Hello and welcome to the WesBanco, Inc. Third Quarter 2022 Earnings Conference Call. All participants will be in a 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'd now like to turn the conference over to host today, John Iannone. Mr. Iannone, please go ahead.

Thank you. Good morning. And welcome to WesBanco, Inc.’s third quarter 2022 earnings conference call. Leading the call today are Todd Clossin, President and Chief Executive Officer; Jeff Jackson, Senior Executive Vice President and Chief Operating 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 materials. These materials are available on the Investor Relations section of our website, wesbanco.com. All statements speak only as of October 26, 2022, and 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 calls, we will review our results for the third quarter of 2022 and provide an update on our operations and current 2022 outlook. Key takeaways from the call today are; solid financial performance demonstrated by loan growth, net interest margin expansion, and discretionary cost control. Robust deposit base that continues to provide us with strong low cost deposit flows during a time of quickly rising interest rates and WesBanco remains a well-capitalized financial institution with strong liquidity and balance sheet and credit quality metrics. I'd also like to introduce Jeff Jackson, our Chief Operating Officer, and my anticipated successor upon my retirement at the end of next year. Jeff's experience at both First Horizon and IBM is exceptional, and throughout his career, he has successfully built and led teams and delivered top tier results. In the few short months that we have worked together, I am proud to say that I am impressed by his knowledge, his ideas, and his energy. He is a great addition to the WesBanco family and someone who is well equipped to lead our company well into the future. Welcome, Jeff.

Thanks, Todd. I'm excited to be here. I joined WesBanco because I was impressed with the long history, strong culture and focus on the shareholders, customers, employees and communities of WesBanco. After traveling with Todd the past couple of months to visit all of our markets and meet our wonderful employees, I can honestly say that my initial impression pales to my impression now. Our employees are truly the core strength of our company. I'm constantly impressed as they live our better banking pledge and regularly demonstrate their passion for and dedication to our customers and our communities. I look forward to working with this great team and maintaining WesBanco's success as an involving regional financial services institution. Back to Todd.

Thanks, Jeff. We are pleased with our performance during the third quarter of 2022 as we continue to deliver loan growth, controlled discretionary expenses and manage the cost of our funding sources. For the quarter ending September 30, 2022, we reported net income available to common shareholders of $50.6 million and diluted earnings per share of $0.85 when excluding after tax, merger and restructuring charges. The strength of our financial performance this past quarter is further demonstrated by our return on average assets of 1.19% and return on tangible equity of 15.39%. In addition, our capital position remained strong and continues to provide financial flexibility while enhancing shareholder value through effective capital management. The key story again this quarter was the strength of our balance sheet as we demonstrated growth in both loans and deposits. Total deposits increased slightly year-over-year despite the runoff of $360 million in certificates of deposit or when excluding CDs increased 3.2% year-over-year and essentially flat to the second quarter. This strength and deposits demonstrates the competitive advantage of our relatively low cost, robust legacy deposit base. Reflecting the strength of our markets and lending teams, we again reported strong broad-based loan growth during the quarter, despite elevated commercial real estate loan payoffs of $173 million. Total loan growth, excluding SBA PPP loans was 6.5% year-over-year and 0.8% were 3.2% annualized when compared to June 30, 2022. The growth in our residential loan portfolio reflects the retention of mortgages on our balance sheet and continued relative strength in originations. While our residential lending program is not immune to the impact of rising interest rates on home ownership as well as seasonality that is affecting the overall industry, we are confident of the group's ability to continue to outperform the industry. We have and continue to build…

Thanks, Todd, and good morning. During the quarter, we recognized strong improvement in our net interest margin, both year-over-year, sequential quarter loan growth, a solid deposit base that grew year-over-year and maintained discipline over expenses while executing upon our hiring plans. As noted in yesterday's earnings release during the third quarter, we reported improved GAAP net income available to common shareholders, of $50.6 million, and earnings per diluted share of $0.85 and a net income of $132.3 million, and earnings per share of $2.19 for the nine month period. Excluding restructuring and merger-related charges, results for the three and nine months ending September 30, 2022 were $0.85 and $2.21 per share respectively as compared to $0.70 and $2.79 last year. It is important to note that the first nine months of 2021 were favorably impacted by a negative provision of $40.5 million net of tax or $0.61 per share as compared to a benefit of only $0.06 per share during 2022. Total assets of $16.6 billion as of September 30, 2022 included total portfolio loans of $10.3 billion and total securities of $3.9 billion. Loan balances for the third quarter of 2022, which grew both year-over-year and sequentially, reflected strong performance by our commercial and consumer lending teams and more one-to-four family residential mortgages retained on the balance sheet, partially offset by the continuation of SBA PPP loan forgiveness and elevated commercial real estate payoffs. SBA PPP loans in the prior year period totaled $272 million as compared to only $13 million this period. Commercial real estate payoffs increased during the third quarter to approximately $173 million as compared to $98 million last quarter and $264 million last year. As Todd mentioned, we expect these payoffs to return to a more normalized historical average, if not better during the fourth…

[Operator instructions] And the first question comes from David Bishop with Hovde Group.

Good morning, David.

Yeah, good morning gentlemen. Thanks for taking my questions. Hey, I'm just curious in terms of maybe walking through the pipeline and the outlook for loan growth into the fourth quarter 2023, maybe what regions you're expecting to drive growth and where you seeing maybe the best resilience in terms of overall bar demand on both the sort of the residential and commercial side? Thanks.

Yeah, we're seeing it where we kind of expected to see it, quite frankly, our, I guess I would say newly acquired markets in the last 10 years. Markets, Maryland markets, for example, Kentucky, primarily Louisville area. We're seeing kind of outsized pipeline growth there. Our legacy markets are showing nice growth as well too. But, probably additional related to the Maryland and some of the Kentucky markets. Also our LPOs I think we mentioned in our comments about 5% of our pipelines coming from Indianapolis now, and that LPO has only been open about six months and we're seeing nice pipeline growth and from our Nashville LPO, some significant size credits coming through our credit committee. So really pretty much across the board, but more robust in those areas you'd expect to be growing faster. Our legacy markets are showing growth but those would be kind of more normalized growth. We benefit from deposits there, obviously significantly, but the areas we'd expect to grow are the ones that are, that are growing and really not seeing any pockets where there are any, what I would say, real problems with growth. I think everything seems to be doing okay.

Thanks. And then in terms of the maybe the deposit pricing front as your footprint obviously diversifies and grows, are there regions and pockets, maybe your legacy markets where you've got the sort of the legacy footprint and brand awareness where you can sort of lag deposit cost and I guess I'm asking are there significant differences in deposit pricing across your footprint at this point?

Yeah, there are, there are significant differences. The last time we saw a rate increase cycle was about this time in 2018, right? So this cycle rates went up a lot faster, so everything's obviously accelerated, but we're seeing some of the same trends we saw back then. We weren't in the Maryland market in 2018. We didn't get there until late in 2019, but, we're seeing differences. I've been watching the deposit betas and others that have been reporting that are based in other geographic areas versus ours and that deposit beta for our legacy markets really showing up. Now, we want to make sure we're responsive to our customers. So, and our legacy markets, we do look at and we do address deposit pricing as we feel it's needed, but it's different in different parts of the region. And that was, quite frankly, one of the reasons we acquired into those markets was that we thought, let's just take Maryland for example to have a bank with a $3 billion presence in Maryland and have our deposit funding associated with that. They're, they're able to use our deposits that we have in the legacy markets and lend those out. So, we make more money on every loan because we're not funding our loans from the mid-Atlantic market. We're funding our loans primarily from our legacy markets. The same with Lexington, Louisville even Columbus Cincinnati, Pittsburgh to some extent, clearly Nashville, Indianapolis. If you look at some of the deposit pricing in some of those markets, it's pretty robust. So, we're not trying to fund the loan growth in those markets from deposits in those markets. We're funding the loan growth in those markets from deposits in our legacy markets, which is the big competitive advantage I think we have. Having said that, we still want to be responsive to deposit pricing on our legacy markets, and we still are trying to generate deposits on a relationship basis in our higher growth areas, long growth areas. But as a general rule that was the idea behind going into those markets was to get a more growthier balance sheet to go from low single digit growth to upper single digit growth for WesBanco long term, and then to fund that with the very low deposit betas that we have.

Thanks. And one final question, maybe sort of say with that topic on the loan growth, do you still feel good about maybe the targeted upper single digit growth rate over the longer term given the competitive environment and economic backdrop? Thanks.

Yeah, we do, we really do. You don't know what kind of recession or if, we'll hit a recession or how deep it'll be in the next year or two, but kind of looking through that yeah, we're very committed to that upper single digit, that was part of our strategy all along and doing some of the things we did from an acquisition standpoint. If you look at any quarter obviously can be bumpy for anybody, right? So I think if you look at our second quarter ex PPP on a year-over-year basis, we would've had about a 3.8% loan growth. If you look at the third quarter, the quarter we just released last night, ex-PPP on a year-over-year basis, it's 6.5%, right? So it's getting pretty close to what I would say upper single digit. And that's kind of our plan is that on a kind of rolling quarter basis that you see that that upper single digit loan growth and particularly related to some of the commercial real estate payoffs, which abated in the second quarter came back in the third quarter, but we think are updating again because interest rates are going up. So, that tends to whipsaw you a little bit from quarter to quarter. But kind of seeing through that on a normalized basis, we're kind of at that upper single digit growth rate right now.

[Operator instructions] And the next question comes on Daniel Cardenas with Janney Montgomery Scott.

Good morning, guys. I joined the call a little bit late, but could you maybe give us a little bit of color on the increase in your 90-day levels, on a sequential quarter basis, what was the driver there.

On the pass due?

Yes, sir.

Yeah, we went from nine basis points to 24 basis points. So it was about 15 basis point increase on the over 90-day, the 30 day to 89 day, was in line with where it was in the past and NPAs to total assets remained really low at 0.21, same as in prior quarters. The reason for the over 90-day we had three credits, quite frankly, that for administrative reasons expired and then went over 90 days. Not credit related issues, just quite frankly administrative related items that yeah, just need to be managed a little more closely. And they've since been addressed after quarter end. So they should have been done a few weeks earlier. They weren't. So it's not an indication of any kind of credit issues or trends or anything like that. It's just administrative timing and we should have been on top of it more than we were. And they were addressed in the first couple of weeks after quarter end, and that would, that made it up the whole difference. It's the difference between a 0.09 and a 0.24 is $15 million bucks on a $10 billion balance sheet, and that $15 million was entirely made up of those three credits that just expired.

Got it. Okay, perfect. And then just kind of looking at deposit balances here on a go-forward basis what's kind of the strategy for growing deposits, just given that you're sitting at a loan to deposit ratio that I think still relatively low. Is there going to be a renewed emphasis on growing to deposit base, or are you going to kind of continue to just try to maintain it where it is?

Yeah, we really are focused on deposits and don't want to we don't want to give up that deposit advantage that we have, loan to deposit ratio 75% and with an upper single digit loan growth rate, that'll eat up, excess deposits and the loan deposit ratio will solely go up over time. So we are focused on deposits. So we are focused on gaining deposits and growing deposits, but balancing that against, the pricing pressure and pricing risk that's out there. The 4% deposit beta that'll go up over time, we think that competitive advantage on deposit pricing will really exist through the entire cycle relative to peers, but they are going to have to go up to address what the needs are and I think just funding that loan growth that we would expect to have, we have to have a continued focus on deposits. We've let some of the CDs, things like that run off. And we've been doing that for years because we've had robust core funding that we've been able to replace that with. But deposits are very much in focus, and while we do have such a strong legacy deposit base, I would tell you we're not -- we don't take that for granted. We're not cavalier about it. We work hard to maintain that and make sure that we're taking care of our customers with regard to that. But we're not going to have to go out and offer high price CDs and Nashville and Indie and DC and things like that in order to fund our growth. We don't think that's something quite frankly, we should ever have to do. That's a competitive advantage that we've got. If anything, what we would do is work really hard to generate more core deposits in our legacy markets which would be cheaper than some of those higher growth markets if we needed to start generating deposits at a quicker level to fund the loan growth. And we're also, recycling securities into in the loans as well too. Loan rates are get to be pretty good again. And our securities portfolio either, we typically carry debt around 20% of our balance sheet, and it's a little bit north of that right now. So we're recycling some of that stuff and as it matures and take the cash flows off the securities portfolio and redeploying that back in, into home growth, which we love being able to do that.

Good. And then just one quick follow-up question. On the M&A front, how are things looking in your marketplace? And would you guys get a chance to look at that, the limestone transaction?

Well, we don't talk a lot about M&A, obviously, but I'd tell you, we haven't -- we did not look at that. And I would also say that our focus is in those what I would say, higher growth areas, right, to continue the story that we've been telling for the last really 15 years or so, which is acquiring into markets that would grow faster than the national average. So I'm really interested in those urban markets that are in our footprint, but some of the markets that might have a branch or two in an urban market, but the core franchise is really more rural or non-metro, not as high on our list. We've got our new core operating system. It's been in place for a year now. We've got liquidity, we got capital. We have a lot of things that would allow us to do a deal. But to me, it comes down to pricing and also credit environment, right? So at this point, you're buying somebody else's underwriting. And what's that going to look like over the next year, people really don't know. So it's just a question that's out there and something that we're cautious about headed into some type of a downturn. What's that going to look like on underwriting. And then can you price the deal the right way in a volatile environment and with things that are -- the way they are right now. So we're cautious about it. I can tell you that we're open to looking at things opportunistically, but we're currently not looking at anything.

And the next question comes from the line of Manuel Navas with D.A. Davidson.

Is there -- a lot of my questions have been answered. But just kind of thinking about the NIM as you see increases. Is there a particular stage or NIM level where you might start to think about protecting it? I know it's sad to think about when Fed funds might decline so soon, but like just kind of -- any thoughts on that idea possibly next year?

Why don't I throw that to Dan, our CFO. Dan, do you want to take that?

Yes. So I think if we -- what we're doing right now, we're modeling certainly, 75 basis point increase here Wednesday, from the Fed meeting another 50 in December and another 50 in the first quarter of next year. So from a model standpoint, we're generally anticipating with a 5% Fed funds rate, 4% 10-year for NIM to continue to kind of expand through the first half of the year and then stabilize from there on. A lot of the assumptions that go into that. But I would say from protecting the NIM, as you know, these are in Slide 4, I believe -- Slide 5, you can see that we do have $3.1 billion of our commercial portfolio with floors, the average floor today is 3.93%. So that would also offer certainly some protection on the NIM.

That helps. Is -- just you were talking in your discussion of deposit flows a second ago, I don't think you said exactly what loan-to-deposit ratio you're kind of targeting or feel comfortable with letting it rise to? Any color there would be helpful.

Yes. I would say low- to mid-90s is kind of our optimal rate. So obviously, at 75%, we got quite a ways to go.

And this concludes the question-and-answer session. Now I'd like to turn the call over to Todd Clossin for any closing comments.

Okay. Thank you. I appreciate that. And again, thank you all for joining us today. Looking forward to speaking with you in the near future at one of our upcoming investor meetings and introduce you guys to Jeff, who will be traveling with us to future meetings. And I hope everyone has a good and safe week. Thank you.

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