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spk02: Good morning and welcome to the WestBanco, Inc.' 's second quarter 2024 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 star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw 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 Iannone, Senior Vice President of Investor Relations. Please go ahead.
spk07: Thank you. Good morning, and welcome to WestBanco, Inc.' 's second quarter 2024 earnings and proposed merger with Premier Financial Corporation conference call. Leading the call today are Jeff Jackson, President and Chief Executive Officer of 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 one year, contains forward-looking information, including certain plans, expectations, goals, and projections, and including statements about the benefits of the proposed merger between WestBanco Inc. 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 8K and posted to westbanco.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, westbanco.com. All statements speak only as of July 26, 2024, and WestBanco and Premier undertake no obligation to update them. Now I'd like to turn the call over to Jeff. Jeff?
spk04: Thanks, John, and good morning. This is an exciting and momentous day for WestBanco. In addition to reporting our second quarter results, we also announced an agreement to merge with Premier Financial Corp. an almost $9 billion 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 is our standard earnings presentation On today's call, we will review our results for the second quarter 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 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 West Banco into a stronger regional financial services institution. West Banco 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. 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 second quarter financial results and current outlook for 2024. Dan?
spk01: 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 maintained solid fee income growth, and we're pleased with the lower expense run rate. For the quarter ending June 30th, 2024, we reported gap net income available to common shareholders of $26.4 million, or $0.44 per share, And when excluding after-tax restructuring and merger-related expenses, net income was $29.4 million, or $0.49 per diluted share, as compared to $42.4 million, or $0.71 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 on one CNI loan, And we also recognized $3.8 million in restructuring expense related to our branch optimization strategy. 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% link quarter annualized. 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 30th was approximately $950 million, up 30% from a year ago. Deposits of $13.4 billion were down half a percent linked quarter, but up 4.4% year over year and 4% annualized from December 31st, 2023. The composition of total deposits continues to experience some mixed 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 28.5% respectively. Credit quality stability continues with key metrics that have remained low from a historical perspective and within a consistent range throughout the last two plus years. The allowance for credit losses totaled to total portfolio loans at June 30, 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 strong second quarter loan growth, a higher unemployment assumption, and a specific reserve for an individual CNI loan. This CNI loan was in the renewable energy industry and is fully reserved at $3.3 million. Our second quarter net interest income of 2.95% continues to reflect higher funding costs from the remix of non-interest bearing deposits into higher tier money market and certificates deposit accounts offset by loan growth and the benefit of higher rates on earning assets. The margin increased three 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 first quarter which fully funded first quarter loan growth. Non-interest income for the second quarter of 2024 of $31.4 million decreased $500,000, or 1.5% for 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. Excluding restructuring and merger-related expenses, non-interest expense for the three months ended June 30, 2024, totaled $98.6 million, a 2.3% increase year-over-year primarily due to increases in other operating expenses and equipment and software expenses. Included within the second quarter's 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 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 modeled the fourth 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 second 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 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've recognized $3.8 million in restructuring expenses this quarter and anticipate annual savings of approximately $4 million, the majority of which will begin to be realized during 2025. And with that, I'll turn it back to you, Jeff.
spk04: Thanks, Dan. 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 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. This transformational day in West Banco'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 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 Premier, we are excited to welcome them to the WestBanco 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. 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 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 percent, return on average assets up 30 basis points to 1.2 percent, and return on average tangible common equity improving 557 basis points to 16.9 percent. Further, we see opportunities for valuation upside, price to 2025 earnings multiple of 8.6 times, and a 59 percent pro forma increase in market cap. 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. On a pro forma basis at closing, 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 dollars. 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 Prefers merger. Dan?
spk01: Thanks, Jeff. As you can see in the merger presentation, Premier is very similar to WestBanco with a stable and granular deposit base that complements its diverse loan portfolio, as well as comparable credit quality metrics to both WestBanco and the peer group. During the last couple of months, nearly 80 WestBanco 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 third-party valuation services firm to assist in the review of the credit and interest marks. This is a 100% stock deal at a fixed exchange ratio of 0.8%. 0.80 shares of WestBanco stock for each share of Premier, with WestBanco ultimately representing over 60% of the combined pro forma company. The deal is 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. Importantly, when excluding the rate marks in core deposit and tangibles, 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 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, among others, and four current directors of Premier Financial Corporation will be appointed to the West Banko 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% 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 million, primarily driven by contract termination charges, severance, retention, and employment agreements, professional fees, and integration expenses. 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 a 15-year period. Our model also assumes a conservative credit mark of 1.8% or approximately $120 million, which is about 50% higher than Premier's allowance for credit losses with roughly 40% to the PCD book and 60% to non-PCD. The interest mark came in at just under 5%, or $326 million, and the core deposit intangibles estimated to be $148 million, or roughly 3.4% 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 raised 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% CET1, and 13.2% total risk-based capital ratio, an approximate 91% loan-to-deposit ratio, and enhanced 2025 profitability metrics, a 3.46% 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.
spk04: As you just heard, this is truly a transformational deal for WestBanco, 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 eighth largest bank in Ohio. 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?
spk02: 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 you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. In the interest of time, we do ask that you please limit yourselves to one question and one follow-up. Please note that if you have additional questions, you may re-enter the question queue. At this time, we will pause momentarily to assemble our roster. The first question comes from Carl Shepard with RBC Capital Markets. Please go ahead.
spk06: Hey, good morning, guys.
spk04: Good morning. Morning, Carl.
spk06: So congrats on the announcement. And I guess to start there, 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?
spk04: 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. And so the process started, you know, 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 Zada, 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 Claussen, spent a lot of time in Cleveland and Toledo and so 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, and we also like the markets from a growth perspective when we look at CNI. If you think about northern Ohio and the manufacturing that goes on there, you look at the kind of political landscape where everybody's 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.
spk06: 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's a little bit larger. Are there investments you need to make alongside this to kind of ready the infrastructure of the company to be close to $30 billion in assets, call it?
spk04: I don't think there's a lot of investments we're going to make to be $30 billion. We've been kind of working through this. You know, we went through the core change a couple years ago. We're on FIS IBS. Premier is also on that system. We also use the same BSA ML 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 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.
spk05: Thanks for the help.
spk04: Thanks, Carl.
spk02: The next question comes from Catherine Miller with KBW. Please go ahead.
spk00: Thanks. Good morning and congrats on this deal. Thanks, Catherine. Good morning. I wanted to add another question just on the merger. I know you've put out maybe your thoughts on a combined margin after the marks and putting the two 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 forma basis in terms of kind of asset sensitivity, liability sensitivity? It feels like perhaps this acquisition will make you, I assume, a little bit more liability sensitive. Maybe just kind of what that looks like, maybe first if rate cuts take longer to come, so 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.
spk01: Yeah, 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 asset liability sensitive. So I think whenever you kind of combine the two, we would expect to continue to be slightly asset sensitive from that standpoint. But if we think about 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, you know, 25% variable and another 25% adjustable, whereas we are less heavy on the fixed rate side, you know, 70% or so variable rate with, you know, 40% of our book is, you know, reprices every three months. So, you know, if we think about, you know, longer term, obviously, to the extent we see rate cuts, and as I said in my prepared commentary, we expect two cuts here in 24 and three more in 25. But certainly, 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 in that kind of static rate shock environment.
spk02: The next question comes from Russell Gunther with Stevens. Please go ahead.
spk08: 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 CQT1? I think you're looking for 9.6 and also address the CRE concentration pro forma around 2.99. Just helpful to get your thoughts in terms of where your comfort level is with those pro forma ratios.
spk01: Yeah, sure, Russell. So, you know, a big determining factor in the amount of capital to raise was really us evaluating the, you know, the dilution relative to our capital ratios. So to your point, when we think about CET1 and leverage, We want, you know, we were targeting to hold a leverage ratio above 8.5% on a consolidated basis and a CET1 of above 9.5%. So, you know, from that standpoint, you can see on a pro forma basis, as you pointed out, we are just above those kind of thresholds that we set internally. And then if we think about the, you know, the CRE concentration on a pro forma basis, it's, you know, 299%. 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. 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 million in capital raised down to the bank. We've also got an assumed, you know, $25 million more pushed down. And then I would tell you that, you know, in terms of evaluating, you know, through the evaluation of the credit marks, the loan portfolio, which was, you know, very detailed and bottoms up, We identified a portfolio of, you know, call it about $100 million or so that we'd like to, you know, explore further in terms of exiting. So you combine those items, you kind of get to that $299 that we came up with on a pro forma basis.
spk08: Okay. Thanks, Dan. I appreciate the thoughts there. And then just as my follow-up, Z Proforma Nim, appreciate the guide. It would be helpful to get your thoughts on just the magnitude of purchase accounting and how you would expect that to trend throughout 25 and as we start thinking about 26.
spk01: Sure. You can 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 million, a non-PCD mark of about $70 million. And we actually had an outside third-party valuation firm prepare those 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 it's just estimating a five-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. What we saw was basically on an after-tax basis, That accretion was right around $55 million in year one. And if we think about kind of the makeup of the portfolio, as you know, Premier is a little bit heavier in that one-to-four family space. And so a lot of that one-to-four family, you think longer-term, fixed-rate mortgages, a lot of that was originated during the mortgage boom a couple 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 one to four family book, that has a little bit longer duration, longer life. It's actually way the average rate of about 82 months. So, you know, call it seven years. And so we do think that, you know, 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 three years ago is going to come on to our books today around 6.5%, 7%. And so we have the benefit of that accretion or 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, you know, just as a, you know, as an individual, if you can, you're unlikely to, you know, refinance a 3.5% fixed rate mortgage. And so we think that that's going to be pretty sticky. and on the books for quite some time.
spk08: That's great color, Dan. Thank you very much.
spk02: Our next question is from Catherine Miller of KBW. Please go ahead.
spk00: 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 a premiered bond book, and it looks like some of it's going to come with the pay down and borrowings. For the remainder of proceeds in that, would you expect to put it back into the securities portfolio, or is that excess cash really just going to be used for loan growth moving forward?
spk01: Yeah, so the excess cash, the plan would be to pay down their wholesale borrowings, both on the securities sale as well as the cash raised through the capital fund. So about $400 million in total, obviously, you know, $200 million 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, yeah, that's where we're at.
spk00: Okay, so a total of $400 million in borrowings pay down.
spk01: Yes. Correct. That's right.
spk00: 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?
spk01: Yeah, that is disclosed, Catherine. That's in the joint merger announcement release, and that was $27.50. Okay, great.
spk00: I missed that. All right, thank you for letting me jump back in.
spk04: Thank you, Catherine.
spk02: The next question comes from David Bishop of Hobbs Group. Please go ahead.
spk03: Yeah, good morning, gentlemen, and congrats on the deal as well.
spk04: Thank you. Good morning.
spk03: Hey, Jeff. I know in the past you guys have had pretty good success as of late, you know, overlaying some swamp products, generating some good fee income. Any opportunities to do that similarly there? Is that in the numbers or? You know, are there areas you can opt in on the fee income side from Premier?
spk04: Yes, I think there's a lot of opportunities with Premier as it relates to swaps, as it relates to, you know, we've rolled out a lot of new treasury products. You know, 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 CNI 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 trust business, and I believe there's a lot of opportunity there. They have a good size portfolio, but we believe there's some nice growth built in as well within that footprint.
spk03: Got it. And then conversely, maybe on the loan side, any new business lines that maybe complement what you're doing on the legacy West Bank goes on? Thank you.
spk04: 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 million. We're not in ag yet. But other than that, you know, like I said, they're very similar to us. I mean, just your bread and butter CNI, 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.
spk03: Perfect. Thanks.
spk02: Again, if you have a question, please press star then one. The next question comes from Daniel Cardenas with Janie Montgomery Scott. Please go ahead.
spk09: Good morning, guys. Hey, good morning, Dan. Good morning, Dan. That's a quick question. Perhaps I missed it, but when do you anticipate on the transaction closing?
spk04: We would anticipate probably first quarter next year. We've had good preliminary discussions with our regulators and feel obviously good about submitting the application, but we're targeting first quarter next year.
spk09: And then just in terms of the transaction gets you into the Michigan market, any desire to build that out any further through M&A or is that maybe too soon to consider that?
spk04: 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 think if you look at going back just real briefly in 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 franchises, 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, 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, you know, if it makes strategic sense, moving forward there. But that's down the road. Yeah.
spk09: All right. My other questions have been asked and answered. Thanks, guys. Thanks, Dan.
spk04: Thanks, Dan.
spk02: The next question comes from David Bishop of Havd Group with a follow-up. Please go ahead.
spk03: Yeah, just a quick follow-up. I think you mentioned there could be some inflationary pressure for some projects on the operating expense side of the third quarter. Any way to frame sort of the dollar amount or percentage increase you're expecting in the near term?
spk01: David, this is Dan. I'll take that one. Not really expecting inflationary pressure in the third quarter, but I would say as we think about our expense run rate, the increase that we would expect would be just in our typical annual mid-year 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, you know, 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. 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.
spk03: Got it. And then, Jeff, I know you sort of highlighted the loan pipeline at the preamble. Any insight or line of sight into the commercial deposit pipeline as you sort of exit the quarter? Thanks.
spk04: Yeah, 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 second quarter. But third quarter, I would say the deposit pipeline is still very strong, as is the loan pipeline.
spk03: Perfect. Thank you.
spk02: Our next question comes from Manuel Navas with DA Davidson. Please go ahead.
spk05: 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, but you could also have more liquidity. I just wanted to have that side of the benefits discussed a little bit more.
spk04: Sure. I think if you look at second quarter loan growth, I think on an annualized basis is about 15% growth. I don't expect that for third and fourth quarter. 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 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.
spk05: Does the CRE concentration change your pipeline strategy? mix or desire for certain types of loans, is that already contemplated in your kind of expectations going forward?
spk04: Yeah, it's already contemplated in the expectations. It obviously does, you know, 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, you know, 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 CRA concentration ratio by time of close.
spk05: 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?
spk01: Yeah, Manuel, I can take that. So, what we've got is about $13 million in capitalized expenses that are planned really to provide some branch upgrades. We're also upgrading ATMs, and that would also include kind of, you know, the the rebranding kind of signage, if you will, on, you know, the 73 branches.
spk05: Thank you. I appreciate that.
spk02: This concludes our question and answer session. I would like to turn the conference back over to Jeff Jackson for any closing remarks.
spk04: Thank you for joining us today. During this past quarter, we achieve solid loan, deposit, and fee income growth, manage costs, and maintain strong capital levels and credit quality, and embarked on the transformation of WestBanco into a stronger regional financial services institution. WestBanco 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. Thank you.
spk02: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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