WesBanco Announces Third Quarter 2017 Net Income

WHEELING, W.Va., Oct. 18, 2017 /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 nine months ended September 30, 2017.  Net income for the three months ended September 30, 2017 increased to $26.4 million, while diluted earnings per share increased to $0.60, compared to $17.4 million and $0.44 per diluted share, respectively, for the third quarter of 2016.  For the nine month period ended September 30, 2017, net income increased to $78.6 million, or $1.78 per diluted share, compared to $62.4 million, or $1.61 per diluted share, for the first nine months of 2016.  Excluding after-tax merger-related expenses (non-GAAP measure), net income for the nine months ended September 30, 2017, increased 13.9% to $78.9 million, or $1.79 per diluted share, compared to $69.3 million, or $1.79 per diluted share, for 2016.  Financial results for Your Community Bankshares, Inc. ("YCB") were included in WesBanco's results after September 9, 2016, the date of the consummation of the merger.

 Financial and operational highlights for the quarter ending September 30, 2017:

• Loan growth over the last twelve months was driven by our strategic focus categories
• 5.5% growth in total commercial loans
• 4.3% growth in home equity loans
• Continued strong year-over-year growth in demand deposits
• Credit quality continues to be strong
• Net interest margin of 3.48%, increased by 16 basis points compared to the prior year quarter
• Solid expense management demonstrated by a year-to-date efficiency ratio of 56.91%, as preparations for the $10 billion asset threshold continue to progress well
• Strong profitability ratios with return on average assets of 1.07% and return on average tangible equity of 13.69%

"WesBanco continues to make good progress on our long-term operational and growth strategies," said Todd F. Clossin, President and Chief Executive Officer of WesBanco.  "We continue to diversify and strengthen the quality of our total loan portfolio.  Our C&I and home equity lending focus provides diversification, and we continue to reduce overall risk through appropriate management of our consumer portfolio.  WesBanco remains well-positioned for success in any type of operating environment.  We have the right teams and products across our geographies for growth during an economic expansion while our history of strong credit quality will help insulate us in a downturn.  We are positioned for rising rates through our asset sensitive balance sheet; however, if the yield curve remains flat, we have continued to demonstrate our ability to manage expenses."

Mr. Clossin added, "Our regulatory preparations for the $10 billion asset threshold have proceeded well and will allow us to cross at the appropriate time.  We continue to be methodical in our plans and anticipate crossing within the next couple of years.  Furthermore, we continue to manage discretionary expenses to help offset the costs of the final preparatory stages for the $10 billion asset threshold."

Balance Sheet
Portfolio loans, which include $1.0 billion from the YCB acquisition, increased 2.2% over the last twelve months.  Total loan growth was driven by our strategic focus categories with 5.5% growth in total commercial loans and 4.3% growth in home equity loans, which more than offset the targeted reductions in the consumer portfolio as we reduce its risk profile.  In addition, we continued to increase secondary market loan sales in the residential real estate portfolio.  Total deposits, excluding CDs, increased 3.7%, driven by 6.1% growth in interest bearing and non-interest bearing demand deposits.  Further, total demand deposits, as of September 30, 2017, now represent 49.5% of total deposits, an increase from 46.5% a year ago.

Credit Quality
The continued strength of our credit quality ratios is reflective of our strong legacy of credit and risk management.  Compared to the prior year quarter, non-performing assets as a percentage of total assets improved to 0.48% as of September 30, 2017 from 0.50% as of September 30, 2016.  Criticized and classified loans were 1.24% of total loans, improving from 1.42% at September 30, 2016.  Net charge-offs as a percentage of average portfolio loans were 0.12% in the third quarter of 2017, as compared to 0.20% in the third quarter of 2016.  Non-performing loans as a percentage of total portfolio loans remained relatively nominal at 0.66% at September 30, 2017.

The provision for credit losses increased slightly from $2.2 million in the third quarter of 2016 to $2.5 million in the third quarter of 2017 due primarily to loan growth.  The allowance for loan losses of $45.5 million represented 0.71% of total portfolio loans at September 30, 2017, compared to 0.69% in the year ago period.  Included in the ratio are acquired YCB and ESB loans (recorded at fair value at the date of acquisition of $1.7 billion) and the related allowance on YCB and ESB acquired loans of $3.1 million at September 30, 2017.  Excluding these acquired loans and the related allowance required since the acquisition results in a more comparable coverage ratio to prior periods. 

Net Interest Margin and Income
Reflecting the benefit from the increases in the Federal Reserve Board's target federal funds rate over the past year and the higher margin on the acquired YCB net assets, the net interest margin increased to 3.48% during the third quarter of 2017. This represents an increase of 16 basis points from the year ago quarter and an increase of 3 basis points from the second quarter of 2017.  Yields increased on more than 90% of earning assets, which more than offset a 14 basis point increase in the cost of interest bearing liabilities as compared to the third quarter of 2016.  The increase in the cost of interest bearing liabilities is primarily due to higher rates for interest bearing demand deposits, which includes public funds, and certain short term and Federal Home Loan Bank borrowings.  Average interest bearing deposits during the third quarter of 2017 increased 9.4%, compared to the prior year, as all interest bearing deposit balances increased other than CDs.  In addition, the third quarter net interest margin included approximately 12 basis points of accretion from prior acquisitions compared to 6 basis points in the third quarter of 2016, and 8 basis points in the second quarter of 2017.

Net interest income increased $12.2 million, or 19.7%, during the third quarter of 2017 compared to the same quarter of 2016 due to a 17.7% increase in average loan balances and the increase in net interest margin noted above.  For the nine months ended September 30, 2017, net interest income increased $35.5 million, or 19.5%, as average loan balances increased 21.3% and the net interest margin increased 15 basis points to 3.45%.

Non-Interest Income
For the third quarter of 2017, non-interest income of $20.9 million was down slightly from the third quarter of 2016.  Reflecting a larger average customer deposit base year-over-year from the addition of YCB, electronic banking fees increased $0.9 million, or 23.8%, and service charges on deposits increased $0.6 million, or 12.4%.  We continued our approach to sell a higher percentage of residential mortgage originations in the secondary market, which increased net gains on sales of mortgage loans by $0.3 million, or 35.5%, year-over-year to $1.1 million.  During the quarter, WesBanco realized a net loss of $0.3 million on other real estate owned and other assets.  Other income decreased $1.2 million due to a decrease in commercial customer loan swap income, primarily related to a larger commercial relationship in the prior year period.

For the nine months ended September 30, 2017, non-interest income increased $5.9 million, or 9.8%, reflecting similar trends compared to the third quarter of 2017 noted above.  In addition, year-to-date trust fees increased $0.9 million, or 5.6%, and trust assets increased 5.8% during the last twelve months, reflecting improvements in equity markets during the last year and organic growth.  Net securities gains decreased $1.8 million year-over-year primarily due to higher gains on sale of securities during 2016.   

Non-Interest Expense
Excluding merger-related expenses in both years, non-interest expense of $55.8 million in the third quarter of 2017 increased $8.0 million, or 16.8%, compared to the prior year period, principally due to the YCB acquisition.  Salaries and wages increased $3.7 million, or 17.6%, due to higher average staff levels from the YCB acquisition, and the impact of the annual merit adjustments to compensation.  Employee benefits expense increased $1.5 million, or 23.2%, primarily from higher health insurance costs and payroll taxes associated with the additional employees, which more than offset lower pension expense.  When compared to the second quarter of 2017, operating expenses were well-controlled and reflected a sequential decline as marketing costs declined due to the timing of campaigns and WesBanco exhibited discretionary expense control across most categories.

Non-interest expense for the first nine months of 2017, excluding merger-related expenses in both years, increased $25.8 million, or 18.5%, reflecting similar trends compared to the third quarter as noted above.  Reflecting our efforts to control discretionary costs as we continue to prepare for the $10 billion asset threshold, we delivered positive operating leverage for both the three and nine month periods ending September 30, 2017.

Provision for Income Taxes
The provision for income taxes increased $8.2 million, or 36.5%, during the first nine months of 2017, compared to the same period in 2016, due to a 28.7% increase in pre-tax income and the adoption earlier this year of a new accounting standard related to low income housing tax credit investment amortization.  This new standard moved $1.2 million from other operating expense to the provision for income taxes.

Capital
WesBanco continues to maintain strong regulatory capital ratios after the YCB acquisition and implementation of the BASEL III capital standards.  At September 30, 2017, Tier I leverage was 10.21%, Tier I Risk-Based capital was 13.62%, Total Risk-Based capital was 14.65%, and the Common Equity Tier 1 capital ratio ("CET 1") was 11.70%.  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. Total tangible equity to tangible assets (non-GAAP measure) was 8.68% at September 30, 2017, increasing from 8.20% at December 31, 2016, which reflects post-acquisition retained earnings and adjustments to accumulated other comprehensive income.  Further, this ratio returned to the tangible common equity level prior to the acquisition, earning back dilution from the YCB acquisition in less than one year.  Strong earnings and increased total capital have enabled WesBanco to increase the quarterly dividend rate, currently at $0.26 per share, ten times over the last seven years, a cumulative increase of 86%.  The most recent increase was $0.02 per share per quarter during the first quarter of 2017, which represents an annualized increase of 8.3%.

Conference Call and Webcast
WesBanco will also host a conference call to discuss the Company's financial results for the third quarter of 2017 at 10:00 a.m. ET on Thursday, October 19, 2017.  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 10099584.  The replay will begin at approximately 12:00 p.m. ET October 19, and end at 12 a.m. ET on November 2.  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, 2016 and documents subsequently filed by WesBanco with the Securities and Exchange Commission ("SEC"), including WesBanco's Form 10-Q for the quarters ended March 31 and June 30, 2017, 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.  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; 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; internet hacking; 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 multi-state, bank holding company with total assets of approximately $9.9 billion as of September 30, 2017.  WesBanco is a diversified and well-balanced financial services institution, with a community bank at its core, built upon a strong legacy of credit and risk management.  WesBanco has meaningful market share across its key geographies maintained by its commitment to dedicated customer service and solid fee-based businesses. It also provides wealth management services through a century-old trust and wealth management business, with $3.9 billion of assets under management as of September 30, 2017, and serves as registered investment advisor to a proprietary mutual fund family, the WesMark Funds.  WesBanco's banking subsidiary, WesBanco Bank, Inc., operates 172 financial centers in the states of Indiana, Kentucky, Ohio, Pennsylvania, and West Virginia.  In addition, WesBanco operates an insurance agency, WesBanco Insurance Services, Inc., and a full service broker/dealer, WesBanco Securities, Inc.

SOURCE WesBanco, Inc.