WesBanco Announces Fourth Quarter and Full Year 2016 Net Income

WHEELING, W.Va., Jan. 24, 2017 /PRNewswire/ -- Todd F. Clossin, President and Chief Executive Officer of WesBanco, Inc. (NASDAQ: WSBC), a multi-state bank holding company based in Wheeling, WV, today announced net income and related earnings per share for the three and twelve months ended December 31, 2016.  Net income for 2016 was $86.6 million or $2.16 per diluted share compared to $80.8 million or $2.15 per diluted share for 2015.  Net income for the three months ended December 31, 2016 was $24.2 million, while diluted earnings per share were $0.55, compared to $23.0 million or $0.60 per diluted share for the fourth quarter of 2015.  Excluding after-tax merger-related expenses (non-GAAP measure) for 2016, net income increased 8.3% to $95.3 million compared to $88.0 million for 2015, while diluted earnings per share totaled $2.37, compared to $2.34 per share for 2015.  Excluding after-tax merger-related expenses (non-GAAP measure), net income for the three months ended December 31, 2016 was $26.0 million, while diluted earnings per share were $0.59, compared to $23.0 million or $0.60 per diluted share for the fourth quarter of 2015.

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.  The merger, which was announced on May 3, 2016, was approved by all appropriate regulatory agencies and the shareholders of YCB before the end of August, permitting the transaction to be closed in slightly over four months. YCB, with approximately $1.5 billion of assets, was headquartered in New Albany, IN and operated through 34 financial centers in Indiana and Kentucky.  The YCB merger meshes well with WesBanco's strategic growth plans and contiguous market expansion, and expands the WesBanco franchise into new attractive growth markets.  WesBanco now has $9.8 billion in total assets and provides banking services through 174 branch locations in five states.  WesBanco's results also include ESB Financial Corporation's ("ESB") results from February 10, 2015, the date of consummation of that merger.

"I am pleased to report that we successfully converted Your Community Bank with the integration and branding of our products, services, systems, and processes," said Mr. Clossin.  "We remain excited about the opportunities our newest markets in Indiana and Kentucky provide, and are encouraged by the enthusiasm of our newest employees."

Mr. Clossin added, "2016 was another successful year for WesBanco.  We have strong market share in our legacy markets, including several major metropolitan areas across five states.  We continue to manage operating expenses diligently as evidenced by our year-to-date efficiency ratio of 56.7%.  Lastly, our strong risk and compliance framework, coupled with our diversification and balanced growth, helped us to once again be named one of America's Best Banks during 2017 by a leading financial magazine. We are excited about our opportunities for the upcoming year, and look forward to a continuation of our stated strategies as we provide additional value to our customers and shareholders."

Financial Condition

Total assets at December 31, 2016 increased $1.3 billion or 15.6% compared to December 31, 2015 due to the acquisition of YCB.   Management remains focused on controlling overall growth, primarily through control of the securities portfolio, in order to manage the financial impact of crossing $10 billion in assets. Portfolio loans increased $1.2 billion or 23.4% over the last twelve months with $1.0 billion from the YCB acquisition and $171.9 million, or 3.4% from organic loan growth. Expanded market areas and additional commercial personnel in our core markets provided the organic loan growth, which occurred primarily in commercial real estate, commercial and industrial and home equity lending categories, and was achieved through $2.0 billion in loan originations in 2016, partially offset by certain large commercial real estate payoffs.  Total business loan originations were up approximately 26.7% compared to 2015.  The re-mix in average earning assets continued as securities as a percentage of total assets were reduced from 28.6% at December 31, 2015 to 23.7% at December 31, 2016, while loans have increased as a percentage of total assets to 63.8%.

Total deposits increased $974.6 million or 16.1% during the last twelve months, reflecting $1.2 billion from the YCB acquisition and our stated balance sheet strategy.  Total organic deposits, excluding CDs, increased 2.3%, driven by 10.8% organic growth in interest bearing and non-interest bearing demand deposits.  Reflecting customer preferences, total demand deposits, as of December 31, 2016, now represent 47.4% of total deposits, an increase from 40.6% a year ago.

WesBanco continues to maintain strong regulatory capital ratios after the YCB acquisition and implementation of the BASEL III capital standards.  At December 31, 2016, Tier I leverage was 9.81%, Tier I Risk-Based capital was 13.16%, Total Risk-Based capital was 14.18% and the Common Equity Tier 1 capital ratio ("CET 1"), was 11.28%.  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 8.20% at December 31, 2016, increasing from 7.95% at December 31, 2015, which reflects the acquisition of YCB and lower accumulated other comprehensive income.  Strong earnings and increased total capital have enabled WesBanco to increase the quarterly dividend rate, currently at $0.24 per share, nine times over the last six years, cumulatively representing a 71% increase.  The most recent increase was $0.01 per share per quarter in the first quarter of 2016.

Credit Quality

While the provision for credit losses increased by 1.5% in 2016, primarily due to loan growth, credit metrics continued to improve.  The provision for credit losses increased to $8.5 million in 2016, compared to $8.4 million in 2015. Net charge-offs as a percentage of average portfolio loans of 0.12% in 2016 decreased from 0.23% in 2015.

Non-performing loans (including TDRs), criticized and classified loans all improved as a percentage of total portfolio loans from December 31 2015. Total non-performing loans were 0.63% of total loans at December 31, 2016, decreasing from 0.89% of total loans at the end of 2015. Criticized and classified loans were 1.20% of total loans, improving from 1.57% at December 31, 2015. Past due loans at December 31, 2016 were 0.32% of total loans, minimally higher than the 0.28% at December 31, 2015, primarily due to higher delinquencies on the YCB acquired portfolio due to the administrative transition.

The allowance for loan losses represented 0.70% of total portfolio loans at December 31, 2016 compared to 0.82% as of December 31, 2015.  If the acquired YCB and ESB loans (recorded at fair value at the date of acquisition of $1,713.1 million) were excluded from the ratio, the allowance would approximate 0.96% of the adjusted loan total at December 31, 2016 compared to 1.09% prior to the ESB acquisition.

Net Interest Income

The net interest margin increased by 10 basis points to 3.42% in the fourth quarter of 2016 compared to the third quarter of 2016 as a result of higher yielding assets acquired through the acquisition. The increased yield on assets in the fourth quarter of 2016 of 15 basis points more than offset an 8 basis point increase in the cost of interest bearing liabilities as compared to fourth quarter of 2015. Net interest income increased $11.1 million or 18.3% in fourth quarter of 2016 compared to fourth quarter of 2015 due to a 25.2% increase in average loan balances resulting in a 14.4% increase in average earning assets, partially due to a 10 basis point increase in the net interest margin.  The increase in average loan balances in 2016 was due to a combination of the acquisition and the 3.4% organic loan growth highlighted by 6.2% of commercial loan growth.

The year-over-year net interest margin decreased to 3.32% in 2016 compared to 3.41% in 2015. This decrease in the net interest margin is primarily due to 10 basis points of increased funding costs and an asset yield decline of 2 basis points.  Total average loan rates decreased by 9 basis points year-over-year due to repricing of existing loans at lower spreads, competitive pricing on new loans and the extended low interest rate environment.  The funding cost increase of 10 basis points in 2016, compared to 2015, is primarily due to an increase in the percentage of borrowings, primarily FHLB, to 19.8% of interest bearing liabilities from 14.3% in 2015, as well as a 27 basis point increase in the average total cost of these borrowings year-over-year. Average interest bearing deposits in 2016 increased 1.1%, as increases in interest bearing demand and savings accounts more than offset declines in CDs and money market accounts.  During the last few quarters, the net interest margin has been relatively stable, ranging from 3.29% to 3.42% with improvements in the most recent quarter. 

Non-Interest Income

For 2016, non-interest income increased $7.0 million or 9.4% compared to 2015.  Service charges on deposits increased $1.6 million or 9.5% and electronic banking fees increased $1.2 million or 8.6% through a larger customer deposit base from the addition of YCB.  Net securities gains increased $1.4 million in 2016 compared to 2015, primarily due to increased calls of agency notes.  Net securities brokerage revenue decreased $1.2 million or 16.2% primarily as a result of our strategy to retain deposits. Other income increased $4.2 million due to a $2.7 million increase of commercial customer loan swap fee and market value related income and improvement in various other income categories.

Non-Interest Expense

The following comments on non-interest expense exclude merger-related expenses in both years.  Non-interest expense in 2016 grew $12.6 million or 6.9%, compared to 2015.  With net revenue growth of 7.5% in 2016, this positive operating leverage helped to improve the efficiency ratio in 2016 to 56.7% from 57.1% in 2015.  For 2016, salaries and wages increased $6.9 million or 9.0% due to increased compensation expense related to an 18.1% increase in full-time equivalent employees, primarily late in the third quarter of 2016 from the YCB acquisition, and routine annual adjustments to compensation. Employee benefits expense increased $1.1 million, or 3.9%, primarily from increased deferred compensation type expenses. Increases in net occupancy and equipment were also primarily from costs related to the additional branches from the YCB acquisition. At the end of the fourth quarter, a portion of the intended post conversion cost savings were beginning to be experienced through branch and system conversions.

Financial Results Conference Call

WesBanco will also host a conference call to discuss the Company's financial results for the fourth quarter of 2016 at 10:00 a.m. ET on Wednesday, January 25, 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 10098820. The replay will begin at approximately 12:00 p.m. ET on January 25, and end at 12 a.m. ET on February 8. An archive of the webcast will be available for one year on the Investor Relations section of the Company's website (www.wesbanco.com).

Founded in 1870, WesBanco, Inc. (www.wesbanco.com) is a multi-state, bank holding company with total assets of approximately $9.8 billion (as of December 31, 2016). 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 more than $3 billion of assets under management, and serves as registered investment advisor to a proprietary mutual fund family, the WesMark Funds.  WesBanco's banking subsidiary, WesBanco Bank, Inc., operates 174 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.

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, 2015 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, 2016, 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.