WesBanco Inc (WSBCP) 2017 Q3 法說會逐字稿

Good morning, and welcome to the WesBanco Third Quarter 2017 Earnings Conference Call.

(Operator Instructions) Please note, this event is being recorded.

At this time, I would like to turn the conference over to John Iannone, Vice President of Investor Relations.

Please go ahead, sir.

Thank you, Denise.

Good morning, and welcome to WesBanco Inc.'s Third Quarter 2017 Earnings Conference Call.

Our third quarter 2017 earnings release, which contains consolidated financial highlights and reconciliations of non-GAAP financial measures, was issued yesterday afternoon and is available on our website, www.wesbanco.com.

Leading the call today are Todd Clossin, President and Chief Executive Officer; and Bob Young, Executive Vice President and Chief Financial Officer.

Following the opening remarks, we will begin a question-and-answer session.

An archive of this call will be available on our website for one year.

Forward-looking statements in this report relating to WesBanco's plans, strategies, objectives, expectations, intentions and adequacy of resources are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

The information contained in this report should be read in conjunction with WesBanco's Form 10-K for the year ended December 31, 2016, and Forms 10-Q for the quarters ended March 31 and June 30, 2017.

As well as documents subsequently filed by WesBanco with the Securities and Exchange Commission, which are available on the WesBanco and SEC websites.

Investors are cautioned that forward-looking statements, which are not historical fact, involve risks and uncertainties, including those detailed in the WesBanco's most recent annual report on Form 10-K filed with the SEC under Risk Factors in Part 1, Item 1A.

Such statements are subject to important factors that could cause actual results to differ materially from those contemplated by such statements.

WesBanco does not assume any duty to update forward-looking statements.

Todd?

Thank you, John.

Good morning, everyone.

On today's call, we'll be reviewing our results for the third quarter of 2017.

Key takeaways from the quarter are: we continue to make strong progress on our long-term operational and growth strategies; loan growth over the last 12 months was driven by our strategic focused categories; we have demonstrated continued strength in credit quality, profitability measures and expense management; and we're well positioned for success in any type of operating environment.

For the 3 months ended September 30, we earned fully diluted earnings per share of $0.60 on net income of $26 million.

For the 9-month period, we earned fully diluted earnings per share of $1.78 on net income of $79 million.

We continue to generate solid returns as demonstrated by returns on average assets and average tangible equity of 1.06% and 13.31%, respectively.

In addition, our consolidated and bank level regulatory capital ratios are well above the applicable well-capitalized standards promulgated by bank regulators in the Basel III capital standards.

Our long-term growth is focused on 5 key strategies.

Growing our loan portfolio with an emphasis on commercial and industrial lending while maintaining our high credit standards, increasing fee income as a percentage of net revenues over time, providing high-quality retail banking services, generating positive operating leverage and expanding our franchise.

Total loan growth for the third quarter was 2.2% year-over-year, reflecting the impact of our stated strategies related to our residential mortgage and consumer loan portfolios as well as higher payoffs compared to the second quarter as we continue to see developers going to the secondary market sooner to take advantage of the aggressive refinancing options being offered.

Overall, loan growth was driven by our strategic focused categories as we realized mid-single digit growth in total commercial loans of 5.5% and home equity loans up 4.3%.

Recent national trends and anecdotal evidence from others in the industry as well as customer comments have shown that companies are being cautious, not pessimistic, which is a key distinction.

And waiting to make desired capital investments until there's more certainty in the business environment, in particular, with regards to tax and Health Care Reform.

While we are not seeing any credit deterioration in any of our markets, we've seen a similar slowdown in our recent loan growth compared to national trends.

That said, we remain optimistic on the opportunities in our markets as we continue to diversify and strengthen the quality of our overall loan portfolio.

Our C&I and home equity lending focus continues to gain traction and provide diversification.

And we continue to reduce the overall risk through appropriate management of our consumer portfolio.

As I mentioned last quarter, we continue to manage the risk and return of our loan portfolio by allocating capital to our highest opportunity product areas.

An example of this is our focus upon the utilization of our existing financial center network to support our home equity lending product.

We've expanded the team in our Kentucky and Southern Indiana markets during the first half of the year, and are excited about their prospects as they've already begun to show nice traction in building their book of business.

Furthermore, we have continued to reduce the risk profile of our loan portfolio through targeted reductions in the consumer portfolio, which has declined 15% year-over-year to now represent approximately 5% of our total loans.

We continue to maintain our past discipline of prudently managing loan growth and we will intentionally give up a few percentage points of loan growth by not chasing the relaxed credit standards we are seeing within our markets.

This discipline is reflected in the overall strength of our credit quality measures.

In addition, we continue to have no concentration issues or concerns across our portfolios as our energy related, hotel and retail exposures remain minimal.

As we invest to become a larger organization, we remain focused on expenses and maintaining a strong efficiency ratio, which we believe is the best long-term measure of demonstrating balanced revenue growth and disciplined expense management.

While our efficiency ratio might fluctuate from one quarter to the next, we have maintained it in the mid-50% range for the last couple of years.

We are working to control discretionary expenses as we make revenue-producing hires in our new markets and complete preparations for crossing the $10 billion asset threshold, of which we are about 2/3 through the associated cost.

Regarding preparations for the $10 billion asset threshold, there are no changes to our previously communicated plans.

We continue to methodically make the necessary investments, and feel that we are prepared from a staffing, infrastructure development and CRA perspective.

While we're ready to cross the threshold tomorrow, we expect that to occur sometime over the next 1 to 2 years without having to constrain loan growth.

Our preference remains to cross via a franchise-enhancing acquisition within a 5 to 6 hour drive time of our Wheeling headquarters either through a combination of several small to midsize deals or larger, several billion dollar asset transaction.

Finally, WesBanco remains well positioned for success in any type of operating environment.

We have the right teams and products across our geographies for growth during an economic expansion.

Our legacy of strong credit quality and risk management will help insulate us in a downturn.

We're positioned to benefit from rising interest rates through our asset sensitive balance sheet.

However, if the yield curve continues to remain flat, we have demonstrated our ability to manage discretionary expenses.

We firmly believe that our disciplined approach to credit quality, products and services we offer, expense management and our core deposit funding advantage are key long-term differentiators for WesBanco.

I would now like to turn the call over to Bob Young, our Chief Financial Officer, for an update on our second quarter's (sic) [third quarter's] financial results.

Bob?

Thanks, Todd, and good morning.

We generated strong loan growth on our strategic focused categories this quarter and managed discretionary cost to generate positive operating leverage as we continued our planned investments in becoming a larger company.

For the 9 months ended September 30, we reported net income of $78.6 million and earnings per diluted share of $1.78 net of merger-related expenses.

Excluding these expenses from both periods, net income would have increased 13.9% to $78.9 million from $69.3 million with earnings per diluted share of $1.79 for both periods.

Year-to-date, the return on average assets was 1.07%, while return on average tangible equity was 13.69%.

For the 3 months ended September 30, 2017, we reported net income of $26.4 million and earnings per diluted share of $0.60 as compared to $17.4 million and $0.44, respectively, in the prior year period.

When excluding merger-related expenses in the prior year period, net income would have increased 10.5% and earnings per diluted share were the same.

For the third quarter, return on average assets and return on tangible equity were 1.06% and 13.31%, respectively.

Unless otherwise stated, my remaining earnings-related comments will focus on the third quarter's results and exclude the impact of restructuring and merger-related expenses in the prior year period.

And also as a reminder, financial results for Your Community Bankshares have been included in WesBanco's financial results since September 9, 2016, the date of the consummation of the merger.

Turning to the balance sheet.

Total assets increased year-over-year to $9.9 billion as of September 30, 2017, with total portfolio loans increasing 2.2% to $6.4 billion.

Year-over-year, total loan growth was driven by our strategic focused categories as total commercial loans grew 5.5% and home equity loans grew 4.3%.

This mid-single digit loan growth more than offset the targeted reductions in the consumer portfolio as we reduced its risk profile as well as increased secondary market loan sales in the residential real estate portfolio.

Regarding residential real estate, year-to-date mortgage originations have increased in the mid-single digits year-over-year, and we have continued our approach to selling a higher percentage of these originations in the secondary market, which has the benefit of producing increased gain on sale income, and it was up 35.5% year-over-year.

Our year-over-year loan growth demonstrates our commitment to the long-term success of our company as we've prudently managed our loan portfolios to encourage growth in our focused categories without sacrificing credit standards.

Lastly, the current size of the securities portfolio at 23.6% of total assets as compared to 24% last year continues to provide us the near-term flexibility to continue to manage the size of our balance sheet, provide liquidity as well as supporting loan growth.

Total deposits were $7.1 billion at September 30, as growth in both interest-bearing and noninterest-bearing demand deposits offset the continued targeted reductions in certificates of deposit.

When excluding CDs, total deposits increased 3.7% as total demand deposits now represent 49.5% of total deposits, supported by 9.1% year-over-year growth in noninterest bearing deposits.

I'll turn now to net interest income and the margin.

Net interest income for the third quarter increased 19.7% year-over-year to $74.3 million due to a 13.3% increase in average earning assets and a 16 basis point increase in net interest margin.

The growth in earning assets was due to a full quarter average from YCB acquired loans and loan growth.

The net interest margin increased both year-over-year and sequentially, reflecting the benefit from the increases in the fed's targeted federal funds rate over the past year and the higher yield on YCB's acquired net assets.

Yields on earning assets increased 26 basis points year-over-year, more than offsetting a 14 basis point increase on interest-bearing liabilities, which was primarily from higher rates on interest-bearing demand deposits and that category includes public funds for borrowings and for our trust-preferred securities.

We believe that our core deposit funding advantage, combined with the continued increase in noninterest-bearing deposits to 26% of total deposits is helping to contain our overall interest-bearing deposit funding cost, which were up only 8 and 5 basis points year-over-year, respectively, for the 3- and 9-month periods.

During the third quarter, we realized 12 basis points of accretion from prior acquisitions as compared to 6 basis points in the prior year and 8 basis points during the second quarter of this year.

The 12 basis points included an approximate $1.1 million benefit from the payoff of an acquired YCB loan with a specific loan mark assigned.

We currently anticipate acquisition-related accretion to return to a level more consistent with prior quarter's performance.

For the quarter ending September 30, 2017, noninterest income decreased slightly from the prior year to $20.9 million.

The primary drivers of this decrease were declined in other income due to the prior year's quarter, including higher commercial customer loan swap related income, minimal net securities gains this year and a net loss of $0.3 million on other real estate owned from the liquidation of certain real estate owned and other bank owned property.

Excluding the impact of net securities gains and net gain or loss on other assets in both periods, noninterest income for the third quarter of 2017 would have increased $1 million or 4.7% year-over-year.

As I mentioned, our strategy to sell a higher percentage of residential mortgage originations in the secondary market resulted in a 35.5% increase to $1.1 million in net gains on sales of mortgage loans.

In addition, the higher electronic banking and deposit service fees year-over-year reflect a larger average customer base from the addition of our new Indiana and Kentucky markets.

Let's turn to operating expenses.

As we make the appropriate investments for long-term growth, including preparation for the $10 billion asset threshold, we remain focused on discretionary costs and maintaining a strong efficiency ratio.

As of September 30, 2017, we reported 3- and 9-month efficiency ratios of 57.03% and 56.91%, respectively.

We have maintained an excellent efficiency ratio, despite most individual expense line items having been impacted on a year-over-year basis due to the addition of YCB's Indiana and Kentucky markets.

Salaries and wages for the third quarter do reflect the annual compensation adjustments for all of our employees.

Some additional revenue-producing hires in Indiana and Kentucky related to lending and wealth management growth opportunities as well as our preparations for the $10 billion asset threshold.

One expense category of note is the year-over-year decrease in FDIC expense for both the 3- and 9-month periods, from changes in the [rate] schedule for banks under $10 billion and improved Risk Factors.

At this point in the year, most cost savings from the YCB acquisition are reflected in the current run rate of quarterly expenses.

Turning now to asset quality and capital.

Overall, our credit quality continues to be strong and is reflective of our legacy of credit and risk management.

As of September 30, 2017, nonperforming assets as a percentage of total assets improved to 48 basis points and criticized and classified loans improved to 1.24% of total loans, while nonperforming loans as a percentage of total loans increased slightly year-over-year to 66 basis points.

Net charge-offs as a percentage of average portfolio loans were just 12 basis points in the third quarter of 2017 as compared to 20 basis points in the third quarter of last year, while they were 12 basis points for the year-to-date period as compared to 14 basis points last year.

The allowance for loan losses represented 71 basis points of total portfolio loans at September 30, 2017 compared to 69 basis points in the year-ago period.

And the total reflects the YCB and ESB acquisitions, whose loans are marked to market at date of acquisition with no transfer of the acquisition date allowance for loan losses.

The provision for credit losses increased slightly year-over-year from $2.2 million to $2.5 million, due primarily to loan growth.

Before opening the call for your questions, I would like to provide some thoughts on our current outlook for the last quarter of 2017.

We are modeling one additional 25 basis point fed funds interest rate increase in December.

However, it is important to remember that the yield curve experienced over the past few months has become flatter than macroeconomic projections utilized in our modeling late last year.

The 2-year to 10-year treasury spread is roughly around 80 basis points as compared to 125 basis points at year-end 2016.

Lower spreads generally result in lower margins for the industry, and despite our general asset sensitivity, we are not immune from such factors.

Despite that fact, we will continue to exhibit control over our discretionary expenses and target a strong efficiency ratio as we appropriately balance the necessary investments for $10 billion planning and future growth.

We are now ready to take your questions.

Operator, would you please review the instructions?

(Operator Instructions) And the first question will come from Russell Gunther of D.A. Davidson.

Wondering if we could just dig in a little bit to the loan growth performance this quarter, particularly on the C&I front?

Just to get a little better sense of the dynamics to play, how the pipeline looks coming out of the third quarter?

And what your outlook would be going forward?

Yes.

I think from a pipeline perspective, we did see a low point in the mid summer, which rebounded a little bit since then, it's been holding the last month or 2. I think what we're seeing is very similar to some of the national trends that look to some of the earnings calls before us.

And I think, we're seeing similar, similar trends.

I feel good about the teams that we have.

And we've got [ready] investment in the commercial bankers.

They're all still there.

They're making calls.

They're doing the things that they need to do.

We're just seeing a real general reluctance on the part of customer base to borrow money.

And you've heard it on others' calls as well, too.

And I've specifically spoken to a number of C&I customers who talked about uncertainty on taxes, healthcare and everything else.

It's causing them to be a little cautious.

So I would have liked to have seen a little more C&I growth during the quarter.

But we're [going] in line with the national trends.

And then when I look at some of the other areas that we de-emphasized, some of the indirect auto, used auto, just didn't feel it's right to be doubling down with that kind of book at this point in time.

That's impacted us by -- we grew -- shrunk the portfolio by around 15% over the last year, which is about 1% of our total loans.

So if you look at our 2.2% year-over-year loan growth, that's with a 1% reduction on basically indirect to some of the consumer side.

If we had grown that, you would have been up over 4; and if we had not scaled back on multi-family, we would be up over 5. So I think that's a good reason to be where we're at, is that this to be growing faster in multi-family, faster in indirect auto right now.

Just not sure the risk return is there.

But getting back to your initial question about C&I, we're still in the mid-single digit range year-over-year on that.

Feel good about the teams that we have and think we'll be able to capitalize on whatever the market gives us.

Just don't know what the market is going to give us from quarter-to-quarter based upon a lot of uncertainty that's out there.

I appreciate the thoughts on C&I and the broader color.

And then just my second question would be, you touched on M&A and what your guide posts are and where you're interested.

Just curious, maybe more anecdotally, about the pace of conversations and whether you're seeing those pick up at all or is similar uncertainty that's impacting organic loan growth weighing on those type of M&A discussions as well?

No.

I think it's actually -- since we had some conversations with some bankers over the last couple of weeks on that topic, and the pace of conversations is strong and the thought is that pace of conversations might even increase as the uncertainty just continues.

People aren't sure what's going to happen with the yield curve, they're not sure what's going to happen with taxation, they're not sure what's going to happen with healthcare.

So I think there's a lot of smaller, smaller community banks, that are out there wondering what the next couple of years are going to look like.

And if they had been contemplating doing the transaction at all in the last couple of years with where their currency is probably now versus where it was a few years ago, and some of the uncertainty in the future, I think the level of calls have increased.

I know that the level of contacts that have been made to me from potential opportunities that we might be looking at has increased and it's been pretty robust in terms of the number of calls I'm getting from smaller community banks.

And the next question will come from Steve Moss of FBR.

It's actually Kyle Peterson on for Steve today.

I just wonder if we could start on fee income.

Some of it looked a little lighter than what we're looking for, specifically in the trust area.

Wondering if you guys can talk a little bit about the outlook on that.

And when we can expect some of these new hires in the new markets to start being additive to the trust revenues?

Maybe I'll talk about the new markets and I'll let Bob talk about the trust fee trends.

Sure.

On the trust fee trends, I would note that, as we took a look at their accrued trust fee at the end of the quarter, we did have an adjustment there and that adjustment was just slightly above $200,000.

So if you would normalize for that, then you'd have about the same amount as you would have had in the second quarter.

The second quarter was about $5.6 million and about $5.4 million this quarter.

I would also note that we had a higher amount of estate fees in the second quarter as compared to the third quarter.

Those would be your two factors that, at the edge, would impact the growth rate as it was running closer to 8% year-over-year after 6 months and over 5% now.

But primarily due to those two factors.

We have continued to make investments, particularly in the -- we call it the KSI market, Kentucky, Southern Indiana, that's the former Your Community Bank franchise in the Louisville, New Albany area as well as in the Lexington area.

We've added several private bankers, 6 licensed securities reps that are going through the process of licensing right now.

I think 2 of them are licensed, the other 4 will be licensed here soon.

We hired a trust portfolio manager that actually is in market there and also a trust new business development person in market there.

They've both come on board within the last 90 to 120 days.

And we're working on several different securities reps or brokers to have in the markets as well.

So we're in various stages of staffing up on that, pretty well complete actually in staffing up on that.

But it's all been in the last 90 to 120 days.

So we should see the benefit of that roll through in future quarters.

Okay, cool.

That's helpful.

And I guess, a little bit kind of on margin.

I know there's moving pieces, mixed shift and accretion and stuff.

So I just wanted to see what you guys are seeing in core strip-down loan yields and pricing trends, kind of where those trends are going without any rate hikes?

In terms of net interest margin, of course, we announced the 12 basis points related to accretion versus 8 last quarter.

So that -- the trend in the first 2 quarters was to be up 2 to 3 basis points.

We attribute that to repricing in the various portfolios related to the additional 25 basis points rate increases, first in December and then there were 2 in March and June.

So if you look at it on a core basis, third quarter, second, and you normalize the day count, you're about flat, some people have called it down 1 or 2 basis points.

The trend going forward would be back to between the 6 and the 8 basis points in terms of accretion.

In terms of our outlook, we still see with additional federal funds rate increases, we're expecting one here in December and probably 1 or 2 next year, we have 2 in our model currently.

But that would continue to produce the kind of increase in quarterly margin that we had talked about earlier this year.

We did -- yes, you're right, we didn't see that this quarter.

Little bit higher deposit data, couple basis points there.

And that seemed to make that difference.

So we'll see where that lands here in the fourth quarter.

But that kind of a contour, Kyle.

I don't think it's -- you're not going to see a significant increase in the net interest margin going forward.

So it's the contour that I just discussed.

Right.

So I guess, are we looking more like closer to the low end of the 2 to 3 bps without some further yield curve steepening with future hikes, is that a decent way to look at it?

I think, whether it's 2 or 3, we shall see.

But -- or 1 to 2, but yes.

I think just to add to that real quickly, too.

One of the things I've talked about for the last couple of years, we'll get a chance to see how that plays out here now that rates are starting to go up is that we have a core funding advantage because of the Marcellus and Utica shale that's rolling 8-figure deposits on a monthly basis, pretty low cost or no cost deposits coming into the organization.

And as rates start to rise, the hypothesis has been that we ought to be able to lag that a little bit and take advantage of that.

I think we're starting to see that start to materialize in some of the quarterly numbers.

And I hope that trend continues going forward.

But that's -- it's nice being in a franchise where we've got that type of liquidity and deposit base on a regular basis.

And these are checks from homeowners that are getting checks from the gas companies coming into our bank.

And these have 20, 30, 40-year lifespans to them, so it will be a -- should be a core funding advantage for quite a while.

And we're at 90% loan to deposit.

So it's -- we're not in a challenge loan-to-deposit ratio, but it's nice having these kind of deposits coming in as well.

(Operator Instructions) The next question will come from Austin Nicholas of Stephens, Inc.

Maybe just on expenses.

I know we touched on about 2/3 of the $10 billion expenses that are kind of in the run rate.

As I look at that line, how should we think about it over the next couple quarters given to aid hires and your new markets and then also some of the volatility around the marketing expenses?

On the people side of it, we're pretty well there with regard to the staffing we need to have in place to cross $10 billion.

And maybe 1 or 2 people, but it's a pretty low number.

We've been investing in that for the last couple of years.

I did go back and revalidate with our project management team that we are 2/3 roughly along in the process.

And what's remaining, is just the software expenditures and some things like that, that we've got to finalize.

But we are 2/3 of the way through on that piece of it.

But people part of it is for the most part done.

On the marketing side, we had a big delta shift between the first and the second quarters.

As you might remember, we came to the midpoint of the year about where we expected, but we had much lower marketing expenses in the first quarter than we thought and much higher in the second quarter.

And that was all due to timing.

But to the first 6 months, we ended up about where we wanted to be.

But we're taking a pretty stringent look at marketing as you saw in the third quarter.

And I think that will continue to roll forward and looking at the return we're getting for the historic spend that we've had on the marketing side.

So we're going to be -- continue to be pretty disciplined on the marketing expense going forward.

Okay.

So would it be fair to say that marketing maybe, on a full year basis, potentially slightly lower in '18?

Yes, part of it is due to the increased size of the franchise, right?

So we'd have -- YCB would be on board for a full year in '17.

So I would see an '18 run rate on expenses, probably similar to '17, similar to down a little bit.

I wouldn't see a dramatic expansion at all in the market.

Got it.

That's helpful.

And then on the deposit side, you mentioned the shale inflows.

And it looks like you saw some nice noninterest-bearing deposits were up close to, call it, 11% annualized quarterly basis.

Was that -- I guess, what drove that, was that still the shale deposits kind of helping that number?

Yes.

The number has moved around a little bit, it kind of follows the price of natural gas a little bit.

It -- it is at its low point, kind of the low 7-figure range, 6, 7 months ago and popped back up this summer back to the 8 figure range.

But it was in the 8-figure range of a year ago.

So it tends to move around a little bit.

But it has been nicely into the 8 figures the last couple of months, and we'd hope that trend continues.

But that is driving a good portion of it.

Some of that is seasonality as well on public funds.

Although public funds for the most part, are in the interest-bearing demand deposit category.

But as Todd said, we've had nice growth in both consumer as well as the public funds categories in the first 9 months.

And some of the marketing spend was around campaigns to drive deposits as well to sell [ads] on trying to attract checking account out across the entire franchise, not just that part of the franchise that's in shale-related areas.

Understood.

And then just briefly on the deposit data.

I know you briefly touched on or mentioned it.

But maybe just more specifically, what kind of deposit data have you seen maybe across your different products this quarter?

Well, the bulk of the increases in the interest-bearing demand deposit category, and that is for the most fund -- most part, public funds related.

That's the category as you can see on the income statement that would be up the most year-over-year.

There's also a little bit in the money market category.

But whether it's 2 or 3 or 4 basis points per quarter, it still as compared to 25 basis point rate increase.

So as I've looked, as Todd has at some other releases to date, that's on the low-end at 10% to 15%.

And I think what we've said in the past is, as you stack more rate increases on top of one another, you're likely to see iteratively a higher percentage increase.

But for us, we're offsetting that with growth on the noninterest-bearing side, we're seeing well-controlled CD costs and some runoff there that's strategic in nature, little bit that you would expect as fed funds go up on the interest-bearing side, interest-bearing demand and then the borrowings costs as those maturities roll through you'll see a little bit of an increase there as well.

So I'm not sure if that helps you or not.

That's helpful.

And then maybe just finally, real quick on loan growth if we back out some of the noise this quarter in terms of runoff and some strategic, I guess, de-emphasizing.

As I think about the next quarter, should we expect period end growth from here, just given that we saw some decline in balances in the third quarter?

And maybe just any sense on kind of range that you would expect based upon what we've seen so far?

I think in previous quarters, I mentioned it's really hard to look quarter-to-quarter because it bounces around because of the secondary market, taking some of the commercial real estate loans that have stabilized and come to maturity.

And that was a hefty number in the third quarter, particularly toward the end of the third quarter.

We saw a number of the large refinancings come into the secondary market.

So we have a projected payoff schedule that goes out, but that moves around a lot based upon market dynamics and stabilization rates for the customers and how aggressive the secondary market is.

So those things can move by 3 or 4 months at a time.

Some accelerate and some get delayed.

And with the $6 billion portfolio, $50 million, $60 million in 2 or 3 loans can have a big impact from quarter-to-quarter.

So it's just hard -- it's hard to anticipate and to be able to look at that.

That's why I tend to like to look at the year-over-year trends.

And -- because that gives me a better feel of really what's going on with the markets and then breaking it down into the areas under focus like C&I and then commercial real estate.

We saw 3 or 4 years ago, at some point the real estate market would start to slow down, rates would go up, product concentrations like multifamily would happen.

And that's why we put the effort and energy into building the C&I portfolio and the C&I lending team and putting the investments there.

So really tried to focus on -- but that is -- the C&I is probably a better -- little better quarter-to-quarter kind of look at those type of things versus the real estate, which is going to move around dramatically.

And real estate is a big enough part of our balance sheet that it does drive the whole loan growth when you take a quarter and you try to analyze it.

Some quarters, it looks significantly great, other quarters it doesn't look good, but on an average basis year-over-year, that's kind of the way we look at it.

So I'm not giving you an answer, I know, for the fourth quarter or beyond that because I don't really know the timing.

I know what's going to go to the secondary market, but I don't know the timing of when that's going to go to the secondary market.

And a lot of that has to do with what happens with the rates over the next couple of quarters in the secondary market when our customers choose to do with that when they pull the trigger.

(Operator Instructions) The next question will come from Daniel Cardenas of Raymond James.

Most of my questions have been asked and answered.

But just maybe -- in terms of loan growth and then maybe deposit competition geographically, I mean, are there any areas that are -- you are seeing better loan growth than others?

And then perhaps on the deposit pricing side, are there any areas of your footprint that are perhaps showing greater pricing pressure than others?

I think on the loan growth side, I can't point any market that is operating a lot differently.

I think a lot of our commercial real estate growth had come from some of the more urban markets.

Because that's where some of the multi-family activity was happening.

And that's definitely slowed.

We've -- not emphasizing that as much as an organization.

So what we are seeing -- we are seeing some office.

We are seeing some other almost single tenant type of projects being done that we're financing.

So we are still saying some decent real estate activity in some of the markets.

But from a C&I perspective, I can't point to any one particular market.

[I just saw] the customers that I've come across in a variety of different markets, all kind of have the same view about being a little conservative about where they go from here.

On the deposit side, I mentioned the Marcellus and Utica shale, which from a market share perspective, in terms of branch market share, deposit market share, we've got our big branches in the right place.

Because that's where we're capitalizing on that.

If you look at some of our markets that are newer to us that we've been in may be for the last 10, 15 years that don't have as big deposit balances, those tend to be some of the bigger urban markets.

And fortunately, we're in a position where we don't need to go out and price up CDs and things like that to get deposit growth out of those markets.

The way it's kind of working is, we get the benefit of some pretty nice deposit flows in our core legacy markets at some pretty low rates.

But yet we've got a top 10, top 15 market share in some of the bigger metro urban areas within a couple-hour drive of us with good lending teams in place.

So really the plan -- continued plan is to generate deposits in the legacy markets and have higher loan growth in some of the more urban markets.

Now we do get deposit growth in the new urban markets.

And we do get loan growth in the legacy markets.

But on an overall basis, we're able to capitalize on the lower deposit cost in the market where I'm sitting now like Wheeling and to lend that back out in the Columbus, or Louisville-Lexington without having them necessarily pay up on CD rates or money market rates or something like that in those markets, which I think some of the other banks that we would have to face if we were just in some of those bigger growth markets.

(Operator Instructions) And I'm showing no additional questions in the queue.

We will conclude the question-and-answer session.

I would like to hand the conference back over to Todd Clossin for any closing comments.

Great.

Thank you.

And thank you for all of your time this morning.

We're going to continue to make strong progress on the operational and growth strategies that we continue to focus on, and make sure that we maintain a strong financial institution.

We're looking for good long-term growth prospects for our shareholders.

And again, I want to thank you for being with us today.

And hopefully, we'll get a chance to see you at an upcoming shareholder event.

Thank you.

Ladies and gentlemen, the conference has now concluded.

Thank you for attending today's presentation.

At this time, you may disconnect your lines.