WesBanco Announces Fourth Quarter 2020 Financial Results

WHEELING, W.Va., Jan. 26, 2021 /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 twelve months ended December 31, 2020.  Net income available to common shareholders for the three months ended December 31, 2020 was $50.2 million, with diluted earnings per share of $0.75, compared to $36.4 million and $0.60 per diluted share, respectively, for the fourth quarter of 2019.  For the twelve months ended December 31, 2020, reflecting the impact from the 2020 adoption of the new Current Expected Credit Losses ("CECL") accounting standard, net income available to common shareholders was $119.4 million, or $1.77 per diluted share, compared to $158.9 million, or $2.83 per diluted share, for the 2019 period.  Net income available to common shareholders excluding after-tax restructuring and merger-related expenses for the three months ended December 31, 2020, was $50.6 million, or $0.76 per diluted share, as compared to $45.5 million and $0.75 per diluted share, respectively, in the prior year quarter (non-GAAP measures).  On the same basis, net income available to common shareholders for the twelve months ended December 31, 2020 was $127.1 million, or $1.88 per diluted share, as compared to $171.8 million, or $3.06 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 December 31, 2020, pre-tax, pre-provision income, excluding restructuring and merger-related expenses, increased 14.2% year-over-year to $64.8 million compared to $56.8 million for the prior period.  On the same basis, pre-tax, pre-provision income, for the twelve months ended December 31, 2020, increased 18.9% year-over-year to $262.5 million compared to $220.8 million last year.  In addition, on the same basis, the return on average assets was 1.56% for the three month and 1.60% for the twelve month periods ending December 31, 2020.  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 December 31, 2020:

• WesBanco is a well-capitalized financial institution with solid liquidity and a strong balance sheet
• Strong year-over-year growth in pre-tax, pre-provision income (non-GAAP measure) for both the quarter and annual periods
• Total loan growth was 5.1% year-over-year, driven by WesBanco's support of small businesses impacted by the pandemic
• Total loan growth includes nearly 6,850 loans remaining from the first rounds of the Small Business Administration's Payroll Protection Program ("SBA PPP") totaling approximately $726.3 million
• Commercial & industrial loan growth was 2.2% year-over-year, excluding SBA PPP loans
• Deposit growth, excluding certificates of deposit, was 20.8% year-over-year, driven by growth in demand deposits
• Trust assets under management totaled a record $5.0 billion, driven by both market appreciation and organic growth
• Continued expense management demonstrated by a year-to-date efficiency ratio of 56.38% (non-GAAP measure)
• Key credit quality metrics such as non-performing assets, past due loans, and net loan charge-offs, as percentages of total portfolio loans, have remained at low levels and favorable to peer bank averages, those with total assets between $10 billion and $25 billion (based upon the four quarters prior to the current earnings period)
• Subsequent to year-end, on January 22, 2021, WesBanco Bank completed its financial center optimization strategy announced during August 2020 through the consolidation of 21 financial centers into nearby locations and the conversion of one location to drive-up only

Todd F. Clossin, President and Chief Executive Officer of WesBanco, commented, "2020 was a successful year for WesBanco, as measured by the more than ten thousand individuals, families, businesses, and non-profits we assisted as they navigated through the pandemic.  I am extremely proud of how our employees have responded this past year, from keeping our financial centers open throughout, working around the clock closing PPP loans to our commercial customers, and providing charitable donations to support those in need.  These actions speak loudly to our community bank roots." 

Mr. Clossin added, "Solid execution on our well-defined, long-term strategies allowed us to generate record annual pre-tax, pre-provision earnings of $263 million, when excluding restructuring and merger-related costs, during 2020.  In addition, we remained a well-capitalized financial institution, completed a preferred stock offering during August 2020 that was over-subscribed, and increased our allowance for credit losses.  Through our diversified growth engines supported by our strong teams and a continued focus on operating costs, we believe we are well-positioned for long-term success, and remain positive about our opportunities for the upcoming year."

Financial Center Optimization Strategy
Reflecting the current operating environment and increased utilization of digital services, WesBanco previously announced a plan to accelerate its financial center optimization strategy across Indiana, Kentucky, Ohio, Pennsylvania, and West Virginia.  On October 30, two centers were consolidated and another converted to drive-up only.  Recently, on January 22, 2021, 21 additional centers were consolidated into nearby locations and another converted to drive-up only.  The anticipated cost savings of approximately $6.0 to $6.5 million, approximately half of which will be utilized for growth and digital infrastructure initiatives, remain on plan to be phased-in during the first half of 2021.

Balance Sheet
Portfolio loans of $10.8 billion as of December 31, 2020 increased 5.1% when compared to the prior year period due primarily to participation in the SBA PPP.  During the fourth quarter, approximately 331 customers applied for and received forgiveness of their SBA PPP loans totaling $113.0 million.

Total deposits increased 13.0% year-over-year to $12.4 billion due primarily to CARES Act stimulus funds received and increased personal savings, which more than offset a $0.4 million reduction in certificates of deposit.  Deposits, excluding CDs, increased 20.8% year-over-year, driven by a 25.8% increase in total demand deposits, which represent approximately 56% of total deposits.

Credit Quality
As of December 31, 2020, total loans past due, 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.  In addition, annualized net loan charge-offs to average loans remained low for the quarter and year-to-date periods at two and six basis points, respectively.  Pandemic-related loan deferrals, under the CARES Act, have declined to $171.1 million, or 1.6% of total loans, as of December 31, with approximately $150 million of this total related to the hospitality industry.

Reflecting improved macroeconomic factors in the CECL calculation, the allowance for credit losses specific to total portfolio loans at December 31, 2020 was $185.8 million, or 1.72% of total loans; or, when excluding SBA PPP loans, 1.85% 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 0.37% of total loans.  The provision for credit losses was a negative $0.2 million for the quarter ended December 31, 2020.

Criticized and classified loan balances increased to 4.59% of total portfolio loans due to the fourth quarter net downgrades of $133.3 million of hospitality loans as a result of reduced occupancy and debt service coverage from the current pandemic-driven environment.  These downgraded loans may have received current or prior CARES Act qualifying loan deferrals, and had an average loan-to-value of approximately 60%, the majority of which are pre-pandemic, as well as strong guarantor support.  The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act ("Economic Aid Act"), which became law on December 27, 2020, added a new Second Draw PPP loan program that provides additional assistance to borrowers who previously received a SBA PPP loan.  Included in this new authorization, hotels may be eligible for a forgivable loan up to three and one half times their average monthly payroll.

Net Interest Margin and Income
The net interest margin of 3.31% for the fourth quarter of 2020 was consistent with the third quarter's 3.31% but, decreased 24 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 throughout the year, which helped to lower deposit funding costs 40 basis points year-over-year to 23 basis points for the fourth quarter of 2020.  Further, we lowered the cost of borrowings 29 basis points year-over-year as we reduced fourth quarter average FHLB borrowings by $0.5 billion, or 41.8%, year-over-year to $0.7 billion, which have a remaining average life of less than one year.  Accretion from acquisitions benefited the fourth quarter net interest margin by 16 basis points, as compared to 22 basis points in the prior year period and 18 basis points during the third quarter of 2020.  Lastly, the funding of SBA PPP loans benefited the fourth quarter of 2020 net interest margin by a net two basis points, and will positively impact the net interest margin as the loans are forgiven during the next couple of quarters.

Net interest income increased $12.7 million, or 11.9%, during the fourth quarter of 2020, as compared to the same quarter of 2019, reflecting a 19.8% increase in average total earning assets driven by the OLBK acquisition, partially offset by the lower loan yields due to repricing of existing loans and lower new offered rates in the current market environment, and lower related accretion from purchase accounting.  For the twelve months ended December 31, 2020, net interest income increased $79.6 million, or 19.9%, despite an overall lower net interest margin, due to higher average total earning assets as discussed for the three-month period comparison, primarily from the OLBK acquisition.

Non-Interest Income
For the fourth quarter of 2020, non-interest income of $32.7 million increased $1.9 million, or 6.1%, from the fourth quarter of 2019, driven primarily by mortgage banking income, which was partially offset by lower service charges on deposits.  Reflecting the low interest rate environment and organic growth, mortgage banking fees increased $2.5 million, or 84.0%, compared to the prior year period, as residential mortgage origination dollar volume increased approximately 75% year-over-year, with roughly 65% of those originations sold into the secondary market.  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. 

Non-interest income, for the twelve months ended December 31, 2020, increased $11.5 million, or 9.8%, to $128.2 million due primarily to the items discussed above, as well as higher commercial customer loan swap-related income and lower electronic banking fees due to the limitation on interchange fees for debit card processing.  Loan swap-related income for the year was $6.1 million, an increase of $2.7 million year-over-year, reflecting commercial loan customer demand in the current rate environment.  The limitation on interchange fees, 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 $5.4 million as compared to the prior year.

Non-Interest Expense
Total operating expenses continued to be well-controlled through company-wide efforts to effectively manage discretionary costs, employee headcount, and marketing expenses.  Despite an approximate 25% increase in size due to the OLBK acquisition, as well as the significantly lower interest rate environment, these strong efforts are demonstrated by efficiency ratios of 57.06% and 56.38% for the three-month and twelve-month periods ending December 31, 2020, respectively.  Excluding restructuring and merger-related expenses, non-interest expense for the three months ended December 31, 2020 increased $6.6 million, or 8.1%, to $87.6 million compared to the prior year period, primarily due to additional staffing and financial center locations from the OLBK acquisition and the mid-year annual salary increases, partially offset by discretionary cost controls resulting from the pandemic and planned cost savings from the OLBK merger. 

On a similar basis, non-interest expense during the twelve months of 2020 increased $49.3 million, or 16.7%, compared to the prior year period, primarily due to the reasons as discussed for the three-month period.  In addition, FDIC insurance expense increased $5.8 million, or 295.4%, due to a higher assessment rate associated with our larger asset level, as well as the recording of a $3.1 million assessment credit in the prior year period. 

Capital
WesBanco continues to maintain what we believe are strong regulatory capital ratios, enhanced by a $150 million preferred stock capital raise during August 2020, 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 December 31, 2020, Tier I leverage was 10.51%, Tier I risk-based capital ratio was 14.72%, common equity Tier 1 capital ratio ("CET 1") was 13.40%, and total risk-based capital was 17.57%. 

Conference Call and Webcast
WesBanco will host a conference call to discuss the Company's financial results for the fourth quarter of 2020 at 10:00 a.m. ET on Wednesday, January 27, 2021.  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.

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 10150966.  The replay will begin at approximately 12:00 p.m. ET on January 27, and end at 12 a.m. ET on February 10.  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 quarters ended March 31, June 30, and September 30, 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, June 30, and September 30, 2020 Quarterly Reports 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.

Non-GAAP Financial Measures
In addition to the results of operations presented in accordance with Generally Accepted Accounting Principles (GAAP), WesBanco's management uses, and this presentation contains or references, certain non-GAAP financial measures, such as pre-tax pre-provision income, tangible common equity/tangible assets; net income excluding after-tax restructuring and merger-related expenses; efficiency ratio; return on average assets; and return on average tangible equity.  WesBanco believes these financial measures provide information useful to investors in understanding our operational performance and business and performance trends which facilitate comparisons with the performance of others in the financial services industry. Although WesBanco believes that these non-GAAP financial measures enhance investors' understanding of WesBanco's business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. The non-GAAP financial measures contained therein should be read in conjunction with the audited financial statements and analysis as presented in the Annual Report on Form 10-K as well as the unaudited financial statements and analyses as presented in the Quarterly Reports on Forms 10-Q for WesBanco and its subsidiaries, as well as other filings that the company has made with the SEC.

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 $5.0 billion of assets under management (as of December 31, 2020).  WesBanco's banking subsidiary, WesBanco Bank, Inc., operates 212 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.