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WHEELING, W.Va., Oct. 23, 2019 /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, 2019. Net income for the three months ended September 30, 2019 was $37.3 million, with diluted earnings per share of $0.68, compared to $32.5 million and $0.64 per diluted share, respectively, for the third quarter of 2018. For the nine months ended September 30, 2019, net income was $122.5 million, or $2.24 per diluted share, compared to $99.2 million, or $2.11 per diluted share, for the 2018 period. Net income excluding after-tax merger-related expenses for the three months ended September 30, 2019, decreased 5.7 % year-over-year to $38.7 million, or $0.71 per diluted share as compared to $0.81 per diluted share in the prior year quarter, a decrease of 12.3% (non-GAAP measures). On the same basis, net income for the nine months ended September 30, 2019 increased 12.6% year-over-year to $126.3 million, or $2.31 per diluted share, down 2.9% when compared to $2.38 per diluted share in the prior year period (non-GAAP measures).
On April 5, 2018, WesBanco consummated the merger with First Sentry Bancshares, Inc. ("FTSB"), a bank holding company headquartered in Huntington, WV with $0.7 billion in assets, excluding goodwill. In addition, on August 20, 2018, WesBanco consummated the merger with Farmers Capital Bank Corporation ("FFKT"), a bank holding company headquartered in Frankfort, KY with approximately $1.6 billion in assets, excluding goodwill. Financial results for both FTSB and FFKT have been included in WesBanco's results from their respective merger consummation dates.
Financial and operational highlights:
"WesBanco's underlying, core performance during the third quarter of 2019, which was supported by our key long-term differentiators, continued to perform well and within our expectations," said Todd F. Clossin, President and Chief Executive Officer of WesBanco. "During the quarter, we experienced a flat, and, at times, inverted, yield curve; multiple Federal Reserve interest rate cuts; a revived pick-up in commercial real estate projects going to the secondary market earlier than expected due to the current rate environment; and the mandatory limitation on interchange fees for banks with more than $10 billion in total assets. Despite these challenges, we are encouraged by the continued supportive strength of our distinct, long-term strategies and unique advantages."
Mr. Clossin added, "We are benefiting from our deposit-rich legacy footprint, which provides funding for company-wide loan growth as we allow higher-cost certificates of deposit to mature. We believe we are continuing to see strength across a number of our lending categories, including a 21% year-over-year increase in total gross production during the third quarter, and commercial loan pipelines, as of September 30th, exceeding $600 million for the first time. In fact, our commercial and industrial, residential mortgage, and consumer loan categories generated growth on both a year-over-year as well as sequential quarter basis. In addition, we are maintaining a critical focus on expense management and credit quality – two historical hallmarks of our institution. We continue to believe we are well-positioned for long-term success, and remain positive about our opportunities."
Balance SheetPortfolio loans of $7.8 billion as of September 30, 2019 increased 0.4% when compared to the prior year period, and 1.0% annualized when compared to the second quarter of 2019. This low-single digit loan growth was driven by growth across commercial and industrial, residential real estate, and consumer loan categories. Total deposits decreased 3.1% year-over-year to $8.7 billion due to allowing certain higher-priced certificates of deposit to mature, particularly from prior acquisitions. Excluding CDs, total deposits of $4.6 billion were about the same as compared to the prior year period, while non-interest bearing demand deposits grew 2.7% over the same time period.
Credit QualityOverall, we believe our credit quality ratios remained strong as we balanced disciplined loan origination in the current environment with our prudent lending standards. As of September 30, 2019, 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 to $174.0 million, or 2.24% of total portfolio loans, due to recent adjustments to our internal loan classification system which impacted risk grades. The provision for credit losses increased to $4.1 million at quarter-end, of which $2.1 million was due to certain borrower downgrades to criticized and classified categories from the change in the internal loan classification system as noted above. Annualized net loan charge-offs to average loans remained low for the quarter and year-to-date periods at four and five basis points, respectively.
Net Interest Margin and IncomeThe net interest margin of 3.56% for the third quarter of 2019 increased 6 basis points year-over-year but decreased sequentially by 11 basis points. Year-over-year, the net interest margin benefited from increases in the Federal Reserve Board's target federal funds rate during 2018 and the higher margin on the acquired FFKT net assets, partially offset by higher funding costs as well as a flattening of the yield curve. On a sequential quarter basis, the net interest margin decrease was due roughly one-half from the expected decrease in accretion from purchase accounting and one-half from the two recent 25 basis point decreases in the Federal Reserve Board's target federal funds rate, combined with the continued partially inverted and very low yield curve. Accretion from acquisitions benefited the third quarter net interest margin by 13 basis points, as compared to 11 basis points in the prior year period and 18 basis points in the second quarter. Year-to-date accretion was 17 basis points, as compared to 10 basis points in the prior year. Both the first and second quarters of 2019 benefitted by 3 basis points related to impaired loan payoffs from prior acquisitions, or 2 basis points year-to-date.
Net interest income increased $6.2 million, or 6.9%, during the third quarter of 2019, as compared to the same quarter of 2018, due to a 4.2% increase in average total earning assets, primarily driven by the FFKT acquisition and related accretion from purchase accounting, as well as the overall higher net interest margin. For the nine months ended September 30, 2019, net interest income increased $47.5 million, or 19.3%, due to higher average total earning assets and an overall higher net interest margin, as discussed for the three-month period comparison.
Non-Interest IncomeFor the third quarter of 2019, non-interest income of $27.0 million increased $0.7 million, or 2.8%, from the third quarter of 2018. Mortgage banking fees increased $1.1 million, or 70.2%, compared to the prior year period due to growth in residential mortgage origination dollar volume and the associated sale of approximately one-half of those originations into the secondary market. Service charges on deposits increased $0.7 million, or 11.8%, year-over-year due to the increased customer base from the FFKT acquisition. Other income decreased $0.6 million, primarily due to the negative mark-to-market of existing commercial customer loan swaps, as well as lower deferred compensation-related gains, partially offset by an increase in payment processing fee income. This quarter reflects the beginning of the on-going limitation on interchange fees for debit card processing that resulted from the Durbin amendment to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. This limitation, which applies to banks with more than $10 billion in total assets, reduced electronic banking fees by approximately $1.9 million as compared to the prior year period. In addition, because WesBanco recognizes electronic banking fees on a one-month lag, this reduction represents only two months for this initial quarter of applicability.
For the nine months ended September 30, 2019, non-interest income increased $12.2 million, or 16.5%, year-over-year to $85.9 million. In addition to the items discussed above, the primary drivers of this increase were the larger customer deposit base and higher transaction volumes associated with the FTSB and FFKT acquisitions which resulted in the year-over-year increases in electronic banking fees and service charges on deposits, while the addition of the trust business from FFKT benefited trust fees.
Non-Interest ExpenseWe believe that total operating expenses continued to be well-controlled during both the three- and nine-month periods ending September 30, 2019, as demonstrated by the efficiency ratio of 57.57% and 56.09%, respectively. Excluding merger-related expenses, non-interest expense for the three months ended September 30, 2019 increased $6.3 million, or 9.6%, to $71.6 million compared to the prior year period, reflecting the FFKT acquisition in the middle of last year's third quarter. This year-over-year increase is primarily due to higher salaries and wages, employee benefits, net occupancy, equipment, and other operating costs associated with additional staffing and financial center locations from the acquisition, as well as intangibles amortization. In addition, salaries and wages reflects annual merit increases and higher average staff during the third quarter related to the FFKT acquisition. During September 2019, the banking industry was officially notified by the FDIC that its deposit insurance fund ("DIF") reached the required minimum reserve ratio of 1.38% that permitted the FDIC to offset current bank assessments with prior credits from 2016 through 2018 earned by banks with less than $10 billion in assets during that time period. This allowed WesBanco to record a credit of $2.4 million, from the total $3.1 million assessment credit that WesBanco Bank was notified it would receive, covering the FDIC insurance expense otherwise assessable for the second and third quarters of $1.2 million per quarter. The remaining credit of approximately $0.7 million is anticipated to be recorded during the fourth quarter.
For the nine months ended September 30, 2019, non-interest expense net of merger-related expenses increased $37.0 million, or 20.8%, to $214.8 million compared to the prior year period, reflecting the acquisitions of FTSB and FFKT and similar factors noted above for the quarterly period.
CapitalWesBanco 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 September 30, 2019, Tier I leverage was 11.30%, Tier I Risk-Based capital was 15.40%, Total Risk-Based capital was 16.36%, and the Common Equity Tier 1 capital ratio ("CET 1") was 13.87%. Tangible common equity, increased to 10.24% at period-end from 8.66% as of September 30, 2018, as an increase in other comprehensive income from the mark-to-market of the available-for-sale portion of the investment portfolio benefitted this ratio.
Conference Call and WebcastWesBanco will host a conference call to discuss the Company's financial results for the third quarter of 2019 at 2:00 p.m. ET on Thursday, October 24, 2019. 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 10126803. The replay will begin at approximately 4:00 p.m. ET on October 24, and end at 12 a.m. ET on November 7. 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 StatementsForward-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, 2018 and documents subsequently filed by WesBanco with the Securities and Exchange Commission ("SEC"), including WesBanco's Form 10-Q's for the quarters ended March 31 and June 30, 2019, 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, that the proposed merger with Old Line Bancshares, Inc. ("Old Line") may not close when expected, that the businesses of WesBanco and Old Line may not be integrated successfully or such integration may take longer to accomplish than expected; the expected cost savings and any revenue synergies from the merger of WesBanco and Old Line may not be fully realized within the expected timeframes; disruption from the merger of WesBanco and Old Line may make it more difficult to maintain relationships with clients, associates, or suppliers; 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; 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.
Additional Information About the Merger and Where to Find ItOn July 23, 2019, WesBanco and WesBanco Bank, Inc. ("WesBanco Bank") entered into an Agreement and Plan of Merger with Old Line and Old Line Bank, Inc. ("Old Line Bank"), pursuant to which Old Line will be merged with and into WesBanco, with WesBanco being the surviving company (the "Merger"), and Old Line Bank will be merged with and into WesBanco Bank, with WesBanco Bank the surviving bank. In connection with the proposed Merger, WesBanco filed with the Securities and Exchange Commission ("SEC") a Registration Statement on Form S-4, which was declared effective on September 23, 2019, that includes a Proxy Statement of Old Line and WesBanco and a Prospectus of WesBanco, as well as other relevant documents concerning the proposed transaction. SHAREHOLDERS OF WESBANCO, STOCKHOLDERS OF OLD LINE AND OTHER INTERESTED PARTIES ARE URGED TO READ THE REGISTRATION STATEMENT AND THE PROXY STATEMENT/PROSPECTUS REGARDING THE MERGER AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. The Proxy Statement/Prospectus dated September 23, 2019 was mailed to shareholders of WesBanco and stockholders of Old Line on or around September 26, 2019. The Old Line stockholders meeting and the WesBanco shareholders meeting are both scheduled for October 29, 2019. In addition, the Registration Statement on Form S-4, which includes the Proxy Statements/Prospectus, and other related documents filed by WesBanco with the SEC, may be obtained for free at the SEC's website at http://www.sec.gov, and from either WesBanco's or Old Line's website at http://www.wesbanco.com or http://www.oldlinebank.com, respectively.
Participants in the SolicitationWesBanco and Old Line and their respective executive officers and directors may be deemed to be participants in the solicitation of proxies from the shareholders of WesBanco and the stockholders of Old Line in connection with the proposed Merger. Information about the directors and executive officers of WesBanco is set forth in the proxy statement for WesBanco's 2019 annual meeting of shareholders, as filed with the SEC on March 13, 2019 and as supplemented on April 5, 2019. Information about the directors and executive officers of Old Line is set forth in the proxy statement for Old Line's 2019 annual meeting of stockholders, as filed with the SEC on April 26, 2019. Information about any other persons who may, under the rules of the SEC, be considered participants in the solicitation of WesBanco shareholders or Old Line stockholders in connection with the proposed Merger is included in the Proxy Statement/Prospectus. You can obtain free copies of these documents from the SEC, WesBanco or Old Line using the website information above. This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.
WESBANCO SHAREHOLDERS AND OLD LINE STOCKHOLDERS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS CAREFULLY BEFORE MAKING ANY VOTING OR INVESTMENT DECISIONS WITH RESPECT TO THE PROPOSED MERGER.
About WesBanco, Inc.Founded in 1870, WesBanco, Inc. (www.wesbanco.com) is a multi-state, bank holding company with total assets of approximately $12.6 billion (as of September 30, 2019). 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 approximately $4.4 billion of assets under management (as of September 30, 2019), and serves as registered investment advisor to a proprietary mutual fund family, the WesMark Funds. WesBanco's banking subsidiary, WesBanco Bank, Inc., operates 199 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.
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