Good morning and welcome to the WesBanco Fourth Quarter 2021 earnings conference call. All participants will be in listen-only mode. . After today's presentation, there will be an opportunity to ask questions. . We ask that you limit yourself to two or three questions. If you have additional questions, you may re-enter the question queue. Please note this event is being recorded. I would now like to turn the conference over to John Iannone, Senior Vice President of Investor Relations. Please go ahead.

Thank you. Good morning and welcome to WesBanco, Inc.'s Fourth Quarter 2021 Earnings Conference Call. Leading the call today are Todd Clossin, President and Chief Executive Officer, and Dan Weiss, Executive Vice President and Chief Financial Officer. Today's call, an archive of which will be available on our website for one year, contains forward-looking information. Cautionary statements about this information and reconciliations of non - GAAP measures are included in our earnings-related materials issued yesterday afternoon, as well as our other SEC filings and investor material. These materials are available on the Investor Relations section of our website, WesBanco.com. All statements speak only as of January 26, 2022 the WesBanco undertakes no obligation to update them. I would now like to turn the call over to Todd. Todd?

Thank you, John. And good morning, everyone. On today's call, we'll review our results for the fourth quarter of 2021, and provide an update on our operations and 2022 outlook. Key takeaways from the call today are: WesBanco remains a well-capitalized financial institution with solid liquidity, strong balance sheet, and solid credit quality; we're committed to expense management while continuing to make appropriate investments, including strategic hires across our organization and markets to enhance our ability to leverage growth opportunities; and we remain well-positioned for continued success, and are excited about our growth opportunities for the upcoming year. WesBanco had another successful year during 2021, as we remain focused on ensuring a strong organization for our shareholders, and continue to appropriately return capital to them through both long-term, sustainable earnings growth, and effective capital management. Through the successful execution of our well-defined strategies, we generated solid annual net income, as well as pretax, pre-provision earnings, while remaining well-capitalized financial institution with a strong balance sheet and solid credit quality. For the quarter ending December 30, 2021, we reported net income available to common shareholders of $51.8 million, and diluted earnings per share of $0.82 when excluding after-tax merger and restructuring charges. On the same basis for the full year, we reported net income available to common shareholders of $237.4 million and diluted earnings per share of $3.62 and strong returns on average assets and average tangible equity of 1.4% and 15.22% respectively. Further, reflecting our strong legacy of credit and risk management, our key credit quality ratios remained at low levels and our regulatory capital ratios remained well above the applicable well-capitalized standards, as well as remaining comparable or favorable to peer bank averages. Throughout 2021, we accomplished several milestones and continued to receive numerous national accolades that resulted from…

Thanks, Todd. And good morning. During the year we recognized record trust assets, record mortgage production, and record demand deposit levels, while maintaining our disciplined expense management posture. We continued to make important growth-oriented investments and experienced improvements in the reserve for both macroeconomic forecasts, and qualitative adjustments. While the continued low interest rate environment and excess liquidity negatively impacted our margin, we are optimistic about the future direction of rates, and loan growth opportunities ahead. As noted in yesterday's earnings release, we reported improved GAAP, net income available to common shareholders of $51.6 million, and earnings per diluted share of $0.82 for the fourth quarter of 2021. Excluding restructuring and merger-related charges, results were also $0.82 per share for the quarter as compared to $0.76 last year. For the 12 months ended, December 31, 2021, we reported GAAP net income available to common shareholders of $232.1 million and earnings per diluted share of $3.53. Excluding restructuring and merger-related charges, results were $237.4 million or $3.62 per share for the current year-to-date period as compared to $127.1 million or $1.88 per share last year. Total assets of $16.9 billion as of December 31, 2021 included total portfolio loans of $9.7 billion and total securities of $4.0 billion. Total securities increased 48.1% year-over-year, due mainly to excess liquidity related to higher customer cash balances from various government stimulus programs and higher personal savings. Loan balances for the fourth quarter of 2021 reflected the continuation of both PPP loan forgiveness and elevated commercial real estate payoffs. PPP loan balances in the fourth quarter declined $109 million with just under $163 million remaining. And we recognized $4.3 million in accretion for the quarter with $6.1 million of accretion remaining. Commercial real estate payoffs during the fourth quarter totaled $160 million, which remained above…

We will now begin the question-and-answer session. . We ask that you limit yourself to two or three questions. If you have additional questions, you may re-enter the queue. . The first question comes from Russell Gunther of D.A. Davidson. Please go ahead.

Hey, good morning, guys.

Good morning, Russell.

Morning.

Could we start on the margin outlook, please? I appreciate the thoughts in terms of core trends until the Fed begins to move. But could you guys take a stab at quantifying the impact from each of those 25 basis point hikes you anticipate? And if you could touch on deposit data assumptions, that would be really helpful. Thank you.

Sure. Sure. Glad to do that. Dan, you want handle the margin question?

Sure Todd. Yes, so obviously we are an asset sensitive bank and we expect to benefit from a rising rate environment due to our asset sensitivity, as well as our historical lower Betas. Just to put some of this into perspective, we're holding about 7.5% right now of cash on the balance sheet that will reprice immediately. Also about 65% of our commercial portfolio is variable, and about 30% or so of that variable will reprice as well immediately. So there's some benefit there, certainly on the front end. We've also got about $1.6 billion of loans that are currently priced at their floors. The average floor is right around 3.83%. And about 75% of that would re-price with three rate increases. 25% of that reprices with the first rate increase. As it relates to betas we saw back in 2018 when rates increase the last time, we maintained a much lower beta than our peers. Generally speaking, it was sub 20%. And today, I would say with cost of deposits being 13 basis points, just eight basis points when including non-interest-bearing deposits, and with a loan-to-deposit ratio of about 73%, excess balance sheet liquidity cash representing about 7.5% of our balance sheet, I think there's a lot of runway to allow deposit rates to continue at their current levels. Really, I hope that answers the question.

Yes, no, very comprehensive. I appreciate it. And then, just switching gears for my follow-up to the expense side of things. Commentary there is up modestly from the 4Q run rate. Does that anticipate any action from an expense initiative perspective, whether that's additional branch rationalization beyond what you've done the last 12 months? Is there anything to do there and if not, could you just help ring-fence what that GAAP up could be from current levels?

Sure. I'd be glad to answer that. We do have additional branch optimization strategies. We're continuously looking at rationalizing the branch network. We made a big announcement, I think for us, I guess in the third quarter last year when we said we were going to do 20 or 25 and we did that. I would say we're looking at another 10 or so branches that we would probably rationalize here over the next quarter or two. We're not making big announcements about putting names on it, all that kind of stuff. It's just something we do in the ordinary course of business. So we would expect another probably 10 or so branches to be consolidated as the year progresses and we identify those.

Great. Thanks for taking my questions, guys.

Sure.

The next question is from Casey Whitman of Piper Sandler, please go ahead.

Hey, good morning.

Hi, Casey.

Morning.

Sorry if I missed this in your prepared remarks. Did you guys given outlook for loan growth over the next couple of quarters, years? I'm sorry if I missed it.

No, we didn't. When I think our long-term trend is still mid-upper single-digit, that's what we'd like to be. I think we see that the trends heading in the right direction. I mean, the pipeline trends are up quite a bit. Actually they are up a little bit over, pipeline is a little bit over 20% bigger now than it was at the end of the year. So nice movement in the last month. The commercial real estate loans, as we're going to the secondary market, has slowed considerably. I would expect that to continue to slow this quarter, still be maybe a little bit elevated from our historical run rate, but probably improved over the fourth quarter. I think that, coupled with some of our strategies to retain some of those commercial real estate loans rather than just let them go to the secondary market, try to retain some of those within our risk standards for a period of time. If you look at all that together, coupled with I just think the continued economic recovery, while not a straight line, it's generally moving in the right direction. We would expect to get positive trends on the loan side given those actions. And also our recruiting efforts as well, too. I think as we get later in the year, we'll see that. It's hard to predict. We're going to give other guidance anyway over the next couple of quarters because it's based upon things that haven't happened yet, but feel relatively good about the things that are going on. And I think the key here too is working really hard to stay within our risk parameters. We had $200 million in the fourth quarter of solid credit tenant loans that we passed on, that just were out-of-footprint, west to the Mississippi type of things, that were good loans. If we had done those, that would've been 5% loan growth, but that just doesn't fit with our risk parameters. So we passed on them, because I think we want to make sure that we're doing the right things long-term for the company and not reacting to a quarterly number, but you don't want a $10 billion balance sheet. It doesn't take many loans to move the number from a 1/2% negative to a 1/2% positive, I mean, it's two or three decisions. So we feel like we're right where we need to be, but would anticipate loan growth materializing as we get later in the year, and we're focused on it. We know that's the key question people have with regard to WesBanco.

As we look at the elevated pay downs, which I appreciate have come down, are you seeing any big differences across various markets or other certain markets that stood out for the paydowns?

I would say, no. Most of our real estate that would go to the secondary market are in our urban areas, so that's where the bigger projects are as opposed to our -- the rural parts of our footprint. But it would be Louisville, Lexington, Columbus, Cincinnati, Pittsburgh, and then the Mid-Atlantic markets. That's where we would typically see the paydowns occurring. And I think as rates are backing up a little bit, are going up a little bit. I think that'll maybe keeps the things have been going to the secondary market, and also just the nature of the mix of the portfolio. I mean, had heavy paydowns last year, so at some point that reached that balanced threshold where that which is going to go to the market went. And I think we pulled a lot forward into last year in terms of things go into the secondary market early. Secondary market is still aggressive. I did some research with our head of commercial real estate before this call and asked him what he's seeing out there in the secondary and he saw they're getting aggressive. They're fighting back, their rates going up, they're reducing the margin that they're accepting. So we're still battling the secondary market, but I think we're winning that battle. And I just think the metrics of the portfolio in the math works that, that which is going to leave has gone and we're continuing to originate construction loans and the pipeline there looks pretty good too.

Okay. Thanks for taking my questions. I'll will write some notes upon.

Sure. Thank you.

The next question is from Broderick Preston of Stephens. Please go ahead.

Hey, good morning, everyone.

Hi, Brody.

Good morning.

And Dan, nice to have you on the range for the first call.

Good to be here.

So I guess I just wanted to circle back, Todd, on the loan growth commentary. I think, correct me if I'm wrong, but you said that the pipeline is 20% bigger today than it was at year-end. Is that correct?

Yes. I think that's like $580 million up to $700 million.

Okay. Can you give us a sense for what the pipeline looks like in terms of C&I mix versus CRE? Just because I know CRE pre-payments and paydowns have done a bit of a drag.

I think pretty balanced, and probably a representative of our portfolio as a whole. We got 15% to 20% of our portfolio as CNI and then a good chunk is real estate. I think the pipeline is somewhat representative of that. It's granular and it's across all markets, so I think that's a real positive, what we're seeing. I can't see any of our markets that are outliers in terms of having issues or challenges or anything like that. They all seem to be doing okay. And impacted a little bit with aggressiveness, I think on the people borrowing on their C&I lines still so it's a little bit depressed, just the supply chain issues and things like that. But I really see that improving as we get later in the year. And hopefully, we'd get back to a more normalized level of line usage. Now, that's not showing up in the pipeline, obviously, those are existing loans that are on the books that would just be used. But the pipeline, I would expect it to continue to build as we get later in the year as well too. I mean, we've got some campaigns out there we had in the fourth-quarter to generate additional loan volume. Our lenders are back out on the streets meeting with customers. We're continuing to recruit lenders, I've got interviews later today myself, for additional lenders in the franchise and we had talked about LPOs that are close to markets that we're in now like on Nashville or Northern Virginia. We already got a residential mortgage lending team in Northern Virginia. So, we're continuing to move forward on those things. They take a quarter or two to materialize. But I think that in and of itself will build the pipeline as well.

Understood. Understood. Then maybe just on securities, you guys continue to have success on deposits and the cash continues to grow on balance sheet. You're a little bit more aggressive earlier in the year on securities purchases. Where do you envision securities growth from here just given all the excess liquidity?

Yeah. I mean, we're around 24% or so for the balance sheet to be in securities. And we think that's probably a good range to look at. We're not looking at building a big securities book here, and even this low rate environment that we're in. But that's one of the reasons why we put more of the resi portfolio on our balance sheet in the last quarter or so is because it's our credit. We underwrote it, we understand it, but we want to use some of that liquidity as well, too. I think we'll keep the powder dry with the expectation that we would get loan growth that would eat that up. But I also at the same time don't see us taking the securities portfolio down significantly. I think our team has done a pretty good job of when they can get a little bit of yield without taking too much duration risk. They'll take advantage of that. But I'd put us in the cautious camp with regard to wanting to deploy a lot of cash into securities right now. I think we'll run it a loan to deposit ratio that should get better. Obviously, within the course of the year through loan growth. But also with that low deposit beta that we have, I can't see anything in the near future that would cause us to raise deposit rates. We didn't raise deposit much of anything in 2018 and I can't even begin to think of when we would want to start considering raising deposit rates. So we'll have a lot of opportunity, I think, for margin improvement as rates go up. And then with net interest margin as balances go up, as rates go up, and I think that's going to be the key to our executing on that part of it that we can control this year.

Got it. Do you happen to know what the duration of the securities portfolio is? What percent of the book is floating rate?

Dan, do you have that available?

Yeah. Brody, the duration is 4 and 1/2 years, and the variable portion is approximately 17% of the portfolio, up to $700 million.

Okay. Then I guess, maybe I should've been a little bit more specific because I think a quarter on your book is HCM, so you know what the duration on the AFS portfolios?

Yeah. It's all in AFS, it's 17%.

No, the duration of the AFS portfolio.

My apologies. It's --

That's okay.

It's closer to 4.5%. It's right in line.

Okay.

HTM's a little longer, then AFS, but AFS is right around 4.5.

All right, and if I could sneak one more in, Todd, it was nice to see the deposit service charges starts to normalize this quarter. And so it's a bit of a two-part question. You all don't have big exposure to overdrafts at all. I think it's like, through the third quarter, at least it was about 0.6% of revenue. And so I guess with that not being much of a headwind, do you expect to see deposit service charges continue in a normalized back towards maybe 2019ish kind of levels and then separately? I know it's only a small portion, but are you doing anything on overdraft that we should be aware of to reduce that for your customers?

I think on just activity in general as you get more -- just economic activity, people out and about, and obviously as deposit balances would come down over time as well too, that generates additional service charges. But -- so we would expect it to continue to rise gradually over time just as the bank grows as well too. Specifically, with regard to overdraft charges, we continue to talk to our customers, survey our customers, look at trends that are going on in the industry, and try to just make sure that we're staying on top of value provided versus the cost and things like that. We continue to evaluate it. We don't have anything to announce with regard to that. We feel good about where we're at as a bank. And you're right, you highlighted it's not a big percentage of our earnings stream anyway, but it is something that we continue to monitor.

Thank you for taking my questions.

Sure.

The next question is from Steve Moss of B Riley, FBR. Please go ahead

Good morning.

Morning.

Maybe just in terms of -- on the reserve, I hear you guys in terms of just further reserve , just kind of curious as to how you guys are thinking about where the allowance to loans could bottom out overtime?

Sure. Dan, you want to handle that?

Sure, Todd. Yes, if we think about the reserve right now, we're at 1.27% excluding PPP loans. I would say that probably the absolute bottom would be where we started when we adopted CSL, which was 88 basis points, allowance coverage ratio there. If you recall, at that time, I believe, the unemployment forecasts for the next two years was right around 3.5% to 3.6% for the upcoming two years. So that's about is probably as good as it gets. When we adopted CSL 88 basis points, I would say that, dependent upon the recovery, dependent upon the COVID factors, dependent upon the higher -- some of the higher risk portfolios that we have and how they perform over the next year will really kind of determine where that -- where that lands. But there's certainly a downward trajectory and you obviously saw a pretty significant negative provision this quarter at $13.6 million compared to a negative $2 million in the third quarter. A lot of that is just the continued improvement that we're seeing at the borrower level in some of those higher risks portfolios. A lot of the financial metrics are just -- they are at, or near pre-pandemic levels which is really a great story. We're really -- the CSL model projects that momentum forward. So that's -- hopefully that answers the question there.

And I would add to that too. It kind of look at a year ago relative to peer group on reserve. I think we were five or 10 basis points higher than the peer group. And that's where we're at today. So everybody has different assumptions that happened during the course of the last year. I think we released a lot in the second quarter, not so much in the third, quite a bit in the fourth, but we all ended up in kind of the same spot. So the 125-127 that we're at today, we get surveys, appears, they're all around 1.2 or so, so we feel like we're right in line with that. And we were conservative, I guess nowhere conservative company and go back to a year -- two years ago actually now, when we start putting deferred loans out there. Remember we went out, we had 20%, 21% or 22%. The portfolio deferred because we were active, we went out there right away with our customers. I'm happy to say that, we don't really have much of anything on deferral anymore. I think we've got one or two loans, but that's it, everything's paying as agreed and come back really, really strong. We try to be conservative. You see that in our underwriting, you see that in how we approach our business. But from a reserve standpoint to we continue to see it moving lower. But who knows, if we get another variant to different things that happened, hopefully we don't get into a recession anytime soon. We don't anticipate those kind of things, so borrowing that, it should continue to trend lower, but I would imagine we would trend lower in line with the industry.

Okay. That's helpful. Just on M&A, Todd, just curious as to any updated thoughts you may have, has level of chatter going that versus a buyback here?

Sure. Sure. Yeah there was more activity, obviously people talking to each other and whatnot. I would tell you, I firmly focused on answering the organic growth story and organic growth question. We've acquired into other markets over the last six, seven, eight years. There were higher-growth markets and our legacy markets and we really want to emphasize the organic growth reasons behind doing that. So I really don't want to confuse that story by throwing a merger in the mix and all of a sudden. What does that do to your numbers for a year or two, because I feel like we've got a good story that we'll be able to execute on here over the next year or two. So I really want to stay focused on that. But having said that, we've got plenty of capital, we've also got our core upgrade that was done last year. I think we're positioned if the right thing came along, we could do it. But we're not looking for it, so we're not actively out there trying to find a deal. But if things come across the transom, I think we're prepared to take a look, but it sure isn't a priority for us at this point.

Okay. Thank you very much. Appreciate all the color.

Sure.

The next question is from Stuart Lotz of KBW. Please go ahead.

Hey, guys. Good morning.

Hi, Stuart.

Most of my questions have been asked, but just Todd, I wanted to circle back to your commentary on potential LPOs in Nashville. I'm Just curious, is that a conversation that has been the works for a while and maybe how far along are we with that? And outside of Northern Virginia, are there any other markets such as Charlotte or maybe Philadelphia that you would potentially look at for another team lift out or entrance-fee LPO?

We're really not looking too far, we're not going into those other markets because there are markets we don't really understand and they are kind of a waste away. I mean, I was President of Fifth Third's Nashville operation for several years, so I know the market to some degree. There is a lot of banks, I think, that are trying to establish LPOs in Nashville right now. It's early in the process. What we've done is we've engaged recruiting firms to help us in Nashville and Northern Virginia, in Indianapolis and Cleveland. Those are the markets that we're looking at. A lso, was president of a bank in Cleveland for a few years. It's mostly markets that we know and they're close to where we've been, historically. The markets that we could, someday, expand from an M&A standpoint in there. But the strategy isn't to develop a bunch of loan production offices. It's just to get to know our market a little bit better that we might think, longer-term, we could be a bigger player in. The bank did the same thing, 10, 12 years ago, with Pittsburgh. Established an LPO in Pittsburgh and then we ended up doing two acquisitions over the last ten years in Pittsburgh. So that's what's going to keep us kind of tight geographically to Nashville or to Indianapolis or Cleveland or Northern Virginia, because those are markets that we kind of view as really close to markets that we're already in. And so it's early, but this is also the right time to be talking to teams and individuals because they are about to get their payout. Everybody becomes a free agent for a period of time and are looking around, so we want to capitalize on that. Hopefully we'll have some more to talk about on that in the second quarter.

That's great color. And maybe just one more bigger picture profitability question. I appreciate the expense guidance for modest growth this year. As we think about -- if we start to see lower reserve releases, maybe inflecting core net interest income, where do you see your efficiency ratio trending from here? I think we are back above 60 for the first time in several quarters. And then maybe from a PP&R standpoint. Back in 2019 you were around 170 range, you're down to about 120 today, do you think we've reached a bottom from a core earnings standpoint there and -- or should we -- do you think about to wait for several rate hikes to really see meaningful improvement?

Yeah. I would say, with regard to the efficiency ratio, that's obviously dependent upon the shape of the yield curve. And we're all facing the same thing with regard to that. We want to see us a steepening of the yield curve. I would say on the efficiency ratio. We want to make sure we're in the top half or the best half of the industry. As you mentioned, we are above 50 we're into the 60 range. And I think that's because of the shape of the yield curve and to some degree loan growth as well too, so I would say top half of the industry is where we want to be. But I think the efficiency ratio is going to be determined a big degree based on things that we can't control or predict at this point in time. Those things that we can control, like our expenses, loan growth to some degree, and margin management, is where we'll focus, but I think 90% of what's going to drive the efficiency ratios is going to be -- maybe 80% is going to be based upon what happens to the yield curve over the next year or two. We'll try to make sure that we stay efficient clearly, but we want to be in the top half of the peer group.

Great. Thanks for taking my questions.

Sure. Thank you

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

Sure. Thank you. Overall, our earnings are good. Our Capital levels are good. Our liquidity is good, our expenses are good. I think we're making the right investments in technology and I think we're returning capital to our shareholders appropriately. We do agree organic loan growth is our challenge at this point, and we're addressing it. But we're going to do so while keeping within our historic risk profile, and I hope that's the message you got from us today. Again, I want to thank you for your time. Look forward to speaking with you in the near future at our upcoming investor events. Please stay safe and have a good day. Thank you.

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