WesBanco, Inc. — FY2021 Form 10-K
Business context and reporting period. WesBanco is a regional bank holding company headquartered in Wheeling, West Virginia, with community banking and trust and investment services segments. It operated 206 branches across six states and reported $16.9 billion in assets at December 31, 2021. This summary covers the fiscal year ended December 31, 2021; comparisons are primarily with FY2020.
Key financial results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net income | $242.3 million | $122.0 million |
| Net income available to common shareholders | $232.1 million | $119.4 million |
| Diluted earnings per share | $3.53 | $1.77 |
| Net interest income | $457.9 million | $479.5 million |
| Net interest margin, fully taxable-equivalent | 3.11% | 3.37% |
| Non-interest income | $132.8 million | $128.2 million |
| Non-interest expense | $353.1 million | $354.8 million |
| Provision for credit losses | $(64.3) million | $107.7 million |
| Operating cash flow | $336.3 million | $59.6 million |
- Earnings and margins: Common net income rose 94.4%. The improvement was principally driven by the $172.0 million year-over-year swing in provision for credit losses, from expense to a provision benefit. Net interest income fell 4.5%, and the fully taxable-equivalent net interest margin declined 26 basis points to 3.11%, as asset yields fell faster than funding costs. Reported diluted EPS excluding after-tax restructuring and merger-related costs was $3.62, a non-GAAP measure.
- Revenue and expenses: Non-interest income rose 3.6%, supported by higher trust fees and a $4.7 million increase in gains on other real estate owned and other assets. The latter included a $3.8 million gain on a long-held startup investment. Mortgage banking income declined 14.1%. Excluding restructuring and merger-related costs, non-interest expense increased 0.4%; the efficiency ratio rose to 58.22% from 56.38%.
- Assets and loans: Total assets increased 3.1% to $16.93 billion. Portfolio loans fell 9.8% to $9.73 billion, including $563.6 million of net PPP loan forgiveness and elevated commercial loan payoffs. Remaining PPP loans were $162.7 million. Securities rose 48.1% to $4.03 billion as deposit-driven liquidity was invested.
- Credit quality: The allowance for loan losses declined to $121.6 million, or 1.25% of portfolio loans, from $185.8 million, or 1.72%. Net charge-offs were 0.02% of average loans versus 0.06%. Nonperforming loans were 0.41% of portfolio loans, up from 0.38%; criticized and classified commercial loans declined to 3.75% of total portfolio loans from 4.59%.
- Deposits, liquidity and debt: Deposits increased 9.1% to $13.57 billion, while certificates of deposit fell 20.1%. Cash and due from banks was $1.25 billion. Total borrowings declined 53.4% to $458.7 million, including a $365.1 million reduction in FHLB advances and redemption of $60 million of acquired subordinated debt. Remaining FHLB borrowing capacity was estimated at $3.8 billion. Uninsured deposits totaled $4.44 billion.
- Cash flow: Cash and cash equivalents increased $345.9 million to $1.25 billion. Operating activities provided $336.3 million; investing activities used $328.5 million; financing activities provided $338.1 million.
- Capital and shareholder returns: WesBanco’s CET1, Tier 1 risk-based and total risk-based capital ratios were 12.77%, 14.05% and 15.91%, respectively; the Bank was also reported well-capitalized. Shareholders’ equity declined 2.3% to $2.69 billion, reflecting repurchases, dividends and a $36.5 million other comprehensive loss, partly offset by earnings. WesBanco repurchased about 5.18 million shares for $181.6 million and declared $1.32 per common share in dividends.
Material changes, outlook and risks
- Management expected the low-rate environment to reduce core net interest margin by roughly 1–2 basis points per quarter in 2022 until potential rate increases began to benefit results. The company was modeling three federal funds rate increases in 2022; this is management’s expectation, not a guarantee.
- Management described the balance sheet as asset-sensitive: its year-end model estimated net interest income would increase 6.0% under an immediate, sustained 100-basis-point increase and 17.5% under a 300-basis-point increase. These are model scenarios, not forecasts, and depend on assumptions about deposit pricing, prepayments and other behavior.
- COVID-related deferrals had declined substantially, but $51.5 million of commercial loans remained in deferral at year-end. Management continued to include pandemic and hospitality-related qualitative factors in its credit-loss estimates.
- Credit concentration is a key risk: commercial real estate was 56.9% of portfolio loans, and management highlighted hospitality exposure. The filing reports approximately $724 million of total commercial exposure to hotels. Local economic weakness, property-value declines and borrower stress could increase credit losses.
- Other significant risks include interest-rate and securities-value changes, deposit competition and funding costs, cyber and operational failures, regulatory requirements, climate-related risks, and the transition away from LIBOR. WesBanco reported $1.8 billion of loans tied to LIBOR or the ICE LIBOR Swap Index, including $1.5 billion maturing after June 30, 2023, and selected one-month Term SOFR as an initial replacement for new lending.
- Unusual items included $6.7 million of restructuring and merger-related expense, principally for core conversion and closure of 27 branches; $4.5 million of legal settlement costs; and the $3.8 million investment gain noted above. The company also reported a $67.7 million increase in gross unrealized securities losses, primarily reflecting higher market rates, and no goodwill impairment.
- Management said pending or threatened legal proceedings were not reasonably expected to result in a material loss. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded internal controls were effective. The core banking conversion materially affected processes and procedures during 2021.
Important facts for investors to verify
- How much of 2021’s earnings improvement came from the negative credit-loss provision, and how earnings perform if provisions normalize or rise.
- Whether deposit growth persists as stimulus-related balances run off, including the stability and cost of the $4.44 billion in uninsured deposits.
- Realized credit performance in CRE and hospitality, including remaining deferrals, criticized loans and collateral values.
- The effect of rising rates on net interest margin and the investment portfolio; verify assumptions behind management’s interest-rate sensitivity scenarios.
- Whether share repurchases and dividends remain consistent with capital needs, regulatory limits and the preferred stock’s senior dividend rights.
- Execution of the LIBOR transition and the treatment of the $1.8 billion of LIBOR-linked loans and related contracts.