WesBanco, Inc. (WSBC) Earnings Call Transcript

Good morning, everyone, and welcome to the WesBanco Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please also note, today's event is being recorded. At this time, I'd like to turn the conference call over to John Iannone, Senior Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to WesBanco, Inc.'s Second Quarter 2026 Earnings Conference Call. Leading the call today are Jeff Jackson, President and Chief Executive Officer; and Dan Weiss, Senior Executive Vice President and Chief Financial Officer. Today's call, an archive of which will be available on our website for 1 year takes forward-looking information. Cautionary statements about this information and reconciliation of non-GAAP measures are included in our earnings related materials issued yesterday afternoon as well as our other SEC filings and investor materials. These materials are available on the Investor Relations section of our website, wesbanco.com. All statements speak only as of July 22, 2026, and WesBanco undertakes no obligation to update them. I would now like to turn the call over to Jeff. Jeff?

Thanks, John, and good morning, everyone. Today, we'll review our second quarter performance and share our current outlook for the rest of 2026. The defining theme of the quarter was momentum across our franchise. There are 3 key takeaways that really demonstrate that momentum: We delivered strong sequential quarter and year-over-year loan growth; we advanced our organic growth strategy and commercial momentum driving record production and pipeline; we continued to generate profitable growth through positive operating leverage and disciplined execution. Turning briefly to our financial performance. Our strong second quarter results reflect the continued success of our relationship-focused banking model and disciplined growth strategy. For the quarter ended June 30, 2026, we reported net income available to common shareholders of $89 million, excluding merger and restructuring charges. That translated to $0.92 per diluted share, while on a year-to-date basis, our earnings per share increased 14% to $1.83. On a similar basis, we reported year-to-date pretax pre-provision earnings of $242 million, an increase of 24% year-over-year. The strength of our financial performance was reflected in our second quarter and year-to-date returns on average assets and tangible common equity of 1.3% and 17.3%, respectively. Further, we are demonstrating our ability to drive profitable growth across the franchise as we generated strong positive operating leverage and an efficiency ratio of 51%. Our capital position also remained solid with a CET1 ratio of 10.7%, which allowed us to repurchase approximately 300,000 shares during the quarter, while also providing flexibility to support our growth expectations. The defining driver of our momentum this quarter was loan growth. Total loans increased 3.5% year-over-year and 8.3% annualized sequentially as our talented teams converted opportunities across our 10-state footprint. In particular, we continue to see the benefits from our recent growth investments as C&I lending demonstrated strong growth of 5% year-over-year and nearly 25% quarter-over-quarter annualized. During the first 6 months of the year, our commercial teams have generated record loan production of nearly $2.5 billion, approximately $1 billion more than the same period a year ago. Impressively, second quarter loan growth significantly outpaced continued high levels of CRE payoffs, which created a 1% headwind to year-over-year growth. As we mentioned last quarter, we expect the developers to continue to seek permanent financing and the sale of properties during the second quarter, but at a slower pace than the first quarter. But we experienced an upward swing during the latter half of the quarter that drove payoffs to total approximately $345 million for the second quarter, bringing the total amount of payoffs during the last 12 months to more than $1.3 billion. Adjusting for payoffs headwind, during the quarter, total loans grew 4.5% year-over-year. The fact that we generated this level of growth despite that headwind, speaks to the strength of our customer demand and the effectiveness of our commercial teams. A great example of this customer demand was a recent win in our Mid-Atlantic market. A team comprised of commercial, treasury management derivatives and credit recently achieved a major milestone with earning a meaningful partnership with one of the region's most distinguished educational institutions. The team met with this new-to-bank client to explore financing options for a comprehensive renovation and modernization project to revitalize this campus, which resulted in the largest nonprofit school deal in our history. The resulting transaction included a tax-exempt bond financing in excess of $34 million, a full deposit and treasury management partnership and a 6-figure swap fee. The dedication and expertise of this team are testaments to the power of collaboration and further positions WesBanco as a trusted financial partner. At June 30, our commercial pipeline reached a record $2.3 billion, increasing more than 40% from the prior quarter and 90% since year-end. While loan production offices and former premier markets continue to contribute meaningful to that growth, we are also seeing broad-based momentum across all our markets. In the few weeks since quarter end, the pipeline has remained stable, which gives us confidence in our outlook and supports our continued expectation for mid-single-digit loan growth in 2026. We are especially encouraged by what we are seeing in our expansion markets. Last quarter, we announced the advancement of our Southeastern expansion strategy with the launch of commercial banking and treasury management operations in Palm Beach and Broward counties. Last month, we expanded that strategy with the opening of a loan production office in Naples, extending our presence into another attractive Florida market. Naples is led by a seasoned leader with a strong track record in the market, an individual who I've known for many, many years. The early results from our Florida teams have been very encouraging. In just 3 months, these teams have already begun generating new business, building meaningful customer relationships and contributing to our record pipeline. Already, those teams account for approximately 10% of our total commercial pipeline, a proof point that our strategy is gaining traction. I firmly believe that our Florida franchise has the potential to be a $2 billion bank within the next couple of years. As part of that strategy, we are on track to open financial centers in Fort Lauderdale and West Palm Beach during the first half of 2027 as we have already identified locations and received FDIC approval. These banking centers will complement our commercial presence while enhance our ability to gather deposits and deepen customer relationships to support future growth. Over time, we could add additional services such as wealth management and residential mortgage. Finally, I am excited that our long-term strategy and disciplined approach to growth are being recognized on a national level. We were recently named one of America's High Growth Companies by Business Insider and one of America's best companies by Time. What these recognitions really represent is the dedication of our teams and the consistency with which they execute our strategy every day. Our momentum and success continued to be driven by talented people, strong customer relationships and a commitment to disciplined growth. Our second quarter results demonstrate those fundamentals remain firmly in place and continue to position us well for the future. I would like to now turn the call over to Dan Weiss to walk through the financials and outlook in more detail. Dan?

Thanks, Jeff, and good morning, everyone. For the second quarter, we reported GAAP net income available to common shareholders of $88 million or $0.91 per share. And when excluding restructuring and merger-related expenses, second quarter net income was $89 million or $0.92 per share. To highlight a few of the second quarter's year-over-year accomplishments, we grew pre-ax pre-provision core earnings 11% driven by strong annualized loan growth of 8.3%. We also reported record fee income levels and record trust and securities brokerage assets as well as a reduced efficiency ratio to a record low of 51%. Total assets of $27.8 billion included total portfolio loans of $19.5 billion and secured $4.4 billion with securities now representing approximately 16% of total assets. Total portfolio loans increased 3.5% year-over-year due to organic growth of $650 million, partially offset by CRE payoffs. While we did experience elevated payoffs in the second quarter, similar to the first quarter, we continue to expect payoffs to taper during the second half of the year with third quarter payoffs projected at roughly 2/3 of that at the second quarter level. That said, based on our current record pipeline, we expect to be able to outgrow payoffs for the remainder of the year to generate mid-single-digit growth for the year. Deposits increased 2.1% year-over-year to $21.6 billion from transaction account growth that more than offset the decline in higher cost CDs. Encouragingly, deposit attrition related to the closure of 37 financial centers this year has trended meaningfully below our conservative attrition assumptions such that deposits were only down $75 million sequentially and mostly reflecting the remaining $50 million of broker deposits that paid off on April 1 and the decline in higher cost CDs. Credit quality metrics have remained relatively benign and in a consistent range from a historical perspective, while charge-offs were just 2 basis points. The allowance for credit losses to total portfolio loans at June 30, 2026, was 1.12% of total loans, $218 million, and the increase from the first quarter was primarily due to higher loan balances. The second quarter margin of 3.3% was consistent with our first quarter outlook and improved 4 basis points year-over-year, primarily due to lower funding costs and improved 6 basis points sequentially due to asset repricing and 3 basis points or $1.7 million of accretion from unscheduled early payoffs of acquired loans. Total deposit funding costs, including noninterest-bearing deposits declined 6 basis points year-over-year to 178 basis points, which is essentially flat to the first quarter. We are seeing great traction across our franchise for our fee-based services as we earn record fees from deposit products, banking services and securities brokerage not to mention the record level of trust in the securities brokerage assets of nearly $11 billion. For the second quarter, noninterest income of $54 million increased $9.7 million or 22% year-over-year due primarily to higher net swap and valuation income, service charges on deposits and other income. Gross swap fees were $2.8 million in the second quarter and $4 million on a year-to-date basis as we are seeing solid customer demand from our commercial swap product and expect to see some meaningful improvement in swap fees in the back half of the year from our new Florida market. Other income also included a nonrecurring $4.8 million gain related to the pension plan freeze which have been closed to new entrants approximately 20 years ago, and gains on the sale of other real estate owned included a $1.6 million nonrecurring gain on the sale of brand properties that were closed earlier in the year. Noninterest expense, excluding restructuring and merger-related costs for the second quarter of 2026 of $148 million increased 1.8% year-over-year and 3.6% sequentially, primarily due to higher salaries and wages, which increased due to the recent hiring efforts, primarily in our southern footprint. Those hiring efforts occurred through the second quarter, so the quarter's results do not fully reflect the complete impact of that strategic expense. Turning to capital. All of our key ratios improved quarter-over-quarter. Our CET1 ratio of 10.7% as of June 30 was within our targeted range of 10.5% to 11%, which allowed us to return capital to our shareholders through the repurchase of approximately 300,000 shares on the open market during the second quarter. Based on the strategic investments that we're making in South Florida, we anticipate CET1 to remain in that 10.7% range through the remainder of the year as loan growth continues to accelerate. Our current outlook for 2026 includes our targeted expansion markets, and we currently anticipate one Fed rate hike late in the fourth quarter with no meaningful impact to 2026 results. Earning asset yields should continue to benefit from loans and securities repricing upward, while deposit funding costs have likely hit a floor with the CD repricing benefit effectively fully repriced into the future maturing book. We anticipate our net interest margin for the remainder of the year to be relatively consistent to the second quarter around that 3.60% range as we expect loan growth in the back half of the year to accelerate and initially outpaced deposit growth requiring a blend of higher cost wholesale funding mixed with lower cost deposits. This assumes, among other things, that the competition for loans and deposits remain stable as well as an upward sloping yield curve. And we also expect strong deposit growth in the back half of the year and to the extent we experienced more than model, this could positively benefit margin. There are no meaningful changes to our fee income outlook provided last quarter. Trust fees and securities brokerage revenue should benefit modestly from organic growth and be influenced by equity and fixed income market trends. Total treasury management revenues should see increases from 2025 as the compounding effect of our services continues to expand. Gross commercial swap fee income, excluding market adjustments, should be in that $8 million to $10 million range with our South Florida markets contributing meaningfully. Overall, we still anticipate our quarterly fee income to grow in that 3% to 5% range year-over-year during the remainder of 2026. While we have been making strategic investments in our targeted expansion markets to drive long-term value for our shareholders, there are no meaningful changes to our expense outlook provided last quarter. Dollars and wages will increase, reflecting a full quarter of the South Florida team and the annual midyear merit increases. Occupancy expense should be slightly down as compared to 2025 to our branch optimization efforts offset somewhat by our branch expansion initiatives. Equipment and software expenses are expected to increase somewhat as compared to 2025 as we continue to invest in products, services and technology to improve the customer experience and drive revenue growth and in support of our organic loan and deposit growth model and our commercial business expansion efforts, marketing is expected to be in the $5 million range per quarter. And therefore, we continue to expect our quarterly expense run rate during the third and fourth quarters to be in the $153 million range. The provision for credit losses will depend upon changes to the macroeconomic forecast and qualitative factors as well as various critical metrics, including the potential charge-offs, criticized and classified loan balances of course, delinquencies, changes in prepayment speeds and future loan growth. And lastly, we currently anticipate our full year effective tax rate to be approximately 21%. Operator, we're now ready to take questions. Would you please review the instructions.

[Operator Instructions] Our first question today comes from Dave Bishop from the Hovde Group.

Jeff, Dan, it sounds like you maybe have some line of sight into potential -- maybe the commercial deposit growth or account wins in the second half of the year. You give great deal on the loan pipeline. Just curious any line of sight into maybe the deposit pipeline into the second half of the year.

Yes, sure. Our loan-to-deposit ratio went up slightly about 90%. We feel like it's optimally performing in kind of that low 90s. But historically, what we've seen is in the back half of the year, third and fourth quarter, deposits have traditionally grown. We do have some programs that we're rolling out that we're starting to see some really nice traction there as it relates to deposits and expect them to grow pretty nicely over the next couple of quarters. Once again, if you look at our history, we've seen really strong deposit growth in the third and fourth quarter. And we are rolling out special programs in the retail and commercial space to attract more deposits. As Dan mentioned, we do feel like kind of our deposit costs are near the bottom so we don't see them really going any lower. But I do feel like the growth will be there in the third and fourth quarter.

Yes. I think historically, if you look over the last 3 years, we've been able to grow deposits by $600 million, $700 million in the back half of the year and kind of anticipating something similar to that.

Got it. And then just one follow-up. In the slide deck a little bit of an uptick in classified criticized loans. Maybe some color what drove the increase there?

Yes, sure. Kind of like last year, we did some regrading on credits again. And some of it was timing as well. For instance, today, we're already down 11 basis points to 3.61%. And we feel like really just timing, and I would expect by the end of the third quarter, it should be down in the low 3s. Also just go ahead and address the 3 NPLs that we had in last quarter. We do have solutions for those and feel like there's a great probability that all 3 will be resolved this quarter, if not early fourth quarter. But once again, we're well reserved there. Do not see any sort of impact to us as we get those 3 NPLs resolved, which we hopefully will get them done this quarter. But yes, CNC is just a timing thing. As I mentioned before, it's already come down some since the end of the quarter.

Our next question comes from Russell Gunther from Stephens.

I wanted to follow up on the margin discussion, sort of that 3.60-ish potential plus exit rate for the year. Dan, it still sounds like there's a decent repricing story here and room to flex the 90% loan-to-deposit ratio higher. But as we kind of look to the end of next -- of this year and into next, is that the point where we start trading NII dollars for margin expansion and see that NIM kind of flip lower? Or based on where you're bringing on this loan growth today, would you expect to be able to really defend that 3.60 NIM with whatever rate assumptions you guys have.

Yes. Russell, I would say today, we believe we can defend that 3.60 NIM I mean if you think about kind of asset repricing, we do have cash flows is very similar to last quarter, kicking off about $250 million a quarter and projected out for the next 4 quarters at least to be about $250 million per quarter. That's repricing from $330 million up to right around 510 is where we're investing. So we're picking up about 180 basis points on the reinvestment on securities. And then on the loans as well, we've got $3.3 billion in fixed rate commercial loans. Weighted average is 5.01%. And of that, about $450 million of that fixed rate commercial matures over the next 12 months at a weighted average rate of just $417 million. So there's a lot of opportunity there, almost 200 basis points, I would say, of repricing opportunity there. So those are certainly tailwinds. And then whenever we think about the funding mix and how we -- the loan growth expectations that we've modeled, we have, as Jeff said, kind of the deposit funding at this point, we think we've hit the floor. And at this point, given the amount of loan growth, we think we may be mixing in a little bit of wholesale borrowings in the back half of the year as well to help fund some of that loan growth temporarily. So I think that's where you kind of -- the asset repricing probably is a little offset with maybe a slightly higher funding costs such that you kind of maintain that 3.60 million. Once you get into the kind of 2027, which we're not going to get too detailed there, but we do have one rate hike right now projected in the back half in December of '26 and we do think that there's some opportunity to boost margin a couple of basis points off of that. And then certainly, what I would say the caveat that always exists is to the extent that we can grow deposits at a faster rate and at a lower cost than what we're modeling, that certainly provides a lot of tailwind to margin. Likewise, if we don't grow deposits, at the pace that we model that would provide a little bit of headwind to margin. But right now, we're modeling that 3.60.

Yes. Very good. Helpful. And then just for my follow-up, switching gears on the loan growth discussion. So have some visibility in the paydowns easing, record pipelines. Any reason to think this kind of high single-digit result this quarter would not carry into the back half of next year and really potentially pick up as we think about '27. And if I could sneak in just a request for an update on the health care vertical, that would be great.

Yes. No, I think that's definitely possible for sure. If you look at what South Florida is doing and what the health care vertical is doing, what our other expansion markets are doing and then just our existing footprint, I totally believe that it is possible to get that higher single-digit loan growth. We could see it this quarter. It depends on payoffs once again. But I would just call out the South Florida team along with health care, in Florida now, we're basically $200 million in loans outstanding. So that's how quickly we've been able to gather business and bring over total relationships to our bank. Health care is still on a tear. They're doing a really great job. We continue to see strong growth with health care. I would think it would continue through the back half of the year and will be a very, very big driver for our loan growth as we move forward. The one other thing I just want to point out, as we mentioned in deposits, we've closed 37 branches this year. And then in the second quarter, we also ran off $50 million in broker deposits. So basically flat for the year with 37 branches being closed, I think, is a really big win for us when you look at how much potential runoff we had modeled.

Our next question comes from Catherine Mealor from KBW.

Just thinking about expenses into next year, part of what has helped you fund your investment in some higher growth markets has been the branch closures that you had last year. Do you have the ability to do any more of that into '27? Just trying to think about the balance between new investments and then the cost savings that we've got at your fingertips.

Yes. Thanks, Catherine. Yes, we are working on Phase 3 right now on the branch optimization and do believe that we have some more room to do some branch optimization cuts, probably look at rolling that out maybe in the fourth quarter. Once again, we're still working on the plan. I think you would see some 2 for 1, 3 for 1s, repositioning on that. But yes, we do see that as a potential opportunity to cut some costs toward the back half of this year rolling into 2027, for sure.

Okay. Great. And then on the buyback, can you just talk about just your philosophy or how you're thinking about how active you'll be in this new buyback authorization relative to loan growth is accelerating. So just kind of thinking about how we balance the 2? And would you even at this level of higher growth, do you still think you can exercise this entire authorization?

Yes. Great question, Catherine. I'll take that one. I would say, given our loan growth that we are modeling here over the next couple of quarters, we really don't see a whole lot of buyback over the next couple of quarters. I mean think about we're kind of going to plan to deploy that excess capital into that loan growth, effectively compounding our returns. And based on that, we kind of modeled a CET1 ratio of about 10.7% to be fairly consistent over the next couple of quarters, and that's absent buyback. So that puts us right in kind of the midpoint of kind of the range that we've talked about on capital -- CET1 range from 10.5% to 11%. Now that being said, certainly, to the extent that we don't see the loan growth that we're anticipating, that could open up the window sooner than later to buy back. And certainly, we'll definitely be opportunistic or have an opportunistic kind of buy if we see a downturn in the market. Of course, we saw that here a little bit this quarter. And took advantage of that by purchasing -- repurchasing about 300,000 shares at just $33.55 on a weighted average basis compared to -- we've now eclipsed $40 per share. So feel good about that. But generally speaking, at least in the next couple of quarters, I think buyback will be pretty muted just because we've got such opportunity to grow loans and the returns there are just better.

Is there a growth rate at which you think is you target like if you're below a certain level, that's when you would push into the buyback?

Yes. I think it comes down to -- like I said, we're kind of managing the buyback relative to that CET1 ratio. So to the -- like I said -- but we're accreting capital very quickly. But we plan to deploy that capital back into the loan growth. So to the extent that we don't see the loan growth, maintaining that 10.7% say, CET1, and we start to see that tick upward to 10.8%, 10.9%, 11% and 11.1%. That's when we really start pulling the trigger, I think, on buyback. And it's also in again, kind of dependent on stock price as well. We have certain hurdle rates that we want to achieve there as well. One other thing, while we're on the subject of capital, I just kind of mentioned we're talking the incredible accretion of capital that we're enjoying right now. We are kind of modeling that tangible book value per share to continue to improve about $0.70 to $0.80 per quarter off of that roughly $23 a share today. So we saw a $0.50 pickup this quarter. And of course, some of that was impacted by the buyback. But we're modeling that $0.70 to $0.80 per quarter. That's about a 12% return on TBV. And if you think about like the current multiple that we trade at today, 1.8x, 10 TBV and we're growing, say, $0.70 per quarter. That's about $1.25. And I'll say, theoretical stock price appreciation per quarter. Again, theoretical -- theoretically, you can get -- that's about $5 in stock price appreciation over the course of the year. So we do feel really good about the capital accretion that we have projected and modeled and feel great about how that can translate into stock price as well.