Good morning and welcome to the WesBanco First Quarter 2024 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to John Iannone, Senior Vice President, Investor and Public Relations. Please go ahead.

Thank you. Good morning, and welcome to WesBanco, Inc's First Quarter 2024 Earnings Conference Call. Leading the call today are Jeff Jackson, 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 1 year, contains forward-looking information. Cautionary statements about this information and reconciliations of non-GAAP measures are included in our earnings-related materials issued yesterday afternoon as well as our other SEC filings and investor materials. These materials are available on the Investor Relations section of our website, wesbanco.com. All statements speak only as of April 24, 2024, and WesBanco undertakes no obligation to update them. I would now like to turn the call over to Jeff. Jeff?

Thanks, John, and good morning. On today's call, we will review our results for the first quarter of 2024 and provide an update on our operations and current 2024 outlook. Key takeaways from the call today are: continued strong deposit and loan growth combined with good progress on new fee income opportunities; a sustained focus on controlling discretionary costs. We remain well capitalized with solid credit quality and liquidity. Our first quarter results marked a strong start to 2024. We grew loans and deposits while smartly managing borrowings, controlling costs and advancing our efforts to diversify revenue streams and drive noninterest income growth. For the quarter ending March 31, 2023, we reported net income available to common shareholders of $33.2 million and diluted earnings per share of $0.56. Furthermore, the underlying strength of our financial performance is demonstrated by our return on average tangible common equity of 11%. Nonperforming assets to total assets of just 0.19%. And a capital position that continues to provide financial and operational flexibility as demonstrated by our tangible common equity ratio of 7.63%. The key story for the first quarter was our strong deposit growth that both funded loan growth and paid down borrowings on a sequential quarter basis. We reported deposit growth of 5% year-over-year and 10% quarter-over-quarter annualized across our business, consumer and public funds customers. This deposit growth funded both our loan growth and the 19% decrease in FHLB borrowings from the fourth quarter of 2023. We remain encouraged by the ability of our teams to grow our deposit base. First quarter loan growth was 9% year-over-year and 8% quarter-over-quarter annualized, which was again driven by our commercial and residential lending teams. Total commercial loans increased 9% year-over-year and 10% sequentially annualized, driven by our banker, hiring and loan production office strategies.…

Thanks, Jeff, and good morning. Just to highlight a few accomplishments. During the first quarter, we achieved strong loan growth of 8% annualized, grew deposits 10% annualized, which outpaced loan growth by almost $100 million, and paid down higher cost wholesale borrowings. We also grew fee revenue and managed expenses down $2.3 million on a linked quarter basis. We were pleased to demonstrate our ability to execute on our strategic initiatives that translated meaningfully into the results for this quarter. For the quarter ending March 31, 2024, we reported GAAP net income available to common shareholders of $33.2 million or $0.56 per share. Net income available to common shareholders excluding after-tax restructuring and merger-related expenses was also $33.2 million or $0.56 per diluted share as compared to $42.3 million or $0.71 per diluted share in the prior year period. As of March 31, total assets of $17.8 billion included total portfolio loans of $11.9 billion and securities of $3.3 billion. Total portfolio loans grew 9% year-over-year and 8% linked quarter annualized, which reflected the strength of our markets, teams and lending initiatives. We continue to fund loan growth through a combination of deposit growth and regular cash flow from the securities portfolio. We still anticipate the pace of CRE payoffs to pick up as we progress through 2024 as interest rates remain steady and potentially decline. Residential mortgage originations totaled approximately $105 million for the first quarter, with roughly 45% of originations sold into the secondary market as compared to $160 million and 28%, respectively, last year. While residential mortgage production has been challenging in this environment, we're encouraged to see pipelines built recently. As Jeff mentioned, we're pleased with the deposit gathering and retention efforts of our consumer and commercial teams as these efforts have funded roughly 2/3 of…

[Operator Instructions] The first question comes from Daniel Tamayo with Raymond James.

Maybe we start first on just the deposit side. Just curious how you're thinking about growth as it relates to, obviously, deposits, but then how the loan-to-deposit ratio may shake out going forward as well?

Yes. When we look at deposit growth, as you may recall, we really put a big push starting in third quarter last year. We added incentives for our commercial bankers, and we came out with some campaigns. So we've seen some nice growth, third quarter, fourth quarter, and now for this previous quarter related to the deposit growth. We also rolled out a new consumer checking account, WesBanco One Account that we've seen tremendous demand for. And so we continue these campaigns going forward, and we feel like we're still going to see some pretty nice growth. The other piece of it in relation to noninterest-bearing, obviously, we saw a very limited decline in our noninterest-bearing balances in first quarter. I think they declined about $20 million, so basically almost flat there, and we've put a nice focus as well on noninterest-bearing deposits. So when I look at the loan-to-deposit ratio, I would expect this to continue to remain in that high 80s realm because I do believe we're going to have a pretty strong year in loan growth as well as we look at kind of mid- to upper single-digit loan growth also.

Okay. Terrific. And I guess switching to the margin here. Did I hear correctly that you said the margin is going to stabilize in the mid 2.90%, Dan?

Yes, that's correct. That's correct.

So you're expecting -- sorry, go ahead.

Yes. We're expecting it to increase going throughout the rest of the year.

Okay. Any -- so there's no -- I mean that kind of immediately, starting in the second quarter, you think that you'll see a snapback of the margin and then kind of a slow build off of that number and stabilizing mid 2.90% and that's -- and that's assuming what in terms of noninterest-bearing concentration?

Yes, Dan. So as I said in the prepared commentary, mid 2.90%, that's where we think we'll stabilize here over the next kind of 3 quarters. In terms of noninterest-bearing, we included in that kind of modeling would be -- despite the fact that we only saw about -- as Jeff said, $20 million, $23 million in runoff in noninterest-bearing, we are projecting or modeling at least between $50 million and $75 million of remix into interest-bearing within that guidance. So we get down to -- from 29% of total deposits down to, call it, in that near 27% range.

The next question comes from [indiscernible] with KBW.

Just a follow up on the margin discussion. I was wondering, at what level we should expect those money market and interest-bearing deposit costs to peak at before we start to see some rate cuts?

Sure. So what I would tell you is that we -- generally speaking, until we see rate cuts, at least -- and right now, we've run kind of a couple of different scenarios, one with as many as 3 cuts, one with as few as 0 cuts. But what I would tell you is that we expect -- until we see rate cut for there to be some continued increase but at a slower rate than what we've seen on both money markets and the interest-bearing deposits. We're seeing maybe 7 basis points of increase per month and we would expect that, though, to slow here as we continue out throughout the quarter as most of the back book at this point has really repriced what we're thinking. What we're seeing is this would be to the extent that we're adding any additional growth in terms of money market and interest-bearing deposits.

Yes. The other thing I would just add quickly, obviously, if we continue to grow deposits faster than loans, we'll continue to pay down our FHLB borrowings, which are currently at 5.5%. So we're definitely not bringing in new deposits anywhere near that rate and expect to obviously get some benefit to that if we continue to grow deposits faster than loans.

Maybe just to add on to that even further. With that $250 million in FHLB borrowings that we paid down, that was, as Jeff mentioned, 5.5%, 5.6%. The new -- the deposits that we brought on, the $330 million, call it, that came on, came on at a weighted average rate of right around [ 3.60% ]. So -- and a lot of that deposit growth actually occurred in the back half of the first quarter. So we haven't yet -- we're not -- we're going to see a benefit here into the second quarter and beyond to the extent we can maintain those deposit balances just because we're picking -- we're saving 200 basis points on the alternative being FHLB borrowings.

Yes. That's super helpful. And maybe just switching gears here for one more. So you mentioned the $1.2 billion pipeline and how a good chunk of that is LPOs. And I was wondering if you could give any additional color on maybe the loan type mix in there and sort of what we should be expecting for 2024 as far as CRE and C&I growth?

Sure. We're striving, and as I've mentioned before, to get a 50-50 mix kind of going forward. What I would say on the pipeline currently, I'm going to guess it's around 60% CRE, 40% C&I. But we're striving for 50-50 production. But I would say, probably it will end up by the end of the year being a little more heavily weighted on the CRE.

The next question comes from Russell Gunther with Stephens.

Wanted to just start following up on the margin discussion. If you guys could just share what your assumptions are for the Fed funds outlook within the kind of [ mid-2.90% ] guide? And Dan, maybe just help quantify what that fixed repricing opportunity is on the asset side this year? And lastly, just when we get cut, if we get cuts, what that could mean to the WesBanco margin?

Yes, Russell. So I would say we've modeled, as I said, kind of with 3 cuts, we've modeled with 0 cuts. And interestingly, it's not as significant of a difference as you might expect. So if we -- the guidance that we provided last quarter, we assumed the June cut, September and a December cut, and of course, December doesn't really impact the '24 at all. September is very pretty minimal as well just because by the time the cut takes effect and runs through the -- runs through the loans and the deposits, there's really not much of an effect there. It's really the June cut that has some impact on the margin and it actually doesn't -- you don't see that until the fourth quarter. So the difference for us between 3 cuts and 0 cuts is about 2 to 3 basis points of margin improvement or decline, depending on how you look at it in the fourth quarter. So working off of that [ mid-2.90% ], we would say we would still be pretty much in line with that [ mid-2.90% ] whether there are 3 cuts or whether there are 0 cuts. To answer the second part of your question, if we think about the assets that would be repricing, we've got, obviously, securities, which we talked about $100 million roughly per quarter that are -- those cash flows are kicking off and we're reinvesting 2.5% yield into 8%, call it, yield in terms of funding loan growth. We've got fixed rate loan maturities over the next 12 months of about 10% of our fixed rate book, which is roughly $250 million. And so that's currently priced at about $460 million. So think about 4.6% increasing to somewhere in the high [ 7%, low 8% ]. And then we've also got adjustable rate loans, about $300 million of adjustable rates. That's part of our available rate loan balances, but they adjust anywhere from 6 months up to 5 years, we've got $300 million there with a weighted average rate of about 5.25%, that would also reprice over the next 12 months. So I think from an asset standpoint, that's what I would expect the fixed rate assets to be repricing upward. And I think your third part of your question, I think I answered earlier.

You did and I'm impressed. That's my way of trying to sneak in one more, which is on the expense side. I appreciate your guidance and commentary for the near term. Jeff, you kind of teased the potential for some efficiencies in the back half, and while we'll wait for that announcement. Just given the steps you've already taken, could you address kind of potentially where you'd expect to get those, whether that could include branch rationalization, which we haven't seen in some time. And then does this result in the step down in expenses? Or does this kind of help keep the growth engine going while keeping the bottom line pretty tight?

Russell. No, I think as you mentioned before, branch optimization, we are always looking at that. Last year, we did a couple of branches, but we're definitely looking at that for potentially something we would potentially take action on this year. There are some other things what we're looking at as well on some of our operational functions for some cost saves. And then the one other thing we've kind of mentioned in the past is printing statements. We basically printed and mailed customer statements, business and customer statements for free. We have changed the business to where now they get them electronically. That's saving us anywhere from $70,000 to $100,000 a month. And then we're also looking at that on the consumer side as well, planning to roll something out in May, once again, which I think should be a nice cost save for us as well. Those are just some of the things we're looking at. We have a few other things that we're obviously taking a look at. But yes, we've got a few cost save initiatives we're working on.

The next question comes from Casey Whitman with Piper Sandler.

Can you address how you are currently stacking just your capital priorities? What are your thoughts on potentially buyback shares this year? And then remind us what you might look for an M&A partner? Is there any update there from what you've discussed previously with us?

Sure, sure. So just starting with our basically capital management strategy, obviously, our #1, we're committed to the dividend. We feel like shareholders really appreciate the dividend and we are very committed to that. Second is funding loan growth. As I mentioned before, we're looking at mid-to-upper single-digit loan growth. And as the securities roll off about $100 million a quarter, we used that to fund loan growth, although with our deposit growth as well, we benefited from being able to pay down FHLB borrowings with some of that. Then third would be M&A. And then fourth would be buybacks. I would say as it relates to your M&A question, nothing's really changed. We're always going to be very optimistic, if the -- opportunistic, I should say, if the right deal comes along at the right price and meets all our return hurdles, we are still looking in Tennessee, Virginia and then potentially filling in Ohio. Nothing has changed there. Obviously, I feel very optimistic about this year as it relates to M&A, but nothing to announce at this point.

All right. And just a follow-on for that would be, can you remind us the size range in a target that you might be interested in?

Yes. Our typical target we look at is about $2 billion to $5 billion in assets. Not to say we wouldn't look a little bit bigger or a little bit smaller, but I would target $2 billion to $5 billion in assets.

Okay. I'll sneak just one more in there. I think you mentioned some larger office loans paying off during the quarter. Can you just quantify those numbers and maybe remind us just the size of the nonowner-occupied office book? If I recall, it's relatively small, but can you confirm that for us?

Yes. So nonowner-occupied represents about 3% of total loans. So relatively small to begin with. And nearly, I think, 98% is pass rated. The 2 loans that paid off, I believe, gosh, I think one was in the Louisville area. The other was North Central West Virginia. And I believe they totaled about $20 million.

Yes. And that did have an impact to the provision. The other thing I would add, just to give you a full sizing. We have about 300 million -- 300 loans totaling about $425 million, which gives you an average loan size of $1.4 million in our office portfolio.

Yes. So when I say larger loans, that totaling $20 million, given our relative average size is $1.4 million, they're larger for our portfolio.

The next question comes from Manuel Navas with D.A. Davidson.

How should I think about the strong start of the year versus the mid-single digits to high single digits loan guide? Could you kind of get to the high end? Or you guys also talking about some CRE payoffs rising. Just kind of let me know how you think about that range?

Sure, Manuel. No, we definitely think there's a possibility we could get to the high end for sure. I mean you never know what the year brings. But as we stated before, I mean, our pipelines are basically at all-time high, it's around $1.2 billion. So I definitely think that is definitely in reach.

And you talked about potential for more talent. I think talking in the expense guide, where are you kind of targeting some of that talent on the lending side? Any new regions, just adding to current regions? Just any more color there would be great.

Sure. I think we're looking at both. So we've had very good success with our LPOs. I know we've looked in Knoxville, in Nashville, continuing to add in Cleveland, Chattanooga, Indianapolis. And then we're also looking at various parts of Virginia as potential openings of LPOs as well. But then if you look at our existing markets, we're always out looking and talking to new talent that could potentially be additive to our company.

I appreciate that. How much of the deposit growth has come in from commercial lenders? Do you have that type of specific data. I know that 34% of total deposits are business, but how much of the new deposit growth is coming from the commercial lenders?

It's about 50%. Yes. And as I mentioned before, we really had not incented them until third quarter last year to bring in deposits. And now we're kind of seeing the fruits of that labor in the last 3 quarters.

The next question comes from Karl Shepard with RBC Capital Markets.

I wanted to pick up on Casey's question on M&A. I think you said optimistic on getting something done. Can you just touch on has the environment changed at all? Are you getting more look at things, are sellers starting to raise their hands? Can you just walk us through that?

Yes. I would say the reason I'm optimistic is I do believe we're starting to see more opportunities. I do think that with this potentially higher for longer that may have triggered some boards and CEOs to rethink, potentially is now a time to sell and partner up with a great bank like us. So I do believe the environment has changed. Obviously, the math has not really gotten any easier but I think there has been a mindset. Once again, I think a lot of that is interest rate driven, where potentially 6 months ago, we might have seen -- 3, 6 months ago, we might have seen banks that were on the fence on selling, thinking, all right, I've been through the worst of it. I think we're going to get some rate cuts and that's going to help me to now, I think, more uncertainty. If you are setting with a higher loan-to-deposit ratio and thinking of how difficult it might be over the next several years versus partnering up, I think maybe Boards have started to become more open to partnering up with someone like ourselves.

Okay. And then kind of pivoting here. To follow up on some of the loan growth commentary. The paydown in CRE, as it relates to new offices and new lenders, do you think kind of the higher rate environment kept a lid on what might be available for business for some of these new offices and if that [indiscernible], does that take a way off of kind of what's possible? Or does that not really had an impact on some of the newer contributions?

I think higher rates have definitely had an impact on some projects overall in the CRE space. But as it relates to office, I think there's just based on what we went through with COVID and the work-at-home movement and different things going on in that environment. I just think potentially, there's just so much office space online available today. But if you're a developer, you're looking to put money in some other different type of property, whether that's a retail development, multifamily or some other type. So I think part of it is availability today in the office space, it's kind of keeping a lid on some of that. And I think it's also opportunity and what's better for a developer to invest and put their money into. But outside of office, like I mentioned before, I think higher interest rates have slowed and stopped some projects, but we still see a nice healthy flow depending on which market we look at.

The next question comes from Dave Bishop with Hovde Group.

Jeff, maybe most of my questions have been asked and answered, but maybe a little color on the uptick in classified loans. I think, it was up 35% on a dollar basis. Maybe what you're seeing in terms of the underlying trends and credit quality?

Yes. Yes. So the uptick. And as you know, we've had over the last several years, incredibly low C&C ratios. That uptick really relates to one C&I credit, that really increased our percentage for first quarter. We do believe that should be worked out and restructured by the end of second quarter. So we do believe that, that is a blip, but it's really basically one C&I credit that we feel like should be resolved by the end of this quarter. I'd say overall, though, when we look at the credit quality, we have one-offs here and there, but no systemic issues. We're not seeing anything that's changed over the last several quarters and feel very good about where our credit quality stands today.

Great. And then maybe a follow-up, similar to the margin. But you guys have been doing a good job expanding on the commercial side. The pipeline is up. Loan yields, as you mentioned, are high 7%, 8%. In terms of reconciling that with the NIM guidance, where should we think about loan yields and average earning asset yields trending over the near term?

Yes. Loan yields, I would expect to continue where they've been, for the most part, absent rate cuts, which is, generally speaking, has an 8% handle on it. You can see in the slide deck, we report weighted average loan yield of 7.96%. I'd just point out that, that is not tax equivalent. You have to add about 10 basis points on to that to get to a tax equivalent rate. So yes, we would expect to continue to see upward momentum on average earning assets -- I'm sorry, weighted average yields on earning assets, mainly due to that continued improvement. And as I said earlier to answer Russell's question, we do have a number of fixed rate, maturities, adjustable rate, et cetera, and we're continuing, as I said, to use cash flows from the securities portfolio to reinvest into that 8%, those 8% loan. So we'd certainly expect those yields on earning assets to continue to increase.

And our last questioner will be Daniel Cardenas with Janney Montgomery Scott.

Yes, most of my questions have been answered. But just quickly on the multi-card contributions year-on-year. It sounds like you're expecting to see some positive contributions in the back half of '24. When -- when do you think the multi-card will be a more significant contributor to the fee-based income? Is that kind of a second half of '25 or a '26 event?

I would -- so right now, we just launched it. And we have about 6 multi-cards that we've just closed. We've got about 18 in the pipeline. And then we've also got about 9 integrated payables and opportunities right now that we're working on. So I believe you'll start seeing some good contribution toward the end of this year, but I think 2025 is where you'll really see some nice pickup contribution from all of our new treasury opportunities that we're working on.

Okay. Great. And then can you remind me how big is your -- in terms of personnel, as your treasury management function right now? And what are your expectations for additions to that team?

I think the treasury management team, I'm going to say, is probably just -- and this is just sales people and management, I think it's around 12 to 15 people. But no, we're looking for significant contributions from that team this year and then going forward in the future. Not really detailing specific numbers. But no, we believe it's going to be very significant, not only from a fee-based generation but also deposit gathering opportunity as well. But that's one of our key priorities this year that we feel like we started off really strong so far, and I feel like by the end of the year, it will be a significant portion of our fee business.

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

Thank you for joining us today. During the past quarter, we achieved solid loan, deposit and fee income growth while managing costs and maintaining strong capital levels and credit quality. With this solid start to the year and the continued strength of our teams, markets and strategies, we are well positioned to continue delivering value for our shareholders. We look forward to speaking with you in the near future at one of our upcoming investor events, and have a great day. Thank you.

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