Line in that, what you are adding for CECL is related to the good book of the acquired acquisitions that basically don’t have any significant reserves that have been built up since their acquisition date.

And today’s next question comes from Catherine Mealor of KBW. Please go ahead.

Thanks. Good morning.

Hi. Good morning.

All right. I don’t mean to beat a dead horse but I just wanted to circle back to the expense guidance to make sure I am thinking about this right. So we are coming into this quarter excluding Old Line at about a $74 million expense base.

Right.

And then Old Line has about 14.5% pre-cost savings and then, if we assume -- and remind me Old Line had about 30% cost savings, is that right?

Right. That’s what we spent.

Okay.

That’s capital.

So then if I do 30% of that 14.5% and then only realized 75% of that, maybe let’s just say, by the end of this year then on adding about $11.4 million to that $74 million base, which gets me to about $85 million. So why would we not be ending the year at about an $85 million quarterly expense run rate versus the $88 million to $90 million that you mentioned?

Well, absent to any core efficiencies on the WesBanco side, which we will have. What I was guiding to was the earlier changes you have in the $74 million run rate, you will have higher FDIC insurance next year then the run rate in the third and fourth quarters, excluding the credits, right, just based upon the higher size, the organization and risk factor changes in the calculation. And you will have the mid-year salary increases that typically for us are in the 3% to 3.5% range, plus stock compensation. Those are the major changes that would increase the core growth rate higher as we proceed through the year, Catherine.

Okay.

And there’s about, as I said, about $13 million of cost savings factored into my model to get to that run rate on a quarterly basis.

Okay. So the $85 million is too low so we really need to keep -- you are saying, if we need to keep operating expenses in the high 80s then for the full year we have got expenses in like the $350 million range, which would -- is about $10 million to $12 million higher than where our consensus is right now. Does that feel right?

It does to me. I am not saying consensus is right or wrong. I am just saying this is what our build is.

Okay. All right. So, sort of what was dry -- so you started ‘19 at an expense range of kind of more in the 71%, 72% range. Just from a core basis what’s been driving maybe the underlying growth, higher than perhaps we expected? Have there been more higher than it was appreciated or regulatory kind of cost?

Certainly, as you go over $10 billion there are higher regulatory costs. We have been building risk management, BSA, AML and other compliance related teams of individuals to meet regulatory expectations. But as I hinted as well in my script related to Mid-Atlantic market, we would have done this in Kentucky in 2019 adding revenue producers, they take a while to produce bottomline net income, so that would be the wealth management staff that we have hired in some additional commercial lenders.

Okay. That’s helpful. And then maybe circling back on the margin, I think, as we were thinking about Old Line coming on a core basis, let’s just strip out accretable yield, but as we bring on Old Line, I think we had thought about Old Line being NIM enhancing, just given their asset sensitive and the ability to maybe bring down some of their deposit cost. So has anything changed since then or do you still believe that there is upside to the core margin as you kind of put these two balance sheets together and realize some those enhancements?

So there was actually 1 basis point or 2 basis point of core margin expansion in the month of December, which with the model as well showing that the first quarter starts us off a couple of bps higher and then drifts from there, Catherine. So, first of all, lot of loan accretion will come down slowly over three-year to four-year timeframe, the CD accretion comes down very fast. In fact there will be a significant portion of that recognized in the first half of the year and more than 50% of the total accretion recognized by the end of the year. So that purchase accounting number which starts the year at 22 basis points is expected to end the year at 14 basis points. We are also experiencing lower accretion from the prior acquisitions. They are down on the core a couple of basis points here to start the New Year. Core -- I am sorry, they are down relative to purchase accounting, I shouldn’t confuse the word core with that, but they are down a couple of basis points the prior acquisitions are.

Okay. But just all else equal, you think a more stable core margin in the low 330s [ph] is appropriate.

Yes. Without a back -- if you -- we have one cut in midyear, so that produces a reduction in our model. But if you don’t believe -- KBW has one cut as well, but if you don’t think that then the stable core margin is what I said in my comments and reaffirm and that’s the 330s, yeah.

All right. Great. Thank you.

Our next question today comes from Steve Moss of B. Riley FBR. Please go ahead.

Good morning, guys.

Good morning, Steve.

Just one thing on the margin here, in particular just on the Federal Home Loan Bank borrowing costs, they seemed a little bit high for the quarter to me and I was just wondering when does that re-price lower?

Well, our $1.4 billion in [inaudible] advances, two-thirds of that re-price is in 2020. There are still are some 220s, 240s in there of one year or less, as well as some 18-month and two-year CDs that will re-price this year that’s factored into our model currently. And so that you just take a look here the Federal Home Loan Bank should come down next year. As we proceed through the year, starting the year in the low 220s and ending up the year just under 2%. Is that -- I don’t -- sure if you are looking at the total interest expense, which is influenced by volume in addition to rate or you just request…

Just the average balance sheet with the 243 rate caught my eye, so that’s where I was going. So, that was helpful, Bob. And then in terms of the buyback here, tangible capital around, call it 10%? I am just wondering any updated thoughts on targeted capital, your appetite for the buyback here. I mean, obviously, I hear subject to market conditions, but kind of curious for a little more color?

Yeah. Historically, we have kind of used our capital for acquisitions, dividends and buybacks obviously with Old Line and some of the prior acquisitions we want to stimulate those 2020 is all about Old Line. So when you look at kind of the acquisition piece of that being a couple of years out that really heightens the other uses of capital, because we are building capital fairly, fairly quickly, so that at least the buybacks in the dividends. So with 2.5 million shares left remaining in, I guess, our total in terms of authorizations, we are going to be continuing to utilize that opportunistically as we feel needed. But it’s not something we have done a lot here over the last few years, but given the capital position and the fact that we are on the sidelines for M&A perspective for a little bit, we think that’s an appropriate use, which is why we got the authorization increased.

So in terms of just thinking about that tangible common equity ratio, do you think it’s more likely to head towards 9%, 9.5% or keep it steady around 10% as we think about throughout the year here?

Yeah. I would tend to say, I said a couple of years ago, I was happy in kind of the mid-8%s, but I would tell you that in 9% to 10% in that range, because we are continuing to build it, but offsetting that will be, will be the buyback, so you will -- obviously 9% to 10%.

Okay. That’s helpful. And then just on the, I mean, credit was good, but in terms of the charge-offs for a specific reserve loans, just wondering what types of loans were charged off and any color you can give there?

Well, they are all from prior acquisitions. One is in the Nursing Home business and they are basically commercial real estate, not C&I.

And there were three during the quarter, and again, it’s interesting because you get your own questions, tenant working through when you see questions around an increase in charge-offs 20 basis points we have been a lot lower than that. The key important thing to remember here is that these were already had specific reserves, right? So the charge-off amount was already identified and reserved for. So that’s why you had the release, but the charge-off number being -- these weren’t surprises. The dollar amount wasn’t surprising. I kind of don’t like the fact that accounting treats them as charge-offs because from my perspective, it’s kind of a, that gives you misleading look at it, but it’s just the way the accounting has to work in a way the accounting has to show. But there were specific reserves allocated to these that were then just covered the charge-off amount. We don’t expect that to be any kind of repeatable on a regular basis. I think what you have seen with us overall, I think, was like, we had 9 basis points of charge-offs in the last year. I guess maybe 6 basis points the year before and I think our trends will continue to be -- should be well below the industry based on what we see right now, but it was a little bit of a noisy quarter because of those three, that paid off.

Okay.

$0.8 million of the plus $4 million net charge-offs numbers related to those three credits Steve, as we said in the script.

All right. Thank you very much. I appreciate that.

Sure.

And our next question today comes from Russell Gunther of D.A. Davidson. Please go ahead.

Hey. Good morning, guys.

Good morning, Russell.

A couple of quick follow-ups here, the first you -- so I’d start by saying I appreciate all the color on the expense glide path. You also commented you guys continuously strive for positive operating leverage. So tying all of that together, is that something that you anticipate being able to achieve for 2020 that core efficiency ratio ending the year lower than the 2019 result?

Yeah. I would say, one of the things that we continue to do is continue to optimize our branch network as well too. I mean, we have closed 15 branches in the last three years since January 2017, roughly 7% or so of our franchise. We are looking real hard at that in terms of our branch infrastructure obviously having 237 branches on a $15 billion bank is a lot of branches, but we benefit from a lot of rural areas where we have got branch deposits and things like that. So we are evaluating that. We are looking at all of that. But I am very strongly want us to during we can to maintain a positive operating leverage, not just because we are doing M&A, I mean, M&A by its very nature is going to generate positive operating leverage, but outside of that from an organic perspective, it’s something that we really look hard. So we are looking hard at the expense side of the branch optimization piece of it and then, also the key is, I think particularly with Old Line is to not hit any bumps on the revenue production side as we finish the conversion and move forward with them and so far that looks really good and we are getting a nice lift from some of our prior acquisitions now, as well as well too. It takes a year or two to kind of assimilate them through before you start seeing growth. I don’t think that will happen with Old Line but that has been the case with our prior acquisitions. But I am still very much believe in positive operating leverage and on a long-term basis, we think that’s very important to us and have an efficiency ratio that’s something we can be proud of even though it’s impacted a little bit by Durbin right now and the margin had a big impact on everybody’s efficiency ratio last year. So you kind of everybody had to level set to a new level.

Got it. Okay. Thank you, Todd. Appreciate it. And you kind of touched on my final comment which or question circling back to the loan growth expectations you guys laid out. I am just wondering if you could parse it a little bit in terms of sort of growth expectations within the newer Mid-Atlantic footprint and what that would then imply for some of the legacy markets and growth rates there?

Yeah. I mean, I look at the loan growth, overall, we had from, obviously, 1% organic loan growth but that’s with those heavy payoffs right, things go into the secondary market and over $200 million in the fourth quarter. So if you were to just use more of a normalized rate for that, you would be looking at around 3% low-to-mid single-digit growth rate. But those large commercial real estate payoffs, we think that trend is going to continue at least for the first half of this year. But when I look at the momentum that I feel we have got at Old Line and just our production, overall, I think is very good, we did $1.6 billion in production last year, which is a 40% increase over and above the year before. So from a production standpoint, I don’t see it being a big issue at all from a C&I perspective, we are up 5.9% year-over-year on an annualized growth rate. So we are getting that mid single-digit growth rate in C&I. It’s just -- the things that are going to the secondary market that’s a big headwind for everybody. So when I look at Old Line’s portfolio, obviously, it’s heavily real estate oriented. So they are going to have things going into the secondary market. They are going to continue to have those headwinds as well, but we have got a lot of growth opportunities. I think what really matters is, when does the slowdown in things going into the secondary market occur. When do the rate scenario get to the point or when is the marketplace get to the point where everything that’s going to go to the secondary market or the majority of it has actually gone to the secondary market. So you don’t see that…

And the pipelines for both commercial and resi are up over 50% from where they were at the end of 2018. So that’s helpful as well.

That’s very helpful. Thank you both. That’s it for me.

Sure.

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

Great. I appreciate the time everyone has today and it was a noisy quarter, the acquisition, we got a lot of stuff going on and with CECL and everything else, but hoping to get a chance to see a number of you at some upcoming visits. We got a pre-packed scheduled over the next few months in terms of being on the road doing investor visits. I want to thank you for joining us today, and again, look forward to seeing you in the future. Thanks, everyone.

Thank you. Today’s conference has now concluded. We thank you all for attending today’s presentation. You may now disconnect your lines.