Wesbanco, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. Although the request references 2020 Q4, this filing reports full-year results; selected fourth-quarter results are included below. Wesbanco is a regional bank holding company operating in six states, with 233 branches. It reported $16.4 billion in assets. The November 2019 Old Line Bancshares acquisition expanded its presence in Maryland and the Washington, D.C. area and affects comparability with 2019.
Financial performance and condition
| Metric | 2020 | 2019 | Change or context |
|---|---|---|---|
| Net income available to common shareholders | $119.4 million | $158.9 million | Down 24.8% |
| Diluted earnings per common share | $1.77 | $2.83 | Down 37.5% |
| Net interest income | $479.5 million | $399.9 million | Up 19.9%; larger earning-asset base, partly offset by lower margin |
| Net interest margin, fully taxable-equivalent | 3.37% | 3.62% | Down 25 basis points |
| Provision for credit losses | $107.7 million | $11.2 million | Increase reflected CECL adoption and pandemic-related economic forecasts |
| Non-interest income | $128.2 million | $116.7 million | Up 9.8%; mortgage banking was a major contributor |
| Non-interest expense | $354.8 million | $312.2 million | Up 13.7%, principally reflecting the acquired business and larger operations |
| Total assets | $16.4 billion | $15.7 billion | Up 4.5% |
| Deposits | $12.4 billion | $11.0 billion | Up 13.0%, including pandemic-related deposits and PPP proceeds |
| Total borrowings | $983.2 million | $1.90 billion | Down 48.2%, primarily from FHLB debt repayments |
| Operating cash flow | $59.6 million | $163.4 million | Cash and equivalents increased $670.7 million overall |
Fourth-quarter 2020 net income was $52.9 million; net income available to common shareholders was $50.2 million and diluted EPS was $0.75. The quarter included a $0.2 million provision benefit.
Mortgage banking income rose to $22.7 million from $8.2 million, supported by record mortgage production and secondary-market sales. Deposit service charges fell 18.7%, and electronic banking fees fell 22.6%, reflecting lower activity and debit interchange limits. The efficiency ratio was 56.38%, versus 56.68% in 2019.
At year-end, cash and cash equivalents were $905.4 million. Wesbanco reported $4.1 billion of remaining FHLB borrowing capacity, subject to collateral requirements, and $275 million of unused overnight bank lines. Its regulatory capital ratios included CET1 of 13.40%, Tier 1 risk-based capital of 14.72%, total risk-based capital of 17.58%, and leverage of 10.51%; the bank was categorized as well-capitalized.
Common dividends declared were $1.28 per share for 2020, and the quarterly rate was raised to $0.33 in February 2021. The company also issued $150 million of 6.75% non-cumulative perpetual preferred stock in August 2020, receiving approximately $144.5 million net of offering costs.
Material changes versus 2019
- Net income available to common shareholders fell $39.5 million, while net interest income rose with the larger balance sheet following the Old Line acquisition. Lower interest rates reduced the fully taxable-equivalent margin.
- Credit-loss provision increased to $107.7 million, including the January 2020 CECL adoption impact: a $41.4 million increase in the allowance and a $26.6 million after-tax reduction to opening retained earnings. Year-end loan allowance was $185.8 million, or 1.72% of portfolio loans.
- Portfolio loans rose 5.1% to $10.8 billion, including $726.3 million of remaining PPP loans. Excluding PPP, loans declined 2.0% as demand and retained residential mortgage balances weakened.
- Non-performing loans improved to 0.38% of portfolio loans from 0.49%; non-performing assets were 0.25% of total assets. However, criticized and classified loans increased, with pandemic-related hospitality downgrades a key factor.
- Deposits increased while certificates of deposit fell 21.3%. Total borrowings declined substantially as excess liquidity was used to repay FHLB advances.
Outlook, risks and unusual items
- Outlook: The filing does not provide a numerical earnings or revenue forecast. Management noted that prolonged low rates could pressure net interest income, margin and profitability; future results also depend on pandemic and economic developments.
- Credit and COVID-19: Commercial real estate represents 52.1% of portfolio loans. Hospitality loans were especially exposed to reduced occupancy; $171.1 million of loans remained in deferral at year-end, including approximately $150 million related to hospitality. The company cautioned that modifications may not prevent losses.
- CECL estimates: Allowance calculations rely on forecasts, unemployment and interest-rate assumptions, prepayments, portfolio mix and qualitative adjustments. Management said consistent unemployment forecasts could moderate future allowance increases, all else equal.
- Interest-rate and funding risks: The filing describes sensitivity to rate and yield-curve changes, deposit competition, and potential funding needs. It also discusses the transition away from LIBOR and the related effect on loans, derivatives and borrowings.
- Other exposures: Management identified competition, cybersecurity and third-party technology risks, regional economic conditions, CRE concentration, and municipal-bond risks. Goodwill was approximately $1.1 billion; impairment reviews found no charge necessary in 2020.
- Unusual items and actions: Wesbanco adopted CECL, issued preferred stock, and incurred $9.7 million of restructuring and merger-related expenses. A branch optimization plan covering 25 consolidations and two drive-up conversions was expected to generate $6.0–$6.5 million in gross annualized savings phased in during the first half of 2021, with about half reinvested in technology. The core banking system conversion was anticipated in the third quarter of 2021.
- Contingencies and audit: The company said ordinary-course legal matters were not reasonably expected to result in a material loss. The auditor gave an unqualified opinion on the financial statements and internal controls, while identifying the allowance for credit losses as a critical audit matter.
Important facts for investors to verify
- Whether hospitality and other pandemic-sensitive borrowers resume normal payments, and whether criticized/classified loan balances or charge-offs rise as deferrals end.
- How much of the allowance increase reflects CECL methodology versus worsening underlying credit performance, and how key forecast assumptions evolve.
- Whether the reported margin, earnings and dividend remain sustainable under prolonged low rates and changing deposit costs.
- PPP loan forgiveness, remaining fee recognition, and the pace of non-PPP loan growth.
- Execution and realized savings from branch consolidations and the planned technology conversion.
- Preferred-stock dividend obligations and the company’s capital, liquidity and dividend capacity as conditions change.