WesBanco Announces Second Quarter 2020 Financial Results

WHEELING, W.Va., July 22, 2020 /PRNewswire/ -- WesBanco, Inc. ("WesBanco") (Nasdaq: WSBC), a diversified, multi-state bank holding company, today announced net income and related earnings per share for the three and six months ended June 30, 2020.  Reflecting the impact from the 2020 adoption of the new Current Expected Credit Losses ("CECL") accounting standard, net income for the three months ended June 30, 2020 was $4.5 million, with diluted earnings per share of $0.07, compared to $44.8 million and $0.82 per diluted share, respectively, for the second quarter of 2019.  For the six months ended June 30, 2020, net income was $27.9 million, or $0.41 per diluted share, compared to $85.2 million, or $1.56 per diluted share, for the 2019 period.  Net income excluding after-tax merger-related expenses for the three months ended June 30, 2020, was $4.9 million, or $0.07 per diluted share, as compared to $44.9 million and $0.82 per diluted share, respectively, in the prior year quarter (non-GAAP measures).  On the same basis, net income for the six months ended June 30, 2020 was $32.3 million, or $0.48 per diluted share, as compared to $1.60 per diluted share in the prior year period (non-GAAP measures).

On November 22, 2019, WesBanco consummated the merger with Old Line Bancshares, Inc. ("OLBK"), a bank holding company headquartered in Bowie, MD with approximately $3.0 billion in assets, excluding goodwill.  Financial results for OLBK have been included in WesBanco's results from the merger consummation date.

WesBanco believes that pre-tax, pre-provision income (non-GAAP measure) provides a more comparable year-over-year measure as it removes the impact of the new CECL accounting standard implemented earlier this year.  For the three months ended June 30, 2020, pre-tax, pre-provision income, excluding merger-related expenses, increased 15.7% year-over-year to $66.8 million.  On the same basis, pre-tax, pre-provision income, for the six months ended June 30, 2020, increased 14.5% year-over-year to $128.8 million.  WesBanco believes that these non-GAAP financial measures are useful to investors as they enhance investors' understanding of the company's business and performance.

Financial and operational highlights during the quarter ended June 30, 2020:

• WesBanco is a well-capitalized financial institution with solid liquidity and a strong balance sheet
• Organic loan growth was 11.3% year-over-year, driven by WesBanco's support of communities impacted by the pandemic, as well as the commercial and residential real estate loan categories
• Loan growth includes approximately $837 million of loans funded through the Small Business Administration's Paycheck Protection Program ("SBA PPP"), as established by the CARES Act
• Commercial and residential real estate loans increased organically 3.9% and 1.6% year-over-year, respectively
• Organic deposit growth, excluding certificates of deposit, was 20.3% year-over-year, driven by growth in demand deposits
• Mortgage banking income increased 365.5% year-over-year to a record $7.5 million due to strong originations and organic growth in the current low interest rate environment
• Continued expense management demonstrated by a year-to-date efficiency ratio of 56.62% (non-GAAP measure)
• Non-interest expenses, excluding merger-related costs, decreased $1.1 million from the first quarter driven by lower salaries and wages
• Key credit quality metrics such as non-performing assets, past due loans, criticized & classified loans, and net loan charge-offs, as percentages of total portfolio loans, has remained at low levels and favorable to peer bank averages, those with total assets between $10 billion and $25 billion, for the four quarters prior to the current earnings period
• The utilization of updated June macroeconomic forecasts, which have deteriorated since the end of the first quarter, resulted in increases in allowance for credit losses and provision for credit losses on both a year-over-year and quarter-over-quarter basis

"WesBanco's underlying performance during the second quarter was evidenced by the strong year-over-year growth of 15.7% in our pre-tax, pre-provision income," said Todd F. Clossin, President and Chief Executive Officer of WesBanco.  "While continuing to make important technology investments, we have maintained our diligent focus on expense management in order to deliver a year-to-date efficiency ratio of 56.6%.  Furthermore, we believe we are well-positioned for the current operating environment due to our well-defined strategies, strong legacy of credit and risk management, solid liquidity, and sound capital position."

Mr. Clossin added, "I am proud of our entire organization as it has worked tirelessly to serve our customers and communities.  Recently, WesBanco Bank was named, for the second year in a row, a World's Best Bank by Forbes magazine.  This ranking is based on customer satisfaction and consumer feedback, and we received very high scores for customer services, financial advice, satisfaction, and digital services.  The efforts of our employees are a true testimonial to our being a community bank."

Pandemic Responses
As a responsible, community-based financial institution, we have endeavored to assist and help protect our communities, customers, and employees.  Thus, on March 18th, we were one of the first banks to launch a number of initiatives and precautionary measures intended to mitigate the impact of the COVID-19 virus outbreak by mainly offering 90-day payment relief options to affected borrowers, as well as participating in the SBA PPP.  Since that early initiation date, we have seen a reduction in the amount of loans receiving payment relief as the significant majority of customers coming off deferral status are not requesting a second deferral.  Thus, as of June 30, 2020, loans receiving relief  now total 17% of total loans, as we have assisted our residential mortgage customers with 470 loan modifications totaling $119 million, consumer and home equity loan customers with 620 loan modifications totaling $24 million, and commercial and business customers with 2,180 loan modifications totaling $1.8 billion.  Furthermore, through the first two rounds of the SBA PPP, as of June 30, 2020, we have funded roughly 6,800 loans totaling approximately $837 million.  In response to the success of our employees working remotely and the increased utilization of our digital channels by our customers, we anticipate accelerating our branch optimization strategy during the second half of 2020.

Balance Sheet
Portfolio loans of $11.1 billion as of June 30, 2020 increased 43.1% when compared to the prior year period due to the OLBK acquisition and participation in the SBA PPP.  Total organic loan growth was 11.3% year-over-year, driven by the SBA PPP, commercial real estate, and residential real estate loans.  When excluding SBA PPP loans, total organic growth increased 0.5% year-over-year, reflecting the impact of shuttered state economies due to the pandemic.  Total deposits increased 40.2% year-over-year to $12.2 billion due primarily to the OLBK acquisition, CARES Act stimulus, and increased personal savings due to the current recession.  Total deposits, excluding the OLBK acquisition, increased $1.1 billion, or 12.3%, year-over-year due to CARES Act stimulus and increased personal savings, which more than offset a $417.1 million reduction in certificates of deposit, as higher cost CDs were allowed to runoff.

Credit Quality
Overall, we believe our credit quality ratios remained strong as we balanced disciplined loan origination in the current environment with prudent lending standards.  The granting of loan deferrals has resulted in continued relatively benign asset quality metrics, as nonperforming and delinquency amounts do not reflect loans that have been modified as a result of the COVID-19 pandemic.  As of June 30, 2020, both non-performing loans and non-performing assets as percentages of the portfolio and total assets have remained relatively low and consistent throughout the last five quarters.  Criticized and classified loan balances increased slightly to 2.23% of total portfolio loans, comparable to the last four quarters.  Reflecting weakened macroeconomic factors, the provision for credit losses increased to $61.8 million, approximately double from the first quarter of 2020.  Annualized net loan charge-offs to average loans remained low for the quarter and year-to-date periods at seven and 13 basis points, respectively.

On January 1, 2020, WesBanco adopted the CECL accounting standard, resulting in adjustments to retained earnings and the allowance for credit losses; prior to this date, the allowance for credit losses was calculated under the incurred loss method.  The allowance for credit losses specific to total portfolio loans at June 30, 2020 was $168.5 million, or 1.52% of total loans; or, when excluding SBA PPP loans, 1.65% of total portfolio loans.  Excluded from the allowance for credit losses and related coverage ratio are fair market value adjustments on previously acquired loans representing 0.43% of total loans.  The increase in the allowance and related provision for credit losses was related to the continued deterioration in the macroeconomic forecast during the second quarter of 2020, primarily driven by the negative forecasted economic impacts of COVID-19.  The forecast, based upon a blend of two nationally-recognized published economic data through June 30, 2020, is primarily driven by national unemployment and interest rate spreads.

Net Interest Margin and Income
The net interest margin of 3.32% for the second quarter of 2020 decreased 35 basis points year-over-year, primarily due to the lower interest rate environment from the five decreases in the Federal Reserve Board's target federal funds rate, totaling 225 basis points, from July 2019 through March 2020, as well as a flattening of the yield curve.  Reflecting the significantly lower interest rate environment, we aggressively reduced our deposit rates beginning in late March, which helped to lower deposit funding costs 40 basis points year-over-year to 30 basis points for the second quarter of 2020.  In addition, we shortened the maturities and experienced lower rates in our second quarter FHLB borrowings as compared to the prior year, which helped to lower the cost of borrowings 38 basis points year-over-year.  Accretion from acquisitions benefited the second quarter net interest margin by 19 basis points, as compared to 18 basis points in the prior year period and 22 basis points during the first quarter of 2020.  Lastly, while the SBA PPP loans will positively impact the net interest margin as the loans are forgiven during the next several quarters, the funding of these loans negatively impacted the second quarter of 2020 net interest margin by a net two basis points.

Net interest income increased $20.5 million, or 20.9%, during the second quarter of 2020, as compared to the same quarter of 2019, due to a 33.7% increase in average total earning assets, primarily driven by the OLBK acquisition and related accretion from purchase accounting, partially offset by the lower loan yields, reflecting repricing of existing loans and lower new offered rates in the current market environment.  For the six months ended June 30, 2020, net interest income increased $42.4 million, or 21.5%, due to higher average total earning assets and an overall higher net interest margin, as discussed for the three-month period comparison.

Non-Interest Income
For the second quarter of 2020, non-interest income of $32.9 million increased $1.7 million, or 5.5%, from the second quarter of 2019, driven primarily by mortgage banking income and higher commercial customer loan swap-related income, which were partially offset by the limitation on interchange fees for debit card processing and lower service charges on deposits.  Reflecting the low interest rate environment and organic growth, mortgage banking fees increased $5.9 million, or 365.5%, compared to the prior year period, due to growth of roughly 125% in residential mortgage origination dollar volume and the associated sale of one-half of those originations into the secondary market.  Loan swap-related income increased $2.4 million, or 477.2%, to $2.9 million, inclusive of $0.5 million in fair value adjustments, due to commercial loan customer demand in the current rate environment.  The limitation on interchange fees is due to the Durbin amendment in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), which took effect for WesBanco during the third quarter of 2019, negatively impacted fee income by approximately $2.7 million.  Service charges on deposits were lower due to higher consumer deposits associated with CARES Act stimulus and lower general consumer spending, resulting in fewer eligible account fees.  Primarily reflecting the items discussed above, non-interest income, for the six months ended June 30, 2020, increased $1.9 million, or 3.3%.

Non-Interest Expense
Total operating expenses continued to be well-controlled during the six-month period ending June 30, 2020, as demonstrated by an efficiency ratio of 56.62%.  Excluding merger-related expenses, non-interest expense for the three months ended June 30, 2020 increased $13.2 million, or 18.3%, to $85.0 million compared to the prior year period, primarily reflecting additional staffing and financial center locations from the OLBK acquisition.  In addition, FDIC insurance expense increased $1.2 million, or 107.4%, due to a higher assessment rate associated with our larger asset level.  On a similar basis, non-interest expense during the first half of 2020 increased $28.0 million, or 19.6%, compared to the prior year period, primarily reflecting the OLBK acquisition and the mid-2019 annual salary increases.

Capital
WesBanco continues to maintain what we believe are strong regulatory capital ratios as both consolidated and bank-level regulatory capital ratios are well above the applicable "well-capitalized" standards promulgated by bank regulators and the BASEL III capital standards.  At June 30, 2020, Tier I leverage was 9.09%, Tier I risk-based capital and common equity Tier 1 capital ratio ("CET 1") were 12.59%, and total risk-based capital was 15.33%.  As compared to the prior year period, Tier 1 leverage and Tier 1 risk-based capital ratios were adversely impacted by the movement of $136.5 million of trust preferred securities, during the fourth quarter of 2019, from Tier 1 to Tier 2 risk-based capital, as required by the Dodd-Frank Act for financial institutions with total assets greater than $15 billion.

Conference Call and Webcast
WesBanco will host a conference call to discuss the Company's financial results for the second quarter of 2020 at 10:00 a.m. ET on Thursday, July 23, 2020.  Interested parties can access the live webcast of the conference call through the Investor Relations section of the Company's website, www.wesbanco.com.  Participants can also listen to the conference call by dialing 888-347-6607, 855-669-9657 for Canadian callers, or 412-902-4290 for international callers, and asking to be joined into the WesBanco call.  Please log in or dial in at least 10 minutes prior to the start time to ensure a connection.

A replay of the conference call will be available by dialing 877-344-7529, 855-669-9658 for Canadian callers, or 412-317-0088 for international callers, and providing the access code of 10136713.  The replay will begin at approximately 12:00 p.m. ET on July 23, and end at 12 a.m. ET on August 6.  An archive of the webcast will be available for one year on the Investor Relations section of the Company's website (www.wesbanco.com).

Forward-Looking Statements 
Forward-looking statements in this report relating to WesBanco's plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  The information contained in this report should be read in conjunction with WesBanco's Form 10-K for the year ended December 31, 2019 and documents subsequently filed by WesBanco with the Securities and Exchange Commission ("SEC"), including WesBanco's Form 10-Q for the quarter ended March 31, 2020, which are available at the SEC's website, www.sec.gov or at WesBanco's website, www.WesBanco.com.  Investors are cautioned that forward-looking statements, which are not historical fact, involve risks and uncertainties, including those detailed in WesBanco's most recent Annual Report on Form 10-K filed with the SEC under "Risk Factors" in Part I, Item 1A and under "Risk Factors" in Part II, Item 1A of WesBanco's March 31, 2020 Quarterly Report on Form 10-Q.  Such statements are subject to important factors that could cause actual results to differ materially from those contemplated by such statements, including, without limitation, the effects of changing regional and national economic conditions including the effects of the COVID-19 pandemic; changes in interest rates, spreads on earning assets and interest-bearing liabilities, and associated interest rate sensitivity; sources of liquidity available to WesBanco and its related subsidiary operations; potential future credit losses and the credit risk of commercial, real estate, and consumer loan customers and their borrowing activities; actions of the Federal Reserve Board, the Federal Deposit Insurance Corporation, the SEC, the Financial Institution Regulatory Authority, the Municipal Securities Rulemaking Board, the Securities Investors Protection Corporation, and other regulatory bodies; potential legislative and federal and state regulatory actions and reform, including, without limitation, the impact of the implementation of the Dodd-Frank Act; adverse decisions of federal and state courts; fraud, scams and schemes of third parties; cyber-security breaches; competitive conditions in the financial services industry; rapidly changing technology affecting financial services; marketability of debt instruments and corresponding impact on fair value adjustments; and/or other external developments materially impacting WesBanco's operational and financial performance.  WesBanco does not assume any duty to update forward-looking statements.

About WesBanco, Inc.
Founded in 1870, WesBanco, Inc. (www.wesbanco.com) is a diversified and balanced financial services company that delivers large bank capabilities with a community bank feel.  Our distinct long-term growth strategies are built upon unique sustainable advantages permitting us to span six states with meaningful market share.  Built upon our 'Better Banking Pledge', our customer-centric service culture is focused on growing long-term relationships by pledging to serve all personal and business customer needs efficiently and effectively.  In addition to a full range of online and mobile banking options and a full-suite of commercial products and services, WesBanco provides trust, wealth management, securities brokerage, and private banking services through our century-old Trust and Investment Services department, with approximately $4.5 billion of assets under management (as of June 30, 2020).  WesBanco's banking subsidiary, WesBanco Bank, Inc., operates 236 financial centers in the states of Indiana, Kentucky, Maryland, Ohio, Pennsylvania, and West Virginia.  Additionally, WesBanco operates an insurance agency, WesBanco Insurance Services, Inc., and a full service broker/dealer, WesBanco Securities, Inc.