WesBanco(US:WSBC)2021-11-08 21:33PART I - FINANCIAL INFORMATION This section presents the unaudited interim financial information and management's analysis for Wesbanco, Inc Item 1. Financial Statements This section presents Wesbanco's unaudited interim consolidated financial statements for Q3 and nine months ended September 30, 2021, covering balance sheets, income, equity, and cash flows Consolidated Balance Sheets As of September 30, 2021, total assets increased to $16.89 billion from $16.43 billion at year-end 2020, driven by a significant rise in securities funded by strong deposit growth Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $16,892,111 | $16,425,610 | | Total Securities | $3,953,917 | $2,722,069 | | Net Portfolio Loans | $9,776,560 | $10,603,406 | | Goodwill and other intangible assets, net | $1,154,468 | $1,163,091 | | Total Liabilities | $14,168,128 | $13,668,873 | | Total Deposits | $13,423,314 | $12,429,373 | | Total Borrowings | $529,197 | $983,244 | | Total Shareholders' Equity | $2,723,983 | $2,756,737 | Consolidated Statements of Comprehensive Income Net income for Q3 2021 slightly increased to $41.9 million, driven by a negative provision for credit losses, while nine-month net income surged to $180.5 million due to a significant negative provision Q3 and Nine Months Performance (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $115,275 | $120,593 | $347,607 | $359,768 | | Provision for credit losses | ($1,730) | $16,288 | ($50,714) | $107,949 | | Non-Interest Income | $32,755 | $34,612 | $102,076 | $95,481 | | Non-Interest Expense | $94,701 | $89,943 | $264,840 | $266,779 | | Net Income | $44,408 | $41,305 | $188,112 | $69,189 | | Diluted EPS | $0.64 | $0.61 | $2.71 | $1.03 | Consolidated Statements of Changes in Shareholders' Equity For the nine months ended September 30, 2021, total shareholders' equity decreased by $32.8 million to $2.72 billion, primarily due to treasury stock acquisitions and other comprehensive loss - Key drivers for the change in shareholders' equity in the first nine months of 2021 include net income of $188.1M, common dividends of $65.1M, preferred dividends of $7.6M, treasury share acquisitions of $128.0M, and an other comprehensive loss of $26.9M11 Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, net cash provided by operating activities was $276.1 million, while investing activities used $404.0 million, and financing activities provided $343.5 million, resulting in a net cash increase of $215.7 million Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $276,138 | $20,628 | | Net Cash from Investing Activities | ($403,997) | ($228,162) | | Net Cash from Financing Activities | $343,528 | $733,004 | | Net Increase in Cash | $215,669 | $525,470 | Notes to Consolidated Financial Statements This section provides detailed disclosures on significant accounting policies and specific financial statement items, including securities, loans, credit losses, derivatives, fair value, revenue, and segment performance Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Wesbanco's Q3 and nine-month 2021 financial performance, highlighting net income drivers, balance sheet changes, capital, and liquidity Results of Operations For Q3 2021, net income available to common shareholders was $41.9 million, primarily due to a negative provision for credit losses offsetting a decrease in net interest income, while non-interest income and expense also saw changes GAAP to Non-GAAP Reconciliation (in thousands, except per share) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Non-GAAP) | $45,406 | $44,155 | $185,685 | $76,489 | | Diluted EPS (Non-GAAP) | $0.70 | $0.66 | $2.79 | $1.14 | | Less: After-tax restructuring expenses | ($3,529) | ($2,850) | ($5,167) | ($7,300) | | Net Income (GAAP) | $41,877 | $41,305 | $180,518 | $69,189 | | Diluted EPS (GAAP) | $0.64 | $0.61 | $2.71 | $1.03 | - The negative provision for credit losses of $1.7 million in Q3 2021, compared to a $16.3 million provision in Q3 2020, was a key driver of earnings, resulting from improved macroeconomic forecasts125 - Non-interest income decreased by $1.9 million (5.4%) in Q3 2021, primarily due to a $3.9 million (46.2%) drop in mortgage banking income from record 2020 levels126 Financial Condition As of September 30, 2021, total assets grew 2.8% to $16.9 billion, driven by a 45.3% increase in securities funded by an 8.0% rise in deposits, while total portfolio loans decreased 8.1% mainly due to PPP loan forgiveness - Total assets increased by 2.8% since year-end 2020, driven by a $1.2 billion (45.3%) increase in the securities portfolio, funded by a $993.9 million (8.0%) increase in deposits160 - Total portfolio loans decreased by $876.1 million (8.1%) from year-end, primarily due to $939.7 million in PPP loan forgiveness during the first nine months of 2021160179 - Total borrowings decreased by $454.0 million (46.2%) in the first nine months of 2021, as excess liquidity was used to pay down maturing FHLB advances and other debt160 Capital Resources Shareholders' equity decreased by $32.8 million (1.2%) from year-end 2020, primarily due to common stock repurchases and other comprehensive loss, while regulatory capital ratios remained well above 'well-capitalized' thresholds - Wesbanco repurchased 3.64 million shares for $128.0 million during the first nine months of 2021. A new 3.2 million share repurchase plan was approved in August 2021211 - The quarterly dividend was increased by $0.01 to $0.33 per share in February 2021, a 3.1% increase210 Regulatory Capital Ratios (Wesbanco, Inc.) | Ratio | Sep 30, 2021 | Dec 31, 2020 | Well-Capitalized Minimum | | :--- | :--- | :--- | :--- | | Tier 1 leverage | 10.10% | 10.51% | 5.00% | | Common equity Tier 1 | 12.91% | 13.40% | 6.50% | | Tier 1 capital to risk-weighted assets | 14.18% | 14.72% | 8.00% | | Total capital to risk-weighted assets | 16.38% | 17.58% | 10.00% | LIBOR Transition Wesbanco is managing its transition from LIBOR, which will cease for new contracts after December 31, 2021, by adopting the One Month Term Secured Overnight Financing Rate (1M Term SOFR) as its initial replacement - As of September 30, 2021, Wesbanco had $1.9 billion in loans tied to LIBOR or the ICE LIBOR Swap Index, with $1.5 billion maturing after the June 30, 2023 cessation date236 - Wesbanco has selected the One Month Term Secured Overnight Financing Rate (1M Term SOFR) as its initial alternative replacement rate for LIBOR and will not offer LIBOR for new contracts after December 31, 2021236 Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details Wesbanco's management of market risk, primarily interest rate risk, using earnings sensitivity simulation and economic value-at-risk models, showing asset-sensitivity within policy limits Net Interest Income Sensitivity Analysis | Immediate Change in Interest Rates (bps) | % Change in NII from Base (Sep 30, 2021) | % Change in NII from Base (Dec 31, 2020) | | :--- | :--- | :--- | | +300 | 15.9% | 15.3% | | +200 | 10.7% | 10.3% | | +100 | 5.7% | 5.5% | - Management employs several strategies to manage the net interest margin, including increasing variable-rate loans, selling longer-term mortgages, growing demand deposits, and using back-to-back loan swaps250 Item 4. Controls and Procedures The CEO and CFO concluded that Wesbanco's disclosure controls and procedures were effective, despite a significant change in internal controls over financial reporting due to a core banking system conversion - Management concluded that disclosure controls and procedures are effective as of September 30, 2021251 - During Q3 2021, the company completed a core banking system conversion, which materially affected internal controls over financial reporting related to loans, deposits, digital banking, and the general ledger253 PART II – OTHER INFORMATION This section provides information on legal proceedings, equity security sales, and required exhibits for Wesbanco, Inc Item 1. Legal Proceedings Wesbanco is involved in various legal proceedings that arise in the ordinary course of business, with management not expecting any material loss from pending or threatened claims - The company is involved in various lawsuits and claims in the ordinary course of business but does not believe a material loss is reasonably possible257 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Wesbanco has an active stock repurchase plan, with a new authorization for 3.2 million shares approved in August 2021, and repurchased over 2.1 million shares in Q3 2021 Share Repurchase Activity (Q3 2021) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Plan | | :--- | :--- | :--- | :--- | | July 2021 | 591,830 | $34.47 | 566,474 | | August 2021 | 811,192 | $33.75 | 808,196 | | September 2021 | 765,009 | $32.19 | 763,745 | | Total | 2,168,031 | $33.40 | 2,138,415 | - A new stock repurchase plan for 3.2 million shares was approved on August 26, 2021. As of September 30, 2021, 2,960,801 shares remained authorized for repurchase258260 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including a consulting agreement and certifications by the CEO and CFO, along with Inline XBRL documents - Exhibits filed include a consulting agreement with Robert H. Young, CEO and CFO certifications (31.1, 31.2, 32.1), and Inline XBRL data files264