Hello, and welcome to the WesBanco Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to John Iannone, Senior Vice President, Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to WesBanco, Inc’s third quarter 2024 earnings conference call. Leading the call today are Jeff Jackson, President and Chief Executive Officer; and Dan Weiss, Senior 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 October 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 afternoon. On today’s call, we will review our strong third quarter 2024 results and provide an update on our operations and current outlook for the fourth quarter. Key takeaways from the call all today are continued strong deposit and loan growth combined with solid credit quality. We focused on organic growth and efficiency gains to achieve positive operating leverage. Our transformative acquisition of Premier Financial Corp. remains on track, pending regulatory and shareholder approvals. WesBanco marked strong momentum in the third quarter, driven by strategic actions that continue to strengthen our balance sheet. These include robust deposit and loan growth and the pay down of higher cost borrowings. Over the last year, WesBanco has grown loans by $1.1 billion and deposits by $750 million, reflecting the continued strength of our teams, markets and strategies. For the quarter ending September 30, 2024, we reported net income, excluding restructuring expenses available to common shareholders of $36.3 million and earnings per share of $0.56. We successfully raised $200 million of common equity during the quarter to position WesBanco for future growth. Reflecting this capital raise and strong earnings, our tangible common equity ratio increased 132 basis points quarter-over-quarter to 8.84%. The key story for the third quarter was our continued strong deposit and loan growth, as sequential quarter deposit growth of 12% annualized was double annualized loan growth of 6%. Impressively, our total and commercial loan growth and deposit growth significantly outperformed the monthly H.8 data for all domestically chartered commercial banks on both a year-over-year and quarter-over-quarter basis. These proof points demonstrate the success of our strategies and teams. On the deposit gathering side, our recent Summer of One campaign named for our well-received WesBanco One account was a great success, thanks to the partnership between our retail,…

Thanks, Jeff, and good afternoon. For the quarter ending September 30, 2024, we reported GAAP net income available to common shareholders of $34.7 million, or $0.54 per share, and when excluding after-tax restructuring and merger-related expenses, net income was $36.3 million, or $0.56 per share, as compared to $34.8 million, or $0.59 per share in the prior year period. To highlight a few of the third quarter’s accomplishments, we achieved strong loan and deposit growth both year-over-year and sequentially, raised $200 million of common equity in support of future growth, improved net interest income, and effectively managed discretionary and personnel costs. All of this resulted in a $0.07 increase in earnings per share over the linked second quarter, despite an increase in share count from the capital raise. As of September 30, total assets of $18.5 billion included total portfolio loans of $12.5 billion and total securities of $3.4 billion. As Jeff mentioned, loan growth remained robust and was driven by our commercial and residential lending teams. With a strong pipeline, nearly $1 billion in unfunded LCD commitments expected to fund over the next 12 to 18 months, and CRE payoffs at historically low levels, we continue to be optimistic about future loan growth. The commercial real estate payoffs totaled approximately $185 million year-to-date as compared to an annual level in the $500 million range in a more normal operating environment. Deposits of $13.8 billion, which were up 5.7% versus the prior year and 12.1% annualized linked quarter, reflected the success of our summer deposit retention and gathering campaigns. The composition of total deposits continues to experience mixed shifts, but at a slower pace than experienced in prior quarters, as most deposits have already repriced upward. As is typical during a higher rate environment, we have experienced strong growth in…

Thank you. [Operator Instructions] Today’s first question comes from Daniel Tamayo with Raymond James. Please go ahead.

Hi, sorry about that. Good afternoon, everyone. Maybe first, on the margin as it relates to interest income. We talked about a little bit of the expansion in the fourth quarter up to the upper 290s. Maybe you could just remind us, you talked about the 2025 guidance coming out next quarter, but you’re baking in four cuts. Just remind us what the impact from each one of those cuts may be.

Yeah, Danny, I can take that. I mean, I would tell you that that’s a long complicated calculation that I could probably spend an hour or so talking through, but I would say at a high level just for the fourth quarter alone, if we think about the deposit growth that we experienced just here in the third quarter and our ability to pay down Federal Home Loan Bank borrowings with those deposits as well as the $200 million in capital that we raised, that alone provides some margin improvement above the 2.95% that we reported here in the third quarter. And so, if we really tried to boil things down that would probably be the primary driver today for that margin guidance in the fourth quarter.

Okay. And then maybe I’m switching over to the credit side. So really the early stage numbers look good for you guys, LPOs [ph] down at a good number and maybe a little bit of an increase in the criticized and classified, but not too much. But it’s been a couple of very strong quarters from a net charge out perspective forecasts or my forecasts were kind of well above where you guys have been coming in. I’m just curious, I guess on the near-term what you’re able to see visibility wise from a credit perspective, if things look relatively similar to what you’ve produced over the last couple of quarters?

Yeah, sure. I’ll take that one. I think that we’re still seeing great credit quality. I would expect it to be somewhere in the range of where we’ve been over third quarter, second quarter, somewhere in that range between the two of them. But once again, we’re not really seeing any issues out there. We like others, we have a one-off here and there, but those seem to be getting resolved. So we feel really good about where we’re at with the credit quality. And I don’t foresee any dramatic changes going forward.

Terrific. Thanks, Jeff. And then maybe just on the topic of the increase on the criticized classified side, just do you have any color on what type of loans those are comprised of that’s driving that?

Yeah, it’s a broad swath of different industries and different C&I, CRE. There’s not really one area at pinpoint. And like I said, we feel really good about where we’re at. And I think some of those will migrate over the next several quarters. So there’s not one area I could really pinpoint to say it’s driving that. But I feel very confident that it’ll continue to move in the right direction going forward.

Thank you. The next question comes from Russell Gunther with Stephens. Please go ahead.

Hey, good afternoon, guys. I’d like to follow-up on the margin commentary, Dan, you provided. I appreciate the color there. You mentioned the positive catalyst of the FHLB maturities in the fourth quarter as a benefit to the 25 NIMs. So could you help us with where you’d expect that kind of core NIM to step up to early next year and then as we layer in the acquisition, how you’d expect that pro forma margin to shake out as we start the year?

Yeah. So I’ll try to dive here a little bit deeper into the margin for your question here, Russell. If we think about kind of funding sources, so over the next month, we have about $900 million in Federal Home Loan Bank borrowings at a weighted average rate of about 5.2% that will reprice. These are 1-month advances. That will continue to provide benefit to our interest expense as we move forward. We also have about $800 million in indexed Insured Cash Sweep product that will reprice down. That reprice is down immediately. Another $700 million in tiered private client money market accounts as well. Continuing on the funding side, $2.1 billion in interest bearing deposits that have repriced down a full 50 basis points and will also be very reactive to any future rate cuts. And, as I said, we are anticipating a 25 basis point cut in November and December, and then basically one in each quarter in 2025. And then kind of on top of that, we’ve got another $200 million in broker deposits. Their Fed funds plus 20 basis points also indexed and repricing immediately. They’ll actually mature here at the end of the first quarter. And then the other kind of big catalyst as we think kind of more into 2025 would be, we do have $1.3 billion in CDs, which is about 85% or so of the CD book will mature and/or reprice here by second quarter of 2025. And that’s coming off of a 4.2% handle. And then, if we look on the asset side for a moment, as you know, and as you can see on Slide 8 there, about 75% of our commercial portfolio is variable rate, 25% is fixed. Of that variable rate, the variable rate loans about two-thirds of…

Dan, I appreciate it. Very comprehensive. Thank you. And then just switching gears from my last question, the $4 million savings to be realized from the branch consolidation, could you just give us a sense if any of that is spoken for in terms of franchise reinvestment or should all drop to the bottom line? And as a piece of that, prior to layering in the deal, what do you think is a good kind of core expense growth rate for WesBanco?

Yeah, I would tell you that, well, first, we’re always reinvesting, right? But generally speaking, I would tell you that that $4 million, which is about $1 million a quarter, call it, should be more or less drop into the bottom line. If we think about expense run rate kind of forward, I would tell you, and I said in my prepared remarks that you’re not anticipating much difference from what we reported here in the third quarter, the one thing or a couple of things I would tell you, though, that would be different from third quarter versus fourth quarter on expense run rate is for our salaries and wages, our hourly employees, their merit increases occur in August. And so, we’ll have a full quarter’s worth of merit increases in the fourth quarter versus kind of having two-thirds of that merit increase in the third quarter. Also, healthcare can be very difficult to predict, but I would say typically in that fourth quarter healthcare expenses are a bit higher just because employees have kind of burned through their deductibles, and at that point, the cost for any additional medical procedures is on the company. And then, I would just tell you it’s kind of some offsetting things that we had a pretty big marketing campaign as we talked about on our prepared commentary. Wouldn’t expect marketing expense to be quite as high as what we experienced in the third quarter. So some puts and takes, but I think overall pretty close to third quarter may be a little bit heavier.

Really helpful. Thanks, Dan. Thank you guys for taking my questions.

Thanks, Russell.

Thank you. The next question comes from Catherine Mealor with KBW. Please go ahead.

Thanks. Good afternoon.

Hey, good afternoon, Catherine.

Hey, Catherine.

Just a small question, but on fees, I noticed that other income was down a little bit. What was the driver there and should we expect that to bounce back to that kind of $5 million level we’ve seen the past few quarters?

Yeah, on non-interest income, the driver really was in swap fees. The valuation adjustment this quarter was a negative $1.7 million compared to a positive $1.4 million in the third quarter of 2023. So that swing is really what’s causing, probably, if you’re looking kind of year-over-year or even quarter over – linked quarter for that matter, that’s what’s driving it. We don’t expect that to occur here again in the fourth quarter. But, again, that is pure valuation. That’s not necessarily indication of anything other than just movement in interest rates relative to where those back-to-back swaps were booked.

That makes sense. Okay, I had that lumped together in others, so that makes sense. Okay. And then back to the margin, the 370 to 380 NIM that you mentioned, just wanted to confirm that that is where you were thinking that the pro forma margin goes kind of at close with Premier, including a credible yield. To kind of a second…

No.

Okay. Go ahead.

No, I don’t believe I quoted 370 to 380.

Oh, I’m sorry, 345 to 350, I misspoke.

Yes, yes, yes. Okay. I’m sorry, what was the question?

The 345 to 350 pro forma margin that you mentioned, that was – can you – what exactly are you pointing to with that 345, 350 comment?

Yeah. So that’s what we modeled, that was what we presented in our second quarter slide deck that kind of laid out the details of the deal. And that’s kind of what we modeled based on the projections, based on the loan accretion primarily with loan accretion that was driving that. I don’t know if you recall from second quarter, we did talk about the loan accretion being about $65 million per year. And one of the things and so, obviously, that’s playing into that upsized kind of margin guidance.

Okay. Got it. So that just is kind of a pro forma margin at close. And then is it fair? As we kind of think about the tutors [ph] and I know now I’m taking you past 2Q and that’s the close of it. As we think about just conceptually your balance sheet, so if you see a few bps of kind of core expansion the next few quarters, which makes sense given all the puts and takes you gave then we add Premier and then we’re around 345, 350, and so that makes sense. And then, as you move past that if we still get some rate cuts to the back half of the year. Is there a case for still expansion from there with things that you can do on the balance sheet? Or is it kind of your stable for a while until rates kind of settle in?

Yeah, I mean I would say that’s tough to answer this for out. So I would say, yeah, generally speaking though, there are a lot of different scenarios that really can play out. It would say one of the things that we do have is the opportunity to kind of restructure the balance sheet as we talked about last quarter and depending on the rate environment at the time of legal merge we may take advantage of that we did talk about potentially selling or exploring $100 million of CRE loans on their books and a couple of $100 million in securities. And, we’ll certainly take the opportunity to maximize long-term shareholder value as we get to legal merge. But, yeah, I’d probably be speaking giving you an incorrect answer if I gave you anything at this point beyond the second quarter.

No, that’s fair and I wasn’t trying to get you down to a number just kind of trying to think directionally, because the deal does lessen your assets sensitivity and so, conceptually, I would think you should be in a position where you could still see some margin expansion. So I was just curious if there’s anything you were kind of seeing that was in plain sight in the back half of next year.

Yeah. Now, I mean generally speaking I would say in a down rate environment, we believe that both us and Premier are positioned to benefit even beyond kind of the forecast that we were using back in the second quarter, which was basically a consensus estimate forecast for 2025. So, I think that there is some upside there. Yeah. And the offsetting component, as you know, that accretion begins to run down some on a quarterly basis. It’s not overly significant, though, a couple of basis points.

Okay. Got it. Perfect. And then maybe just one more on just the deal. Just big picture with more rate cuts in our modeling now, between now and close. Is there a big change that you expect with initial tangible book value dilution and accretion? How do you think about that give and take?

Yeah, that’s a great question. And it kind of goes back to the question, your last question as well, and that’s kind of what I was thinking. In terms of when we modeled the deal and we priced the deal, or rather the fair values, the loans, yeah, we had about $65 million in accretion. That was calculating fair value based on kind of May 31st forward curve, if you will. So if we think about where we are today, we know that there certainly has been a more aggressive down rate environment than what it was back in May-June timeframe. And so, I would anticipate, to your point, to see a little less TBV dilution, which is a positive and a little less accretion as a result, with the offset coming on the actual – on the balance or on the income statement through higher yields.

Thank you. The next question comes from Manuel Navas with D.A. Davidson. Please go ahead.

Hey, good afternoon. You were considering managing to a CRE concentration ratio of just under 300%, and potentially thinking about that in the context of your back half this year loan growth. Is that less of an issue with kind of the rate trajectory and since the May mark, can you just kind of talk through how you’re thinking about loan growth with that CRE concentration level in mind?

Yeah, I would tell you, you’re on to it, Manuel. Certainly with the rate environment being lower, that relieves some pressure from that 300% concentration ratio, for sure.

Yeah. I know, I would agree. We talk about it all the time, and that is obviously a driver of the previous question as well, right, with the rates coming down, where does the accretion dilution land, but it does provide relief for the 300% ratio. So, yeah, to sum it up, it does make it easier, yes.

Okay. Is the strong deposit growth, can you talk about it in terms of what regions were strongest? The one account is really helping, but just kind of what regions and what’s coming out of the commercial lenders?

Yeah, sure. So we’re really excited about the tremendous deposit growth that we’ve shown. It’s really coming across the entire footprint. The nice thing, and I think you’ve heard me talk about this is, a year ago, we really started putting nice incentives for our commercial bankers to grow deposits. These are the first that we’ve basically seen from these type of programs, along with our new consumer checking account, the WesBanco One account, obviously, we added about 6,800 accounts with the new Summer of One, and then we’ve seen tremendous commercial loan growth, I mean deposit growth, which is really driving a lot of this additional NIM help. But it’s all across the footprint, and I would say it’s kind of been a cultural change for us, but it’s one that we’re really benefiting from.

Is there any additional commentary on the talent pipeline, or is kind of the focus more on PSC [ph] going forward? Can you just touch on where you are on talent across the footprint?

Yes, yes. So, obviously, a big attention to the Premier acquisition, and that’s going really, really well. They’ve got a great amount of talent at that bank, and we are very pleased and working through that. But outside of that, we are still recruiting. As I’ve mentioned before, we’re still looking to add talent in national. We’re also looking at Knoxville and other potential LPOs, but those would be the two areas, I would say, we’re definitely looking for additional talent, along with our existing markets. We are looking at replacing a couple of market presidents who have retired and working through that as well. So we’re always out there trying to recruit and retain the best talent, and that’s why we’ve seen such tremendous loan and deposit growth, is we have retooled our teams and changed a lot of things that have really turned on the growth for this company.

Thank you for the color. I’ll step back into the queue.

Thanks, Manuel.

Thank you. The next question comes from Karl Shepard with RBC Capital Markets. go ahead.

Hey, good afternoon, guys.

Hey, good afternoon, Karl.

Hey, Karl.

Just like to touch on your last answer a little bit, but loan growth obviously is a good story for you guys. You keep outpacing the industry. Can you expand a little bit on your optimism and continuing to do that in the next year? And maybe some comments on the environment too, not just the new hires in production offices?

Sure. No, I think we’re very optimistic on continuing loan growth. Once again, I think you’ve heard me say this, but we’re doing about double the amount of loans with the same amount of people we had about 3 years ago. And a lot of that has been our talent management and recruitment. Our loan production offices, the expansion there is doing about 20% of the loan growth that we’ve had in loan production. I see the environment continuing to be pretty strong for us. I don’t see it slowing down. I mean, I think with rates coming down, that gives people opportunities to potentially do more things that maybe they’ve been holding off on, or it also provides refinance opportunities. And so, when you combine that with our continued recruitment of great talented people, and the way we go to market, and the products we put out there in our local decision making in our company culture, I still foresee a very strong loan growth for us in the future. I think with the addition of Premier, and pulling that company into our culture and in our sales models, I think it’s just going to accelerate even more.

Okay. That’s helpful. And Dan, you’ve talked a lot about the margin. It seems like your balance sheet is positioned pretty well for a series of 25 basis point cuts. But I’m just curious, do you have any preference really where rates go, or just how sensitive some of those assumptions are?

I would tell you that, generally speaking, no. We are very much neutral as it relates to short-term asset and liability repricing. So whether we see 25 or 50 over one of these meetings, that’s not going to have much of an impact. Quite frankly, I think a 50 would be more helpful than a 25, slightly. But we don’t have that in our forecast, and that would just be the cherry on top.

Okay. And then, maybe I’ll slip one more in. You guys did the borrowing repay down the common equity offering this quarter. Anything you want to do ahead of near closing, I know there’s a few actions depending on what rates are at that time, but anything between now and then you want to do to tinker with the balance sheet?

There is nothing specifically that we have in mind. I mean, we certainly have talked about some of the restructuring that we have planned on a combined basis, particularly, like I said, securities, some CRE loans. We do have 16% of our securities portfolio’s variable rate. We have not talked deeply about this, but there could be, if we really felt strongly that we are going to be in a long-term down rate environment, that’s an area that one could explore in terms of selling basically at no gain or loss and locking in fixed rate for a longer term, but nothing specific at this point.

Thanks guys.

Thanks.

Thank you. Today’s last question comes from Dave Bishop with Hovde. Please go ahead.

Hey, good afternoon, gentlemen.

Hey, good afternoon, Dave.

Hey, Dave.

Hey, Jeff or Dan, probably more to Dan. You gave us some good color in terms of the anticipated maturation or expiration of some of the flood bearing and CDs, and the weighted average rates. Just curious what current market rates you think you could sort of roll those into currently.

Is that one, CDs?

CDs and the flood curve.

Yeah. So right now, FHLB is running. We’ve got the $900 million, and we’re continuing to keep that in kind of 1-month advances. And that’s running about 10 to 15 basis points above Fed funds. So that would be the reinvestment rate, I would tell you today, certainly to the extent that we can generate additional deposits and pay down FHLB sooner, that would certainly be desirable. We’re not necessarily projecting that, nor are we projecting the kind of deposit success, 12.1% annualized in the third quarter, in the fourth quarter, or any time in the near future, we’re very happy with that. But, yeah, I would say the expectation there would be kind of Fed funds plus 10 or 15 basis points for FHLB. Those are repricing, like I said, every month. And then on the CD book, we have lowered those rates quite substantially, about 75 basis points from where we were. At one point, we were as high as 5.25, we came down to 4.75 today. We’re right around 4% on the 7-month special.

[4%, yeah, some of them great.] [ph] And then, Jeff, you mentioned, obviously, the compensation revamp driving some really stellar deposit growth there on the incentive side. I assume, is that sort of fully baked into the incentive run rate? Would there be any sort of fourth quarter catch-up in terms of, like, bonus accruals or such? Just curious how that impacts compensation maybe next quarter.

No, it wouldn’t impact any sort of quarterly. What we did was we took the commercial banker incentive program and just re-changed some of the categories and what we paid for them, and so you may have heard me, say, last year we added deposits, and so the amounts of the incentives would be the same, and those are typically paid out in first quarter, accrued for, obviously, this year, but it wouldn’t change any expenses for us in the future quarters. It’s already accounted for.

Okay. Great. And then, final question here, Jeff, a lot of your peers, I guess, have been dealing with, it seems like pretty outsized payoffs, especially in commercial real estate this quarter. Just curious how you think you’ve been able to sidestep it, and it sounds like you’ve got a lot of sight to no large looming, larger payoffs here in the fourth quarter, if I read the TVs [ph] correct.

Yeah, I would say, we work with our customers very well. You’re right. We haven’t seen a lot of large payoffs. I think fourth quarter, we might see a little more than third quarter, slightly more few different payoffs. But no, we don’t see any major large looming momentous payoffs coming so far. We do talk to our customers all the time, and like I said, fourth quarter might be a little heavier than third quarter. But, no, we keep a very close tab on that and feel very good about it.

Great. I appreciate the color.

Thanks, Dave.

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

Thank you. During the past quarter, we again achieved strong deposit and loan growth, while maintaining strong capital levels and credit quality. We are focused on organic growth and efficiency gains to achieve positive operating leverage and remain well positioned for future growth. Thank you for joining us today, and we look forward to speaking with you in the near future at one of our upcoming investor events. Have a great day. Thank you.

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