WSBC

WesBanco, Inc. 10-Q Summary: Quarter Ended June 30, 2009

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2009, for WesBanco, Inc., a multi-state bank holding company operating in West Virginia, Ohio, and Western Pennsylvania. A significant event during the period was the March 27, 2009, acquisition of five Columbus, Ohio branches from AmTrust Bank, adding approximately $599.4 million in deposits. The company operates two segments: Community Banking and Trust and Investment Services.

Key Financial Metrics

Material Changes vs. Prior Period

• Earnings Decline: Net income available to common shareholders decreased 58.5% year-over-year for the quarter and 56.3% year-over-year for the six-month period. This was primarily driven by a $4.2 million increase in FDIC insurance expense (including a $2.6 million special assessment) and a $4.5 million increase in the provision for credit losses.
• Net Interest Margin Compression: The net interest margin declined to 3.17% from 3.75% in the prior year quarter. This was caused by lower yields on earning assets due to the investment of AmTrust acquisition proceeds in lower-yielding securities, repricing of loans in a low-rate environment, and increased non-accrual loans.
• Credit Quality Deterioration: Non-performing loans increased 125% year-over-year to $81.6 million, driven by commercial and residential real estate portfolios. The allowance for loan losses increased to 1.65% of total loans from 1.15% in the prior year.
• Balance Sheet Growth: Total assets increased 9.9% and total deposits increased 17.0% compared to December 31, 2008, largely due to the AmTrust branch acquisition.

Guidance, Outlook, and Risks

• Subsequent Event (Credit Risk): Following the quarter-end, management received a new appraisal for a $7.8 million commercial real estate loan secured by a hotel property. The appraisal was significantly lower than previous estimates, leading to a $2 million increase in the provision for loan losses and the allowance for loan losses, which was not reflected in the June 30, 2009, reported balances.
• Interest Rate Risk: The company remains liability-sensitive. Management projects that a 100 basis point decrease in rates would reduce net interest income by 1.3% over the next twelve months. Conversely, a 100 basis point increase would increase net interest income by 0.6%.
• Capital Position: The company remains well-capitalized, with Tier 1 Leverage and Total Capital ratios significantly above regulatory minimums. However, tangible common equity to tangible assets declined to 5.35% from 6.44% at year-end 2008 due to the acquisition.
• FDIC Assessment: The significant increase in FDIC insurance expense is a one-time special assessment combined with a rate increase, which management expects to impact future liquidity and earnings.

Key Facts for Investor Verification

• Subsequent Loan Loss Provision: Verify the impact of the $2 million additional provision for the hotel property loan disclosed in Note 15 (Subsequent Events) on future earnings.
• Non-Performing Asset Trends: Monitor the trajectory of non-performing loans, which rose to 2.30% of total loans, specifically within the commercial real estate and residential real estate segments.
• Deposit Runoff: Assess the potential for deposit runoff from the acquired AmTrust branches, particularly high-rate certificates of deposit that may not be renewed in the current low-rate environment.
• FDIC Special Assessment: Confirm the full extent of the $2.6 million special assessment and its impact on the company's liquidity and future expense ratios.
• TARP Preferred Dividends: Note that earnings per share are reduced by the mandatory dividend on TARP preferred stock ($1.1 million per quarter).