Wesbanco, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; unaudited. Wesbanco is a multi-state banking company operating in six states, with community banking and trust and investment services segments. Dollar amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | Q3 2021 / September 30, 2021 | Comparable period / change |
|---|---|---|
| Net income available to common shareholders | $41.9; diluted EPS $0.64 | Q3 2020: $41.3; diluted EPS $0.61 |
| Year-to-date common net income | $180.5; diluted EPS $2.71 | First nine months 2020: $69.2; diluted EPS $1.03 |
| Net interest income | Q3: $115.3; nine months: $347.6 | Q3 down 4.4%; nine months down 3.4% year over year |
| Net interest margin | Q3: 3.08% fully taxable-equivalent (FTE) | Q3 2020: 3.31% FTE |
| Non-interest income / expense | Q3: $32.8 / $94.7 | Q3 2020: $34.6 / $89.9 |
| Credit-loss provision | Q3 benefit of $1.7; first nine months benefit of $50.7 | Q3 2020 provision: $16.3; first nine months 2020 provision: $107.9 |
| Cash flow, first nine months | Operating +$276.1; investing −$404.0; financing +$343.5; cash increased $215.7 | Operating cash flow was $20.6 in the comparable 2020 period |
| Assets / deposits / loans | Assets $16,892.1; deposits $13,423.3; portfolio loans $9,913.2 | Since December 31, 2020: assets +2.8%; deposits +8.0%; portfolio loans −8.1% |
| Borrowings / equity | Borrowings $529.2; shareholders’ equity $2,724.0 | Since year-end 2020: borrowings −46.2%; equity −1.2% |
| Credit quality | Allowance for loan losses $136.6, or 1.38% of portfolio loans; nonperforming loans 0.40% of portfolio loans | Allowance ratio was 1.72% at year-end; nonperforming loans were 0.38% |
Material changes and drivers
- Earnings: Q3 common net income rose modestly year over year despite lower net interest income, as the credit-loss provision swung from expense to benefit. Excluding after-tax restructuring and merger-related costs, management reported Q3 common net income of $45.4 million, or $0.70 diluted EPS, versus $44.2 million, or $0.66, a year earlier; this is a non-GAAP measure.
- Interest income and margin: Lower market rates, loan repricing, lower securities yields and reduced acquisition-related accretion weighed on results. Q3 average loans fell 8.5% year over year, while average securities rose 41.7%; PPP-related interest and fee accretion contributed $8.2 million in Q3. Lower deposit and borrowing costs only partly offset asset-yield pressure.
- Fee income and costs: Q3 non-interest income fell 5.4%, mainly because mortgage banking income declined 46.2% from a record prior-year quarter as more residential mortgages were retained. Trust fees and electronic banking fees increased. Non-interest expense rose 5.3%, including $2.6 million of legal settlement costs and higher technology, software and compensation expense.
- Balance sheet mix: Deposits grew by $993.9 million from year-end, largely in transaction and savings accounts, while certificates of deposit declined $264.3 million. Securities grew 45.2%, supported by excess liquidity; portfolio loans contracted, including as PPP loans were forgiven and customer repayments outpaced new originations.
- Capital allocation: Wesbanco repurchased approximately 3.64 million shares for $128.0 million in the first nine months and declared common dividends of $0.99 per share. The quarterly common dividend increased to $0.33 per share. Equity also reflected a $26.9 million year-to-date other comprehensive loss.
Outlook, risks and unusual items
- Management expected core net interest margin to decline by a few basis points in Q4, citing lower-yielding securities purchases, loan repricing and reduced purchase-accounting accretion; lower funding costs and PPP fee accretion were expected to provide some offset. The filing provides no specific earnings or revenue guidance.
- Management said improved economic forecasts and hospitality-sector conditions reduced the allowance for credit losses. However, hospitality exposures remain a focus: eight hotel loans totaling $37.1 million were moved to individual evaluation in Q3. Criticized and classified loans were 4.2% of portfolio loans, and past-due loans were 0.44% of total loans.
- COVID-related payment deferrals remained on $132.8 million of loans at September 30, 2021. Approximately 3,553 loans totaling $2.2 billion had been modified under CARES Act provisions; such qualifying modifications were not classified as TDRs or past due while in the program.
- A $2.6 million legal settlement cost was recognized in Q3, subject to final court approval. Management stated it did not believe other pending or known threatened legal matters presented a reasonably possible material loss.
- Wesbanco reported all capital ratios above “well-capitalized” thresholds. Its common equity Tier 1 ratio was 12.91% at the holding company and 14.21% at the bank. Management stated liquidity was adequate; available FHLB capacity was approximately $4.0 billion, and the company had $1.1 billion of cash and due from banks.
- LIBOR transition: $1.9 billion of loans referenced LIBOR or the ICE LIBOR Swap Index, including $1.5 billion maturing after June 30, 2023. Wesbanco planned to stop offering LIBOR in new contracts after December 31, 2021 and initially selected one-month Term SOFR for new lending.
- Q3 included completion of a core banking system conversion, which management said materially affected or could reasonably be expected to affect internal-control processes. Disclosure controls were assessed as effective; monitor post-conversion control execution.
Most important facts for investors to verify
- Whether margin pressure continues and whether deposit costs can offset loan and securities yield declines.
- Loan demand, PPP runoff, and performance of commercial real estate and hospitality exposures, including deferrals and criticized/classified loans.
- Credit-loss allowance assumptions and the effect of changing economic forecasts on future provision or reserve releases.
- Whether elevated liquidity and securities growth can be deployed at attractive returns; review securities’ duration, unrealized losses and interest-rate sensitivity.
- Core conversion execution, the final status of the legal settlement, and progress and costs of the LIBOR-to-SOFR transition.
- Share repurchases, dividend sustainability, and capital ratios after distributions and any further balance-sheet changes.