WesBanco Upgrade Is Getting Nearer as Credit Improves

A Seeking Alpha analyst who downgraded WesBanco (WSBC) from Buy to Hold in March now says an upgrade is getting nearer. The analyst turned cautious after the stock ran up following the Premier Financial merger. The concern was that loan-loss provisions would keep earnings in check as deposit costs rose.

Since then, provision expense has started to drop. The analyst noted that non-performing assets have not spiked the way some regional bank peers have. The credit cycle appears to be smoothing out rather than turning sharply worse.

Net interest income, the bank's main earnings driver, has also steadied. The net interest margin has stabilised around 3.20% after a period of compression. Deposit costs are still rising. The pace has slowed. That gives management more room to grow loans without squeezing margins further.

WesBanco's loan book leans toward commercial and industrial lending and small-ticket commercial real estate. Office and retail exposure is lower than larger peers. That sector mix has helped keep charge-offs contained.

The analyst has not yet upgraded the stock. The call remains a Hold. The move would come with another quarter of declining provision expense, especially if the drop comes from lower specific reserves rather than a blanket release. Loan growth of 3-5% annualised would also help by putting earning assets to work at current NIM levels. WesBanco's Ohio and West Virginia markets are seeing steady demand, with some pickup in mortgage warehouse lending, the analyst said.

A surprise uptick in loan losses, particularly from the CRE book, would push provisions higher and delay any upgrade. NIM compression below 3.10% would do the same. The deposit-cost trajectory remains the biggest wildcard. If WesBanco has to raise rates again to retain funding, the margin benefit from lower provisions disappears.

The stock trades at about 1.05 times tangible book value, roughly in line with its five-year average. The analyst estimates an earnings yield of 11.8% on forward earnings. That is not a deep-value discount. It does leave room for multiple expansion if the credit picture keeps clearing.

WesBanco did not trade below tangible book even during the March sector selloff. The analyst's call is not about a recovery from panic. It is about a normalisation of earnings that was already priced in too conservatively six months ago.

For a broader look at how to evaluate bank stocks beyond provisions and NIM, see our stock market analysis.

The next quarterly report is due in late July. That print will tell whether the provision decline is a trend or a one-off.