Q2 2024 WesBanco Inc Earnings Call
Good morning, and welcome to the West Banco Inc's second quarter 'twenty 'twenty four earnings and proposed merger conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on you touched on phone to withdraw your.
Your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to John <unk> Senior Vice President of Investor Relations. Please go ahead.
Thank you good morning, and welcome to Wesbanco, Inc. Second quarter 2020 for earnings.
Post merger with familiar Financial Corporation Conference call.
Leading the call today are Jeff Jackson, President and Chief Executive Officer and.
And Dan Weiss Senior Executive Vice President Chief Financial Officer.
Speaker Change: Today's call.
Which will be available on our website for one year.
Forward looking information.
Including certain plans expectations goals and projections and including statements about the benefits of the proposed merger between Wesbanco, Inc. A Premier Financial Corporation.
Which are subject to numerous assumptions risks and uncertainties.
In addition presentation to which we were referencing today were filed as part of the form 8-K and posted.
To Wesbanco dotcom.
Cautionary statements about this information and reconciliations of non-GAAP measures are included in both our earnings related and merger related materials.
As well as our other SEC filings and Investor materials.
These materials are available on the Investor Relations section of our website Wesbanco dotcom.
All statements speak only as of July 26, 2024, and West Bank on Premier undertakes no obligation to update them.
I would now like to turn the call over to Jeff.
Speaker Change: Jeff.
Thanks, John and good morning.
Jeff: This is an exciting and momentous day for Wesbanco.
In addition to reporting our second quarter results. We also announced an agreement to merge with Premier Financial Corp, and almost 9 billion dollar asset bank headquartered in defiance, Ohio.
This merger will create a community focused regional financial services partner with more than 27 billion in assets significant economies of scale and strong pro forma profitability metrics.
As you noticed we also filed two presentations.
One on the proposed merger and the other on ours as our standard earnings presentation.
On today's call, we will review our results for the second quarter of 'twenty 'twenty four provide our current 'twenty 'twenty four outlook and.
And review our announced merger with Premier.
Key takeaways from the call are.
Continued strong deposit and loan growth.
Jeff: Our sustained focus on controlling discretionary costs and maintaining favorable credit quality metrics Rex.
Jeff: Recognition as one of America's greatest workplaces by Newsweek for fostering a workplace environment, where our employees feel valued motivated and empowered to succeed.
And finally transformation of Wesbanco into a stronger regional financial services institution.
Well, it's banko sustained its positive momentum in 'twenty 'twenty four with solid second quarter results characterized by continued loan and deposit growth.
We maintained a diligent focus on cost control, while making strategic investments in our company to secure our long term success.
Well I will provide more details on our definitive merger agreement with Premier.
Jeff: Now in cement is evidence of our continued solid execution of our long term growth strategy.
As Premier is a great strategic cultural and financial fit.
I would now like to turn the call over to Dan Weiss, our CFO for a brief update on our second quarter financial results and current outlook for 2024.
Dan.
Thanks, Jeff and good morning to highlight a few accomplishments from the second quarter, we achieved strong year over year loan and deposit growth as well as maintain solid fee income growth and we're pleased with the lower expense run rate.
For the quarter ending June 30th 'twenty 'twenty four we reported GAAP net income available to common shareholders of $26 4 million or <unk> 44 cents per share and when excluding after tax restructuring and merger related expenses net income was $29 4 million or 49 cents per diluted share as compared to $42 4 million or <unk> 71 cents per diluted share.
In the prior year period.
The second quarter's results were impacted by a $10.5 million provision for credit losses due to our strong loan growth changes in macroeconomic factors and a specific reserve of one C&I loan and we also recognized $3 $8 million in restructuring expense related to our branch optimization strategy.
Jeff: For the first time in our history total assets have eclipsed $18 billion driven by portfolio loans of $12 3 billion, which grew 10% year over year and 13% linked quarter annualized our commercial loan growth continues to benefit from our commercial banker hiring in loan production office strategy and our commercial loan pie.
As of June 30th was approximately $950 million up 30% from a year ago.
Jeff: Deposits of 13.4 billion were down half a percent linked quarter, but up four 4% year over year and 4% annualized from December 31 2023.
The composition of total deposits continues to experience some mix shift, but at a slower pace than experienced in prior quarters and today total demand deposits and noninterest bearing deposits as percentages of total deposits remained consistent with the percentage range prior to the pandemic representing approximately 55% of total.
Was it a 28, 5% respectively.
Yeah.
Credit quality stability continues with key metrics that have remained low from a historical perspective and within a consistent range throughout the last two plus years the allowance for credit losses totaled four to total portfolio loans at June 30 of 2024 increased two basis points to 1.11% of total.
Loans, which as I mentioned resulted in a $10.5 million provision for credit losses due to a strong second quarter loan growth.
Speaker Change: A higher unemployment assumption and a specific reserve for an individual's C&I load. The CNI loan was in the renewable energy industry and has fully reserved at $3 $3 million.
Our second quarter net interest income of $2 95 per cent continues to reflect higher funding cost from the remix of noninterest bearing deposits into higher tier money market and certificate deposit accounts offset by loan growth and the benefit of higher rates on earning assets.
Speaker Change: The margin increased three basis points sequentially as higher loan yields outpaced higher funding cost.
And the NIM improvement was somewhat driven by the deposit growth that we experienced in the first quarter, which fully funded first quarter loan growth.
Noninterest income for the second quarter of 2024 of $31 4 million decreased $500000 or one 5% for the prior year, primarily due to lower net swap fee in valuation income as well as higher gains on other real estate owned and other assets in the prior year period.
Excluding restructuring and merger related expenses noninterest expense for the three months ended June 32024 totaled $98 $6 million or two 3% increase year over year, primarily due to increases in other operating expenses and equipment and software expenses.
Included within the second quarter salary expense is roughly $900000 related to the acceleration of stock based compensation and salary expense, which are not expected to repeat.
Speaker Change: We also experienced higher rig you losses recognized within other expenses that we believe are isolated in nature and also not expected to repeat in the future.
Our capital position remains strong as demonstrated by our regulatory capital ratios that are above the applicable well capitalized standards and favorable tangible equity levels compared to our peers.
Turning to the outlook in the current operating environment. We are currently modeling two rate cuts in the back half of the year followed by three more cuts in 2025, which are not expected to have a significant impact on 2024 results due to the timing of the cuts.
The net interest margin in the third quarter is modeled to be relatively consistent with the second quarter in the low to mid 290 range, mostly dependent upon deposit growth to fund the third quarter loan growth.
And we model the fourth quarter to be in the mid to upper two ninety's as assets continue to reprice higher and at a faster pace than deposits.
Speaker Change: We anticipate noninterest income to remain relatively consistent with second quarter trends, while expenses will be impacted by midyear merit increases as well as the late summer marketing campaign.
The provision for credit losses will mostly be dependent upon loan growth economic factors in charge offs and expect to come in somewhat lower than the second quarter.
While our effective tax rate should remain in the 18% range.
And lastly, we've continued to review our financial Center network based on customer preferences and to ensure optimal distribution to best serve our customers and as a result, we've identified 12 locations to consolidate we recognized $3 $8 million of restructuring expenses this quarter and anticipate annual savings of approximately $4 million the.
Already a which will begin to be realized during 2025 and with that I'll turn it back to you Jeff.
Thanks, Dan.
Our long term growth strategy is focused on several key pillars bill.
Building a diversified loan portfolio.
Jeff: Distinct revenue capabilities.
Digital banking service strategies, and a core funding advantage.
And franchise enhancing expansion.
These pillars staying strong thanks to two foundational principles that have guided our company for nearly 155 years.
The first is our unwavering focus on delivering positive operating leverage while making necessary growth oriented and risk prevention investments.
The second is our commitment to our strong culture of credit quality risk management and compliance.
Jeff: This transformational day in Westbay goes history is built on that foundation.
And I'm extremely pleased to share more details with you today.
The proposed merger with Premier brings together two high quality institutions with highly compatible cultures and business models to create a community focused regional financial service partner.
Premier is a strong and sound community based financial institution with a diversified loan portfolio of $6 8 billion and a wealth division with approximately $1 5 billion of assets under management and advisory.
That augments, our 100 plus year old wealth management business.
As we have gotten to know premiere we're.
We are excited to welcome them to the West Banco family.
Jeff: And provide their customers with a broader array of banking services, Inc.
Jeff: Including expanding commercial lending and Treasury management capabilities and additional wealth management solutions.
We share a customer centric philosophy and focus on the success of the communities we serve.
Jeff: Through our merger.
We will bring the best of both companies to our customers and communities and position ourselves to deliver improved value for our stakeholders.
Jeff: Further we are optimistic that organizing around customer services and product delivery can be accomplished with as little employee disruption as possible.
This proposed merger makes sense on a number of fronts.
Including increased scale enhanced financial performance excellent cultural fit and valuation upside.
With complementary and contiguous geographic footprints.
Our combined organization will have more than 27 billion in assets, providing significant economies of scale.
This combination will propel us to a position as the eighth largest bank in the state of Ohio based on deposit market share, while enhancing our existing presence in Indiana, and providing an entrance into Michigan.
From a financial standpoint, we anticipate strong 2025, EPS accretion of 40 plus percent.
Driven by cost synergies and net interest margin improvement.
We also anticipate meaningful improvement in our pro forma profitability metrics, including net interest margin, improving 40 basis points to 3.46%.
Return on average assets up 30 basis points to one 2% and return on average tangible common equity improving 557 basis points to 16, 9%.
Jeff: Further we see opportunities for valuation upside.
The 2025 earnings multiple of 8.6 times.
And a 59% pro forma increase in market cap.
Jeff: As can be seen in the merger presentation, our pro forma profitability metrics put us in the top half of the peer group of banks headquartered in the mid Atlantic Midwest and southeast with total assets between 20 and 40 billion.
Jeff: On a pro forma basis at closing.
Jeff: We will have a very strong balance sheet with $27 billion in assets.
21 billion in deposits 19 billion in loans.
And tangible common equity of $2 billion draw.
Driving a total risk based capital ratio of 13, 2%.
I would like to turn the call back over to Dan to review some of the key terms and financials of the proposed merger Dan.
Thanks, Jeff as you can see in the merger presentation, a premier is very similar to west Banco with a stable and granular deposit base that complements its diverse loan portfolio as well as comparable credit quality metrics to both west Banco and the peer group during.
During the last couple of months nearly 80 Wesbanco employees performed a comprehensive due diligence review of Premier with a focus on commercial and retail banking wealth management operations facilities, HR risk management and I T. We also reviewed the majority of premier's commercial loan portfolio as well as hired a third party valuation services.
Firm to assist in the review of the credit and interest marks.
Speaker Change: This is a 100% stock deal with a fixed exchange ratio of point <unk>.
Eight O shares of Westpac in stock for each share of premier with Wesbanco ultimately representing over 60% of the combined pro forma company.
Speaker Change: The deal was valued at approximately $960 million with over 40% earnings per share accretion in 2025 tangible book value dilution of approximately 13% and an associated tangible book value earn back of less than three years.
Shortly when excluding the rate and works in core deposit intangible 2025 earnings per share accretion is approximately 30%, while both tangible book value dilution and earn back or neutral.
In conjunction with the transaction, we've raised $200 million in common equity in order to maintain strong capital levels.
There are no changes to our executive leadership team, but we do anticipate additions to key line of defense functions like compliance BSA AML fraud prevention loan review of among others and for current directors of Premier Financial Corporation will be appointed to the West Bank Our board of directors.
With yesterday's signed definitive merger agreement the merger will require as well customary shareholder and regulatory approvals.
To highlight some of the key transaction assumptions the earnings projections were based on consensus estimates through 2025, and increasing 5% thereafter, we anticipate cost saves of approximately 26% of premier's expense base or $41 million with 75% realized during 2025 and 100%.
After further both companies use the same core system.
And the BSA L. A M L platform.
Which will benefit the integration and conversion.
Onetime merger expenses are anticipated to be $72 million, primarily driven by contract termination charges severance retention and employment agreements professional fees integration expenses well.
We also expect to invest roughly $13 million into the branch network between signage branch upgrades and ATM upgrades assumed to be amortized over about 15 year period.
Our model also assumes a conservative credit mark of one 8% or about crops, approximately $120 million, which is about 50% higher than.
Premier's allowance for credit losses, with roughly 40% to the P. C D book and 60% to non P. C D.
The interest Mark came in at just under 5% or $326 million and the core deposit intangibles estimated to be $148 million or roughly three 4% of deposits when excluding time deposits and public funds.
As it relates to the other assumptions within the securities portfolio, we do expect to sell roughly $200 million of that portfolio to better align with our investment profile with proceeds used to pay down borrowings. We also expect to use the proceeds from the capital raise to pay down borrowings and then finally, we plan to exit premiers cash flow hedge.
Speaker Change: Is it close.
Speaker Change: Upon the successful closing of the transaction, we anticipate strong capital ratios of eight 6% leverage nine 6% CET, one and 13, 2% total risk based capital ratio and approximate 91% loan to deposit ratio and enhanced 2025 profitability metrics of three 4%.
6% net interest margin and low 50% efficiency ratio all of which are better than the peer group median.
Jeff I'll turn it back to you.
Thanks, Dan.
Jeff: As you just heard this is truly a transformational deal for wesbanco as well as premiere.
With a significant number of synergies and long term benefits.
Our respective footprints complement each other nicely providing increased scale inefficiencies not to mention becoming the eighth largest bank in Ohio.
Speaker Change: Our cultures are highly compatible ensuring continuity and familiarity for our employees customers communities and shareholders.
The combination of our two strong and sound companies.
Provide significantly boosted financial performance.
With meaningful improvement in 2025 pro forma financial metrics.
As well as potential valuation upside.
Lastly, we have demonstrated a history of successful acquisitions that benefit all stakeholders.
These synergies give us every expectation of success as we begin working together on the transition.
We are now ready to take your questions. Operator would you. Please review the instructions.
Certainly we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at anytime. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two in the <unk>.
Just a time, we do ask that you. Please limit yourself to one question and one follow up. Please note that if you have additional questions. You may reenter. The question queue. At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Karl Shepard with RBC capital markets. Please go ahead.
Hey, good morning, guys.
Good morning, good morning, Carl.
Congrats on the announcement I guess to start Derek can you talk about the process of getting to know premier better and why are you confident that this is such a strong cultural fit.
Sure. So we've known premier for several several years.
And so the process I I I started talking with Gary back in January at our.
A conference and as we got to talk in some of our directors talk to each other we realized we had a lot of synergies and similar characteristics. It it almost feels like where we are acquiring kind of a smaller version of herself because of the rural and Metro markets.
So the process.
Started formally kind of end of January we met with Don Hileman, and our chairman, Chris Chris and myself in February and then really took off from there from a due diligence perspective.
And so as we continue to go through it we also realize that many of our key executives specifically Jay is that our chief banking officer had worked with a lot of their employees.
Speaker Change: Board members and executives in the past.
Speaker Change: You May also know our previous CEO, Todd Koffman, it's been a lot of time in Cleveland and Toledo, and so it was very familiar with them and their franchises some of their people as well and so as we continue we really like their granular rural deposit base and we also liked the market from a growth perspective, when we look at C&I. If you think about.
Northern Ohio, and the manufacturing that goes on there you look at the kind of political landscape, where everybody is trying to bring back jobs to America, whether it's in Michigan or Ohio, We just felt like.
It was just a really great fit from a cultural perspective or growth perspective, and that's kind of how it started and we feel really great about this.
Okay.
Okay. That's helpful and then as a follow up I know you guys have done a number of deals in the past, but this one is a little bit larger are there investments you need to make alongside this to kind of already have the infrastructure of the company to be close to $30 billion in assets.
I don't think there's a lot of investments we're going to make a to B 30 billion. We've been kind of working through this you know we went through the core changed a couple of years ago. We're.
We're on F. I S. Ibs Premier is also on that system are we also use the same BSA AML system as well and so I think where we would add investments and we're looking at that is on the compliance side and the risk side. We do have in the model are adding significant.
People there just to make sure we are ready for that and a lot of that would just be taking people that currently work at premier and integrating them within our our group on the risk management side.
Speaker Change: Thanks for the help.
Thanks Carl.
Next question comes from Catherine Mealor with <unk>. Please go ahead.
Thanks, Good morning, and congrats on this deal.
Thanks, Catherine good morning.
I wanted to ask a question just on the merger.
Talk to us so I know you've put out maybe your thoughts on a combined margin after the marks and paying with your balance sheet together, but.
More broadly kind of Holistically can you talk to us about what.
Balance sheet looks like on a pro forma basis in terms of kind of asset liability sensitivity feels like perhaps this acquisition, we're making you seem a little bit more liability sensitive and so maybe just kind of what that looks like maybe first of all if rate cut take longer to comp that kind of risk there and then.
What upside you could see from the margin and just the balance sheet. Once we start to get in the fed cutting environment.
Yeah, Yes, Catherine I'll go ahead and take that.
If you think think about the auto on a standalone basis, we are slightly asset sensitive and.
And premier on a standalone basis is slightly liability sensitive. So I think whenever you kind of combine the two we would expect to continue to be slightly.
Asset sensitive.
From that from that standpoint, but you.
If we think about the kind of the mix of their loan portfolio versus ours in terms of you know variable.
Variable rate fixed rate in adjustable rate there a little bit heavier on the on the fixed rate side right around 50% is fixed.
With about 25% are variable and another 25% adjustable, whereas we are less heavy on the fixed rate side, you have 70% or so.
Variable rate with a 40% of our book is re prices every three months so.
If we think about the.
Longer term, obviously to the extent, we see rate cuts and as I said in my prepared commentary we expect.
Two cuts here in 'twenty, four and three more in 'twenty five but.
Certainly were both banks on a combined basis are going to benefit from cuts no question about that.
But yeah, I think we would continue to be slightly asset sensitive.
Speaker Change: And that kind of static rate shock environment.
Our next question comes from Russell Gunther with Stephens. Please go ahead.
Hey, good morning, guys.
Hey, good morning, Russell Good morning Russell.
Could you guys talk a bit more about the decision to raise capital, particularly the amount you guys raised relative to kind of pro forma CET one.
If you're looking for 96.
And also address the CRE concentration pro forma around $2 99.
Speaker Change: Just helpful to get your thoughts in terms of where your comfort level is with those pro forma ratios.
Yes, sure Russell So you know a.
A big a big deter.
Determining factor in the amount of capital to raise was really us evaluating the.
The dilution.
Relative to our capital ratios so to your point when.
Speaker Change: When we think about CET, one and leverage are we want we were targeting to hold a leverage ratio above eight 5% on a consolidated basis and a CET one of above.
Speaker Change: Nine 5% so.
From that standpoint, you can see on a pro forma basis as you pointed out we are just above those those kind of thresholds that we set internally and then if we think about the CRE concentration on a pro forma basis, it's 2% to 199%.
Under the regulatory guidelines a 300%.
That that was that was important for us as well to evaluate.
Obviously want to continue to to.
To be cognizant of that ratio one of the things that we that we do have in our model of course that CRE concentration is based on total risk based capital at the bank level.
So what we what we have assumed and it's in the model here is that we would push down the $200 million in capital raise down to the bank.
We've also got an assumed $25 million more pushed down and then I would I would tell you that.
In terms of evaluating through the evaluation of the credit marks the loan portfolio, which was.
Speaker Change: Very detailed bottoms up.
We identified a portfolio of call it about $100 million or so that we'd like to explore further in terms of exiting so.
If you combine those those items you kind of get to that $2 99.
Speaker Change: That we came up with for a pro on a pro forma basis.
Okay.
Thanks, Dan I appreciate the thoughts there and then just as my follow up.
The pro forma NIM I appreciate the guide.
It'd be helpful to get your thoughts on just the magnitude of purchase accounting.
Speaker Change: And how that you would expect that to trend throughout 'twenty, five and as we start thinking about 'twenty six.
Sure so.
You can see this within within the deck, but just maybe to provide a little bit a little bit more color here.
We've got assumed a rate mark on the loan portfolio of about $325 million.
Non PC D.
Speaker Change: Mark of about $70 million and we are we actually had an outside third party valuation firm prepare that that theres marks for us given the size of the deal.
And in terms of accretion we didn't make kind of the assumption that you might see in other deals where its just.
Estimating a five year straight line accretion we actually used.
The actual accretion that came out of the book.
To cut to determine those those marks and the accretion over the life of the portfolio.
What we saw was basically on a after tax basis.
Speaker Change: That accretion was right around $55 million in in year one.
And if we think about kind of the makeup of that of the portfolio.
Speaker Change: As you know premier's, a little bit heavier in that one to four family space.
And.
So a lot of a lot of there that one to four family you think longer term fixed rate mortgages.
Speaker Change: A lot of that was originated during the mortgage boom a couple of years ago when rates were pretty low. So we do think that if we if we think about the timing of that the accretion, particularly on the one to four family book.
That has a little bit longer a longer duration longer life, it's actually a weighted average rate of about 82 months so call. It.
Seven seven years.
And so.
So we do think that that accretion will be on.
Speaker Change: On the books and recognized for a bit longer maybe than what you might see in.
And in other deals.
And.
Speaker Change: Do you think that there is also quite a bit of opportunity. There in terms of when we think about you know a lot of these mortgages were originated at three 5% or lower.
You know the rate that they are coming on our books once once marked where call. It a 27 year life on a 30 year fixed rate that was originated three years ago is going to come onto our books today around 657% and so we have the benefit of of that accretion are recognizing that yield over the.
Life of these loans and there is pretty low risk I would say of prepayment risk if you will because.
Yes.
Speaker Change: As you know as a individual if you can you're unlikely to.
Refinance.
Three 5% fixed rate mortgage.
And so we think that thats going to be pretty sticky and on the books for quite some time.
Speaker Change: That's great color Dan Thank you very much.
Our next question is from Catherine Mealor of K B W. Please go ahead.
Thanks Becca.
Catherine Fitzhugh Summerson Mealor: I need it when I was asking my follow ups. So thank you for letting me jump again.
When it is all about head to the margin was you mentioned that youre going to pay down our premier Bontoc and it looks like some of that's going to come like the paydown in borrowings for the remainder of proceeds and that would you expect to put it back into the securities portfolio or is that excess cash flow is going to be used for loan growth moving forward.
Yeah, so the excess cash the plan would be to pay down their wholesale borrowings both on the security sale as.
As well as the cash raised through you know through the capital raise.
Catherine Fitzhugh Summerson Mealor: Arrays.
So about $400 million in total obviously $200 million would be will be applied here in August, which would which also kind of.
As you can imagine help our our margin a little as we're paying down our own <unk> borrowings.
But yeah, that's that's where we're at.
And a total of 400 million in borrowings.
Yes, correct that's right okay.
Great.
And then one other follow up on the capital question did you can you or have you disclosed where the capital is raised.
Yes.
Yeah.
Yes that is disclosed catheter.
Kathryn that's in the.
With that in the joint.
Merger announcement relief and that was $27 57.
Okay great.
Speaker Change: Alright, Thank you for let me jump back on.
Thanks Catherine.
Catherine Fitzhugh Summerson Mealor: The next question comes from David Bishop of Havas Group. Please go ahead.
Yes, good morning, gentlemen, and congrats on the deal as well.
Thank you good morning.
Hey, Jeff I know in the past you guys have had pretty good success as of late overlaying some.
Speaker Change: <unk> products.
<unk> is a good fee income any any opportunities to do that some early there or is that in the numbers or are there areas you can augment on the on the fee income side for Premier.
Yes, I think theres a lot of opportunities.
With premier as it relates to swaps as it relates to you know we rolled out a lot of new treasury products.
I think as we look at becoming a bigger bank a bigger balance sheet that we're going to bring to that geography. We can look at taking full relationships on the C&I side and providing those products that maybe they haven't been able to to do it do that at the past.
The other thing I would say is we do have a very robust wealth and treasury wealth and trust business.
And I believe theres a lot of opportunity there they have a good sized portfolio, but we believe there is some nice growth built in as well within that footprint.
Okay.
Got it and then Conversely, maybe on the loan side any new business lines that.
Maybe complement what youre doing on the legacy Wesbanco side. Thank you.
I don't think Theres any new new business lines that they that they would have.
They have a couple of smaller portfolios in AG about $200 million, we're not in AG.
Speaker Change: But other than that.
Like I said they are very similar to us I mean, just your bread and butter butter C&I CRE lending I'm really great credit levels and so we feel like once again its kind of like we're acquiring a mini version of us.
Really appreciate.
The work that we've done with them and feel like we'll be able to grow their portfolios and in those territories. The other thing I would just note as you probably know we have L. P o's and Cleveland and Akron, Ken and obviously, a good presence in Columbus. So this just really helps us with our growth in those markets.
But overall I feel like there is some nice growth that will be able to see from the loan side.
Perfect. Thanks.
Speaker Change: Again, if you have a question. Please press Star then one.
The next question comes from Daniel Cardenas with Janney Montgomery Scott. Please go ahead.
Speaker Change: Hey, Good morning, guys, Hey, good morning, Dan Good morning, Daniel.
Just a quick question perhaps.
Perhaps I missed it but when do you anticipate the transaction closing.
We would anticipate probably first quarter next year.
Speaker Change: We've had a good preliminary discussions with our regulators and feel obviously good about submitting the application, but we are targeting a first quarter of next year.
Uh huh.
Perfect.
And then just in terms of the transaction.
Action gets you into the Michigan market.
Excuse me.
Any any desire to build that out any further you can do M&A or is it maybe too soon.
Speaker Change: Consider that.
Speaker Change: I think we're always open to the right opportunity and the right partner.
Obviously being brand new to Michigan banking, we would have to explore that market more but you know I.
Speaker Change: I think if you look at going back just real briefly on our second quarter earnings.
We had great growth loan growth in four different states, Tennessee, Ohio, Kentucky, and Maryland, and if you think about those four markets that we had great loan growth in all of them have vastly different competitors and so when I step back and take a look at what we're doing our culture our franchise.
It makes me feel really great that we can compete against vastly different competitors in four different markets and continue to win business and grow our loans. So to me that I think that should say, we I believe we could be very successful in Michigan I think it's just getting to know the players getting to know the market and then potentially if it make strategic sense moving forward there, but that's down the road.
Got it.
Speaker Change: <unk> been asked and answered thanks, guys.
Thanks, Dan.
Thanks, Dan.
The next question comes from David Bishop of Hub group with a follow up. Please go ahead.
Yeah, just a quick follow up thank.
You mentioned there could be some inflationary pressure.
Some projects on the operating expense side in the third quarter.
Any way to frame up sort of the the dollar amount or.
Percentage increase you're expecting in the near term.
David This is Dan I'll take that one.
Not not really expecting an inflationary pressure in the third quarter.
But I would say as we think about it our expense run rate.
The only the increase that we would expect would be just in our typical annual midyear merit increases which occur for the salary folks on yes at the beginning of June.
And then the hourly in the beginning of August so no not not extensive hitting.
Really any <unk>.
Sure there are.
I would also I would also add that in.
In my prepared commentary I mentioned.
Some marketing expense, but that's that's purposeful.
To take advantage of some opportunities that we think we have.
And deposit gathering efforts, so actually we're pretty optimistic about our expense run rate given that we did have some some items that were running through expenses. This quarter that were that were not anticipated and not expected to repeat.
Got it and then Jeff I know you sort of highlighted that the loan pipeline at the preamble any insight into our line of sight into the the <unk>.
Commercial deposit pipeline as you are sort of exited the quarter.
Yeah, we're we're continuing to keep a pretty strong commercial deposit and consumer deposit pipeline.
For us we feel like third quarter should be a really nice deposit growth quarter I would say last quarter, you had a lot of tax payments and things that may have slowed us down slightly in the second quarter, but third quarter I would say the deposit pipeline is still very strong as is the loan pipeline.
Perfect. Thank you.
Okay.
Our next question comes from Manuel Nova <unk> with D. A Davidson. Please go ahead.
Hey, good morning can you talk about potential for loan growth post this transaction.
You talked about the balance sheet restructuring you are paying down borrowings, but you can also have more liquidity I just want to have that.
That side of the benefits discussed a little bit more.
Sure.
I think if you look at second quarter loan growth I think annual on an annualized basis is about 15% growth.
Don't expect that for third and fourth quarter, but I do believe youre at mid to upper single digits loan growth.
Speaker Change: And then I think once this transaction goes through I think we will be incredibly well positioned to continue those levels of growth.
As we move into these new markets and rollout or some additional products and things.
Once we get the merger done so I would continue to model that mid to upper single digit loan growth and could even possibly be better.
Did the CRE concentration changed your pipeline.
Mix or desire for certain types of loans is that already contemplated in.
Your kind of expectations going forward.
Speaker Change: Yeah, Yeah, it's already contemplated in the expectations. It obviously.
Does.
Make us more particular.
Speaker Change: And we've kind of raised some some minimum interest rates on some of our CRE projects.
Speaker Change: To make us more selective at this time, but I think the other thing that you know.
Speaker Change: Because of the low marks this accretion builds back pretty quickly.
And depending on if interest rates fall between now and close we could see.
Several tens if not $100 million of marks come back, which then obviously would then lower the CRE concentration ratio by the time of close.
Okay I appreciate that.
Shifting over to your comments about investing in Premier's branch network could you just expand on that a little bit.
Yeah Manuel I can I can take that so what we've got is about $13 million in capitalized expenses that are planned really too.
Can you provide some branch upgrades, we're also upgrading Atms and.
Speaker Change: And that would also include kind of the.
The the rebranding kind of signage if you will on the.
The 73 branches.
Thank you I appreciate I appreciate that.
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 this past quarter, we achieved solid loan deposit and fee income growth.
Manage cost and maintain strong capital levels and credit quality.
And embarked on the transformation of Wesbanco into a stronger regional financial services institution.
<unk> is an ideal partner for premier.
As we have a history of solid execution on our operational and growth strategies.
Speaker Change: And a strong track record of operational performance and merger success.
We look forward to speaking with you in the near future at one of our upcoming Investor events have a good day. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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