WesBanco, Inc. 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended September 30, 2010, for WesBanco, Inc., a multi-state bank holding company operating in West Virginia, Ohio, and Western Pennsylvania. The company operates through 112 branches and offers retail banking, corporate banking, trust services, and brokerage services. As of October 26, 2010, there were 26,586,953 shares of common stock outstanding.
Key Financial Metrics
| Metric | Q3 2010 | Q3 2009 | YTD 9M 2010 | YTD 9M 2009 |
|---|---|---|---|---|
| Net Income (Common) | $9.2 million | $2.3 million | $25.3 million | $11.4 million |
| Diluted EPS | $0.34 | $0.09 | $0.95 | $0.43 |
| Net Interest Income | $42.0 million | $40.4 million | $123.8 million | $117.8 million |
| Net Interest Margin (FTE) | 3.61% | 3.35% | 3.58% | 3.32% |
| Provision for Credit Losses | $11.8 million | $16.2 million | $35.0 million | $36.0 million |
| Non-Interest Income | $15.0 million | $18.6 million | $44.6 million | $47.3 million |
| Non-Interest Expense | $35.7 million | $37.7 million | $105.6 million | $112.1 million |
| Total Assets | $5.36 billion | $5.66 billion (Avg) | $5.36 billion | $5.59 billion (Avg) |
| Total Deposits | $4.17 billion | $3.97 billion (Dec 09) | $4.17 billion | $3.97 billion (Dec 09) |
| Total Borrowings | $545.6 million | $796.1 million (Dec 09) | $545.6 million | $796.1 million (Dec 09) |
| Shareholders' Equity | $608.3 million | $588.7 million (Dec 09) | $608.3 million | $588.7 million (Dec 09) |
Material Changes vs. Prior Period
- Earnings Growth: Net income available to common shareholders increased 294% in Q3 2010 compared to Q3 2009, and 122% year-to-date. This improvement is largely attributed to the repurchase of TARP preferred stock in September 2009, which eliminated preferred dividends and expenses that reduced 2009 earnings.
- Net Interest Margin Expansion: The net interest margin (fully taxable equivalent) improved by 26 basis points in Q3 2010 to 3.61%. This was driven by a 65 basis point decrease in the cost of funds, outpacing the 32 basis point decline in asset yields.
- Asset Mix Shift: Total loans decreased 4.3% from year-end 2009, primarily due to a strategic reduction in residential real estate loans and lower commercial demand. Conversely, investment securities increased 7.6% as proceeds from loan paydowns were reinvested.
- Debt Reduction: Total borrowings decreased by $250.5 million (31.5%) from December 31, 2009, as the company utilized deposit growth and cash flows to pay down higher-cost Federal Home Loan Bank borrowings.
- Non-Interest Income Decline: Non-interest income decreased 19.3% in Q3 2010, primarily due to a 26.3% drop in service charges on deposits resulting from new regulatory requirements on overdraft fees and a decline in bank-owned life insurance income.
Outlook, Risks, and Contingencies
- Credit Quality: Non-performing loans increased to $89.1 million (2.69% of total loans) from $80.3 million at year-end 2009. This increase was driven by a $20.5 million rise in renegotiated loans, largely commercial real estate, partially offset by a reduction in non-accrual loans following the sale of impaired assets in Q3.
- Allowance for Loan Losses: The allowance stood at $59.0 million (1.78% of total loans). Net charge-offs increased significantly in Q3 due to the sale of $14.6 million in impaired loans, resulting in $10.5 million in charge-offs.
- Regulatory Environment: The company is evaluating the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which may affect capital requirements, deposit insurance assessments, and consumer protection rules. Basel III capital standards are also expected to increase capital requirements by 2019.
- Interest Rate Risk: The company is currently asset-sensitive. Management projects a 3.3% decrease in net interest income if rates fall 100 basis points, but a 2.3% increase if rates rise 100 basis points.
- Legal Proceedings: The company is involved in ordinary course legal proceedings, none of which are expected to be material.
Investor Verification Checklist
- TARP Impact: Verify the specific impact of the TARP preferred stock repurchase on the year-over-year earnings comparison, as 2009 results were depressed by preferred dividends.
- Renegotiated Loans: Monitor the $35.5 million balance of renegotiated loans (up 137% from year-end 2009) and their performance under modified terms.
- Overdraft Fee Revenue: Assess the long-term impact of new federal regulations on overdraft fee structures on future non-interest income.
- Commercial Real Estate Exposure: Review the concentration of non-performing assets in the commercial real estate sector, which represents the majority of non-performing loans.
- Capital Ratios: Confirm that Tier 1 Leverage (8.17%) and Total Capital to Risk-Weighted Assets (12.89%) remain well above regulatory minimums despite the loan portfolio reduction.