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WesBanco, Inc. (NASDAQ:WSBC)

Q2 2013 Earnings Call

July 24, 2013 11:00 am ET

Executives

Paul Limbert - President & CEO

Jim Gardill - Chairman

Robert Young - EVP & CFO

Analysts

Stephen Scouten - KBW

William Wallace - Raymond James

John Moran - Macquarie Capital

Operator

Good morning and welcome to WesBanco’s Conference Call. My name is Gary and I will be your conference facilitator today. Today’s call will cover WesBanco’s discussion of results of operations for the quarter ended June 30, 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 at 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 second 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 Limbert

Thank you, Gary. Good morning. Thank you for participating in WesBanco’s second quarter 2013 earnings conference call. We are 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 highlight. And then, Jim Gardill, our Chairman, will moderate the question-and-answer period.

A press release detailing the results of our second quarter and first half of the year 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 half results.

WesBanco had an excellent second quarter and half of the year. The return on average assets for the second quarter was 1.12% and for the first half of 2013 the return on average assets was 1.1%. The return on tangible equity was 16.9%. These ratios include the expenses incurred relating to the Fidelity merger, but they still represent above peer group returns.

Earnings in 2013 represent an increase of 38% from the first half of 2012. These results have allowed us to raise our 2013 quarterly dividend to $0.19 or an increase of 5.6%. Our dividend has been increased five times in the last 10 quarters. The increased earnings was provided by improvement in net interest income, growth in non-interest income, significant loan growth, continued improvement in credit quality and the control of other operating expenses. Bob Young will provide additional details relating to these improvements.

We have been pleased to be able to complete the Fidelity transaction quickly. From announcement date to the customer data conversion the elapsed time was only eight months. We have now turned our attention to improving our market position in Pittsburgh. We're in the process of visiting existing customers and hiring additional revenue producing employees.

To-date, we have added to the Pittsburgh market treasury management, securities brokerage representatives and additional lending staff. Additional lenders include both one-to-four family residential mortgage originators and commercial loan officers. As an example of our success to-date, we have been able to grow loans in the Pittsburgh market by an annualized rate of 24% or $39 million during the first six months.

Another example is represented by additional securities brokerage revenues of over $400,000 from this market. Hiring of additional revenue producers has already begun to show its benefits. 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 all of 2012, we saw deposits from customers exceeding $225 million from customers and lease bonus and royalty payments.

Payments from these large national organizations continue to be deposited in 2013, totaling over $171 million to-date this year. We have not experienced growth in total deposits this year but have been working to strategically shift deposits towards non-interest DDA accounts, which has helped to offset the declines in certificates of deposits.

Non-interest DDA balances have grown at an annualized rate of 6% during 2013. In addition, growth of the investment management services to many of the individuals with their new found wealth has resulted in assets under management growing to over $3.4 billion as of June 30, 2013. Wealth management revenues are also continuing to grow increasing 9% this year.

We have 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 are contractors who assist in building the related infrastructure.

Sometimes it’s very difficult to determine if the lending we’re doing to existing customers is directly related to a specific job they may be completing for the natural gas organization. The important point is this new industry is significant and is expected to bring long-term benefits to the 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 has recovered from the recession and statistic show employment now exceeds pre-recession levels. 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. We continue to add lenders to these markets with 12 new lenders added to the Pittsburgh, Columbus and Cincinnati markets during 2013.

Loan originations in these markets, again Pittsburgh, Columbus and Cincinnati, are well above the goals established for these markets. These urban areas along with our less populated markets give us excellent diversity and growth opportunities. We are not dependent upon any one market area for our organic growth.

Last year, we closed six smaller branches in market areas which did not provide growth potential.

During 2013, we have finalized plans and have received regulatory approval to open three new branches, two in Columbus and one just south of Pittsburgh. These new branches located in our existing market areas should provide additional growth opportunities.

Loan balances have increased by 3.1% from year-end and loan originations remains strong in the second quarter. Loan originations approximated $857 million for the first half of 2013, exceeding first half 2012 originations by 54%. Payoffs and pay downs offset some of these our originations. However, we see this turnover 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.

Credit quality continues to improve with non-performing loans declining to just 1.6% of total loans. Reductions in the first half charge offs, non-performing assets, criticized and classified loans and delinquencies have all contributed to the continued decline in the provision for loan losses.

WesBanco has done an excellent job in growth revenue faster than expenses. Non-interest fee related growth was 13% with contributions from every function of the bank. This increase was due in part to the Fidelity acquisition but also resulted from the planning and sales efforts of each market and each function. We've been very pleased with the revenue growth in both net interest income and non-interest income.

As you can see from the numbers WesBanco has reached to the midpoint of the year on a positive note. We are optimistic about our ability to compete in our respective marketplaces. We have strong capital base and strong earnings which allow us to take advantage of the opportunities which we originate during 2013.

Because of our strong position, we can reinvest earnings back into our franchise to upgrade customer facilities and services or reinvest to train and find talented employees. We will continue to look for acquisitions, but believe we can be selective since organic growth can be obtained from our diverse marketplaces.

We have been following the Basel III capital requirements. Community Banks have relatively moderate manageable changes from the current regulations. WesBanco’s preliminary commutations indicate to us that we will be able to meet all new guidelines by 2015 implementation or the other respective due dates.

I would like Bob Young, our CFO, to discuss with you in more details of financial results of the first half of 2013. Bob?

Robert Young

Thank you, Paul. Earnings per share for the second quarter were $0.58, up from $0.45 last year, an increase of almost 29%. GAAP net income was $17 million versus $12 million last year, up almost 42%. For the six month period ended June 30th, earnings per share was a robust $1.13 per share as compared to $0.90 per share for the first half of last year, some 25.6% of an increase. Net income was $33 million versus $24 million for the same comparable period is up 37.7%. Excluding merger-related and restructuring expenses of $1.2 million, net income was $33.8 million and EPS were a strong $1.16, up 41.1% and 28.9% respectively from last year for the first half.

Continued improvements in credit quality resulted in a $1 million quarterly loan loss provision lower than any quarter since prior to the recession start. Once again the quarter and first half of the year showed positive operating leverage post-acquisition of Fidelity, whereby total revenues from net interest income and non-interest income increased at a faster pace than operating expenses.

Year-to-date, the Fidelity acquisition and improved cost of funds helped to improve the net interest margin and pre-tax, pre-provision earnings increased to 1.72% measured as a return on average assets up from 1.67% last year. Earnings per share was up by a lesser percentage than net income due to the 2.6 million common shares issued for last year’s Fidelity acquisition.

As Paul mentioned return on average assets and return on average equity are significantly ahead of last year’s result and core operating efficiency also improved to just under 60%. Return on tangible equity increased to 16.9% putting us in a high performing tier of similar size banks, based on first quarter peer group numbers.

Turning to the income statement, net interest income increased 10.7% or $4.4 million for the second quarter and 10.5% or $8.7 million for the six month period due in part to the Fidelity acquisition, a 6.1% organic loan growth rate over the past year, plus a three basis point margin increase for the quarter to 3.56% and five basis points for the six months of 3.6%.

The yields were enhanced by Fidelity’s acquired net assets and the related purchase accounting accretion on loans, deposits and borrowings, which totaled $1.1 million for the second quarter and $2.8 million year-to-date. This added about 11 basis points to the margin over the last six months. In addition, cost of interest bearing funds has decreased from 1.11% to 79 basis points over the last year as short-term borrowings have matured and CDs have either repriced lower or migrated to lower costing transaction account types.

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 2.87% to 1.79%. Certificates of deposit at an average cost of 1.47% for the past quarter versus 1.74% last year also will continue to reprice downward with $813 million or 52% of the total CD balance scheduled to mature in the next 12 months at an average cost of 1.57%.

As we have mentioned before, approximately $345 million will mature in the last four months of this year at an average cost of 2.26%. This should result in a CD portfolio the cost approximately 1.1% to 1.2% as we enter 2014 positively impacting the margin. Depending on the rate and pace of future interest rate increases and loan growth assumptions, given the company’s current slight asset sensitive position, we expect that the core margin will remain above the same over the next few quarters except for the impact of lower purchase accounting accretion each quarter.

Moving on to non-interest income, it was up 11.5% or $1.8 million from last year for the quarter and 12.8% or $4 million year-to-date. Trust fees and securities brokerage registered strong increases and deposit service charges and electronic banking fees also registered nice growth. Mortgage banking gain on sale income and bank-owned life insurance income were up for the year-to-date period as well.

Trust asset growth came from market improvements and a 9.8% increase in trust assets over the past year from new business. BOLI income was enhanced by debt benefits totaling $1.1 million in the first quarter. Securities gains were lower for both periods due to reduced sale and portfolio restructuring activity.

Total non-interest expenses were up 9.3% for the quarter and 10.1% year-to-date net of $1.2 million in merger-related expenses for the six month period. The increase in the second quarter was lower than the first quarter as Fidelity related cost savings activities were primarily completed by the end of the first quarter. Net full-time equivalents were up 74 from a year ago but there were approximately 150 employees at Fidelity pre-merger, so the FTE count reflects the planned back-office cost savings.

Total salaries are up as a result of normal salary increases plus higher commission related income. Other expense increases year-to-date that were not directly related to the Fidelity absorbed operating cost came from higher pension expenses and higher occupancy expenses from seasonal repairs and maintenance mostly in the first quarter.

OREO and deposit insurance related expenses were down from the prior year and marketing was basically flat although up from the first quarter due to marketing campaigns.

Now, turning to the balance sheet, assets were up 10.1% from last year or $559 million due in large part to the acquisition and organic loan growth. Loans were up 16% and deposits were up 12.4%. Organic loan growth over the past year totaled $188 million of total loan growth due to stronger loan originations representing a 6.1% year-over-year growth rate with $118 million booked since March, a 3.2% quarterly improvement.

Organic deposit growth was about $117 million of the total over the last year although deposits were down 1.3% from the first quarter. Strong loan production and higher loan commitment suggest continued growth in loan outstandings as we move through the remainder of the year.

The mix of deposits has been an important part of our business plan on margin strategy over the past few years in order to reduce higher cost CDs and improve overall liability sensitivity by enhancing core deposit types.

Average non-interest bearing demand deposits are up 22% over the last year including Fidelity and total deposits accounts other than CDs are up 17.2% on average. These low cost funds comprise 67.3% of total deposits at quarter end as compared to 64.7% last year.

Non-interest bearing deposits as well as related electronic banking activity income continue to grow as a result of increased balance from the banks business banking customers, through various treasury management initiatives, as well as ongoing retail marketing campaigns, and deposits from the Marcellus and Utica shale gas, bonus and royalty payments.

In lending residential mortgage loan production was up 36.3% from last years first half with $218 million of total production. About 63% was held in the portfolio and the rest sold in the secondary market. The purchase money versus refinance mix was about 50/50 spilt and the pipeline of loan applications at quarter end was just over $90 million. Commercial loan production was up 66% year-over-year exceeding $500 million for the six month period with Columbus; the northern part of West Virginia, Cincinnati and Baton and Pittsburgh all producing higher volumes.

Commercial originations were strong enough to overcome about $72 million of investor owned commercial real estate pay downs in the first half much of it representing sales of properties and refinancings and do conduit or permanent financing markets.

Moving to credit quality total non-performing assets dropped from last June’s total of $72 million to the current level of $67.3 million representing 1.77% of total loans and OREO down from last year’s 2.2%.

Strategy such as loan sales and workouts, principle reductions and net charge-offs exceeding the migration of new loans into these categories have benefited the overall improvement in non-performings over the past few quarters.

Non-accrual loans are up slightly over the past year by $3.1 million, but TDRs are down by $8.9 million to more than offset this slight non-accrual increase. Overall delinquency and criticized and classified loans are also down over the past year, as Paul mentioned, and delinquencies are particularly lower from year-end after the Fidelity acquisition due to enhanced collection procedures which contributed to the overall credit improvement.

The allowance for loan losses represented 1.33% of total loans at June 30, 2013 compared to 1.43% at year-end and 1.64% last June. However, if the acquired Fidelity loans, which were recorded at fair value at the date of acquisition, were excluded from these ratios the allowance would approximate 1.41% of the adjusted loan total at the end of June.

The allowance for loan losses decreased by $2.3 million from year-end due to lower delinquency decreases in net charge-offs and reduced levels of classified and criticized loans, although one downgraded credit was allocated a $2.1 million specific reserve during the quarter. The overall improvement in credit quality supported a reduction in the allowance and the lower provision expense for the three and six-month periods ended June 30 of $1 million and $3.1 million respectively as compared to $5.9 million and $12.1 million in last year’s second quarter and first half and 83% and 74% reduction for both of those periods.

Net charge-offs for the second quarter were $2.4 million compared to $3 million for the period quarter and $6.8 million for the second quarter of last year representing the lowest charge-off level in several years. First half net charge-offs were $5.5 million versus $13.4 million last year. Net annualized loan charge-offs to average loans second quarter of 2013 were 26 basis points compared to 84 basis points for the same period in 2012 and they were 30 basis points versus 83 basis points for the six month period.

Total tangible equity to tangible assets was 7.01% at June 30 as compared to 6.77% at year-end. The tier-I leverage ratio increased to 9.13% and total risk-based capital was 14.08%. Tangible book value increased 3.4% to $13.79 from year-end's $13.34. Our initial review the final Basel III rules, referenced earlier by Mr. Limbert, although more work will be necessary and fully understand the implemented regulations as applied to Community Banks shows that we will remain well capitalized as of the 2015 implementation date and ahead of capital conservation buffer rules as well.

Current regulatory ratios would be reduced by some 50 to 75 basis points if implemented today and the new common equity tier-I risk-based capital requirement models out right now between 9 and 10%.

Management is certainly pleased with our team’s operating results for the first half of 2013 as well as completing the integration of the Fidelity franchise. Our focus is squarely on improving the operating business and our Western Pennsylvania market share, a strong first half with a higher margin, improved non-interest income and efficiencies, loan growth and an excellent pipeline commercial and residential loans positions us well for the remainder of the year.

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.

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

Question-and-Answer Session

Operator

We’ll now begin the question-and-answer session. (Operator Instructions) The first question comes from Stephen Scouten of KBW. Please go ahead.

Stephen Scouten - KBW

Good morning, gentlemen. Great quarter, love to see the loan growth there.

Paul Limbert

Thank you, Steve. Good morning.

Stephen Scouten - KBW

I was curious a little more details into that loan growth. Paul, I know you addressed some of this and forgive me I missed the first couple of minutes of your remarks there, but you detailed the year-over-year growth that was derived from the Western PA regions and I was wondering if you had the split this quarter in terms of the loan growth that was seen, that was derived from those markets as well?

Paul Limbert

Bob, you have those, I don’t have for the second quarter I just had for the first half, Steve. Bob has got it though; he will get it for you.

Stephen Scouten - KBW

Okay. And then in regards to that great loan growth obviously we saw in the loan yield there was about -- it was 22 basis points lower in the reported loan yields. Was most of that from lower accretion or was a portion of that related to this loan growth coming on at slightly lower yields? Can you give any color to that break down?

Paul Limbert

Yeah, I think what we're seeing in our organization is the new volume of loans that are coming into our portfolio are at the current market rates which is tending to pull down our overall average rates earned on the loan portfolio.

Bob Young

I can give you a little bit more color.

Stephen Scouten - KBW

Great.

Bob Young

On business loans for the second quarter you are looking at anywhere between 6 and 9 basis points a month that, let’s call that 7 basis points impact from purchase accounting. And on mortgage real estate loans it’s about 4 basis points. Those are the two big categories some home equities as well. As we said it’s about 11 basis point impact on the first half of the year and there is some $2.8 million in overall accretion related all three categories in the first half of the year. That breaks down to about $1.7 million, $1.8 million at first quarter $1.1 million in the second quarter.

Stephen Scouten - KBW

Okay, great. And last quick question, have you guys changed your outlook as of late on the percentage of the mortgage originations that you indeed to keep on balance sheet? I know some of the 15 year maturity unless you are retaining but with the strong commercial growth you are seeing now, does that changed your philosophy on that any?

Jim Gardill

You see as part of the overall assets and liability management program and we continue to update that and evaluate that of each month. So, as you have seen I think there was a little drift where we sold a few more in the secondary market in the second quarter than in the first quarter. I think Bob’s comment was it was about 50-50. So that ratio has drifted downward as we’ve sold more.

We’ll continue to evaluate that as well as evaluating the impact of the new ability to repay and QM rules it will come into place in the first quarter of next year. So we are looking at that aspect of it as well.

Stephen Scouten - KBW

Great. Thanks for taking my call guys. Great quarter.

Paul Limbert

Okay, Steve. Thank you.

Robert Young

I’ll follow up with you afterwards, Steve, on the loans by market.

Operator

(Operator Instructions) Our next question comes from William Wallace of Raymond James. Please go ahead.

William Wallace - Raymond James

Good morning guys. Thanks for taking my call.

Robert Young

Good morning, Wally.

William Wallace - Raymond James

I wanted to dig into the loan growth a little bit more if we could. So, Paul, in your prepared remarks you talked about loan originations for the first half of the year. Have you seen any acceleration in production as the year has progressed or is it been relatively steady from month to month?

Jim Gardill

Yeah. I can start that conversation, Wally, and then I’ll let kind of Paul weigh in. But we did see better production in the second quarter than in the first quarter and certainly in the Southwestern Pennsylvania markets and Paul?

Paul Limbert

Okay. Yeah I would certainly echo that and I would only add two quick points, Wally. One the Columbus market has been very strong for us in the second quarter. And remember we are adding additional commercial lending officers as we go through the year and that is also contributing to the increase in loan originations.

William Wallace - Raymond James

As you look kind of into the third quarter, where we stand now, do you expect a continued acceleration from what we saw in the second quarter?

Jim Gardill

We’ve shown nice growth so far as Bob has indicated I think 6% of growth rate. The pipeline as Bob mentioned is also pretty strong so we’re very comfortable with where we are today. Our -- I think comfort was in fact that the pipeline has held up even though originations have been very strong.

Robert Young

And we were up about $40 million in production in the second quarter as compared to the first quarter in total loans, Wally. And as mentioned in my prepared remarks or Paul’s for the first half of the year that was about 54% growth rate over last year.

William Wallace - Raymond James

Right. And then looking specifically at the commercial and industrial line that was up 9% sequentially and I’m wondering if we could dig into that a little bit? Are you seeing any changes in the utilization rates or is that all from new loans?

Jim Gardill

And I’ll let Bob speak to that a little bit, Wally, but it is the utilization rates have increased in the second, third quarter over the first and especially over the end of last year, so it’s a combination of loan originations and utilization rates on the line. Bob, do you have some numbers on that?

Robert Young

Yeah. If you go back to the end of the year, we were trending between 38% and 40%, 41% and line usage on higher commercial lines total now are at 44%. So, two aspects: one you have the growth from the end of the year, which in this particular category is over $15 million and two you have the higher utilization.

William Wallace - Raymond James

Great. And can you remind us how big -- when you talk about the Pittsburgh market are you again talking about all of the Southwestern PA? And then, if so, how big is that market for you now if you can remind me?

Jim Gardill

Well it is Southwestern Pennsylvania, Wally, and we were there in the Washington County area, Allegheny County and then the surrounding areas of the Pittsburgh MSA. So, Bob, do we have any numbers on the market itself?

And that’s one thing I wanted to clarify for all of our listeners. We merged their systems in, the Fidelity systems in February early March and so, our loan data is showing both the organic growth and the period over period acquisition of their loans. We don’t separate them out any longer but we do have that market. Bob, do you get some numbers for Steve?

Robert Young

Yeah. I don’t have total market demographics with me, Jim, but I can tell you that for us Western Pennsylvania in terms of the total loans, Wally, was about a $320 million total for commercial loans at the end of the year. I don’t have the resi and consumer here in front of me. And that has grown nicely. This may answer Steve’s question as well. It was about $332 million at the end of March and $360 million here at the end of June. So, growth accelerating a little bit. Some of that is the line usage that I mentioned earlier as well. So, that gives you an idea out of total commercial the $1.8 billion that’s about 20%.

William Wallace - Raymond James

Okay. Thank you, Bob. And then the three branches, two in Columbus and one in the Pittsburgh market, when are those supposed to open?

Jim Gardill

They'll open in different paces because one of them in the exiting building in downtown Columbus that will open sooner and there are two new construction projects. The second one in Columbus is a de novo build from the ground up that will open probably next fall. And then, in the Southwestern Pennsylvania market that is a de novo build that still going through the approval process so we’re probably 9 to 12 months away from opening that one.

William Wallace - Raymond James

Okay. Thanks so many guys. That’s all I have got.

Jim Gardill

Okay, Wally. Thank you very much.

Operator

(Operator Instructions). Our next question comes from John Moran of Macquarie Capital. Please go ahead.

John Moran - Macquarie Capital

Hey, guys, how is it going?

Jim Gardill

Okay John. Good John. It’s good to hear from you.

John Moran - Macquarie Capital

Good. So just a real quick question. Fidelity off to -- you seem certainly off to a very solid start here. M&A sort of appetite chatter, any sort of also you might have on that would be helpful.

Paul Limbert

We continue to look, we continue to be active. I think as we indicated before we are looking primarily in the markets that we currently operate in, but we also look outside there is markets of but we are active, John, and continue to be involved.

John Moran - Macquarie Capital

Okay. And then maybe just one quick one on operating expenses. Bob, I think in terms of in terms of cost saves out of Fidelity have you guys kind of realized what you are going to realize at this point and is the a sort of 38, 39ish number that we have here in June a sort of adjusting for some higher marketing expenses that you guys culled out? Is that probably a good place to be thinking about the expense run rate?

Robert Young

My guidance on that hasn’t changed since the first quarter and I think we talked about a $40 million run rate approximately and that’s basically where I am for the rest of the year.

John Moran - Macquarie Capital

Okay.

Robert Young

Slight increase for the fourth quarter but I think the third quarter over second quarter will be reasonably closed to the $39 million, $40 million number that we that were -- well, 39 for this quarter and 40 is what I targeted when we talked about at the end of the first quarter. So, still good on that, John.

John Moran - Macquarie Capital

Okay, great. And then just kind of the last one for me. On the fee side, there is some opportunity I think in that Fidelity transaction for revenue synergies. It seems like you are starting to get some of that in the second quarter. Can you give any color on what you are looking at there that would be helpful too?

Jim Gardill

As Paul mentioned, we’ve invested in revenue producers in staffing in that market. I think we used a number of approximately $400,000 in revenue growth just in the security side of the business which is then pretty strong. So, we are very pleased with that and it’s a contributing factor to our growth in assets under management as well as the electronic banking and service charges on deposits. So, it’s a contributor across all of our business lines at this point. And I think we are very comfortable with the market growth and what we have seen in that market we believe that it’s going to be very strong market for us and it’s demonstrated that to the second quarter.

John Moran - Macquarie Capital

Sure, yeah. Terrific, thanks very much for taking the questions guys.

Jim Gardill

Okay. Thanks, John.

Operator

As there are no further questions this concludes our question and answer session. I would like to turn the conference back over to Jim Gardill for any closing remarks.

Jim Gardill

Gary, thank you very much. And I want to thank everyone again for participating in today’s call. We had a very strong second quarter. We're very pleased with the performance and the numbers for the second quarter and we are very pleased about the fact we were able to drive that from revenue growth and loan growth, very strong contributors to the quarter.

We've shown continued improvement in credit quality and we’ve also demonstrated our ability to manage operating expense and control operating expense. So, as we look forward to the balance of the year we're very optimistic on the year and we appreciate the results that we’ve been able to achieve to our Fidelity transaction and the contributions which it has made to our overall growth and earnings. So thank you very much and again thanks for participating in the call this morning. That’s all we have.

Operator

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

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