WesBanco, Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited results cover the quarter and nine months ended September 30, 2013. WesBanco is a regional bank holding company operating in West Virginia, Ohio, and western Pennsylvania, with community banking and trust and investment services segments. Comparisons are affected by the November 2012 acquisition of Fidelity Bancorp, which added 13 Pittsburgh-area branches.
Key financial metrics
| Metric | Q3 2013 / September 30, 2013 | Comparable period / prior balance |
|---|---|---|
| Net income | $15.5 million; diluted EPS $0.53 | Q3 2012: $12.9 million; $0.48 |
| Nine-month net income and diluted EPS | $48.6 million; $1.66 | 2012: $36.9 million; $1.38 |
| Net interest income | Q3: $46.1 million; nine months: $138.2 million | Q3 2012: $41.7 million; nine months 2012: $125.1 million |
| Fully taxable-equivalent net interest margin | Q3: 3.52%; nine months: 3.58% | Q3 2012: 3.51%; nine months 2012: 3.53% |
| Non-interest income / expense | Q3: $17.1 million / $40.0 million; nine months: $52.3 million / $120.3 million | Q3 2012: $16.0 million / $36.8 million; nine months 2012: $47.2 million / $108.5 million |
| Credit provision; net charge-offs | Q3 provision $2.8 million; nine-month provision $5.9 million. Nine-month net charge-offs $11.3 million, or 0.30% of average portfolio loans | Q3 2012 provision $4.5 million; nine-month provision $16.6 million. Nine-month 2012 net charge-offs $18.0 million, or 0.55% |
| Assets, loans, deposits, and equity | Assets $6.14 billion; net portfolio loans $3.79 billion; deposits $5.06 billion; equity $736.7 million | December 31, 2012: assets $6.08 billion; net portfolio loans $3.64 billion; deposits $4.94 billion; equity $714.2 million |
| Borrowings | Total $290.2 million | December 31, 2012: $368.0 million |
| Cash flows, nine months | Operating +$91.6 million; investing −$97.5 million; financing +$26.0 million; cash ended at $145.6 million | 2012: operating +$64.0 million; investing −$82.8 million; financing −$5.1 million; ending cash $116.4 million |
Return on average assets for the first nine months was 1.07%, versus 0.89% in 2012. The quarterly dividend was raised to $0.20 per share in August; nine-month dividends declared were $0.58 per share.
Material changes versus prior periods
- Q3 net income increased 20.4% and diluted EPS increased 10.4% year over year; nine-month net income rose 31.7% and diluted EPS 20.3%. Management attributed much of the growth in earning assets and deposits to Fidelity, alongside organic lending and deposit growth.
- Quarterly net interest income rose 10.6% and nine-month net interest income 10.5%. Average loans, lower funding costs, deposit mix improvements, and Fidelity purchase-accounting accretion supported results; loan and securities yields remained under pressure.
- Nine-month non-interest income increased 10.9%, supported by trust fees, brokerage, service charges, and electronic banking. Non-interest expense rose 10.8%, primarily reflecting the acquired branches, staffing, benefits, occupancy, equipment, and marketing.
- Portfolio loans increased 4.0% from year-end excluding the acquired market, according to management. Total loans grew 3.6% from year-end; commercial and industrial and residential real estate balances were notable sources of growth.
- Non-performing loans were $53.6 million, 1.40% of loans, versus $63.7 million, 1.73%, at December 31, 2012. Criticized and classified loans fell 28.4% year over year. A third-quarter sale of classified loans had a $9.4 million carrying value, including $7.3 million of non-performing loans; related charge-offs were mostly covered by existing reserves.
- The allowance for loan losses declined to $47.3 million, or 1.23% of portfolio loans, from $52.7 million, or 1.43%, at year-end. The lower provision reflected improved credit indicators, while Q3 provision increased from the prior quarter due partly to loan growth and specific reserves.
- Available-for-sale securities declined 8.6% from year-end. Rising rates sharply reduced unrealized gains in accumulated other comprehensive income; total AOCI moved from a $6.4 million loss to an $18.4 million loss.
Outlook, risks, contingencies, and unusual items
- Management expected net interest margin to be relatively flat through the remainder of 2013 and into 2014, with some potential improvement if rates rise. It did not anticipate short-term rate increases before sometime in 2015. This is management’s stated outlook, not formal earnings guidance.
- Management cited competition for high-quality loans, continued pressure on asset yields, interest-rate sensitivity, deposit pricing and retention, credit losses, and the effects of regional and national economic conditions as important risks. The filing cautions that forward-looking statements are subject to risks and disclaims a duty to update them.
- Approximately $908.9 million of certificates of deposit were scheduled to mature within 12 months, including about $290 million maturing in Q4 2013, excluding CDARS balances. The company reported approximately $1.5 billion of remaining FHLB borrowing capacity and no outstanding balances on its $25 million parent-company credit line.
- Management said both WesBanco and the Bank exceeded minimum regulatory capital requirements and were well capitalized, including under the recently finalized Basel III standards. At September 30, the holding company’s total risk-based capital ratio was 14.23%; the Bank’s was 13.23%.
- The filing reports $1.2 billion of outstanding commitments to extend credit in the ordinary course; many are expected to expire unused. Management did not expect pending litigation to materially affect financial condition or results. A shareholder lawsuit concerning the Fidelity merger had a settlement fairness hearing scheduled for November 19, 2013; court approval was not assured.
- Unusual items include a $1.1 million bank-owned life insurance death benefit in Q1, Fidelity-related integration and recurring operating costs, and the Q3 classified-loan sale. Management stated that most targeted merger back-office and administrative savings had been achieved by the end of Q2.
- Disclosure controls were judged effective at a reasonable assurance level; the company reported no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- How much of earnings, loan growth, and deposit growth reflects Fidelity versus sustained organic performance, and whether integration savings offset ongoing acquisition-related costs.
- Whether asset quality continues to improve after the classified-loan sale, and how charge-offs, troubled debt restructurings, delinquencies, and reserve coverage develop.
- How rising or falling rates, loan pricing competition, and deposit repricing affect net interest margin and the securities portfolio’s unrealized losses.
- Whether maturing certificates of deposit are retained or replaced at favorable costs, and whether liquidity and capital remain strong as lending grows.
- The outcome of the Fidelity-related settlement hearing and any material changes in litigation, commitments, or other contingencies.