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WesBanco, Inc. (NASDAQ:WSBC)

Q1 2013 Earnings Call

April 25, 2013 11:00 am ET

Executives

Paul M. Limbert – President and Chief Executive Officer

Robert H. Young – Executive Vice President, Chief Financial Officer

Analysts

Catherine Mealor – Keefe, Bruyette & Woods

William Wallace – Raymond James

David Peppard – Janney Montgomery Scott LLC

Michael Burn – Macquarie Capital

Operator

Good afternoon and welcome to Wesbanco's Conference Call. My name is Ashley, and I will be your conference facilitator today. Today's call will cover Wesbanco's discussion of results of operations for the quarter ended March 31, 2013. Please be advised all lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period (Operator Instructions). This call is also being recorded. If you object to the recording, please disconnect at this time.

Forward-looking statements in this presentation 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 herein should be read in conjunction with Wesbanco's 2012 Annual Report on Form 10-K and other reports, which are available on the SEC’s website www.sec.gov, or at WesBanco's website www.wesbanco.com. Investors are cautioned that forward-looking statements, which are not historical fact, involve risks and uncertainties, including those detailed in WesBanco's 2012 Annual Report on Form 10-K filed with the SEC under the section Risk Factors in Part I, 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 any forward-looking statements.

WesBanco’s first quarter 2013 earnings release was issued yesterday and is available at www.wesbanco.com. This call will include about 20 to 30 minutes of prepared commentary followed by a question-and-answer period, which I will facilitate. An archived webcast of this call will be available at wesbanco.com. WesBanco’s participants in today’s call will be Paul Limbert, President and Chief Executive Officer, Jim Gardill, Chairman of the Board and Robert Young, Executive Vice President and Chief Financial Officer.

And all will be available for questions following opening statements. Mr. Limbert, you may begin your conference.

Paul M. Limbert

Thank you, Ashley. Good morning everyone. Thank you for participating in WesBanco’s first quarter 2013 earnings conference call. We’re pleased you have joined us this morning to hear about WesBanco’s excellent operating results. I would like to make some opening comments, Bob Young, our CFO will provide financial highlights and then Jim Gardill our Chairman will moderate the question-and-answer period.

A press release detailing the results of the first quarter was issued last evening. A copy of the entire press release is available on our website. We will assume that all participants are familiar with WesBanco and we can begin our discussion of the first quarter results.

WesBanco had an excellent first quarter. Our results were better than the fourth quarter of last year, and also better than the first quarter of 2012. Including merger related expenses WesBanco was able to increase earnings to $16 million, representing a return on average assets of 1.07% and a return on average equity of 9%.

Earnings in 2013 represent an increase of 34% from the first 2012 and 27% increase from the fourth quarter of 2012. These results have allowed us to raise our first quarter 2013 dividend to $0.19 per share or by 5.6%. Our dividend has been increased five times in the last nine quarters.

During this quarter we were able to convert the fidelity customer processing into WesBanco’s information systems and change signage on the fidelity branch locations. Completing the conversion during the quarter allowed us to adjust the staffing complement and include most of the final merger related expenses in this quarter. That increased earnings was provided by improvement in net interest income, revenue growth, continued improvement in credit quality and control of other operating expenses. Bob Young will provide additional details relating to the improvements. We’ve been pleased to be able to complete the Fidelity transaction quickly, from announcement date to the customer data conversion the elapsed time was seven months. Now, we’ve turned our attention to improving our market position in Pittsburgh, we are in the process of visiting existing Fidelity customers and hiring additional revenue producing employees. Today, we have added to the Pittsburgh market treasury management and securities representatives and are in the process of hiring additional lending staff.

Additional lenders include both, running the four family, residential, mortgage originators and commercial loan officers. The Pittsburgh marketplace has been recognized it’s having one of the highest growth rates of jobs in the nation, actually the economy is doing well and with the additional revenue producers along with existing management staff who live in the market, we anticipate will be successful at growing our market share.

In addition to having a new market from which we can generate growth we have seen a significant amount of activity coming from the natural gas companies in the Marcellus and Utica shale areas. During 2012, we saw deposits from these natural gas drilling companies exceed $225 million for our customers and lease bonus and royalty payments.

Payments from these large national organizations continue to be deposited during 2013, totaling $60 million in the first quarter. While some of these deposits are used or invested by our customers, we have seen our deposit balances grow. Deposits have grown by $62 million in the first quarter of 2013, because of the large amounts of gas found in these regions we fully expect many secondary companies will follow this cheap energy source.

WesBanco had benefited and we’ll continue to benefit from this opportunity through the growth of our balance sheet. Deposits are expected to continue to grow, along with growth in loan balances and expansion of investment management services to many of the individuals with their new found wells. We’ve been asked about the amount of lending we have done to the natural gas industry and its related companies.

We do not have a firm number on the amount of specific lending to these companies, we do not lend to the large national drilling companies. However we’re lending to the second or third tier companies which are providing support services or to contractor who are assisting in the building of the relative infrastructure.

Sometimes it’s very difficult to determine if the lending we’re doing to an existing customer is directly related to a specific job they may be completing for a gas related organization. The important point is this new industry is significant and is expected to bring long-term benefits to their region and WesBanco. In addition to the shale gas region the activity level in the three major urban areas provide significant opportunities for WesBanco to grow organically. We’ve already talked about Pittsburgh, but Columbus, Ohio is also a strong market. Columbus is recovering from the recession and we are seeing a significant number of new projects in the city and in the neighboring communities.

Cincinnati is recovering at a slower pace, but has pockets of development activity, these urban areas along with our less populated markets gives us excellent diversity and growth opportunities. We are not dependent upon any one of market area for our organic growth. Last year, we closed six smaller branches in market areas which did not provide for growth potential.

During the first quarter of 2013, we have finalized plans to open three new branches, two in Columbus and one just out of Pittsburgh. These new branches located within our existing market areas should provide additional growth opportunities. Loan balances have remained flat from year-end the loan originations are strong in the first quarter. Loan origination is approximate $408 million for the first quarter of 2013, exceeding first quarter 2012 originations by 52%, they also exceeded fourth quarter 2012 originations by 23%. Payoffs and paydowns offset our originations. However, we see this activity as a healthy aspect of our portfolio, our success on loan originations is attributable to the efforts of our lending officers enhancing relationships with existing customers the improving economic conditions in our market areas and the continued addition of new lenders.

We would also like to draw your attention to the continued reduction in our non-performing assets. Since March 31, 2012 total non-performing assets have declined by $16 million or 19%. During the same time period total criticized and classified loans decreased by $69 million or 29%. Non-performing assets and criticized and classified loans declined modestly during the first quarter of 2013.

Declines in non-performing assets continued to be attributable to the efforts of our loan officers and our special assets group working with these customers as their business continues to improve. Our efforts have resulted in a reduction of our ratio of non-performing loans to total loans to 1.7%.

Reductions in the first quarter charge offs, non-performing assets, criticized and classified loans and delinquencies have all contributed to the continued decline in the provision for loan losses.

Our operating expenses increased during the first quarter, at the start of the quarter, we had not yet fully integrated the Fidelity Bank acquisition into our operating systems, therefore increases in many expense categories were caused by the duplication of expenses relating to operating through computer systems and then related employee expenses.

Since the merger of the operating systems in mid February, our full-time equivalent employees had declined from prior year-end by 59 to 1,448 employees and the expense equations is obtained from the merger will now become more visible.

We’re continuing our efforts to provide improved service levels to our customers while looking for operating efficiencies in our back-office. As you can see from the numbers, WesBanco has started the year on a positive note. We are optimistic about our ability to complete in our respective marketplaces. We have a strong capital base and strong earnings which will allow us to take advantage of the opportunities which will come our way during 2013.

Because of our strong position, we can reinvest earnings back into our franchise to acquire customer facilities and services or reinvest to train existing employees and find new talented employees, we will continue to look for acquisitions, but believe we can be selective since our organic growth can be obtaining from our diverse marketplaces. Loan growth continues to be a key for growth in future earnings. WesBanco has the balance sheet and a quality running staff which supports an expansion of our loan portfolio. I would like Bob Young our CFO to discuss with you in more detail the financial results of the first quarter 2013. Bob?

Robert H. Young

Thank you, Paul. Good morning everyone. Earnings per share for the first quarter of 2013 were $0.55 up from $0.45 last year, representing an increase of 22.2% despite the merger related and normal operating expenses assumed with the fourth quarter closing of the Fidelity acquisition. GAAP net income was $16 million versus $12 million last year, up 33.6%. Excluding merger related and restructuring expenses of $1.2 million, net income was $16.8 million and earnings per share was a strong $0.57, up 40% and 27.4% respectively from last year.

Continued improvements in credit quality resulted in a $2.1 million loan loss provision, lower than any quarters since prior the recession started in 2007. Increased net interest income and non-interest income more than offset an increase in total operating expenses from the acquisition leading to overall positive operating leverage for the quarter. The Fidelity acquisition and improved cost of funds helped to improve the net interest margin and pre-tax, pre-provision earnings were up to 1.72% measured as a return on average assets.

Earnings per share was up by a lesser percentage than net income due to the 2.6 million common shares issued for the Fidelity acquisition. As Paul mentioned return on assets and return on equity were up significantly this quarter, with return on average assets breaking through the symbolic 1% barrier for the first time since before the recession and efficiency also improved from the fourth quarter, return on tangible equity increased to 16.72% putting us in a high performing tier of similar size banks, based on year end peer group ratios.

Turning to the income statement, net interest income increased 10.3% or $4.3 million for the first quarter due in part to the Fidelity acquisition, 4.9% of organic loan growth over the past year, plus a higher net interest margin which increased 7 basis points from 3.57% last year to 3.64% for the first quarter, yields were somewhat enhanced by Fidelity’s acquired net assets and the related purchase accounting accretion on loans, deposits and borrowings, totaling $1.8 million for the first quarter, and of that about $440,000 from loan prepayments that are not expected to be experienced the same rate in future quarters.

Although $1.8 million and $1.3 million in total was loan accretion, the $440,000 of the $1.3 represented additional loan prepayments. Such accretion is expected to total between $4.5 million and $5.5 million for the year, depending upon prepayments space. The accretion was offset somewhat by higher cash balances and lower securities totals as reinvestments in the portfolio from year end sales didn’t occur until closer to quarter end. Management has successfully focused on balancing cost of funds decreases with inevitable earning asset yield declines in both loan and investment portfolios as the assets reprice at maturity or at renewal.

The cost of funds decreased from 1.14% last year to 81 basis points this year as expensive borrowings have been paid down, and CDs had repriced lower or migrated to lower cost in transaction accounts. Rates on interest bearing deposits for the first quarter dropped 23 basis points to 69 basis point, from 92 basis points last year, while asset yields dropped 23 basis points over the same time period.

The continued low interest rate environment and accelerating competition for good quality credits has affected loan and investment yields, but borrowings have dropped over the last year. And their cost has decreased from 2.82% to 1.78%, certificates of deposit at an average cost of 1.52% for the past quarter versus 1.77% last year, also will continue to reprice downward as these CDs mature over the next couple of years. With over $891 million or 55% of total CDs scheduled to mature in the next 12 months at an average cost of 1.57%.

In addition certain more expensive CDs totaling just over $300 million will mature or reprice in the last four months of this year, and they currently are at an average cost of 2.50%. This should result in this CD portfolio costing significantly less by year end 2013. We do expect the margin to experience a gradual reduction over the next couple of years given the current extended low rate environment and the run-off of purchase accounting, net accretion from the acquired assets and liabilities of Fidelity.

Relative to non-interest income it was up strong 14.2% or $2.2 million from last year. Mortgage banking gain on sale income, trust fees, service charges on deposits, electronic banking fees, securities brokerage and bank on life insurance all contributed to the increases. Service charges and electronic banking fees were enhanced by a full three months of Fidelity’s customer base. While Trust Asset growth came from equity market improvements, higher WesMark Fund balances and a 9% increase in Trust assets over the past year from customer acquisitions. All income was enhanced by debt benefits totaling $1.1 million.

Total non-interest expenses net of $1.2 million in merger related costs were up 11% primarily from the Fidelity full quarter operating expenses. Operating efficiencies and cost reduction activity should be more evident in the second quarter and fully faced in by mid year. Other expense increases that were not directly related to the Fidelity absorbed operating costs came from higher pension expenses and higher occupancy expenses seasonally related.

Salaries reflect average employee counts higher for most of the first quarter from Fidelity plus normal salary increases, but period and full time equivalents reflected personnel reductions after completion of systems convergence. Other expense increases occurred in REO expense and electronic banking. FDIC insurance dropped despite the acquired Fidelity net assets. As WesBanco’s insurance rate is lower than the prior Fidelity rate.

Turning now to the balance sheet, total assets were up 8.7% from last year or $485 million due in large part to the acquisition. Loans were up 14.4% or $466 million and deposits were up $532 or 11.9%. Organic loan growth over the past year totaled $148 million of the total loan growth as total originations were stronger year-over-year.

Organic deposit growth was about $100 million of the total growth for the period. Larger loan paydowns totaling about $45 billion in the first quarter, limited to visibility in terms of loan outstandings of organic loan origination growth from year end, while deposits grew $62 million over the past three months. Strong loan production for the quarter and a higher quarter end pipeline plus total loan commitments suggests growth in loan outstandings as we move into traditionally stronger seasonal origination periods.

We continue to shift deposits away from term CDs to checking and savings accounts, average non-interest bearing demand deposits were up 23.4% over the last year including Fidelity and total deposits accounts other than CDs were up 16% on average, these low cost funds comprised 67.4% of total deposits at quarter end, as compared to 65.2% last year and total transaction accounts grew some 2.4% from year end.

Non-interest bearing deposits as well as related electronic banking activity income continued to grow as a result of increased balances from the banks business banking customers through various treasury management initiatives as well as retail marketing campaigns and in addition deposits from the Marcellus, Utica shale gas promised in royalty payments. These deposits should be enhanced by our new market in Southern Western PA, an active part of the so called wet gas play that we have seen here in the Northern Panhandle of West Virginia and Eastern Ohio.

In lending residential mortgage loan production was up 48.2% from last years first quarter with a $106 million of total production and 58% was held in portfolio and 42% the secondary market, of the total loan production about 45% were purchase money. Commercial loan production was up 57% year-over-year with Columbus, the northern panhandle of West Virginia, Cincinnati and Baton and Pittsburgh all producing higher volumes to contribute to the growth.

Commercial and residential pipelines are strong, heading into the second quarter, although like the first quarter, unexpected pay downs could limit the visibility of this higher production.

Relative to credit quality total non-performing loans and classified and criticized loans continued to decrease. Total non-performing assets dropped from last March’s total of $84.2 million to the current level of $68.3 million representing 1.85% of total loans in REO down from last year’s 2.61%.

The overall reduction in non-performing assets was primarily due workout strategies such this loan sales and workouts, principle reductions and net charge-offs exceeding the migration of new loans into these categories.

Non-performing assets were relatively unchanged from December 31, TDR’s accruing interest decreased $3.9 million from year end primarily due to the migration of certain commercial real estate TDRs to non-accrual which increased a corresponding $3.4 million.

Loans pass due 30 days or more represented 51 basis points of total portfolio loans at March 31, similar to last year’s 57 basis points, but it did improve from 75 basis points as of the end of the year, post-fidelity due primarily to enhance collection procedures for those former fidelity pass due loans.

In addition, total classified and criticized loans declined by $69 million or 29% to $168 million from March 31 to current and $4.6 million or 2.7% from the end of the year. They now represent less than 5% of total loans. The allowance for credit losses decreased $900,000 from December 31 to March 31 and represented 1.4% of total loans, at the end of the period, compared to 1.3% at the end of the year and 1.69% last March.

However, if the acquired Fidelity loans which were recorded at fair value at the date of acquisition were excluded from the ratio, the allowance would approximate 1.5% of the adjusted loan total at March 31. The allowance for loan losses decreased by $1 million from year end, due to lower delinquency, decreases in net charge-offs and reduced levels of classified and criticized loans as well as those loans was specific impairments.

The overall improvement in credit quality supported a reduction in the allowance and a lower provision expense for the three months ended March 31 of $2.1 million as compared to $6.2 million in last year’s first quarter, representing a 66% reduction. Net charge-off for the first quarter were $3 million, compared to $4.1 million in the prior quarter and $6.6 million during the first quarter of 2012, this represent the lowest charge-off level in over three years.

Net annualized loan charge-offs to average loan for the first quarter were 34 basis points compared to 82 basis points last year. Total tangible equity to tangible assets at the end of period was 6.97%, as compared to 6.76% last year and 6.77% at year end. Tier-1 leverage increased to 8.92%, total risk based capital was 14.13%. Tangible book value increased almost 3% to $13.74 from the end of the year.

In conclusion, we’re pleased with operating results for the first quarter, as well as the seamless conversion of the Fidelity information systems and planned staff reductions, leading to better operating efficiencies going forward and a reorientation of our focus on improving the business and our market share, a strong start to the year with a higher margin, improved non-interest income and a good pipeline of commercial and residential loans leading into the second quarter should position us well for this, for 2013. In addition, our strong balance sheet liquidity and overall capital strength positions us to be able to take advantage of market related organic and acquisition related growth opportunities as they present themselves.

Our management team in Pittsburgh is already driving new business to our wealth management, securities brokerage, treasury management, and commercial and residential lending teams, and we look forward to their continued contributions as we become a more visible bank alternative to the larger banks in Western PA.

This does conclude our prepared commentary. and we will now open the call for questions. Jim Gardill, our Chairman of the Board will moderate the Q&A session. We’ll now turn the call back to the facilitator for questions.

Question-and-Answer Session

Operator

We will now begin the question and answer session. (Operator Instructions) And our first question comes from Catherine Mealor of KBW. Please go ahead.

Catherine Mealor – Keefe, Bruyette & Woods

Good morning everyone.

Unidentified Company Representative

Good morning, Catherine.

Catherine Mealor – Keefe, Bruyette & Woods

On the expenses, they came in lower than we were expecting, can (inaudible) little bit, can you just walk us through how far you are to the cost savings, how you’re through conversion, how much more you think you’ve got over the next couple of quarters and maybe what a target efficiency ratio could be for you? Do you feel like once you got the expense savings fully and could get back down a 60% efficiency ratio and maybe even below that given the revenue growth you are seeing? Thanks.

Paul M. Limbert

Thank you, Catherine. Well, I would note they were pretty close to 60% at the end of the quarter anyways, and in fact, drove that lower from the fourth quarter’s level of 62.5%. So, I think in the interim that’s a good target for us and hopefully below that as we move forward. If you take out the restructuring and merger rate expenses of $1.2 million, indeed we were only some 10% above last year’s first quarter and the size of the balance sheet we acquired just coincidentally is about 10% of our size.

All of that is before we get significant cost saves, there is a month of cost saves if you will towards the end of the quarter, but we have said in the past that we intend to reinvest back in the franchise. We are adding three offices this year after closing six last year. We are adding originators in our markets and as a result, we expect to drive more business in the way of revenue which you see this quarter starting as we move forward.

We did get some nice cost savings on the FDIC insurance line, as well as, less than anticipated increases in some of the other categories, but I think in what you are seeing net of the restructuring and merger related expense add back a little bit more in salaries and wages will have a little bit of higher run rate and marketing in the second quarter, you are pretty close to what we would expect as we move forward.

Catherine Mealo – Keefe, Bruyette & Woods, Inc

Okay, great. That’s very helpful. And that’s so (inaudible) assuming we will pickup next quarter, you always got to investment some of your higher cash and securities into that loan demands, you will see more of a shifting in the mix of the balance sheet versus a lot of average earning asset growth?

Unidentified Company Representative

We are continuing our investment and the talent to expand our commercial lending groups, and we plan to continue that throughout the year, as we have added additional lenders in the Pittsburgh market and in Cincinnati, so we do plan to continue our efforts to grow our loan production capability.

Unidentified Company Representative

I might just add that we are seeing some very strong pipelines and we are not seeing those pipelines decline at the end of the first quarter, so we feel pretty good about where we can be headed into 2013.

Catherine Mealor – Keefe, Bruyette & Woods

Okay. That’s great. Thank you guys.

Unidentified Company Representative

Thanks Catherine.

Operator

And our next question comes from William Wallace of Raymond James. Please go ahead.

William Wallace – Raymond James

Good morning gentlemen.

Unidentified Company Representative

Hi, Wally, good morning.

William Wallace – Raymond James

As a quick follow-up to Catherine’s question, so for loan production and pipelines the growth in those accelerate through the first quarter?

Unidentified Company Representative

Yes, they did as we mentioned in the material, it was growth over the fourth quarter of 2012, and it was material in loan origination.

William Wallace – Raymond James

But each month it accelerated?

Unidentified Company Representative

Well, its always lumpy, Wally, I mean, it’s never a constant progression, but when we looked at the quarter, we look back at the quarter, we were well pleased with the progression we have made in the pipelines and the origination.

Unidentified Company Representative

And as Bob mentioned in his presentation we've incurred about 45 million in pay-off so that we had in the first quarter

Unidentified Company Representative

Unusual pay-offs, yes.

Unidentified Company Representative

Lot of that construction Wally, it will hit the outstandings as we move into the second quarter

William Wallace – Raymond James

Right, okay. So, Bob, last quarter in the Q&A, we were talking about margin and you were talking about an expectation in the low 340s by the end of 2013. I know there was some accelerated accretion in the first quarter related to pay off to some of those (inaudible) loans, but maybe if you back that out, what is your expectation now, I am assuming it’s going to be higher.

Robert Young

It is. I would say that we anticipate the accretion to drop off, as I said in my commentary, throughout the year and you acknowledge the additional 440,000 in accretion from prepayments. The total loan accretion will remain throughout the next two years at a declining rate, if you will. And there are other aspects to the Mark borrowings, which will eliminate by the end of the year, CDs, which play out over 2 to 2.5 years. They are part of that overall accretion, if you will.

So I assume a run off in that at a pace over the next few quarters, that would take a few basis points a quarter away from the margin. Another way to look at it would be to take the entire 1.8 million out of the margin in the first quarter, I don’t think that’s real because purchase accounting is part of GAAP, the acquisition has to be done at fairly value, but the impact of that in the first quarter was some 14 basis points. Stripping that out entirely and looking at the fourth quarter, we were up three basis points on core without fidelity in either quarter. So I think the continued reduction in cost of funds and as I appointed out CDs will continue to reprice down and become a lot less expensive for us as we get towards the end of the year. We have substantially paid off all of our expensive borrowings were below 5% in total borrowings at this point, when many of our peers still have that as a headwind. So I do think that goes well and will suggest not only a higher margin on average for the year that probably a slightly higher endpoint in December.

William Wallace – Raymond James

So since we last spoke in January has pricing formed significantly because you already knew about the CDs reprising and the ability to offset pressures on the funding side, so I have to assume that you are seeing some strength from the pricing, something.

Unidentified Company Representative

We've continue to see improvement, and those things are going to vary on an average balance sheet, average balance sheet is also a factor here, we would have anticipate the balance sheet to be $100 million to $150 million higher and shows not to completely reinvest, the size of fidelity’s balance sheet in an investment portfolio where rates are so [high] today that we are concerned about the impact of those rates as we move forward on market values overall.

So I think that also, it's a little bit different twist if you will from January to where we are today, in terms of margin. And these are constant management tools they are going to change continuously throughout the year as we manage our cost of funds and our loan balances. I do think the accretion would, we did anticipate accretion, but it was higher than we thought, that's a factor as well.

William Wallace – Raymond James

Okay, fair enough. And then one question on credit, Bob you mentioned in the prepared remarks that you had some accruing TDRs that were commercial that moved into non-approval during the quarter. Can you talk a little bit more about what those ones were and what happened to them during the quarter?

Unidentified Company Representative

So let me address that just generally as always. In those categories, we continue as Paul said in previous calls, we continue to work with our borrowers from our Community Bank models. So we continue to manage those credit relationships and they will migrate depending on our solutions that we designed for individual credits because we’re analyzing them individually. So as the TDRs will continue to work with those customers, you will see some migrations where we make a decision that we maximize our ability to recover on those credits.

Unidentified Company Representative

There was one credit, commercial real estate credit in the Charleston market that was added and one in Western Pennsylvania that was added to non-accrual. Those are the two and it is commercial real estate and both moved from TDR to accruing to non-accrual this quarter and that’s the $3 million change probably.

William Wallace – Raymond James

Okay. And then lastly also I just wanted to maybe dig into the expense a little bit, where is the related cost reported, is that spread out or is that in anyone particular line item?

Unidentified Company Representative

No in the press release, that’s in the line item called restructuring and merger related expense.

William Wallace – Raymond James

Okay, thank you. So, you had the conversion occur in the middle of the quarter and then you had some of the staff reduction associated with that. So are we going to see release in the top line or you reinvested all of that savings into new hires et cetera in Pittsburgh and other markets?

Robert H. Young

Well, there is a day count in the second quarter as compared to the first quarter. But we should see the full three months of the impact of the reduction in employees, some 59 from the end of the year to the end of the first quarter in the full run rate in the second quarter.

Paul M. Limbert

And those separations took place at the end of February. So as Bob said, we had only one month of those changes in staffing, so you will see the benefits of that. There will be some give backs as we add additional talent, as both Bob and Paul indicated that we were doing in order to expand our lung capability.

William Wallace – Raymond James

Okay, that’s good, that’s perfect. I appreciate you, guys. Thank you.

Paul M. Limbert

Okay, Wallace, thank you very much.

Operator

And our next question comes from David Peppard of Janney. Please go ahead.

David Peppard – Janney Montgomery Scott LLC

Hi, good morning, guys.

Paul M. Limbert

Hi, David,.

David Peppard – Janney Montgomery Scott LLC

We’ve had a lot of comments on the call about staffing and some of the markets. Could you maybe just kind of clarify where we are at in each of your core markets in terms of full set of products and a full personnel to execute on those products on each markets?

Paul M. Limbert

Well, David, it’s more of an evolution kind of, then I’ll start to stop. What we’re doing in the Pittsburgh market is adding additional lenders to that market on both the commercial and the mortgage origination. We’ve added additional commercial lenders in Cincinnati. We continue to look at staffing in Columbus, but as Paul indicated, we’re also adding two new branches in Columbus and another new branch in South Western Pennsylvania. So as we measure those markets in our loan production and capabilities, we keep addressing our staffing needs and increasing the talent of our lenders. We have a very strong commercial lending team. They are generating significant volumes in originations, and we’ve been able to grow that significantly over the last year. And I believe that’s our plan to continue that effort.

Unidentified Company Representative

I would just simply add that we are providing our full complement of products and services in all of our regions at the present time. We maybe staffing some of that customer contact out of a different region, and the best example, I can give you is our trust wealth management services in the Pittsburgh market, we offer them. But we are currently sending somebody from Wheeling to the Pittsburgh market at the present time. That doesn’t mean that that’s what we’ll do consistently. As we’ve pick up the trust wealth management business in Pittsburgh. We will eventually staff somebody in that particular market. But we do offer all of our full complement of products and services in all of our markets.

David Peppard – Janney Montgomery Scott LLC

Okay, thank you guys.

Unidentified Company Representative

Thank you, Dave.

Operator

(Operator Instructions) And our next question comes from John Moran of Macquarie Capital.

Michael Burn – Macquarie Capital

Good morning, guys. This is Michael Burn in for John.

Unidentified Company Representative

Hi, Michael. Good morning.

Michael Burn – Macquarie Capital

Good morning. Could you guys just give us the now that we should have Fidelity and converted? Just give us an idea of your some additional appetite for M&A and maybe just sort of the charter you’re seeing?

Unidentified Company Representative

I think, what Paul suggested to you is that that’s not our sole source of growth, and we’re balancing organic growth with acquisition opportunities and de novo branch opportunities as we look at the allocation of our capital on our branch network, so we’ve got a multifaceted approach to driving growth, and I think as Paul indicated we are also looking at acquisition opportunities and as we’ve indicated before we’re looking primarily in the markets in which we already exist to try and expand market share in those larger metropolitan areas and in the geographic areas in which we already have a presence. So we’ve been a little bit judicious in our acquisition opportunities and we’ve been a little bit discerning to ensure that we add quality institutions.

We are very pleased with the Fidelity transaction both with respect to the market and also with respect to the management group that we’ve added to our team. They are doing an excellent job and they’ve shown a lot of energy and we’re excited to have them as part of our overall group and the team that we work with.

Michael Burn – Macquarie Capital

Okay, sure, and then just you guys mentioned sort of hiring additional revenue producers in Fidelity’s market, can you just give me a senses of maybe how many of our, have you any hired any so far in the quarter or up to now? And then, [Toby] on your, just a sense of how many you plan to hire in sort of timeline of those hours?

Unidentified Company Representative

Well, we’ve already hired treasury management and securities people in the Pittsburgh market. That’s already done, and actually we’ve hired two additional commercial lenders in the past couple of weeks. So we’ve added five, six people to the market already. We are going to continue to look for mortgage originators and commercial lenders in the market. Over the next, I don’t know, six, seven, eight months, we’ll continue to look for individuals. As time goes and as we get closer to our full complement, we obviously are making sure that we get the right people inside our organization and the right people for those particular markets. So the hiring process will go on for another six, seven, eight months probably.

Michael Burn – Macquarie Capital

Okay, great. That’s very helpful. Thanks a lot, guys.

James C. Gardill

Thanks, Michael.

Operator

Showing no further questions, this will conclude the question-and-answer session. I would now like to turn conference back to Jim Gardill for any closing remarks.

James C. Gardill

Thank you very much. Actually we appreciate facilitating the call. We appreciate everyone participating this morning. We are very pleased with our first quarter numbers. We think it’s set pretty well for the year, the growth in non-interest income, the improvement in net interest margin, the management of expenses, and the success in our Fidelity acquisition have all contributed to that. So, we’re very pleased with the first quarter results. I want to thank you all for participating in this morning’s call. Thank you very much.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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