WesBanco(US:WSBC)2023-08-03 20:14PART I - FINANCIAL INFORMATION Item 1. Financial Statements Wesbanco's financial statements show $17.36 billion in total assets by June 30, 2023, with Q2 net income of $44.9 million Note 1. Summary of Significant Accounting Policies Wesbanco adopted ASU 2022-02 on January 1, 2023, discontinuing TDR accounting and replacing it with MBEFD guidance - Effective January 1, 2023, the company adopted ASU 2022-02, discontinuing Troubled Debt Restructuring (TDR) accounting. It was replaced by new guidance on Modifications for Borrowers Experiencing Financial Difficulty (MBEFD), which eliminates the need to measure economic concessions on loan modifications2131 Note 3. Securities Total debt securities had $3.40 billion fair value and $3.90 billion amortized cost, with $501.6 million gross unrealized losses Debt Securities Portfolio Composition (in thousands) | Category | Amortized Cost (in thousands) | Fair Value (in thousands) | | :--- | :--- | :--- | | Available-for-sale | $2,678,107 | $2,329,222 | | Residential mortgage-backed securities | $2,023,958 | $1,721,887 | | Commercial mortgage-backed securities | $313,521 | $305,242 | | Held-to-maturity | $1,224,470 | $1,072,229 | | Obligations of states and political subdivisions | $1,157,889 | $1,010,481 | | Total Debt Securities | $3,902,577 | $3,401,451 | - Gross unrealized losses on available-for-sale debt securities totaled $349.0 million as of June 30, 2023, primarily in residential mortgage-backed securities ($302.1 million). The company does not believe these securities are impaired due to credit quality and does not intend to sell them before recovery46 - The allowance for credit losses on held-to-maturity securities was $193 thousand at June 30, 2023, down from $220 thousand at year-end 202245 Note 4. Loans and the Allowance for Credit Losses Total portfolio loans grew to $11.13 billion, with ACL at $130.3 million, and non-performing loans decreased to $31.6 million Loan Portfolio Composition (in thousands) | Loan Category | June 30, 2023 (in thousands) | % of Total | | :--- | :--- | :--- | | Total Commercial Real Estate | $6,295,467 | 56.3% | | Commercial and Industrial | $1,558,491 | 14.0% | | Residential Real Estate | $2,341,928 | 21.0% | | Home Equity & Consumer | $934,078 | 8.4% | | Total Portfolio Loans | $11,129,964 | 99.7% | Allowance for Credit Losses Roll-Forward (Six Months Ended June 30, 2023, in thousands) | Description | Loans (in thousands) | Loan Commitments (in thousands) | Total (in thousands) | | :--- | :--- | :--- | :--- | | Beginning Balance (Dec 31, 2022) | $117,790 | $8,368 | $126,158 | | Provision for Credit Losses | $4,876 | $1,756 | $6,632 | | Net Charge-offs | $(2,500) | - | $(2,500) | | Ending Balance (June 30, 2023) | $120,166 | $10,124 | $130,290 | - Non-performing loans stood at $31.6 million (0.28% of total loans) as of June 30, 2023, a decrease from $41.4 million (0.39% of total loans) at December 31, 202262191 Note 5. Derivatives and Hedging Activities Wesbanco uses derivatives with $1.2 billion notional for risk management, recording $78.1 million in assets and $77.6 million in liabilities Derivative Instruments (in thousands) | Derivative Type | Notional Amount (in thousands) | Asset Fair Value (in thousands) | Liability Fair Value (in thousands) | | :--- | :--- | :--- | :--- | | Interest rate swaps and caps | $1,243,199 | $77,753 | $77,458 | | Interest rate lock commitments | $33,293 | $0 | $171 | | Forward TBA contracts | $51,000 | $322 | $0 | | Total | | $78,075 | $77,629 | - The company recognized income from swap and cap fees of $4.3 million for the six months ended June 30, 2023, compared to $1.0 million for the same period in 202280 Note 11. Business Segments Wesbanco operates through Community Banking and Trust and Investment Services, generating $83.0 million and managing $5.1 billion in assets Segment Net Income (Six Months Ended June 30, 2023, in thousands) | Segment | Net Income (in thousands) | | :--- | :--- | | Community Banking | $83,046 | | Trust and Investment Services | $4,175 | | Total Net Income | $87,221 | - The Trust and Investment Services segment managed or held in custody approximately $5.1 billion in assets at June 30, 2023, up from $4.8 billion a year prior126 Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Assets | $17,356,954 | $16,931,905 | | Net Portfolio Loans | $11,009,798 | $10,584,938 | | Total Securities | $3,565,447 | $3,789,055 | | Total Liabilities | $14,891,956 | $14,505,243 | | Total Deposits | $12,861,434 | $13,131,090 | | Total Borrowings | $1,763,140 | $1,121,473 | | Total Shareholders' Equity | $2,464,998 | $2,426,662 | Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $121,567 | $112,228 | $245,898 | $219,938 | | Provision for Credit Losses | $3,028 | $(812) | $6,605 | $(4,250) | | Non-Interest Income | $31,841 | $26,983 | $59,493 | $57,365 | | Non-Interest Expense | $96,437 | $87,019 | $192,560 | $174,569 | | Net Income | $44,880 | $42,748 | $87,221 | $86,870 | | Diluted EPS | $0.71 | $0.67 | $1.38 | $1.34 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Q2 net income rose 5.2% due to higher net interest income and margin expansion, offset by increased credit loss provision and expenses Earnings Summary Q2 2023 net income available to common shareholders was $42.3 million ($0.71 diluted EPS), driven by 8.3% net interest income growth Quarterly Earnings Performance | Metric | Q2 2023 (in millions) | Q2 2022 (in millions) | | :--- | :--- | :--- | | Net Income (Common) | $42.3M | $40.2M | | Diluted EPS | $0.71 | $0.67 | - Key drivers for Q2 2023 performance include an 8.3% increase in net interest income, a $3.0 million provision for credit losses (compared to a $0.8 million release in Q2 2022), an 18.0% increase in non-interest income, and a 10.8% rise in non-interest expense137138139140 Financial Condition Total assets increased 2.5% to $17.4 billion, driven by 4.0% loan growth, funded by 57.2% increased borrowings as deposits declined - Total portfolio loans increased by $427.2 million (4.0%) since December 31, 2022, driven by growth in improved property and residential real estate loans171186 - Total deposits decreased by $269.7 million (2.1%) since year-end, with a notable 8.8% decline in non-interest bearing demand deposits, partially offset by an 8.4% increase in certificates of deposit171199 - To fund loan growth amidst deposit outflows, total borrowings increased by $641.7 million (57.2%), primarily through a $675.0 million increase in FHLB borrowings171202 Capital Resources Shareholders' equity increased $38.3 million to $2.5 billion, with all regulatory capital ratios exceeding well-capitalized minimums Regulatory Capital Ratios (Wesbanco, Inc.) | Ratio | June 30, 2023 | Well-Capitalized Minimum | | :--- | :--- | :--- | | Common Equity Tier 1 | 11.03% | 6.50% | | Tier 1 Capital | 12.12% | 8.00% | | Total Capital | 14.83% | 10.00% | | Tier 1 Leverage | 9.78% | 5.00% | - The company repurchased 162,700 shares of common stock for $3.7 million during the first six months of 2023. As of June 30, 2023, 1,021,901 shares remained authorized for repurchase206 Liquidity Risk Wesbanco maintains strong liquidity with $3.3 billion in FHLB credit, and uninsured deposits estimated at $3.0 billion - Uninsured deposits totaled $3.9 billion (30% of total deposits). After excluding $846.6 million in collateralized public funds, the uninsured portion is $3.0 billion (24% of total deposits)213 - The company has significant additional funding sources, including $3.3 billion in available FHLB credit, $235.0 million in overnight lines of credit, and access to the Federal Reserve's Bank Term Funding Program (BTFP) with $615.5 million in qualifying securities214215 Item 3. Quantitative and Qualitative Disclosures About Market Risk Wesbanco's primary market risk is interest rate risk, with simulation models showing asset sensitivity where a +100 bps rate shock increases net interest income by 2.5% Net Interest Income Sensitivity (as of June 30, 2023) | Rate Shock (bps) | % Change in NII over 1 Year | ALCO Guideline | | :--- | :--- | :--- | | +200 | 5.0% | (10.0%) | | +100 | 2.5% | (7.5%) | | -100 | (2.7%) | (7.5%) | | -200 | (6.3%) | (10.0%) | - Management employs several strategies to manage interest rate risk, including increasing variable-rate loans, selling longer-term mortgages, growing demand deposits, and using back-to-back loan swaps245 Item 4. Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal controls - Management concluded that disclosure controls and procedures were effective as of the end of the period covered by the report246 - No changes in internal control over financial reporting occurred during the fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls248 PART II – OTHER INFORMATION Item 1. Legal Proceedings Wesbanco is involved in various ordinary course legal proceedings, none of which management expects to result in a material loss - The company is involved in various lawsuits and claims in the ordinary course of business but does not expect any to result in a material loss250 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Wesbanco repurchased 243,131 shares at $24.35 average price during Q2 2023, with 1,021,901 shares remaining authorized Share Repurchase Activity (Q2 2023) | Period | Total Shares Purchased | Average Price Paid ($) | | :--- | :--- | :--- | | April 2023 | 49,321 | $29.23 | | May 2023 | 121,246 | $22.20 | | June 2023 | 72,564 | $24.62 | | Total Q2 | 243,131 | $24.35 | - As of June 30, 2023, 1,021,901 shares remained authorized for repurchase under the current plan251252