WesBanco, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2022; year-to-date figures cover the nine months ended September 30, 2022. WesBanco is a multi-state bank holding company operating 194 branches across six states, with community banking and trust and investment services segments. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net interest income | $124.5 | $115.3 | $344.4 | $347.6 |
| Non-interest income | $32.3 | $32.8 | $89.6 | $102.1 |
| Net income | $53.0 | $44.4 | $139.9 | $188.1 |
| Net income available to common shareholders | $50.5 | $41.9 | $132.3 | $180.5 |
| Diluted EPS | $0.85 | $0.64 | $2.19 | $2.71 |
| Net interest margin, fully taxable equivalent | 3.33% | 3.08% | 3.11% | 3.16% |
Q3 net interest income rose 8.0%, with management attributing the increase to higher rates and asset repricing. For the first nine months, net interest income declined 0.9%. Prior-year nine-month results included a $50.7 million release of provision for credit losses, a major contributor to the year-over-year decline in 2022 earnings. Q3 provision for credit losses was a benefit of $0.5 million, compared with a $1.7 million benefit in Q3 2021.
Q3 non-interest expense was $91.9 million, down 2.9% as reported, principally because restructuring and merger-related costs were much lower; excluding those costs, it increased 1.8%. Salaries and wages rose 12.1% in the quarter. The effective tax rate was 18.9% in Q3. The filing does not provide a consolidated operating margin figure.
Financial position, cash flow and capital
- Loans: Portfolio loans were $10.28 billion at September 30, up $544 million from year-end 2021. Excluding PPP loans, management reported 7.2% growth from year-end and 6.5% year over year.
- Deposits and liquidity: Deposits totaled $13.44 billion, down 0.9% from December 31, 2021. Cash and due from banks was $378.6 million, versus $1.25 billion at year-end. Management cited $3.07 billion of estimated liquidity sources expected within one year and approximately $4.1 billion of available FHLB credit capacity.
- Borrowings and debt: Total borrowings were $466.2 million, up $7.5 million from year-end. This includes $150 million of subordinated debentures issued in March 2022; proceeds count toward Tier 2 capital. FHLB borrowings fell by $126.9 million.
- Cash flows, nine months: Operating activities provided $196.7 million; investing activities used $775.1 million; financing activities used $294.3 million. Cash decreased $872.8 million over the period.
- Equity and capital: Shareholders’ equity was $2.40 billion, down 11.0% from year-end, primarily reflecting a $261.5 million other comprehensive loss and $113.6 million of share repurchases, partly offset by earnings. WesBanco reported a 15.37% total risk-based capital ratio and stated that it and the Bank remained above “well capitalized” thresholds.
Material changes and unusual items
- Available-for-sale securities fell to $2.65 billion from $3.01 billion at year-end. Gross unrealized losses on total debt securities reached $547.6 million; after-tax unrealized losses on available-for-sale securities in accumulated other comprehensive loss were $266.4 million. Management attributed the marks to rising market rates, stated that the securities were performing contractually, and said it did not intend or expect to be required to sell them before recovery.
- Held-to-maturity securities had an estimated fair value of $1.07 billion versus $1.26 billion amortized cost, an unrealized shortfall of approximately $196.6 million before tax. This is not reflected in accumulated other comprehensive income while the securities remain classified as held to maturity.
- Mortgage banking income declined 72.5% in Q3 as originations and secondary-market sales decreased; the company retained a larger share of residential mortgages on its balance sheet. Trust fees also declined, which management linked to lower market values of assets under management.
- Non-performing loans were $32.8 million, or 0.32% of portfolio loans, down from $39.5 million at year-end. However, loans at least 90 days past due and still accruing rose to $24.3 million from $7.8 million at year-end.
- WesBanco repurchased 3.25 million shares for $113.6 million in the first nine months. The quarterly common dividend increased to $0.34 per share.
Outlook, risks and contingencies
Management expected the core net interest margin to increase further through the remainder of 2022 and likely through 2023, assuming anticipated Federal Reserve rate increases. It cited loan repricing, higher yields on new loans and reinvested securities as potential benefits, partly offset by higher deposit and wholesale funding costs, declining acquisition-related accretion, and diminishing PPP fee income. This is management commentary, not formal earnings guidance.
Key exposures include interest-rate sensitivity, deposit competition and outflows, credit deterioration amid economic changes, commercial real estate and hospitality exposure, securities valuation and liquidity, and operational, cybersecurity, regulatory and competitive risks. Management’s interest-rate model showed estimated one-year net interest income increases of 9.7% under an immediate +300-basis-point shock and declines of 4.8% under a -100-basis-point shock and 12.2% under a -200-basis-point shock. Results depend on model assumptions and are not forecasts.
COVID-related payment deferrals remained on $32.6 million of loans at quarter-end, out of approximately $2.2 billion modified under the program. The company reported approximately $1.4 billion in loans tied to LIBOR or the ICE LIBOR Swap Index, including $1.2 billion maturing after June 30, 2023, and described its transition plans to alternative rates. Management said material losses from pending or threatened legal matters were not reasonably possible. No formal quantitative earnings guidance is provided in the filing.
Important facts for investors to verify
- Whether deposit trends, deposit pricing and funding costs develop as management expects, and how they affect net interest margin.
- The scale and duration of securities unrealized losses, potential liquidity needs, and management’s ability to hold securities until recovery.
- Whether rising past-due accruing loans lead to higher delinquencies, non-performing loans, charge-offs or provisions.
- Progress in growing loans while maintaining underwriting quality, particularly in commercial real estate and hospitality.
- The effect of share repurchases, dividends and the subordinated debt issuance on capital, funding costs and per-share results.
- LIBOR transition execution and the interest-rate sensitivity model’s assumptions and downside exposures.