WesBanco has been treading water for the past six months, recording a small loss of 1.8% while holding steady at $32.83.
Is there a buying opportunity in WesBanco, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is WesBanco Not Exciting?
We're swiping left on WesBanco for now. Here are three reasons why WSBC doesn't excite us and a stock we'd rather own.
1. Net Interest Income Points to Soft Demand
Markets consistently prioritize net interest income growth over fee-based revenue, recognizing its superior quality and recurring nature compared to the more unpredictable non-interest income streams.
WesBanco’s net interest income has grown at a 2.4% annualized rate over the last four years, much worse than the broader bank industry. This was driven by its loan growth as its net interest margin, which represents how much a bank earns in relation to its outstanding loan book, declined throughout that period.
2. Declining TBVPS Reflects Erosion of Asset Value
Tangible book value per share (TBVPS) serves as a key indicator of a bank’s financial strength, representing the hard assets available to shareholders after removing intangible assets that could evaporate during financial distress.
Disappointingly for investors, WesBanco’s TBVPS declined at a 1.1% annual clip over the last two years.
3. High Interest Expenses Increase Risk
Leverage is core to the bank’s business model (loans funded by deposits) and to ensure their stability, regulators require certain levels of capital and liquidity, focusing on a bank’s Tier 1 capital ratio.
Tier 1 capital is the highest-quality capital that a bank holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.
This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.
New regulation after the 2008 financial crisis requires that all banks must maintain a Tier 1 capital ratio greater than 4.5% On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, banks generally must maintain a 7-10% ratio at minimum.
Over the last two years, WesBanco has averaged a Tier 1 capital ratio of 12%, which is considered unsafe in the event of a black swan or if macro or market conditions suddenly deteriorate. For this reason alone, we will be crossing it off our shopping list.
Final Judgment
WesBanco isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 0.8× forward P/B (or $32.83 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better investments elsewhere. Let us point you toward our favorite semiconductor picks and shovels play.
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