NEWS FOR IMMEDIATE RELEASE
April 28, 2015 For Further Information Contact:
Todd F. Clossin
President and Chief Executive Officer
or
Robert H. Young
Executive Vice President and Chief Financial Officer
(304) 234-9000
NASDAQ Symbol: WSBC
Website: www.wesbanco.com
WesBanco Announces First Quarter 2015 Net Income
(Wheeling, WV)… Todd F. Clossin, President and Chief Executive Officer of WesBanco, Inc. (NASDAQ Global Market: WSBC), a Wheeling, West Virginia based multi-state bank holding company, today announced net income and related earnings per share for the three months ended March 31, 2015. Net income for the three months ended March 31, 2015, excluding after-tax merger-related expenses of $6.3 million, was $20.2 million (non-GAAP measure) compared to $16.4 million for the first quarter of 2014, representing an increase of 23.1%. Diluted earnings per share, excluding after-tax merger-related expenses, were $0.59 (non-GAAP measure), compared to $0.56 per share for the first quarter of 2014. The first quarter included a number of other highlights: (i) loan growth at an annualized rate of 8.7%; (ii) consummation of the ESB Financial Corporation (“ESB”) merger on February 10, 2015; (iii) conversion of ESB’s processing systems to WesBanco’s systems, completed on April 24, 2015; and (iv) enhanced loan production in the new markets by recruiting four experienced commercial lenders to supplement our Pittsburgh-based and ESB commercial teams currently in place.
On a GAAP basis, net income for the three months ended March 31, 2015 was $13.9 million, while diluted earnings per share were $0.40, compared to $16.4 million or $0.56 per share for the first quarter of 2014. The first quarter after tax merger-related expenses of $6.3 million and temporary extra operating costs of approximately $0.5 million associated with ESB were the reasons for the decrease in net income.
| | | | For the Three Months Ended March 31, |
| | | | 2015 | | 2014 |
| (unaudited, dollars in thousands, except per share amounts) | | Net Income | | Diluted Earnings Per Share | | Net Income | | Diluted Earnings Per Share |
Net income, excluding after-tax merger-related expenses (Non-GAAP)(1) | $ 20,213 | | $ 0.59 | | $ 16,421 | | $ 0.56 |
| Less: After tax merger-related expenses | | (6,326) | | (0.19) | | - | | - |
| Net income (GAAP) | | $ 13,887 | | $ 0.40 | | $ 16,421 | | $ 0.56 |
(1) Non-GAAP measures are defined on page 11 under "Non-GAAP Financial Measures." | | | |
ESB’s results were included in WesBanco’s results from the date of the consummation of the merger. The merger, which was announced on October 29, 2014, was approved by all appropriate regulatory agencies and the shareholders of both organizations before the end of January, permitting the transaction to be closed in less than three and a half months. ESB was a Pennsylvania thrift holding company, headquartered in Ellwood City, Lawrence County, just to the northwest of Pittsburgh, PA, with approximately $1.9 billion in assets and 23 offices in four southwestern PA counties, three of which are in the Pittsburgh Metropolitan Statistical Area (“MSA”). WesBanco now has $8.2 billion in total assets and provides banking services through 142 branch locations and 130 ATMs in three states. The transaction expanded WesBanco's franchise in western Pennsylvania from 16 to 38 offices with approximately $1.7 billion in total deposits.
Mr. Clossin commented, “Certainly a major accomplishment in the first quarter was the successful completion of the ESB acquisition. The integration and branding of our products, technology systems, customers and branches occurred just this past weekend, two and one half months after ESB’s acquisition and less than six months after the initial merger announcement. We look forward to the exciting opportunity to accelerate the growth and profitability of the combined organization. We now reach across the Pittsburgh MSA and have a competitive position in Southwestern Pennsylvania.”
“Also in the first quarter, we achieved improvement in many financial and operating areas. Loan growth continues to accelerate as annualized loan growth in the first quarter of 8.7% exceeded growth over the last year, exclusive of ESB, as total originations increased and paydowns of larger commercial real estate credits decreased. Credit quality improvement resulted in a reduced loan loss provision compared to both the fourth and first quarters of 2014. The net interest margin remained relatively stable despite the larger percentage of investment securities to total assets from the ESB acquisition, and the overall increased asset base and loan growth
Page 2
resulted in growth in net interest income totaling 16.1%, as compared to the first quarter of last year. The Wealth Management division achieved a record quarter in both trust fees and securities brokerage revenue. Although expenses naturally increased from the acquisition, cost savings will begin to bear fruit in the second quarter, while our efficiency ratio (non-GAAP measure, net of merger-related expenses), in the first quarter improved as a result of revenue growth exceeding expense increases.”
Financial Condition
Total assets at March 31, 2015 increased 32.0% or $2.0 billion compared to March 31, 2014 due to the acquisition of ESB and growth exclusive of ESB. Portfolio loans increased $986.6 million or 25.4% with $699.0 million from the acquisition and $287.6 million or 7.4% from loan growth exclusive of ESB. Organic loan growth from December 31, 2014, annualized, was 8.7%, primarily achieved through $357 million in loan originations for the first quarter compared to $273 million last year. Loan growth in non-ESB markets occurred in all major loan categories with approximately a third of the growth in commercial and industrial loans. Loan growth was driven by increased business activity, additional commercial and residential lending personnel in our urban markets, focused marketing efforts and continued improvement in loan origination processes, while paydowns decreased. Deposits increased $1.2 billion compared to March 31, 2014, primarily due to the acquisition. Organic non-interest bearing deposits were up 8.3% over the last year. First quarter deposit growth from year-end, exclusive of the ESB acquisition, was an annualized 10.8%, led by non-interest and interest bearing deposit growth. Excluding certificates of deposit, organic deposits increased $167.3 million or 4.5% from March 31, 2014, with deposits from Marcellus and Utica shale gas customers contributing to the increase. All organic deposit types increased except certificates of deposit, which decreased $199.1 million due to lower rate offerings for maturing CDs.
WesBanco continues to maintain strong regulatory capital ratios, after the ESB acquisition and implementation of the new BASEL III standards. At March 31, 2015, Tier I leverage was 10.62%, Tier I Risk-Based capital was 14.09%, and Total Risk-Based capital was 14.92%, all of which improved from March 31, 2014 and year-end. Both consolidated and bank-level regulatory capital ratios are well above the applicable, revised “well-capitalized” standards promulgated by bank regulators, as well as the recently finalized fully-implemented BASEL III capital standards. As required by BASEL III, a new ratio, Common Equity Tier 1 capital ratio (CET 1), was 11.49% for the first quarter of 2015, significantly above the initial requirement of 4.5%. Total tangible equity to tangible assets (non-GAAP measure) was 7.78% at March 31, 2015, increasing from 7.49% at March 31, 2014, and down minimally from year-end’s 7.88%. Strong earnings and improved total capital have enabled WesBanco to increase the quarterly dividend rate, currently at $0.23 per share, eight times over the last five years, cumulatively representing a 64% increase. The most recent increase was $0.01 per share in the first quarter of 2015.
Credit Quality
Continued improvement in the credit quality of the pre-acquisition legacy portfolio resulted in a provision for credit losses of $1.3 million in the first quarter of 2015 compared to $2.2 million in the same quarter of 2014. Net charge-offs for the first three months of 2015 were $1.7 million or 0.16% of average portfolio loans compared to $4.1 million or 0.43% in the first quarter of 2014.
Legacy non-performing loans, including TDRs, as well as criticized and classified loans, also improved as a percentage of total portfolio loans from their pre-acquisition levels in the fourth quarter of 2014. Total non-performing loans, including those from the ESB acquisition, were $58.7 million or 1.20% of total loans at March 31, 2015, which represents a 15.3% increase from $50.9 million or 1.31% of total loans at March 31, 2014. Criticized and classified loans were $93.0 million, or 1.91% of total loans at March 31, 2015, which represents a decrease of 28.1% from $129.3 million or 3.33% of total loans at March 31, 2014. The ESB acquisition increased non-performing loans, including TDRs, by $10.1 million, and criticized and classified loans by $9.6 million.
The allowance for loan losses represented 0.91% of total portfolio loans at March 31, 2015. However, if the credit mark on the acquired ESB loans (which were recorded at fair value at the date of acquisition) were to be included, the allowance would approximate 1.34% of total loans (non-GAAP measure) compared to 1.17% at the end of the first quarter of 2014. The net loan mark was $15.3 million on the acquired portfolio, or 2.1% of total ESB acquired loans.
Net Interest Income
Net interest income increased $7.6 million or 16.1% in the first quarter of 2015 compared to the first quarter of 2014 due to a 16.9% increase in average earning assets, primarily through the acquisition, and through a 6.4% increase in average loan balances, exclusive of ESB, slightly offset by a 4 basis point decrease in the net interest margin. Growth in net interest income has been consistent. The first quarter of 2015 is the seventh consecutive quarter that net interest income has increased. The net interest margin decreased to 3.59% in the first quarter compared to 3.63% in the same quarter of 2014. The net interest margin has ranged from 3.64% to 3.58% over the last five quarters as reduced funding costs have generally exceeded the effect of lower rates on newly acquired securities and loans. In addition, the aforementioned loan growth improves asset yields as the average rate on loans is higher than the
Page 3
average rate on securities. Funding costs continued to decrease in 2015 as a result of a 14.2% increase in average lower-cost demand, money market and savings account deposits, while higher-cost CDs increased by only 8.6%, entirely due to the acquisition. The average rate on CDs declined by 27 basis points as higher-rate CDs matured. Overall, average deposits increased by 12.6% in the first quarter of 2015 compared to the same quarter of 2014. In addition, a 20.0% reduction in higher-rate average other borrowings improved funding costs through the prepayment of a higher-rate $22.0 million repurchase agreement with another bank in the third quarter of 2014, and through maturities. Increased average FHLB borrowings in the first quarter were generally short to medium-term with an average rate lower than the average CD rate. The increase in other interest income was due to FHLB special dividends received in the first quarter totaling $0.6 million. Excluding accretion of various purchase accounting adjustments relating to recent acquisitions, the net interest margin would have been 3.49% in the first quarter of 2015 compared to 3.58% for the same quarter of 2014. The reduction is primarily due to asset and liability mix shifts post-ESB, with a greater percentage of lower-yielding investment securities and a greater percentage of CDs versus lower-cost deposit types.
Non-Interest Income
For the first quarter of 2015, non-interest income increased $1.1 million or 6.7% compared to the first quarter of 2014. Trust fees increased $0.4 million or 7.2% for the quarter as assets under management continued to increase from customer development initiatives and overall market improvements. Total trust assets were $3.9 billion at March 31, 2015, representing an increase of 2.7% from March 31, 2014. Net securities brokerage revenues increased $0.2 million or 12.6%, due to production increases from the addition of support and sales staff in several regions, as well as an increase in referrals and production from a licensed retail banker program. Bank-owned life insurance increased $0.4 million or 43.0%, primarily due to a death claim in the first quarter, and electronic banking fees increased $0.3 million or 10.4%. Mortgage loan sale gains increased slightly, despite the impact of lower mortgage refinancings as well as the early 2014 implemented Qualified Mortgage and Ability-to-Repay rules, somewhat limiting the Bank’s product offerings. In addition, more production was directed towards balance sheet loan growth over the past year. Service charges on deposits decreased $0.2 million or 5.4% compared to the 2014 first quarter due to lower overdraft fees that are affected by customer usage patterns, consistent increases in deposit levels and higher average deposits per account.
Non-Interest Expense
In the first quarter of 2015, net revenue growth of 13.6% outpaced expense growth of 9.0%, excluding merger-related expenses. As a result, the efficiency ratio (net of merger-related expenses) improved to 58.2% from 60.6% in the first quarter of 2014. Overall non-interest expense increased $13.3 million in the first quarter due to normal operating expenses from the acquisition and $9.7 million of merger-related expenses. Excluding merger-related expenses, non-interest expense increased just $3.6 million or 9.0%, primarily due to the acquisition, with approximately $0.7 million (equivalent to one cent per share after taxes) of such increase related to post-merger personnel and IT costs that will be immediately saved as a result of the April 24 weekend systems and branch conversions. Salaries and wages increased $1.9 million or 11.5%, due to an 8.6% increase in average full-time equivalent employees, routine annual adjustments to compensation, and increased commissions on higher brokerage sales, partially offset by increased deferred loan costs. Employee benefits expense increased $1.6 million or 28.2%, primarily from increased pension, health insurance and other benefit plan costs. Even with the acquisition, net occupancy, marketing and other expenses were down from last year due to efficiencies applied in several of our vendor contracts, lower real estate owned (“REO”) costs, marketing campaign timing and other seasonal factors. The merger of ESB’s information systems into WesBanco’s will result in additional cost savings beyond those noted above over the course of the next 12 – 18 months as per our earlier announced plans.
Income Taxes
The provision for income taxes in the first quarter of 2015 included a credit of $0.5 million relating to the completion of a federal tax examination which closed the 2011 and 2012 tax years. As a result, the effective tax rate decreased to 24.59% compared to 25.63% for the first quarter of 2014.
Page 4
Financial Results Conference Call
WesBanco will host a conference call to discuss the Company's financial results for the first quarter of 2015 on Wednesday, April 29, 2015 at 10:00 a.m. E.D.T. Callers wishing to participate should access the call by dialing 1-888-347-6607 or 1-412-902-4290 for international callers. The call may also be listened to live via Webcast through the "Investor Relations" section of the Company's Web site or by registering at http://www.videonewswire.com/event.asp?id=102000. Access to the Webcast will begin approximately 15 minutes prior to the start of the call.
WesBanco is a multi-state bank holding company with total assets of approximately $8.2 billion, operating through 142 branch locations and 130 ATMs in West Virginia, Ohio, and Pennsylvania. WesBanco’s banking subsidiary is WesBanco Bank, Inc., headquartered in Wheeling, West Virginia. WesBanco also operates an insurance brokerage company, 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, 2014 and documents subsequently filed by WesBanco 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 businesses of WesBanco and ESB 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 ESB may not be fully realized within the expected timeframes; disruption from the merger of WesBanco and ESB 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; 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.
