WesBanco, Inc. — Q1 2023 Form 10-Q
Business context and reporting period. WesBanco is a multi-state bank holding company with community banking and trust and investment services segments. This unaudited filing covers the three months ended March 31, 2023; balance-sheet comparisons are with December 31, 2022, and operating results with Q1 2022. Unless stated otherwise, amounts below are in U.S. dollars.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net interest income | $124.3 million | $107.7 million |
| Net interest margin, fully taxable equivalent | 3.36% | 2.95% |
| Non-interest income | $27.7 million | $30.4 million |
| Non-interest expense | $96.1 million | $87.5 million |
| Provision for credit losses | $3.6 million | $(3.4) million |
| Net income | $42.3 million | $44.1 million |
| Net income available to common shareholders | $39.8 million | $41.6 million |
| Diluted EPS | $0.67 | $0.68 |
| Operating cash flow | $10.9 million | $47.7 million |
Fully taxable equivalent net interest income was $125.6 million, versus $108.9 million. The filing reports net interest margin on this basis; GAAP net interest margin was 3.33%, versus 2.92%. Common dividends declared were $0.35 per share, compared with $0.34.
Financial position and liquidity
- At March 31, total assets were $17.27 billion, up 2.0% from year-end. Portfolio loans were $10.89 billion, up $186.0 million (1.7%) from December 31; commercial real estate represented 56.9% of portfolio loans.
- Deposits were $12.87 billion, down $257.9 million (2.0%) from year-end. Non-interest-bearing demand deposits fell $221.5 million (4.7%). Management attributed deposit pressure in part to inflation and higher household costs.
- Total borrowings rose $551.3 million (49.2%) to $1.67 billion, principally reflecting a $575.0 million increase in FHLB borrowings. Cash and due from banks was $597.5 million, up from $408.4 million.
- Management reported $3.3 billion of available FHLB credit and $235.0 million of overnight lines with other banks, none drawn at quarter-end. The company had not used the Federal Reserve’s Bank Term Funding Program.
- Uninsured deposits were $4.1 billion, including $870.4 million of public funds secured by pledged securities; excluding those public funds, uninsured deposits were $3.2 billion, or 25% of total deposits. The company reported $3.30 billion of expected liquidity sources within one year.
- Total shareholders’ equity was $2.48 billion. WesBanco’s capital ratios included 11.11% common equity Tier 1 and 14.97% total risk-based capital; the Bank’s corresponding ratios were 12.08% and 12.68%. Both were above well-capitalized thresholds.
Changes versus the comparable period
- Net interest income increased 15.4%, as higher asset yields more than offset rising funding costs. The average yield on earning assets increased 125 basis points; the cost of interest-bearing liabilities increased 133 basis points. Management cited Federal Reserve rate increases and loan repricing.
- Common earnings declined to $39.8 million from $41.6 million, and diluted EPS declined to $0.67 from $0.68. Excluding after-tax restructuring and merger-related expenses, non-GAAP common earnings were $42.3 million and $0.71 per diluted share, compared with $42.9 million and $0.70.
- Non-interest income fell 9.0%, mainly because Q1 2022 included $1.9 million in BOLI death benefits and mortgage banking income was lower. Mortgage production fell 40.3% year over year.
- Non-interest expense rose 9.8%; excluding restructuring and merger-related expenses, it rose 8.2%. Higher compensation, employee benefits, FDIC insurance and technology costs were principal contributors.
- Credit provision shifted from a $3.4 million release to a $3.6 million provision. Net loan charge-offs were 0.07% of average portfolio loans on an annualized basis, versus 0.00%.
Outlook, commentary, risks and unusual items
- The filing provides no formal earnings or revenue guidance. Management said it believed current liquidity was sufficient and the allowance for credit losses was appropriate. Its CECL forecast assumed national unemployment of 4.0%, rising to an average of 4.5% over the remainder of the forecast period.
- Interest-rate exposure remains important. The company’s model estimated that a parallel 200-basis-point rate increase would raise net interest income 5.0% over one year; a 200-basis-point decrease would reduce it 7.3%. These are model estimates based on assumptions, not forecasts.
- Available-for-sale securities had $309.2 million of gross unrealized losses at quarter-end; held-to-maturity securities had $133.0 million. Management attributed the losses primarily to market-rate movements and said it did not intend, nor expect to be required, to sell loss-position securities before recovery. These positions remain relevant to liquidity and capital analysis.
- Commercial real estate was 56.9% of portfolio loans. Nonperforming loans were $39.2 million, or 0.36% of portfolio loans; criticized and classified loans were $173.8 million, down from $250.5 million at year-end. Assess loan quality and concentrations alongside these aggregate indicators.
- Restructuring and merger-related expense was $3.2 million, mainly from fixed-asset write-downs and lease-termination costs related to branch and back-office closures. Legal proceedings were described as ordinary-course matters; management said a material loss was not reasonably possible.
- At March 31, $1.3 billion of loans referenced LIBOR or the ICE LIBOR Swap Index, including $1.2 billion maturing after June 30, 2023. WesBanco said it planned to transition remaining contracts and had selected one-month Term SOFR as an alternative for specified products.
Important facts for investors to verify
- Deposit trends, the cost and stability of funding, and the extent to which increased FHLB borrowing continues.
- Uninsured-deposit composition, liquidity availability under stress, and the securities pledged or available to support borrowing.
- Interest-rate sensitivity assumptions and the potential effects of further deposit repricing, loan prepayments and securities valuation changes.
- Commercial real estate exposures, criticized/classified loan migration, nonperforming loans and adequacy of credit-loss reserves.
- Whether higher recurring expenses and lower mortgage and fee income offset continued net interest income growth.
- The pace and cost of LIBOR-linked contract conversion, and the trajectory of branch-optimization and merger-related costs.