WesBanco Q2 2024 & Acquisition Earnings Call Transcript

Quartr
Provided by Quartr
July 26, 2024

There are 10 speakers on the call.

Operator

Good morning and welcome to the WesBanco Inc. 2nd Quarter 2024 Earnings and Proposed Merger Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

Operator

I would now like to turn the conference over to John Iannone, Senior Vice President of Investor Relations. Please go ahead.

Speaker 1

Thank you. Good morning, and welcome to WesBanco Inc. Q2 2024 Earnings and Proposed Merger with Premier Financial Corporation 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, including certain plans, expectations, goals and projections and including statements about the benefits of the proposed merger between WesBanco Inc.

Speaker 1

And Premier Financial Corporation, which are subject to numerous assumptions, risks and uncertainties. In addition, presentations to which we will be referencing today were filed as parts of Forms 8 ks and posted to westbanko.com. 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, westbanko.com. All statements speak only as of July 26, 2024, and WesBanco and Premier undertake no obligation to update them.

Speaker 2

I would now like to turn

Speaker 1

the call over to Jeff. Jeff?

Speaker 3

Thanks, John, and good morning. This is an exciting and momentous day for WesBanco. In addition to reporting our 2nd quarter results, we also announced an agreement to merge with Premier Financial Corp, an almost $9,000,000,000 asset bank headquartered in Defiance, Ohio. This merger will create a community focused regional financial services partner with more than $27,000,000,000 in assets, significant economies of scale and strong pro form a profitability metrics. As you noticed, we also filed 2 presentations, 1 on the proposed merger and the other is our standard earnings presentation.

Speaker 3

On today's call, we will review our results for the Q2 of 2024, provide our current 2024 outlook and review our announced merger with Premier. Key takeaways from the call are continued strong deposit and loan growth, a sustained focus on controlling discretionary costs and maintaining favorable credit quality metrics, Recognition as one of the 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. WesBanco sustained its positive momentum in 2024 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.

Speaker 3

While I will provide more details on our definitive merger agreement with Premier, the announcement 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 Q2 financial results and current outlook for 2024. Dan? Thanks, Jeff, and good morning. To highlight a few accomplishments from the Q2, we achieved strong year over year loan and deposit growth as well

Speaker 4

as maintained solid fee income growth and we're pleased with the lower expense run rate. For the quarter ending June 30, 2024, we reported GAAP net income available common shareholders of $26,400,000 or $0.44 per share. And when excluding after tax restructuring and merger related expenses, net income was $29,400,000 or $0.49 per diluted share as compared to $42,400,000 or $0.71 per diluted share in the prior year period. The 2nd quarter's results were impacted by a $10,500,000 provision for credit losses due to our strong loan growth, changes in macroeconomic factors and a specific reserve on 1 C and I loan and we also recognized $3,800,000 in restructuring expense related to our branch optimization strategy. For the first time in our history, total assets have eclipsed $18,000,000,000 driven by portfolio loans of $12,300,000,000 which grew 10% year over year and 13% linked quarter annualized.

Speaker 4

Our commercial loan growth continues to benefit from our commercial banker hiring and loan production office strategy and our commercial loan pipeline as of June 30 was approximately $950,000,000 up 30% from a year ago. Deposits of $13,400,000,000 were down 0.5% linked quarter, but up 4.4% 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 non interest bearing deposits as percentages of total deposits remain consistent with the percentage range prior to the pandemic, representing approximately 55% of total deposits and 28 0.5% respectively. Credit quality stability continues with key metrics that have remained low from a historical perspective and within a consistent range throughout the last 2 plus years.

Speaker 4

The allowance for credit losses totaled to total portfolio loans at June 30, 2024 increased 2 basis points to 1.11 percent of total loans, which as I mentioned, resulted in a $10,500,000 provision for credit losses due to strong second quarter loan growth, a higher unemployment assumption and a specific reserve for an individual C and I loan. This C and I loan was in the renewable energy industry and is fully reserved at $3,300,000 Our 2nd quarter net interest income of 2.95 percent continues to reflect higher funding costs from the remix of non interest bearing deposits into higher tier money market and certificate deposit accounts offset by loan growth and the benefit of higher rates on earning assets. The margin increased 3 basis points sequentially as higher loan yields outpaced higher funding costs and the NIM improvement was somewhat driven by the deposit growth that we experienced in the Q1, which fully funded 1st quarter loan growth. Non interest income for the Q2 of 2024 of $31,400,000 decreased $500,000 or 1.5% from the prior year, primarily due to lower net swap fee and valuation income, as well as higher gains on other real estate owned and other assets in the prior year period.

Speaker 4

Excluding restructuring and merger related expenses, non interest expense for the 3 months ended June 30, 2024 totaled $98,600,000 a 2.3% increase year over year primarily due to increases in other operating expenses and equipment and software expenses. Included within the 2nd quarter salary expense is roughly $900,000 related to the acceleration of stock based compensation and salary expense, which are not expected to repeat. We also experienced higher Reg E 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 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 2 rate cuts in the back half of the year, followed by 3 more cuts in 2025, which are not expected to have a significant impact on 2024 results due to the timing of the cuts.

Speaker 4

The net interest margin in the 3rd quarter is modeled to be relatively consistent with the 2nd quarter in the low to mid-two ninety percent range, mostly dependent upon deposit growth to fund the 3rd quarter loan growth and we modeled the 4th quarter to be in the mid to upper 290s as assets continue to reprice higher and at a faster pace than deposits. We anticipate non interest income to remain relatively consistent with 2nd quarter trends, while expenses will be impacted by mid year merit increases as well as a late summer marketing campaign. The provision for credit losses will mostly be dependent upon loan growth, economic factors and charge offs and expect to come in somewhat lower than the 2nd 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.

Speaker 4

We've recognized $3,800,000 of restructuring expenses this quarter and anticipate annual savings approximately $4,000,000 the majority of which will begin to be realized during 2025. And with that, I'll turn it back to you, Jeff.

Speaker 3

Thanks, Dan. Our long term growth strategy is focused on several key pillars, building a diversified loan portfolio, distinct revenue capabilities, digital banking service strategies and a core funding advantage and franchise enhancing expansion. These pillars stand strong thanks to 2 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.

Speaker 3

This transformational day in WesBanco's 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 2 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 $6,800,000,000 and a wealth division with approximately $1,500,000,000 of assets under management and advisory. That augments our 100 plus year old wealth management business. As we have gotten to know Premier, we are excited to welcome them to the WesBanco family and provide their customers with a broader array of banking services, including expanded commercial lending and treasury management capabilities and additional wealth management solutions.

Speaker 3

We share a customer centric philosophy and focus on the success of the communities we serve. 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. 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 $27,000,000,000 in assets, providing significant economies of scale.

Speaker 3

This combination will propel us to a position as the 8th 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 form a profitability metrics, including net interest margin improving 40 basis points to 3.46%, return on average assets up 30 basis points to 1.2% and return on average tangible common equity improving 5 57 basis points to 16.9%. Further, we see opportunities for valuation upside. Priced at 2025 earnings multiple of 8.6 times and a 59% pro form a increase in market cap.

Speaker 3

As can be seen in the merger presentation, our pro form a 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 $20,000,000,000 $40,000,000,000 On a pro form a basis at closing, we will have a very strong balance sheet with $27,000,000,000 in assets, dollars 21,000,000,000 in deposits, dollars 19,000,000,000 in loans and tangible common equity of $2,000,000,000 driving a total risk based capital ratio of 13.2%. Would like to turn the call back over to Dan to review some of the key terms and financials of the Preferreds merger. Dan?

Speaker 4

Thanks, Jeff. As you can see in the merger presentation, Premier is very similar to WesBanco with a stable and granular deposit base that complements its diverse loan portfolio as well as comparable credit quality metrics to both WesBanco and the peer group. 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 IT. We also reviewed the majority of Premier's commercial loan portfolio as well as hired a 3rd party valuation services firm to assist in the review of the credit and interest marks. This is a 100% stock deal with a fixed exchange ratio of 0.80 shares of WesBanco stock for each share of Premier, with WesBanco ultimately representing over 60% of the combined pro form a company.

Speaker 4

The deal is valued at approximately $960,000,000 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 3 years. Importantly, when excluding the rate marks and core deposit intangible, 2025 earnings per share accretion is approximately 30%, while both tangible book value dilution and earn back are neutral. In conjunction with the transaction, we've raised $200,000,000 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 among others and 4 current directors of Premier Financial Corporation will be appointed to the WesBanco Board of Directors. With yesterday's signed definitive merger agreement, the merger will require as well customary shareholder and regulatory approvals.

Speaker 4

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 $41,000,000 with 75% realized during 2025 100% thereafter. Further, both companies use the same core system and the BSAML platform, which will benefit the integration and conversion. One time merger expenses are anticipated to be $72,000,000 primarily driven by contract termination charges, severance, retention and employment agreements, professional fees and integration expenses. We also expect to invest roughly $13,000,000 into the branch network between signage, branch upgrades and ATM or approximately or approximately $120,000,000 which is about 50% higher than Premier's allowance for credit losses with roughly 40% to the PCD book and 60% to non PCD.

Speaker 4

The interest mark came in at just under 5% or $326,000,000 and the core deposit intangibles estimated to be $148,000,000 or roughly 3.4 percent 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 $200,000,000 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 Premier's cash flow hedges at close. Upon the successful closing of the transaction, we anticipate strong capital ratios of 8.6% leverage, 9.6 percent CET1 and 13.2 percent total risk based capital ratio and approximate 91 ratio and approximate 90 1 percent loan to deposit ratio and enhanced 2025 profitability metrics of 3.46 percent net interest margin and low 50 percent efficiency ratio, all of which are better than the peer group median.

Speaker 4

Jeff, I'll turn it back to you.

Speaker 3

Thanks, Dan. As you just heard, this is truly a transformational deal for WesBanco as well as Premier with a significant number of synergies and long term benefits. Our respective footprints complement each other nicely, providing increased scale and efficiencies, not to mention becoming the 8th largest bank in Ohio. Our cultures are highly compatible ensuring continuity and familiarity for our employees, customers, communities and shareholders. The combination of our 2 strong and sound companies provide significantly boosted financial performance with meaningful improvement in 2025 pro form a financial metrics as well as potential valuation upside.

Speaker 3

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?

Operator

Certainly. We will now begin the question and answer session. The first question comes from Carl Sheppard with RBC Capital Markets. Please go ahead.

Speaker 2

Hey, good morning guys. Good morning. Good morning, Carl. So congrats on the announcement. I guess to start there, can you talk about the process of getting to know Premier better?

Speaker 2

And why are you confident that this is such a strong cultural fit?

Speaker 3

Sure. So we've known Premier for several years. And so the process, I started talking with Gary back in January at an AOBA conference. And as we got to talk and some of our directors talked to each other, we realized we had a lot of synergies and similar characteristics. It almost feels like we're acquiring kind of a smaller version of ourselves because of the rural and metro markets.

Speaker 3

And so the process started formally kind of end of January. We met with Don Heilman 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 Zad, our Chief Banking Officer, had worked with a lot of their employees, Board members and executives in the past. You may also know our previous CEO, Todd Claassen, spent a lot of time in Cleveland and Toledo, So I was very familiar with them and their franchise and some of their people as well. And so as we continue, we really like their granular rural deposit base.

Speaker 3

And we also like the markets from a growth perspective when we look at C and 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, a growth perspective. And that's kind of how it started and we feel really great about this.

Speaker 2

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 ready the infrastructure of

Speaker 5

the company to be close to $30,000,000,000 in assets, call it?

Speaker 3

I don't think there's a lot of investments we're going to make to be $30,000,000,000 We've been kind of working through this. We went through the core change a couple of years ago. We're on FIS, IBS. Premier is also on that system. We also use the same BSA ML system as well.

Speaker 3

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 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 group on the risk management side.

Speaker 4

Thanks for the help.

Speaker 2

Thanks, Carl.

Operator

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

Speaker 6

Thanks. Good morning and congrats on this deal.

Speaker 3

Thanks, Catherine. Good morning.

Speaker 6

I wanted to another question just on the merger. Can you just talk to us I know you've put out maybe your thoughts on a combined margin after the marks and putting the 2 balance sheets together. But thinking more broadly kind of holistically, can you talk to us about what the balance sheet looks like on a pro form a basis in terms of asset sensitivity, liability sensitivity. It feels like perhaps this acquisition will make you, I assume, a little bit more liability sensitive. And so maybe just kind of what that looks like maybe first if rate cuts take longer to come, so kind of risk there?

Speaker 6

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?

Speaker 4

Yes, Catherine, I'll go ahead and take that. If you think about us on a standalone basis, we are slightly asset sensitive and Premier on a standalone basis is slightly liability sensitive. So I think whenever you kind of combine the 2, we would expect to continue to be slightly asset sensitive from that standpoint. But if we think about the kind of the mix of their loan portfolio versus ours in terms of variable rate, fixed rate and adjustable rate, they're a little bit heavier on the fixed rate side, right around 50% is fixed with about 25% variable and another 25% adjustable whereas we are less heavy on the fixed rate side 70% or so variable rate with 40% of our book is re prices every 3 months. So if we think about longer term obviously to the extent we see rate cuts and as I said in my prepared commentary we expect 2 cuts here in 2024 and 3 more in 2025.

Speaker 4

But certainly we're both banks on a combined basis are going to benefit from cuts. No question about that. But yes, I think we would continue to be slightly asset sensitive in that kind of static rate shock environment.

Operator

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

Speaker 2

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 form a CPT-one? I think you're looking for 9.6% and also address the CRE concentration pro form a around 299, just helpful to get your thoughts in terms of where your comfort level is with those pro form a ratios?

Speaker 5

Yes, sure Russell.

Speaker 4

So a big determining factor in the amount of capital to raise was really us evaluating the dilution relative to our capital ratio. So to your point, when we think about CET1 and leverage, we want we were targeting to hold a leverage ratio above 8.5% on a consolidated basis and a CET1 of above 9.5%. So from that standpoint, you can see on a pro form a basis as you pointed out, we are just above those kind of thresholds that we set internally. And then if we think about the CRE concentration on a pro form a basis, it's 2 99% just under the regulatory guidelines of 300%. That was important for us as well to evaluate and obviously want to continue to be cognizant of that ratio.

Speaker 4

One of the things 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 have assumed and it's in the model here is that we would push down the $200,000,000 in capital raise down to the bank. We've also got an assumed $25,000,000 more push down. And then I would tell you that in terms of evaluating through the evaluation of the credit marks, the loan portfolio which was very detailed and bottoms up, We identified a portfolio of call it about $100,000,000 or so that we'd like to explore further in terms of exiting. So you combine those items, you kind of get to that 299 dollars that we came up with on a pro form a basis.

Speaker 2

And then just as my follow-up, the pro form a NIM, appreciate the guide. It would be helpful to get your thoughts on just the magnitude of purchase accounting and how that you would expect that to trend throughout '25 and as we start thinking about 'twenty six?

Speaker 4

Sure. So you could see this within the deck, but just maybe to provide a little bit more color here. We've got assumed a rate mark on the loan portfolio of about $325,000,000 a non PCD mark of about $70,000,000 And we actually had an outside 3rd party valuation firm prepare that those marks for us given the size of the deal. And we in terms of accretion, we didn't make kind of the assumption that you might see in other deals where it's just estimating a 5 year straight line accretion. We actually used the actual accretion that came out of the book to determine those marks and the accretion over the life of the portfolio.

Speaker 4

What we saw was basically on an after tax basis that accretion was right around $55,000,000 in year 1. And if we think about kind of the makeup of that of the portfolio, as you know Premier is a little bit heavier in that 1 to 4 family space. And so a lot of that 1 to 4 family think longer term fixed rate mortgages, 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 think about the timing of that the accretion particularly on the 1 to 4 family book that has a little bit longer duration, longer life. It's actually weighted average rate of about 82 months, so call it 7 years.

Speaker 4

And so we do think that accretion will be on the books and recognized for a bit longer maybe than what you might see in other deals. And you think that there's also quite a bit of opportunity there in terms of when we think about a lot of these mortgages were originated at 3.5% or lower. The rate that they're coming on our books once marked, we'll call it a 27 year life on a 30 year fixed rate that was originated 3 years ago is going to come on to our books today around 6.5%, 7%. And so we have the benefit of that accretion recognizing that yield over the life of these loans. And there's pretty low risk, I would say, of prepayment risk, if you will because just as an individual if you can you're unlikely to refinance 3.5% fixed rate mortgage.

Speaker 4

And so we think that that's going to be pretty sticky and on the books for quite some time.

Speaker 2

That's great color, Dan. Thank you very much.

Operator

Our next question is from Catherine Mealor of KBW. Please go ahead.

Speaker 6

Thanks. I'm back. I was muted when I was asking my follow-up, so thank you for letting me jump back in. One follow-up I had to the margin was you mentioned that you're going to pay down Premier's bond book and it looks like some of it's going to come with the pay down in borrowings. For the remainder of proceeds in that, would you expect to put it back into the securities portfolio or is that excess cash flow just going to be used for loan growth moving forward?

Speaker 4

Yes. So the excess cash, the plan would be to pay down their wholesale borrowings, both on the security sale as well as the cash raised through the capital raise. So about $400,000,000 in total obviously $200,000,000 will be applied here in August which will also kind of as you can imagine help our margin a little as we're paying down our own FHLB borrowings. But yes, that's where we're

Speaker 6

at. Okay. So a total of $400,000,000 in borrowings pay down?

Speaker 7

Yes. Correct. That's right.

Speaker 6

Okay, great. And then one other follow-up on the capital question. Can you or have you disclosed where the capital was raised at what price?

Speaker 4

Yes, that is disclosed, Catherine. That's in the I believe that's in the joint merger announcement release and that was $27.50

Speaker 6

Okay, great. I missed that.

Operator

The next question comes from David Bishop of Please go

Speaker 5

ahead. Yes. Good morning, gentlemen, and congrats on the deal as well.

Speaker 3

Thank you. Good morning.

Speaker 5

Hey, Jeff. I know in the past you guys have had pretty good success as of late overlaying some swap products, generating some good fee income. Any opportunities to do that similarly there? And is that in the numbers? Or are there areas you can augment on the fee income side from Premier?

Speaker 3

Yes. I think there's a lot of opportunities with Premier as it relates to swaps, as it relates to we've 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 and I side and providing those products that maybe they haven't been able to 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 there's a lot of opportunity there.

Speaker 3

They have a good sized portfolio, but we believe there's some nice growth built in as well within that footprint.

Speaker 5

Got it. And then conversely, maybe on the loan side, any new business lines that maybe complement

Speaker 3

what you're doing on the legacy Westbank side? Thank you. I don't think there's any new business lines that they would have. They have a couple of smaller portfolios in ag, about $200,000,000 We're not in ag. But other than that, like I said, they're very similar to us.

Speaker 3

I mean, just your bread and butter, C and I, CRE lending, really great credit levels. And so we feel like once again, it's kind of like we're acquiring a mini version of us and really appreciate the work that we've done with them and feel like we'll be able to grow their portfolios in those territories. The other thing I would just note, as you probably know, we have LPOs in Cleveland and Akron, Canton 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 we'll be able to see from the loan side.

Speaker 5

Perfect. Thanks.

Operator

The next question comes from Daniel Cardenas with Janney Montgomery Scott. Please go ahead.

Speaker 2

Hey, good morning, guys.

Speaker 3

Hey, good morning, Dan. Good morning, Jeff.

Speaker 2

Just a quick question, perhaps I missed it, but when do you anticipate on the transaction closing?

Speaker 3

We would anticipate probably Q1 next year. We've had good preliminary discussions with our regulators and feel obviously good about submitting the application. But we're targeting Q1 of next year.

Speaker 2

Perfect. And then just in terms of the transaction gets you into the Michigan market, any desire to build that out any further through M

Speaker 8

and A or is that maybe too soon to consider

Speaker 3

that? 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 I think if you look at, going back just real briefly on our Q2 earnings, we had great growth, loan growth in 4 different states, Tennessee, Ohio, Kentucky and Maryland. And if you think about those 4 markets that we had great loan growth in, all of them have vastly different competitors.

Speaker 3

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 4 different markets and continue to win business and grow our loans. So to me, I think that should say I believe we could be very successful in Michigan. I think it's just getting to know the players, getting to know the markets and then potentially, if it makes strategic sense moving forward there. But that's down the road.

Speaker 2

Got it. All right. My other questions have been asked and answered. Thanks, guys.

Speaker 3

Thanks Dan. Thanks Dan.

Operator

The next question comes from David Bishop of Hovde Group with a follow-up. Please go ahead.

Speaker 5

Yes. Just a quick follow-up. I think you mentioned there could be some inflationary pressure from some projects on the operating expense side of the Q3. Any way to frame sort of the dollar amount or percentage increase you're expecting in the near term?

Speaker 4

David, this is Dan. I'll take that one. We're not really expecting inflationary pressure in the Q3, but I would say as we think about 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 the beginning of June and then the hourly in the beginning of August. So no, not anticipating really any pressure there. I would also add that we in my prepared commentary, I mentioned some marketing expend, but that's purposeful to take advantage of some opportunities that we think we have and deposit gathering efforts.

Speaker 4

So actually we're pretty optimistic about our expense run rate given that we did have some items that were running through expenses this quarter that were not anticipated and not expected to repeat.

Speaker 5

Got it. And then Jeff, I know you sort of highlighted the loan pipeline at the preamble. Any insight into or line of sight into the commercial deposit pipeline as you sort of exit the quarter? Thanks.

Speaker 3

Yes. We're continuing to keep a pretty strong commercial deposit and consumer deposit pipeline. For us, we feel like 3rd 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 Q2. But Q3, I would say the deposit pipeline is still very strong as is the loan pipeline.

Speaker 4

Perfect. Thank you.

Operator

Our next question comes from Manuel Nava with D. A. Davidson. Please go ahead.

Speaker 9

Hey, good morning. Can you talk about potential for loan growth post this transaction? You talked about the balance sheet restructuring, you're paying down borrowings. You could also have more liquidity. I just wanted to have that side of the benefits discussed a little bit more.

Speaker 3

Sure. I think if you look at 2nd quarter loan growth, I think on an annualized basis, it's about 15% growth. I don't expect that for 3rd Q4, but I do believe you're at mid to upper single digits in loan growth. 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 roll out our some additional products and things once we get the merger done. So I would continue to model at mid to upper single digits loan growth and could even possibly be better.

Speaker 9

Does the CRE concentration change your pipeline mix or desire for certain types of loans? Is that already contemplated in your kind of expectations going forward?

Speaker 3

Yes, it's already contemplated in the expectations. It obviously does make us more particular and we've kind of raised some minimum interest rates on some of our CRE projects to make us more selective at this time. But I think the other thing that because of the loan 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 $100,000,000 of marks come back, which then obviously would then lower the CRE concentration ratio by the time of close.

Speaker 9

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?

Speaker 4

Yes, Manuel, I can take that. So what we've got is about $13,000,000 in capitalized expenses that are planned really to provide some branch upgrades. We're also upgrading ATMs and that would also include kind of the rebranding kind of signage, if you will, on the 73 branches.

Operator

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

Speaker 3

Thank you for joining us today. During this past quarter, we achieved solid loan, deposit and fee income growth, managed costs and maintained strong capital levels and credit quality and embarked on the transformation of WesBanco into a stronger regional financial services institution. WesBanco is an ideal partner for Premier as we have a history of solid execution on our operational and growth strategies 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.

Speaker 3

Thank you.

Operator

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

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Earnings Conference Call
WesBanco Q2 2024 & Acquisition
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