WesBanco, Inc. (NASDAQ: WSBC), a community-focused regional financial services provider, has reported solid second quarter 2024 results, marked by continued loan and deposit growth, as well as a sustained focus on controlling discretionary costs. However, the real highlight of the quarter was the announcement of a transformative merger agreement with Premier Financial Corporation, an almost $9 billion asset bank headquartered in Defiance, Ohio.

The proposed merger will create a community-focused regional financial services partner with more than $27 billion in assets, significant economies of scale, and strong pro forma profitability metrics. For the second quarter of 2024, WesBanco reported GAAP net income available to common shareholders of $26.4 million, or $0.44 per share. Excluding after-tax restructuring and merger-related expenses, net income was $29.4 million, or $0.49 per diluted share, compared to $42.4 million, or $0.71 per diluted share, in the prior year period.

The second quarter's results were impacted by a $10.5 million provision for credit losses due to strong loan growth, changes in macroeconomic factors, and a specific reserve on one commercial and industrial (C&I) loan. WesBanco also recognized $3.8 million in restructuring expenses related to its branch optimization strategy.

Financials

For the full year 2023, WesBanco reported net income of $159.0 million on revenue of $825.1 million. The company generated annual operating cash flow of $169.3 million and free cash flow of $146.8 million.

Turning to the balance sheet, total assets have eclipsed $18 billion for the first time in WesBanco's history, driven by portfolio loans of $12.3 billion, which grew 10% year-over-year and 13% on a linked-quarter annualized basis. The company's commercial loan growth continues to benefit from its commercial banker hiring and loan production office strategy, with the commercial loan pipeline standing at approximately $950 million as of June 30, 2024, up 30% from a year ago.

Deposits of $13.4 billion were down 0.5% linked-quarter but up 4.4% year-over-year and 4% annualized from December 31, 2023. The composition of total deposits continues to experience some mix shift, but at a slower pace than experienced in prior quarters. Total demand deposits and noninterest-bearing deposits as percentages of total deposits remain consistent with the pre-pandemic range, representing approximately 55% and 28.5% of total deposits, respectively.

Credit quality stability continues, with key metrics remaining low from a historical perspective and within a consistent range throughout the last 2-plus years. The allowance for credit losses totaled 1.11% of total portfolio loans at June 30, 2024, up 2 basis points from the prior quarter.

WesBanco's net interest margin of 2.95% for the second quarter of 2024 reflects higher funding costs from the remix of noninterest-bearing deposits into higher-tier money market and certificate of deposit accounts, offset by loan growth and the benefit of higher rates on earning assets. The margin increased 3 basis points sequentially, as higher loan yields outpaced higher funding costs.

Noninterest income for the second quarter of 2024 was $31.4 million, a decrease of $0.5 million, or 1.5%, from the prior year, primarily due to lower net swap fee and valuation income, as well as higher gains on other real estate owned and other assets in the prior year period. Excluding restructuring and merger-related expenses, noninterest expense for the three months ended June 30, 2024, totaled $98.6 million, a 2.3% increase year-over-year, primarily due to increases in other operating expenses and equipment and software expenses.

WesBanco's capital position remains strong, with regulatory capital ratios above the applicable well-capitalized standards and favorable tangible equity levels compared to its peers. In the current operating environment, the company is modeling two rate cuts in the back half of 2024, followed by three more cuts in 2025, which are not expected to have a significant impact on 2024 results due to the timing of the cuts.

Recent Developments

The proposed merger with Premier Financial Corporation is a transformational event for WesBanco. The combination will create a community-focused regional financial services partner with more than $27 billion in assets, providing significant economies of scale. The merger is expected to be 40%-plus accretive to WesBanco's 2025 earnings per share, driven by cost synergies and net interest margin improvement.

On a pro forma basis at closing, the combined organization will have a very strong balance sheet with $27 billion in assets, $21 billion in deposits, $19 billion in loans, and tangible common equity of $2 billion, driving a total risk-based capital ratio of 13.2%. The merger is also anticipated to result in meaningful improvement in WesBanco's pro forma profitability metrics, including a 40-basis-point increase in net interest margin to 3.46%, a 30-basis-point increase in return on average assets to 1.2%, and a 557-basis-point improvement in return on average tangible common equity to 16.9%.

Conclusion

The merger makes strategic and financial sense, as the two institutions have highly compatible cultures and business models, complementary geographic footprints, and significant valuation upside. With this transformative combination, WesBanco is poised to deliver improved value for its stakeholders while continuing to serve the needs of its customers and communities.