Wesbanco, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; unaudited. Wesbanco is a multi-state bank holding company operating community banking and trust and investment services businesses.
Financial performance
- Third quarter: Net income was $36.8 million and net income available to common shareholders was $34.3 million, or $0.58 per diluted share, versus $53.0 million, $50.5 million and $0.85, respectively, in Q3 2022.
- First nine months: Net income was $124.1 million and income available to common shareholders was $116.5 million, or $1.96 per diluted share, compared with $139.9 million, $132.3 million and $2.19 in 2022. Excluding after-tax restructuring and merger-related expenses, the company reported non-GAAP common income of $119.5 million, or $2.01 per diluted share, versus $133.7 million, or $2.21.
- Net interest income and margin: Q3 net interest income fell 5.5% to $117.7 million; the fully taxable-equivalent net interest margin was 3.03%, down from 3.33%. Nine-month net interest income increased 5.6% to $363.6 million, and the fully taxable-equivalent margin was 3.19%, up from 3.11%.
- Other income and costs: Q3 non-interest income declined 4.3% to $30.9 million, while non-interest expense rose 6.5% to $97.9 million. For the first nine months, non-interest income increased 0.8% to $90.4 million and expense increased 9.0% to $290.5 million.
- Credit costs: Q3 provision for credit losses was $6.3 million, versus a $0.5 million provision benefit in Q3 2022. The Q3 provision included a $2.9 million specific reserve on one hospitality loan. Nine-month provision was $12.9 million, versus a $4.8 million benefit in 2022.
- Cash flow: For the first nine months, operating activities provided $122.0 million, investing activities used $311.9 million, and financing activities provided $276.6 million. Cash and restricted cash increased $86.7 million to $495.1 million.
Financial position, liquidity and capital
- At September 30, total assets were $17.34 billion, up 2.4% from December 31, 2022. Portfolio loans were $11.32 billion, up 5.7%; securities were $3.42 billion, down 9.8% as runoff helped fund loan growth.
- Deposits totaled $13.09 billion, down 0.3%. Non-interest-bearing demand deposits fell 11.3%, while certificates of deposit increased 32.8% and money market deposits increased 13.1%.
- Total borrowings increased 35.0% to $1.51 billion, including $1.13 billion of FHLB borrowings, up $420 million. The average cost of interest-bearing liabilities increased to 2.52% in Q3 from 0.41% a year earlier.
- Shareholders’ equity was $2.45 billion. The company and bank remained above regulatory “well-capitalized” thresholds; Wesbanco’s common equity Tier 1 ratio was 11.00% and the bank’s was 12.06%.
- Management said liquidity was adequate. Available FHLB credit was approximately $3.5 billion; uninsured deposits were $4.0 billion, or 31% of deposits, including public funds secured by pledged securities. The company had not used the Federal Reserve’s Bank Term Funding Program.
Material changes, outlook and risks
- Higher rates lifted loan yields and interest income, but deposit and wholesale funding costs rose faster in Q3, compressing the margin. Average loans grew 10.2% year over year, while average deposits fell 4.7%; customers shifted toward interest-bearing products.
- Credit indicators were mixed: nonperforming loans were $29.9 million, or 0.26% of portfolio loans, down from 0.39% at year-end. However, loans 90 days or more past due and accruing were 0.08% of portfolio loans, versus 0.05% at year-end. Commercial real estate represented 56.3% of portfolio loans.
- Unrealized losses on available-for-sale and held-to-maturity debt securities increased with market rates. Available-for-sale securities had $392.9 million of gross unrealized losses; held-to-maturity securities had $212.1 million. Management attributed these mainly to rate-related market-value changes and said it did not intend, nor expect to be required, to sell loss-position securities before recovery.
- Interest-rate sensitivity modeling estimated a 2.7% increase in one-year net interest income under an immediate +200 basis-point shock and a 6.2% decrease under a -200 basis-point shock. These are model estimates and depend on assumptions about deposits, prepayments and balance-sheet mix.
- No specific earnings guidance is provided in the supplied filing text. Management’s CECL forecast assumed national unemployment of 4.3%, rising to an average of 4.7% over the remainder of its forecast period. Management cited economic conditions, rates, deposit competition, credit quality, regulation, cybersecurity, technology and securities marketability among risks that could affect results.
- Restructuring and merger-related expense was $3.8 million for the first nine months, including costs associated with branch and back-office closures and mortgage department restructuring. Management said material loss from pending or threatened legal proceedings was not reasonably possible.
Important facts for investors to verify
- Whether deposit pricing and funding mix stabilize enough to support net interest margin, given the sharp rise in interest-bearing liability costs and increased FHLB borrowing.
- Developments in the hospitality loan with a specific reserve, CRE portfolio performance, criticized/classified loans and past-due trends.
- The extent and duration of securities losses, and the assumptions supporting management’s ability and intent to hold securities until recovery.
- Liquidity and deposit retention, including uninsured deposits, large CD maturities and use of reciprocal or other rate-sensitive funding sources.
- Whether expense growth, restructuring costs and the non-GAAP earnings adjustments persist; compare reported GAAP results with management’s adjusted measures.