WesBanco Bank (NASDAQ:WSBC)
WesBanco is a mid-sized, community bank with just under $10 billion in assets headquartered in Wheeling, West Virginia. Over the last twenty years, the company made some 25 acquisitions to enter the neighboring states of Ohio and western Pennsylvania. Starting in 2014, the bank hired CEO Todd Clossin, who was the CEO of Midwest and Florida regionsfor Fifth Third Bank, to accelerate the growth. Within a year on board, Clossin made the two largest acquisitions in the company's history: ESB Financial in Pittsburgh in February 2014 (a thrift with $1.9 billion in assets; paid $324MM in cash and stock) and Your Community Bankshares (YCB) in southern Indiana and Kentucky in September 2016 ($1.5 billion in assets; paid $221 MM in cash and stock). These two additions effectively lifted WSBC's asset base by 60%, from $6.0 billion to $9.5 billion today.
WSBC meets the credit culture requirement that we look for in banks. The company is a very conservative lender with strong underwriting standards and a diversified book of business. As of 1Q2017, non-performance assets account for only 0.56%of total assets and net charge-off was only 0.15%of average loans. Since its operations are in rural or small cities where there is little industrial activity, WSBC lends mostly for commercial real estate (45.8% of loans) and residential real estate mortgage (30.2% of loans). Even having large exposures to real estate lending, the average loan is small,with low loan-to-value ratios, and most are owner-occupied. Furthermore, the loans are placed in several statesand in several industries.
We see several positive trends developing at WSBC. The integration of the ESB and YCB acquisitions are complete, and the benefitsfrom cross-selling and cost savingsshould begin to show up in 2017 and 2018, and WesBanco is positioned to benefit from Federal Reserve rate hikes.
Further, the company made several hires to push growth in the Consumer and Industrial loan (C&I) space over the last few quarters, which should bring a more diversified loan mix versus its Real Estate lending base. These new loan officers have been a drag on expenses but should begin to contribute this year. C&I loans currently are about 17.5% of total loans, but grew 11%in 1Q2017. We think that because of the large real estate portfolio, investors could be evaluating WSBC as a thrift rather than a commercial bank, giving it a valuation discount. Higher C&I exposure would likely help diversify the portfolio and might change investors' perception of the company. At our initial purchase cost of under $40 per share, we see over 25% upside to our estimate of NAV.
From Third Avenue Small-Cap Fund's second quarter 2017 shareholder letter.
