WesBanco Inc
NASDAQ:WSBC
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
25.95
36.45
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
You don't have any saved screeners yet
Good morning, ladies and gentlemen and welcome to the WesBanco Fourth Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Those listening thru webcast may submit questions throughout the event by clicking the word questions on your screen. Please note this event is being recorded.
I'd like to turn the conference over to John Iannone, Vice President of Investor Relations. Please go ahead, sir.
Thank you, Denise. Good morning and welcome to WesBanco, Inc.’s Fourth Quarter 2018 Earnings Conference Call. Our fourth quarter 2018 earnings release, which contains consolidated financial highlights and reconciliations of non-GAAP financial measures was issued yesterday afternoon and is available on our website, wesbanco.com.
Leading the call today are Todd Clossin, President and Chief Executive Officer; and Bob Young, Executive Vice President and Chief Financial Officer. Following our opening remarks, we will begin a question-and-answer session. An archive of this call will be available on our website for one year.
Forward-looking statements in this report relating to WesBanco’s plans, strategies, objectives, expectations, intentions and adequacy of resources are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The information contained in this report should be read in conjunction with WesBanco’s Form 10-K for the year ended December 31, 2017 and Form 10-Q for the quarters ended March 31, June 30, 2018, and September 30, 2018 as well as documents subsequently filed by WesBanco with the Securities and Exchange Commission, which are available on SEC and WesBanco websites.
Investors are cautioned that forward-looking statements, which are not historical fact, involve risks and uncertainties, including those detailed in WesBanco’s most recent Annual Report on Form 10-K filed with the SEC under Risk Factors in Part I, Item 1A. Such statements are subject to important factors that can cause actual results to differ materially from those contemplated by such statements. WesBanco does not assume any duty to update forward-looking statements. Todd?
Thank you, John. Good morning, everyone. On today's call, we’ll be reviewing our results for the fourth quarter of 2018. Key takeaways from the call today are; 2018 was another successful year for WesBanco as we successfully executed upon our well-defined growth strategies. We have and continue to diversify and strengthen our franchise. We remain diligently focused on credit quality, profitability and positive operating leverage and strong underlying fundamentals including our core deposit funding advantage will be a benefit during 2019.
Solid execution of our strategies and strong fundamentals drove record earnings of $143 million during 2018; but when excluding merger cost and the impact of a reevaluation of deferred tax assets last year, net income increased 46% to $157 million, borrowings per share increased 31% to $3.21.
On a similar basis, these earnings generated strong profitability ratios for 2018 with core returns on average assets and average tangible equity of 1.39% and 17.78%, respectively. For the three months ended December 31, net income excluding merger-related expenses was $45 million or $0.82 per diluted share. 2018 was another successful year for WesBanco as well as a year full of milestones for us.
As I mentioned, we reported record earnings with net income surpassing $143 million and income before provisions for credit losses and income taxes increasing 15% year-over-year to more than $182 million. We have continued to benefit from our core funding advantage as demonstrated by a total deposit beta of only 12% on the four federal funds rate increases during 2018.
We remain diligent on expense management while continuing to make technology and staffing investments to support future growth, helping to drive our 2018 efficiency ratio at 54.6%, a year-over-year improvement of 184 basis points.
Our credit quality ratios have continued to improve to be at or near historic lows as we've stayed discipline and balanced on our lending decisions. We strengthened the franchise by expanding into new and diversified markets with strong demographics, while maintaining strong market positions across our major markets.
We continue to be nationally recognized for our performance, strength and credit quality as we were again named one of America's Best Banks by a leading financial magazine recently coming in at number 27, our ninth top ranking since the inception in 2019 or 2010, I'm sorry.
As we remain committed to returning value to our shareholders, as demonstrated by increasing our dividend by 107% since 2010, including an 11.5% annualized dividend increase announced earlier in 2018; a strong core return on average tangible equity of 17.78% which has increased 606 basis points since 2010; an increasing tangible book value per share by 62% since 2010 to $19.63.
Our credit risk management strategy guides our loan growth to be both disciplined and balanced to ensure stability and success across economic cycles. Our approach is not to sacrifice long-term shareholder value for near-term gains. We are focused on long-term sustainable and profitable growth.
During the fourth quarter, we continue to see strength in our underlying credit fundamentals as key credit quality metrics remained at or near historic lows. In fact, despite the addition of $1.4 billion of portfolio loans from FTSB and FFKT acquisitions, non-performing loans and assets decreased year-over-year on both an absolute dollar basis as well as a percentage of the loan portfolio. I'm very pleased with the strong quarterly trend and our asset quality measures as they reflect the consistent high quality of our overall loan portfolio.
Total organic loan growth excluding our consumer portfolio was down 1.3% during the last 12 months. However, when adjusting for active portfolio management of several larger relationship exposures during the fourth quarter, total organic loan growth was essentially flat every year.
As I mentioned loan growth has been influenced by a number of factors including targeted reductions in our consumer portfolio to improve the risk return profile due past couple of years, lower home equity loan balances due to lower demand as a result of higher interest rates and tax changes, elevated levels of commercial real estate loans moving to an aggressive secondary financing market, as well as property owners selling properties outright due to favorable property valuations, and continued deleveraging by commercial customers reflective of the current operating environment and higher cash levels from tax reform.
While loan growth most likely continued to be impacted in the near term by these factors, we do see some positive signs. I believe we have neared the end of our targeted reductions in our consumer portfolio. Our residential mortgage program continues to be a bright spot. It's overall production continues to be strong across all of our markets with total closed loans up 23% year-over-year. And we continue to make appropriate investments to ensure long-term growth, including additional C&I lender and securities brokerage new hires, and building out our online lending application capabilities.
Furthermore, we are encouraged that our commercial pipeline going into 2019 is better than what we experienced going into 2018. Year-over-year, we continue to experience strong organic deposit growth excluding CDs of 2.5%, which is driven by nearly 6% growth in total demand deposits.
As I mentioned before, this deposit growth is just one of the key strategic advantages of our franchise which sits on top of the Marcellus and Utica Shale formations providing a distinct advantage that is hard to replicate and shale energy related deposits continue to be in the low-8 figure range each month. This core funding advantage aids profitability, while allowing us to meet the loan demand across our markets.
These consistent strong deposit inflows which mainly reside in demand accounts have allowed us to maintain a loan-to-deposit ratio in the high 80% range, while also keeping our funding costs low. The growth we have experienced in demand deposits which now represents 52% of total deposits has helped to keep our total annual deposit funding costs low.
As I mentioned earlier, one of the key pillars of our long-term growth strategy is franchise-enhancing acquisitions During the last few years, we have made significant and successful strides in our growth and diversification plans. In addition, we developed and disclosed to appropriately cross the $10 billion asset threshold and we did it exactly what we said we were going to do.
During 2018, we filled in the southern edge of our franchise with the acquisition of FTSB and we expanded into Kentucky's high growth markets to become one of the state's strongest franchises with the acquisition of FFKT. Both of these mergers and their respective operational integrations have gone very well to date. We maintained key sales personnel including commercial lenders and trust personnel and are on track with our anticipated cost saves.
Before turning the call over for a review of our financials, I want to take a minute to highlight our fundamentals. There has been a lot of uncertainty across our marketplace through the last few months from worries about a potential trade war with China, in a recession continued discord in Washington D.C., to significant decline in equity markets late last year. I wanted to reaffirm the strength of our underlying operating fundamentals.
We remain well-positioned for success in a variety of operating environments. We remain focused on long-term profitability and success as we continue to effectively execute upon our well-defined growth strategies. And most importantly, this long-term success will occur without sacrificing our legacy of credit quality and regulatory compliance.
I’d now like to turn the call over to Bob Young, our Chief Financial Officer for an update on our fourth quarter’s financial results. Bob?
Thanks, Todd and good morning, everyone. We reported strong profitability with your year-over-year growth in both pre-tax and after-tax earnings and continue to display solid credit quality and expense management.
For the 12 months ended December 31, 2018, we reported GAAP net income of $143.1 million and earnings per diluted share of $2.92 as compared to $94.5 million, or $2.14 per diluted share, for the same period last year. Excluding after-tax merger-related expenses from both periods, as well as the 2017 net deferred tax asset revaluation, net income increased 45.7%, $257.2 million, with earnings per diluted share up $0.76 to $3.21 per share.
For the three months ended December 31, 2018, we reported GAAP net income of $43.9 million and earnings per diluted share of $0.80 as compared to $15.9 million and $0.36 per share, respectively, in the prior year's period. Excluding after-tax merger-related expenses from both periods and the net deferred tax asset revaluation in the 2017 period, net income increased 55.4% to $45 million and earnings per diluted share increased 24.2% to $0.82 per share.
As a reminder, financial results for First Sentry and Farmers Capital, our two acquisitions last year, have been included in WesBanco’s results subsequent to their respective merger dates of April 5 and August 20, 2018. Furthermore, total portfolio loan of $7.7 billion, increased 20.7% compared with the prior year due to the -- due to both acquisitions.
The strength of our residential mortgage lending program continue to drive strong loan originations that are better than the residential mortgage market nationwide. Our total year-to-date originations, which were up 23% year-over-year, continue to be driven by home purchases, representing approximately 80% of total volume including construction relatively consistent with 2017’s rate as refinances have continued to drop in the marketplace.
Furthermore, while we continue in our strategy to sell residential mortgage originations into the secondary market, we again realized year-over-year organic growth of 3.3% during the fourth quarter, from an increase in the amount of one to four mortgage loans held on our balance sheet, primarily due to growth in certain nonconforming residential loans in the jumbo and private banking areas. Lastly, our residential mortgage pipeline heading in 2019 is stronger than it was going into 2018.
Turning to the income statement now, the interest margin increased 25 basis points year-over-year, reflecting the benefit to asset yields from the increases in the Federal Reserve Board’s target federal funds rate over the past year, as well as the benefit from the higher margin on the acquired Farmers net assets.
These benefits were partially offset by higher funding costs and a flatter yield curve which averaged approximately 20 basis points between the 2- and the 10-year portion of the curve in the fourth quarter.
As a reminder, also negatively affecting the margin in 2018 was a 6-basis-point reduction related to the lower tax equivalency of the state and local municipal tax exempt securities resulting from 2017 Tax Cuts and Jobs Act. Excluding this reduction as well as purchase accounting accretion of 23 basis points in the fourth quarter and six basis points in the prior-year period in the fourth quarter and six basis points in the prior year period, the core net interest margin increased 18 basis points year-over-year and 10 basis points sequentially from the third quarter to 3.55%. Purchase accounting accretion during the fourth quarter of 2018 was also positively impacted by an additional 4 basis points due to the December pay-off of a former YCB originated loan.
As Todd mentioned, one of the key strategic differentiators of our franchise is our long-term core deposit funding advantage which benefits profitability by helping to keep our overall deposit funding costs low. As of December 31, 2018, total deposits including non-interest-bearing increased 26.3% year-over-year to $8.9 billion, reflecting $1.8 billion from the two acquisitions.
However, total deposit cost for the fourth quarter were up only 11 basis points year-over-year, representing a beta of 11% compared to the four 425 basis point federal funds rate increases during 2018. And on a year-to-date basis, our total deposit base was equally strong at just 12%.
For the quarter ended December 31, 2018, non-interest income increased 15.8% from the prior year to $26.6 million driven by the First Sentry and Farmers Capital acquisitions, as well as organic growth. The associated larger customer base and higher transaction volumes drove the increases in electronic banking fees as well as deposit service charges. The year-over-year change in net loss and other real estate-owned was due to two larger REO gains at the end of 2017 totaling $0.6 million as compared to a slight loss in 2018.
Net securities losses of $1.3 million were primarily due to the accounting treatment of the market adjustment on our deferred compensation plan. The treatment of this adjustment is neutral to operating income as an offsetting $1.1 million is recorded as a credit within employee benefits expense.
As we have discussed many times, our long-term growth strategy is built upon delivering positive operating leverage while making necessary growth-oriented and risk prevention investments and maintaining our strong culture of credit quality risk management and compliance. We continue to demonstrate strong profitability and positive operating leverage through successful execution of our strategies as well as controlling discretionary costs despite the inclusion of Farmers Capital operating expenses since August 20.
Excluding merger-related expenses, non-interest expenses increased $15.2 million or 28% compared to the prior year period. This year-over-year increase is reflective of the two acquisitions and their associated staffs and locations which were the primary reasons for the increases in salaries and wages, employee benefits, net occupancy and equipment cost.
The year-over-year increase in total employee benefits was partially mitigated by the $1.1 million reduction in the deferred compensation plan obligation due to market declines discussed earlier and a change in our accounting for pension costs whereby most of the annual expenses now accounted for in salaries.
Our company-wide dedication to controlling costs is evident in the 184 basis point year-over-year improvement in our 2018 core operating efficiency ratio of 54.6% which, again, is inclusive of Farmers Capital's expense base prior to the cost savings expected to commence later during the first quarter of 2019.
During the fourth quarter of 2018, our credit quality ratios remain strong as we balanced disciplined loan origination growth in the current environment with our prudential financial lending standards.
There are many ways to achieve increased profitability, but adjusting our risk profile is not one of them, especially at this point of the elongated economic expansion cycle. Our approach is not to sacrifice long-term shareholder value for near-term gains as our credit and risk management strategy guides our loan growth to be both disciplined and balanced to ensure stability and success across various economic cycles.
In addition, we have continued to maintain strong regulatory capital ratios as both consolidated and bank level ratios grew this quarter and significantly exceed both well-capitalized standards and peer ratios. Indeed, our fourth quarter tangible common equity ratio increased both sequentially and year-over-year to 9.28% due to strong growth and retained earnings and lower accumulated other comprehensive losses offsetting the slightly negative impact earlier in the year of the two acquisitions.
Before opening the call for your questions, I would like to provide some current thoughts on our outlook for 2019. The inherent strength of our diversified growth strategies is how the components complement and support each other to ensure success and profitability in different operating environments. Despite our general asset sensitivity, we are not immune from the factors that are affecting net interest margins across the industry, including a very flat spread between the two-year to 10-year treasury yields.
While our core deposit funding advantage combined with our low loan-to-deposit ratio will help to contain overall deposit funding costs. We still expect deposit betas to increase as we move forward. We anticipate purchase accounting accretion to be in the mid-teens during 2019 declining at a rate of one to two basis points per quarter.
In the fourth quarter of 2018, we modeled 225 federal funds rate increases in March and June of 2019. However, the market outlook has changed since then and we are currently expecting just one mid-year increase in our net interest income projections for 2019. While we do not anticipate much overall change in our core net interest margin this year as compared to the fourth quarter of 2018, we do expect somewhat lower purchase accounting accretion which will reduce the stated margin a few basis points overall as we proceed through the year.
Regarding operating expenses, we remain on pace to achieve the remaining 25% of the anticipated First Sentry cost savings of 38% this year and expect to achieve the planned 35% of Farmers Capital cost savings with 75% of those realized during 2019 and the remainder in 2020.
We will continue to focus on expense trends to ensure positive operating leverage while positioning the company for long-term growth. We are planning our typical mid-year merit increases for our employees and expect that margin expense will ramp up from our fourth quarter run rate reflecting additional marketing spend in our various markets as well as the 25% larger company size. Furthermore, FDIC insurance expense will increase in the second quarter, as we are assessed a higher rate for banks over $10 billion in asset size.
Credit quality measures have been at or near historical lows over the last several periods and as such, variability from quarter-to-quarter may occur which is currently not suggestive of a change in the direction of overall credit quality unless the economy will slow down beyond current economic projections.
That said, we do expect our credit quality measures to remain strong during 2019. We anticipate our effective full-year tax rate to be between 18% to 20% subject to changes in certain taxable income strategies.
Lastly, during the second half of 2019, we will begin to incur the impact from the Durbin amendment on interchange fee income which currently is anticipated to reduce fee income by approximately $2.5 million per quarter as well as have a slight negative influence on the efficiency ratio.
We are now ready to take your questions. Operator, would you please review the instructions.
Thank you sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And your first question this morning will be from Casey Whitman of Sandler O'Neill. Please go ahead.
Nice quarter. I just wanted to circle back on the accretion guidance you guys just gave. So I think you said mid-teens expected accretion. Just to be clear, are you talking about mid-teens margin impact like basis points or dollar amount in millions?
No. That's margin impact. So 23 basis points in the fourth quarter. We’re expecting mid-teens beginning in the first quarter of 2019 and then a reduction of that as we proceed through the year and into 2020 of one, maybe two basis points a quarter. Prepayments will impact that as well.
Okay. And it sounds like your core margin guidance is for that being relatively flat assuming one rate hike. So what do you think -- or where does your guidance move to if we don't get another rate hike?
It would impact by one basis point to two basis points for the year. That's about the impact of each 25 basis points increase.
And maybe I'll circle back to just your comments around loan growth. So it sounds like we could maybe expect loans to grow a bit in 2019. But do you still think we're a few quarters out from seeing some of that growth. Or do you think we start to see a little bit of pick-up earlier than that?
Yeah. I think as we said ex-consumer, we were down about 1.3%. But I – maybe give a little color on that. We had four performing loans about $46 million that we either exited or reduced to either being outside of our risk tolerance, or maybe a little larger exposure than maybe we wanted with a couple of companies that are good performing companies. So we brought in some other banks to share some of that growing exposure.
Excluding those and some other smaller loans, we kind of managed exposures. I’m really kind of looking at loans as essentially flat year-over-year, again, driven by active exposure management. Pipelines, I mentioned a little bit stronger going into the fourth quarter of this year -- first quarter of this year than going into the first quarter of last year.
And we would expect the commercial real estate pay downs and CRE that's moving to the secondary market to start to stabilize at some point in 2019 as you kind of wash through all that. And we did see that slow down a little bit toward the end of '18 and the very beginning of '19.
And our strategy in terms of reducing parts of the consumer portfolio, the risk return piece of that, it's really stabilized over the last couple of months. And we think we're kind of where we need to be on that piece of it. So longer term, we would still think –low to mid-single digit loan growth once the market dynamics return to a little bit of a more normalized level and that’s kind of our view on it at this point.
The next question will be from Austin Nicholas of Stephens. Please go ahead.
Maybe just looking at the balance sheet again on the deposit growth, it looks like those were down kind of quarter-over-quarter. Can you walk me through if -- was there any kind of one-time items or seasonality in your public funds that impacted that?
I would tell you, yeah, obviously on a year-over-year basis excluding CDs we were up 2.5%. But in the fourth quarter, you typically have some movement in some of the public funds. I’d also kind of sorting through two mergers that we went through as well to while customer base has stayed strong and we didn't see a significant amount of attrition or anything like that.
You will see some changes associated with that. But public funds, it’s a big business for us and you do see some fluctuations fourth quarter. Also, you'll see some fluctuations in different times in both directions in the first quarter as well.
And then maybe just on the expense growth number, maybe just outside of Farmers. Can you maybe just guide us to where we should be thinking about the core expense growth rate kind of going into 2019. I know you mentioned kind of marketing expenses ramping up and the FDIC insurance expense also kind of increasing. If you could quantify both of those as well, that would help be helpful.
I would look at marketing expense as ramping up through the year and then just reflecting the size of the company, our budget in the past has been in that $5 billion to $6 billion area. So you would figure 25% growth on that number next year and we expect it as campaigns activate that that will proceed at a pace that would suggest higher marketing in the back half the year towards the end of the second quarter.
On the FDIC side, that increase will become effective on April 1, and we're currently estimating between $1 million and $1.5 million over last year's expense, reflecting both the growth in the company again, Austin, as well as the higher assessment base or rate for banks over $10 billion.
Overall guidance or comment about total expenses in the new year, first of all, you're looking at a little bit less than $70 million here in the fourth quarter if you exclude merger-related expenses. I would add back to that that deferred compensation amount. It's neutral operating income, but for purposes of operating expenses add that back. And so that, that really puts you slightly above $70 million, $70.5 million as the fourth quarter run rate.
And we would see then cuts here towards the end of the first quarter and second quarter from the Farmers acquisition as we converge systems and back office in the branches. And then, you would be looking at typically 2% to 3% increase as we proceed throughout the year from that level as a result of normal mid-year salary increases and other inflationary amounts. So, it's kind of starting the year in that $71 million to $72 million level.
And then just maybe taking a step back thinking about capital and maybe just more importantly just on M&A, are we still on a pause here in 2019 or are transactions still – or kind of back on the table?
Yeah. And I appreciate the question. I think with the integration of First Sentry, which the conversion was last summer, and FFKT coming up here in the next couple of weeks, everything is going very well. So the integration, the assimilation and everything else is very much on track.
Yeah, except in the last spring, a year and a half to two years or so, in terms of kind of what we saw from a pause standpoint. But I could see where we could end the pause in the second half of this year, kind of the back half of this year. If there was the right opportunity to try to do something, we would probably be willing to entertain that.
Again, we've covered the $10 billion threshold very well, and we're really managing things very tightly, and I'm real well-pleased with the team, not only the existing legacy WesBanco team but the new employees who have come on from First Sentry and FFKT. And really, it feels very much like one bank has been together a long time. So I think, as a result of that, we can look at something in the back half of this year or early 2020.
The next question will be from Steve Moss of B. Riley FBR. Please go ahead.
Hi. Good morning. This is Zach Weiss on for Steve today.
Good morning.
So I guess on fee income here, curious. Your outlook, maybe outside of the Durbin impact, just on trust fees and maybe mortgage how you guys are thinking about that for 2019.
Let me start off. You might want to add some additional in here. Obviously, we had the market impact on the trust fees in the fourth quarter and markets rebounded a little bit so far in the first quarter. We’ll see how the rest of the quarter goes.
We also have our fee program, our fee initiative we mentioned in the past, I think kind of Phase 1 of that was ATM fees and that was pretty much addressed in the early part of 2018. We also are continuing to look at other fees where we are below markets, precedently below market and a lot of places and addressing those over time as well as just more discipline around fee waivers and being able to control those type of things.
And we think those are some pretty meaningful numbers that are going to – part of it it’s in 2018, part of its in 2019, art of it is going to be 2020. I mean it's 20 or 30 different little initiatives, all of which have a different timeline and a different process associated with them and different approval processes associated with them. But we would expect those two to give us some additional fee growth in future quarters as we implement them. Bob, what else would you add to that?
Well, I’d say that it's kind of obvious that the first two quarters are going to have higher income in the back half of the year. And as I said during my prepared remarks, we do expect a slightly negative influence on the efficiency ratio in the back half the year from a lower base here in the first half of the year.
So, I would kind of look at the fourth quarter as a placeholder for our run rate at this point. Yes, there is some impact on trust fees but typically the first quarter is a better quarter for us on trust fees because of tax preparation fees primarily. And we do expect mortgage-backed to continue to ramp up despite lower refis and lower overall business in the economy.
And that's just because we're hiring more originators and taking business from others and have some very good programs with some great leadership as well. So, those are my main guidance points. The electronic banking will continue to increase in the first half of the year before you'll see that line item reflect urban in the back half of the year.
Okay. Thank you. And then on the balance sheet, in terms of the securities balances, should we expect those to be relatively flat for the year?
Yeah. Our anticipation isn't to dramatically increase them as a percentage of the balance sheet. I think we're pretty comfortable where we’re at. I mean we realize we're -- margin and expense controls is what's driving a lot of the earnings growth and the positive operating leverage right now. And we do need to grow the balance sheet. Loans, in particular, are going to need to grow over time moving forward.
So we don't have a real pessimistic view of the economy or anything like that. We're just taking the opportunity to position the home portfolio a little bit for long-term success. But we're not going to be ramping up the securities portfolio to offset slower loan growth. That isn't our plan.
And our next question will be from Russell Gunther of D. A. Davidson. Please go ahead.
I just wanted to circle back to the loan growth conversation. Todd, appreciate your comments around the low- to mid-single-digit range for next year. But if we think about the two recent deals, that $1.4 billion in loan balances, is there a bucket of that that you guys kind of ring fence your thought about in terms of intended rundown or a managed decline or have pro forma balances there kind of shook out where you thought.
I’m just trying to get a sense if there has been anything else kind of weighing on loan balances in addition of the industry headwind?
Yeah. Both of those two mergers is customary with prior mergers. We did sell some loans right before or right at the time of the merger was completed. So, we kind of moved those things off the books early on that we didn't think really fit with our profile going forward.
And the lending teams have all stayed intact and the plan isn’t to run loan balances down or anything like that at all. I mean, a part of the reason we’re going into those markets is because of the household growth and the demographic growth and the business environment. They're growing those markets, Louisville, Lexington in particular were growing faster than some of our legacy markets.
So, we think that'll be good for us from a loan growth perspective and a balance sheet perspective going forward. But we're comfortable with the credit that we picked up. We're comfortable with the loan categories. And we're comfortable with the businesses. So, the plan would be to expand it and not to intentionally run down any part of that.
Great. I appreciate that. And then Todd, as a follow-up there, what do you think the biggest delta in your mind is to achieving that mid-single-digit growth versus the low end to the range?
Yeah. It’s a great question. I spent some time in the market the last couple of weeks with our lending teams, and I think there still is just uncertainty out there, just some hesitancy to want to pull the trigger on expansion. I'm hearing a lot from customers around. I had a hard time finding people. They could generate additional revenue, work on additional contracts, things like that, but they're all struggling to find additional people to be able to capitalize on that.
But I also think there is some conservatism there in terms of really not being 100% sure of what's going on from an economic standpoint. You wouldn't think that the trade wars would have a big impact on a lot of our companies. But a lot of them are bringing in aluminum and steel and things like that and they're a little nervous about where those prices are going, so they're trying not to get overextended.
So I think there's just a lack of, maybe the lack of animal spirits I guess as some people say and a conservatism that's out there and people are sitting on cash balances, businesses are sitting on cash balances. So I think if we can get some more, I mean less volatility on some of those talks and some more definite direction that people can plan for, then I think you might see a little more activity out there. But I just – I attribute it to people just kind of pulling in the horns and being conservative right now.
And I appreciate your thoughts there And then just last one for me. You mentioned a willingness to take a look at M&A again on the back half of the year the opportunity arose. Can you just remind us from a size perspective, geography perspective sort of where you're focused with deals going forward?
Yeah. Very much same as in the past. I mean, we're looking at up a 6-hour drive time from our Wheeling headquarters here, so you can see the map and where that six hours would be. We're not the bank that's going to be jumping over states and going down south and out west and stuff like that.
We'll stay within that that market that we've stayed in historically and if it's an in-market deal, obviously higher expense saves. If it's an out-of-market deal, then we'd be looking at growth characteristics that would be stronger than our legacy markets Very similar to what you saw with FFKT and even your community bank a couple of years ago. That would be the plan.
[Operator Instructions] Your next question will be from Stuart Lotz of KBW. Please go ahead.
Most of my questions have been asked but maybe just one follow-up around credit cost or credit cost but maybe just one follow-up around credit costs or credit cost expectations for next year. I know the provision was higher this quarter related to some charge-offs but any outlook for 2019, what we can expect from a quarter-to-quarter provision expense.
We don't see a whole lot of change from the last couple of years. I mean, everything is really quiet. It really all looks very, very good. I think our first or second – second and third quarter were almost nothing. I mean, third quarter was actually a recovery.
So we just don't see anything there at all. I think for the year, the number was just incredibly low. We don't see anything impacting that. We don't see things in the pipeline deteriorating. We don't have any exposure or concentration issues in areas or industries that we're really concerned about, so kind of steady as she goes. And I would expect the next few quarters, at this point, to look very similar to what we had in the past.
Right. Well, yeah, that's all I had. So thank you, guys.
And ladies and gentlemen, that will conclude our question-and-answer session. I would like to hand the conference back over to Todd Clossin for his final remarks.
Thank you. So we remain focused on maintaining a strong financial institution for our shareholders and one that is positioned well for the future as we just discussed. We'll continue to keep discipline around our business model, our credit decisions and our growth investments as we continue to deliver long-term profitability and shareholder value. And I want to thank you for joining us today. Hope I get the opportunity to see you at an upcoming investor event later this winter or early spring. Thank you.
Thank you, sir. Ladies and gentlemen, the conference has concluded. Thank you for attending today’s presentation. You may now disconnect your lines.