EXHIBIT 13
----------
CONSOLIDATED BALANCE SHEET
- -----------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
December 31,
----------------------
2000 1999
- -----------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 72,796 $ 67,166
Due from banks - interest bearing 620 4,653
Federal funds sold --- 9,535
Securities:
Held to maturity (fair values of $198,534 and
$211,009, respectively) 196,102 213,253
Available for sale carried at fair value 350,287 354,675
- -----------------------------------------------------------------------------
Total securities 546,389 567,928
- -----------------------------------------------------------------------------
Loans, net of unearned income 1,590,702 1,523,446
Allowance for loan losses (20,030) (19,752)
- -----------------------------------------------------------------------------
Net loans 1,570,672 1,503,694
- -----------------------------------------------------------------------------
Premises and equipment 53,147 56,201
Accrued interest receivable 15,725 15,661
Other assets 50,788 44,888
- -----------------------------------------------------------------------------
Total Assets $2,310,137 $2,269,726
=============================================================================
LIABILITIES
Deposits:
Non-interest bearing demand $ 234,265 $ 216,574
Interest bearing demand 619,097 585,483
Savings deposits 249,830 274,052
Certificates of deposit 767,169 737,892
- -----------------------------------------------------------------------------
Total deposits 1,870,361 1,814,001
- -----------------------------------------------------------------------------
Other borrowings 159,317 173,453
Accrued interest payable 8,438 6,165
Other liabilities 13,515 6,443
- -----------------------------------------------------------------------------
Total Liabilities 2,051,631 2,000,062
- -----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, no par value; 1,000,000
shares authorized; none outstanding --- ---
Common stock ($2.0833 par value; 50,000,000
shares authorized: 20,996,531 shares issued) 43,742 43,742
Capital surplus 59,464 60,133
Retained earnings 218,539 208,508
Treasury stock (2,428,591 and 1,206,606
shares, respectively, at cost) (62,009) (34,311)
Accumulated other comprehensive income (fair
value adjustments) (365) (7,456)
Deferred benefits for directors and employees (865) (952)
- -----------------------------------------------------------------------------
Total Shareholders' Equity 258,506 269,664
- -----------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $2,310,137 $2,269,726
=============================================================================
See Notes to Consolidated Financial Statements.
E-2
CONSOLIDATED STATEMENT OF INCOME
- -----------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
For the years ended December 31,
--------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------
INTEREST INCOME
Loans, including fees $128,591 $117,508 $118,766
Securities:
Taxable 24,297 27,269 31,205
Tax-exempt 8,974 10,182 9,592
- -----------------------------------------------------------------------------
Total interest on securities 33,271 37,451 40,797
- -----------------------------------------------------------------------------
Federal funds sold 1,217 902 3,155
- -----------------------------------------------------------------------------
Total interest income 163,079 155,861 162,718
- -----------------------------------------------------------------------------
INTEREST EXPENSE
Interest bearing demand deposits 21,488 18,071 16,693
Savings deposits 5,264 5,936 7,852
Certificates of deposit 43,689 38,545 43,067
- -----------------------------------------------------------------------------
Total interest on deposits 70,441 62,552 67,612
Other borrowings 9,111 6,679 6,313
- -----------------------------------------------------------------------------
Total interest expense 79,552 69,231 73,925
- -----------------------------------------------------------------------------
NET INTEREST INCOME 83,527 86,630 88,793
Provision for loan losses 3,225 4,295 4,392
- -----------------------------------------------------------------------------
Net interest income after provision
for loan losses 80,302 82,335 84,401
- -----------------------------------------------------------------------------
NON-INTEREST INCOME
Trust fees 12,226 10,582 9,066
Service charges on deposits 8,097 6,820 6,762
Other income 2,243 6,800 8,377
Net securities gains 810 379 1,510
- -----------------------------------------------------------------------------
Total non-interest income 23,376 24,581 25,715
- -----------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and wages 28,217 28,238 28,596
Employee benefits 5,092 7,107 6,799
Net occupancy 3,844 3,478 3,641
Equipment 6,439 6,300 5,876
Other operating 20,891 22,690 23,396
- -----------------------------------------------------------------------------
Total non-interest expense 64,483 67,813 68,308
- -----------------------------------------------------------------------------
Income before provision for income taxes 39,195 39,103 41,808
Provision for income taxes 12,271 11,465 13,495
- -----------------------------------------------------------------------------
NET INCOME $ 26,924 $ 27,638 $ 28,313
=============================================================================
Earnings per share $1.41 $1.37 $1.36
Average shares outstanding 19,092,927 20,229,524 20,867,193
=============================================================================
See Notes to Consolidated Financial Statements.
E-3
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
For the years ended December 31, 2000, 1999, and 1998
Accumulated Deferred
Common Stock Other Benefits for
----------------- Capital Retained Treasury Comprehensive Directors &
Shares Amount Surplus Earnings Stock Income Employees Total
- --------------------------------------------------------------------------------------------------------------------------------
January 1, 1998 20,609,804 $43,055 $57,997 $187,424 $(1,675) $ 1,783 $(589) $287,995
- --------------------------------------------------------------------------------------------------------------------------------
Net income 28,313 28,313
Net fair value adjustment on
securities available for
sale-net of tax effect 1,827 1,827
--------
Comprehensive income 30,140
Cash dividends:
Common ($.84 per share) (16,470) (16,470)
Common-by pooled bank
prior to acquisition (485) (485)
Stock issued for acquisitions 392,846 687 2,383 1,883 4,953
Treasury shares purchased-net (342,415) (97) (9,629) (9,726)
Payment on ESOP debt-net 97 97
Deferred benefits for
directors-net (21) (21)
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 20,660,235 43,742 60,283 198,782 (9,421) 3,610 (513) 296,483
- --------------------------------------------------------------------------------------------------------------------------------
Net income 27,638 27,638
Net fair value adjustment on
securities available for
sale-net of tax effect (11,066) (11,066)
--------
Comprehensive income 16,572
Cash dividends:
Common ($.88 per share) (17,912) (17,912)
Stock issued for acquisitions 422,916 (182) 12,153 11,971
Treasury shares purchased-net (1,293,226) 32 (37,043) (37,011)
Borrowings on ESOP debt-net (350) (350)
Deferred benefits for
directors-net (89) (89)
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1999 19,789,925 43,742 60,133 208,508 (34,311) (7,456) (952) 269,664
- --------------------------------------------------------------------------------------------------------------------------------
Net income 26,924 26,924
Net fair value adjustment on
securities available for
sale-net of tax effect 7,091 7,091
--------
Comprehensive income 34,015
Cash dividends:
Common ($.895 per share) (16,893) (16,893)
Treasury shares purchased-net (1,221,985) (669) (27,698) (28,367)
Payment on ESOP debt-net 350 350
Deferred benefits for
directors-net (263) (263)
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 2000 18,567,940 $43,742 $59,464 $218,539 $(62,009) $ (365) $(865) $258,506
================================================================================================================================
There was no activity in Preferred Stock during the years ended December 31,
2000, 1999 and 1998.
See Notes to Consolidated Financial Statements.
E-4
CONSOLIDATED STATEMENT OF CASH FLOWS
- -----------------------------------------------------------------------------
(in thousands)
For the years ended December 31,
---------------------------------
Increase (decrease) in cash and cash equivalents 2000 1999 1998
- -------------------------------------------------------------------------------------
Cash flows from operating activities:
Net Income $ 26,924 $ 27,638 $ 28,313
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 5,229 5,488 5,290
Net amortization and accretion 371 1,366 116
Provision for loan losses 3,225 4,295 4,392
Gains on sales of securities-net (810) (379) (1,510)
Gain on sale of credit card portfolio --- (3,561) ---
Gain on sale of branch offices --- --- (4,605)
Deferred income taxes (70) 323 (243)
Other-net 395 476 248
Net change in:
Interest receivable/payable 2,209 (1,289) (9)
Other assets and other liabilities 1,021 (2,453) (1,488)
- -------------------------------------------------------------------------------------
Net cash provided by operating activities 38,494 31,904 30,504
- -------------------------------------------------------------------------------------
Cash flows from investing activities:
Securities held to maturity:
Proceeds from maturities and calls 28,408 50,357 116,675
Payments for purchases (11,436) (49,778) (98,062)
Securities available for sale:
Proceeds from sales 65,246 47,772 71,578
Proceeds from maturities and calls 50,598 129,216 196,492
Payments for purchases (99,115) (83,400) (344,867)
Sale of branch offices, net of cash --- --- (2,726)
Acquisitions, net of cash --- 2,809 4,951
Proceeds from the sale of credit card portfolio --- 18,789 ---
Increase in loans (70,203) (143,142) (59,154)
Purchases of premises and equipment-net (2,220) (10,243) (8,953)
Purchase of bank-owned life insurance (4,400) --- ---
- --------------------------------------------------------------------------------------
Net cash used by investing activities (43,122) (37,620) (124,066)
- --------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase (decrease) in deposits 56,360 (3,133) 47,210
Increase (decrease) in other borrowings (14,136) 38,748 16,916
Dividends paid (17,167) (17,752) (15,813)
Treasury shares purchased-net (28,367) (37,011) (9,726)
Other-net --- --- (97)
- --------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (3,310) (19,148) 38,490
- --------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (7,938) (24,864) (55,072)
Cash and cash equivalents at beginning of year 81,354 106,218 161,290
- --------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 73,416 $ 81,354 $106,218
======================================================================================
Supplemental Disclosures:
Interest paid on deposits and other borrowings $ 77,279 $ 69,735 $ 74,393
Income taxes paid 12,410 13,135 13,609
- --------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
E-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
NOTE 1: ACCOUNTING POLICIES
WesBanco, Inc. is a bank holding company offering a full range of
financial services, including trust, mortgage banking, insurance and
brokerage services, through offices located in West Virginia and
Eastern Ohio. WesBanco's only defined business segment is community
banking. The Corporation primarily evaluates its performance and
allocates resources based on the financial information of its
community banking operations.
The significant accounting principles employed in the preparation of
the accompanying consolidated financial statements are summarized
below:
Principles of consolidation: The Consolidated Financial Statements of
WesBanco, Inc. (the "Corporation") include the accounts of the
Corporation and its wholly-owned subsidiaries. Material intercompany
transactions and accounts have been eliminated.
Business combinations: Business combinations, which have been
accounted for using the purchase method of accounting, include the
results of operations of the acquired business from the date of
acquisition. Net assets of the companies acquired were recorded at
their estimated fair value as of the date of acquisition. Other
business combinations have been accounted for using the pooling of
interests method of accounting which requires the assets, liabilities
and stockholders' equity of the merged entity to be retroactively
combined with the Corporation's respective accounts at recorded value.
Prior period financial statements have been restated to give effect to
business combinations accounted for under this method.
Reclassification: Certain prior year financial information has been
reclassified to conform to the presentation in 2000. The
reclassifications had no effect on net income.
Use of estimates: The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and cash equivalents: For the purpose of reporting cash flows,
cash and cash equivalents include cash and due from banks and federal
funds sold. Generally, federal funds are sold for one day periods.
Securities:
Securities Available for Trading: The Corporation did not have a
trading portfolio during the two-year period ended December 31, 2000.
Securities Held to Maturity: Securities consisting principally of
debt securities, which are purchased with the positive intent and
ability to hold until their maturity, are stated at cost, adjusted for
amortization of premiums and accretion of discounts.
Securities Available for Sale: Debt securities not classified as
trading or held to maturity, and marketable equity securities not
classified as trading, are classified as available for sale. These
securities may be sold at any time based upon management's assessment
of changes in economic or financial market conditions, interest rate
or prepayment risks, liquidity considerations and other factors.
These securities are stated at fair value, with the fair value
adjustment, net of tax, reported as a separate component of
accumulated other comprehensive income. Other than temporary declines
in value on these securities are recognized in results of operations.
Gains and Losses: Net realized gains and losses on sales of
securities are included in non-interest income. The cost of these
securities sold is based on the specific identification method.
Amortization and Accretion: Amortization of premiums and accretion of
discounts are included in interest on securities.
Loans and loans held for sale: Interest is accrued as earned on loans
except where doubt exists as to collectability, in which case
recognition of income is discontinued. Loans originated and intended
for sale in the secondary market are carried at the lower of cost or
estimated market value in the aggregate.
A loan is considered impaired, based on current information and
events, if it is probable that the Corporation will be unable to
collect the scheduled payments of principal and interest when due
according to the contractual terms of the loan agreement. Impaired
loans include all non-accrual and renegotiated loans, as well as loans
internally classified as substandard or doubtful (as those terms are
defined by banking regulations) that meet the definition of impaired
loans. The Corporation recognizes interest income on non-accrual
loans on the cash basis.
Loan origination fees and certain direct costs are amortized as an
adjustment to the yield over the estimated lives of the related loans.
E-6
Allowance for loan losses: The allowance for loan losses is
maintained at a level considered adequate by management. The
allowance is increased by provisions charged to operating expense and
reduced by loan losses, net of recoveries. Management's determination
of the adequacy of the allowance is based on evaluation of the loan
portfolio, as well as prevailing economic conditions, past loan loss
experience, current delinquency factors, changes in the character of
the loan portfolio, specific problem loans and other relevant factors.
This evaluation is inherently subjective as it requires material
estimates that may be susceptible to significant change. While
management has allocated the allowance to different loan categories,
the allowance is general in nature and is available for the loan
portfolio in its entirety.
Premises and equipment: Premises and equipment are stated at cost
less accumulated depreciation, and depreciated over their estimated
useful lives using either the straight-line or an accelerated method.
Useful lives are revised when a change in life expectancy becomes
apparent. Maintenance and repairs are charged to expense and
betterments are capitalized. Gains and losses on premises and
equipment retired or otherwise disposed of are charged to expense when
incurred.
Other real estate owned: Other real estate owned consists primarily of
properties acquired through, or in lieu of, loan foreclosures.
Valuations are performed periodically and the real estate is carried
at the lower of cost or appraised value, less estimated costs to sell.
Mortgage servicing rights: Mortgage servicing rights, which are
reported in other assets, are amortized in proportion to, and over the
period of, the estimated future net servicing income of the underlying
mortgage loans. Capitalized mortgage servicing rights are evaluated
for impairment based on the fair value of those rights.
Goodwill: The excess of the purchase price over net identifiable
tangible and intangible assets acquired in a purchase business
combination (goodwill) is included in other assets. Goodwill is
amortized on a straight-line basis over varying periods not exceeding
20 years.
Income taxes: Deferred tax assets and liabilities are recognized for
the expected future tax consequences attributable to temporary
differences between the carrying amounts of assets and liabilities and
their tax bases. In addition, such deferred tax asset and liability
amounts are adjusted for the effects of enacted changes in tax laws or
rates.
Earnings per share: Basic earnings per share is calculated by
dividing net income by the weighted average number of shares of common
stock outstanding during each period. For diluted earnings per share,
the weighted average number of shares for each period is increased by
the number of shares which would be issued assuming the exercise of
common stock options. There was no dilutive effect from the stock
options and accordingly, basic and diluted earnings per share are the
same.
Trust assets: Assets held by the subsidiary bank in fiduciary or
agency capacities for their customers are not included as assets in
the accompanying Consolidated Balance Sheet. Certain trust assets are
held on deposit at the subsidiary bank.
Comprehensive income: Sources of comprehensive income not included in
net income are limited to unrealized gains and losses (net fair value
adjustments) on securities available for sale, net of tax.
Reclassification adjustments between unrealized gains and losses from
prior periods and realized gains and losses included in earnings in
the current period are not considered material in the presentation of
comprehensive income.
New accounting standards: SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -
Deferral of Effective Date of FASB Statement No. 133", requires
derivative instruments be carried at fair value on the balance sheet.
The Corporation adopted the provisions of this statement, as amended,
beginning January 1, 2001, the statement's effective date. The impact
of adopting the provisions of this statement on WesBanco's financial
position was not material.
NOTE 2: AGREEMENT TO MERGE
On December 29, 2000, WesBanco, Inc. and Freedom Bancshares,
Inc. ("Freedom") jointly announced that they have entered into a
definitive Agreement and Plan of Merger providing for the acquisition
of Freedom and the merger of Freedom's affiliate Belington Bank,
Belington, West Virginia, with and into WesBanco affiliate, WesBanco
Bank, Inc. Under the terms of the definitive Agreement and Plan of
Merger, WesBanco will exchange 2.58 shares of WesBanco common stock
for each share of Freedom common stock outstanding in a transaction
accounted for as a purchase transaction. The transaction, which was
valued at $11,278, is subject to the approvals of the appropriate
regulatory authorities and the shareholders of Freedom. At December
31, 2000, Freedom had total assets of $100,474, deposits of $91,914
and shareholders' equity of $8,023. The transaction is expected to be
completed by mid-year 2001. Also see Note 17, Subsequent Event -
Agreement to Merge.
E-7
NOTE 3: COMPLETED BUSINESS COMBINATIONS AND DIVESTURE
On April 30, 1999, WesBanco completed its acquisition of the
Heritage Bank of Harrison County. The acquisition was accounted for
using the purchase method of accounting. WesBanco issued 422,916
shares of common stock valued at $12,621 and recorded $8,206 in
goodwill. Heritage reported total assets of $33,049 as of April 30,
1999.
On June 30, 1998, WesBanco fulfilled the regulatory requirement that
it divest of Union Bank of Tyler County ("Union"). Union was a
subsidiary of Commercial BancShares, with total assets of $46,873 as
of the divestiture date. WesBanco recognized a pretax gain of $4,605
on the sale of Union, which was included in other income.
On March 31, 1998, WesBanco completed its business combination with
Commercial BancShares, Incorporated, issuing 4,594,134 shares of
common stock in a transaction accounted for as a pooling of interests.
Prior years' financial information has been restated to reflect the
pooling of interests transaction. As of the transaction date,
Commercial BancShares reported total assets of approximately $466,137.
NOTE 4: SECURITIES
The following tables summarize amortized cost and fair values of held
to maturity and available for sale securities:
Held to Maturity
--------------------------------------------------------------------------------------------
December 31, 2000 December 31, 1999
--------------------------------------------- ---------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
--------------------------------------------- ---------------------------------------------
U.S. Treasury and
Federal Agency
securities $ 4,357 $ 99 --- $ 4,456 $ 13,346 $ 3 $ 70 $ 13,279
Obligations of
states and political
subdivisions 173,771 2,492 $ 159 176,104 182,005 976 3,153 179,828
Other debt securities 17,974 --- --- 17,974 17,902 --- --- 17,902
- -------------------------------------------------------------------------------------------------------------------
Total $196,102 $2,591 $ 159 $198,534 $213,253 $ 979 $3,223 $211,009
===================================================================================================================
Available for Sale
--------------------------------------------------------------------------------------------
December 31, 2000 December 31, 1999
--------------------------------------------- ---------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
--------------------------------------------- ---------------------------------------------
U.S. Treasury and
Federal Agency
securities $205,264 $1,803 $ 799 $206,268 $196,288 $ 37 $6,732 $189,593
Obligations of
states and political
subdivisions 12,871 59 23 12,907 18,482 13 197 18,298
Mortgage-backed &
other debt securities 127,708 126 987 126,847 147,669 2 5,496 142,175
- -------------------------------------------------------------------------------------------------------------------
Total debt securities 345,843 1,988 1,809 346,022 362,439 52 12,425 350,066
Equity securities 4,988 325 1,048 4,265 4,502 463 356 4,609
- -------------------------------------------------------------------------------------------------------------------
Total $350,831 $2,313 $2,857 $350,287 $366,941 $515 $12,781 $354,675
===================================================================================================================
The following table summarizes amortized cost and estimated fair value
of securities by maturity:
December 31, 2000
--------------------------------------------
Held to Maturity Available for Sale
--------------------- ---------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
- -----------------------------------------------------------------------------
Within one year $ 15,678 $ 15,744 $ 30,416 $ 30,282
After one year, but within five 50,708 51,518 95,782 95,752
After five years, but within ten 67,092 68,391 218,096 218,440
After ten years 62,624 62,881 6,537 5,813
- -----------------------------------------------------------------------------
Total $196,102 $198,534 $350,831 $350,287
=============================================================================
Mortgage-backed securities are assigned to maturity categories based
on estimated average lives. Available for sale securities in the
after 10 year category include securities with no stated maturity.
Other securities with prepayment provisions are categorized based on
contractual maturity.
E-8
Securities with par values aggregating $293,138 at December 31, 2000
and $320,341 at December 31, 1999 were pledged to secure public and
trust funds. Gross security gains of $849, $404, and $1,512 and gross
security losses of $39, $25 and $2 were realized for the years ended
December 31, 2000, 1999 and 1998, respectively.
NOTE 5: LOANS
The following table is a summary of total loans:
December 31,
-------------------------
2000 1999
- ---------------------------------------------------------------------------
Loans:
Commercial $ 546,136 $ 521,450
Real estate - construction 36,007 31,742
Real estate - residential 651,924 630,939
Personal, net of unearned income 354,244 329,562
Loans held for sale 2,391 9,753
- ---------------------------------------------------------------------------
Loans, net of unearned income $1,590,702 $1,523,446
===========================================================================
The following table represents changes in the allowance for loan losses:
For the years ended December 31,
2000 1999 1998
- -----------------------------------------------------------------------------
Balance, beginning of year $19,752 $19,098 $20,261
Allowance for loan losses of
acquired (sold) banks - net --- 192 (37)
Allowance for loan losses allocated
to sold credit cards --- (450) ---
Provision for loan losses 3,225 4,295 4,392
Charge-offs (4,095) (4,718) (6,400)
Recoveries 1,148 1,335 882
- -----------------------------------------------------------------------------
Net charge-offs (2,947) (3,383) (5,518)
- -----------------------------------------------------------------------------
Balance, end of year $20,030 $19,752 $19,098
=============================================================================
The following tables summarize loans classified as impaired:
December 31,
--------------------
2000 1999
- -----------------------------------------------------------------------------
Non-accrual $ 5,561 $ 4,158
Renegotiated 417 813
Other classified loans:
Doubtful --- 112
Substandard 11,513 8,594
- -----------------------------------------------------------------------------
Total impaired loans $ 17,491 $ 13,677
=============================================================================
Impaired loans with a related allowance for loan losses $ 16,381 $ 10,802
Allowance for loan losses allocated to impaired loans 6,511 3,908
=============================================================================
For the years ended December 31,
--------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------
Average impaired loans $14,466 $17,173 $19,429
Amount of contractual interest income
on impaired loans 306 334 796
Amount of interest income recognized
on a cash basis 179 77 391
=============================================================================
Most lending occurs with customers located within West Virginia and
Eastern Ohio. No significant concentration of credit risk exists by
industry or by individual borrower. The Corporation has no
significant exposure to highly leveraged loan transactions, nor any
foreign loans.
WesBanco's banking offices, in the ordinary course of business,
grant loans to related parties at terms which do not vary from terms
that would have been required if the transactions had been with
unrelated parties. Indebtedness of related parties aggregated
approximately $48,157, $49,425, and $32,946 as of December 31, 2000,
1999 and 1998, respectively. During 2000, $157,419 in related party
loans were funded and $158,687 were repaid.
E-9
NOTE 6: PREMISES AND EQUIPMENT
Premises and equipment include:
December 31,
Estimated ------------------
useful life 2000 1999
- -----------------------------------------------------------------------------
Land and improvements (3-10 years) $ 12,828 $ 12,739
Buildings and improvements (4-50 years) 53,696 54,491
Furniture and equipment (2-25 years) 41,149 41,920
- -----------------------------------------------------------------------------
107,673 109,150
Less - accumulated depreciation (54,526) (52,949)
- -----------------------------------------------------------------------------
Total $ 53,147 $ 56,201
=============================================================================
NOTE 7: CERTIFICATES OF DEPOSIT
Certificates of deposit in denominations of $100 thousand or more
totaled $136,331 and $128,385 as of December 31, 2000 and 1999,
respectively. Related interest expense was $6,335 in 2000 and $7,206
in 1999.
At December 31, 2000, the scheduled maturities of total certificates
of deposit are as follows:
2001 $ 435,438
2002 168,608
2003 143,232
2004 10,604
2005 and thereafter 9,287
- -----------------------------------------------------------------------------
Total $ 767,169
=============================================================================
NOTE 8: REPURCHASE AGREEMENTS AND OTHER BORROWINGS
Federal funds purchased and securities sold under agreements to
repurchase represent short-term borrowings which generally mature
within one to four days from the transaction date. Other borrowings
consist principally of advances with the Federal Home Loan Bank
("FHLB"). These borrowings are collateralized by FHLB stock and a
blanket collateral agreement which assigns a security interest in
capital stock, deposits, mortgage loans and securities.
At December 31, 2000, WesBanco had $33,712 outstanding in FHLB
borrowings with a weighted average yield of 6.2%, of which $32,000 are
scheduled to mature in 2001 and $1,712 are scheduled to mature in 2012.
Information concerning securities sold under agreements to repurchase
is summarized as follows:
For the years ended December 31,
--------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------
Outstanding balance at year end $108,026 $107,795 $111,029
Average balance during the year 112,071 113,008 99,099
Maximum month - end balance during the year 129,195 123,817 123,277
Average interest rate at year end 5.79% 4.45% 4.56%
Average interest rate during the year 5.68 4.48 4.78
=============================================================================
NOTE 9: EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plan and Other Postretirement Plans: At
December 31, 2000, substantially all employees were participants in
the WesBanco Defined Benefit Pension Plan ("The Plan"). The Plan
covers those employees who satisfy minimum age and length of service
requirements. Benefits of the Plan are generally based on years of
service and employee's compensation during the last five years of
employment. The Plan's funding policy has been to contribute annually
the maximum amount that can be deducted for federal income tax
purposes. Contributions are intended to provide not only for benefits
attributed to service to date, but also for those expected to be
earned in the future.
Prior to its merger with WesBanco, Commercial BancShares did not
provide a defined benefit pension plan to its employees. However,
subsequent to the merger, Commercial employees have been included in
the WesBanco Plan, with no credited prior years of service.
Retirees and active employees, who were hired prior to March 30,
1998, are provided a postretirement contributory health insurance and
death benefit plan. For reported years 2000 and 1999, the health
insurance benefit was $0.1 per month and death benefit was $7.5.
Effective December 31, 1998, the related benefit obligation of $2,031
was merged into the defined benefit plan. Postretirement benefits
paid during 1998 approximately $220. Net periodic and other
postretirement costs of $383 were included in the 1998 other
postretirement obligations.
E-10
Net periodic pension and other postretirement cost for the defined
benefit plan includes the following components:
For the years ended December 31,
--------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------
Service cost - benefits earned during year $ 1,064 $ 1,138 $ 906
Interest cost on projected benefit obligation 1,956 1,873 1,836
Expected return on plan assets (2,986) (2,474) (2,415)
Net amortization and deferral (638) (35) (162)
Prior service costs --- --- 70
- -----------------------------------------------------------------------------
Net periodic pension and other postretirement
cost (earnings) $ (604) $ 502 $ 235
=============================================================================
The following tables summarize the activity in the projected benefit
obligation and plan assets
For the years ended
December 31,
--------------------
2000 1999
- -----------------------------------------------------------------------------
Projected benefit obligation, at beginning of year $24,002 $27,547
Service cost 1,064 1,138
Interest cost 1,956 1,873
Benefits paid (2,084) (1,786)
Change in interest rate assumptions 371 ---
Actuarial (gain)/loss 1,568 (4,770)
- -----------------------------------------------------------------------------
Projected benefit obligation, at end of year $26,877 $24,002
=============================================================================
For the years ended
December 31,
--------------------
2000 1999
- -----------------------------------------------------------------------------
Fair value of plan assets, at beginning of year $34,685 $28,794
Actual return on assets 4,598 6,447
Contributions --- 1,230
Benefits paid (2,084) (1,786)
- -----------------------------------------------------------------------------
Fair value of plan assets, at end of year $37,199 $34,685
=============================================================================
Plan assets consist of debt and equity securities which include U.S.
Agency and Treasury issues, Corporate bonds and notes, listed common
stocks including shares of WesBanco common stock (comprising less than
10% of Plan assets) and short-term cash equivalent instruments
The following table sets forth the defined benefit pension plan's
funded status and the asset reflected in the Consolidated
Balance Sheet:
December 31,
---------------------
2000 1999
- -----------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation $10,322 $10,683
Unrecognized prior service cost (1,239) (1,773)
Unrecognized net gain (6,586) (7,023)
Unrecognized obligation 7 13
- -----------------------------------------------------------------------------
Net pension asset $ 2,504 $ 1,900
=============================================================================
Actuarial assumptions used in the determination of the projected
benefit obligation in the plan are as follows:
For the years ended December 31,
--------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------
Weighted average discount rates 7.90% 8.25% 7.00%
Rates of increase in compensation levels 4.50 4.50 4.50
Weighted average expected long-term
return on assets 8.75 8.75 8.75
=============================================================================
KSOP (Employee Stock Ownership and 401(k) Plan): Substantially all
employees are included in the WesBanco KSOP Plan. The KSOP plan
consists of a non-contributory employee stock ownership (ESOP) and a
401(k) Plan. The 401(k) provisions require the Corporation to make
matching contributions based upon employee's contribution subject to
regulatory limitations. Effective January 1, 1999, Commercial
BancShares' KSOP was merged into WesBanco's KSOP.
As of December 31, 2000, the Plan held 574,390 shares of WesBanco
stock, of which all shares were allocated to specific employee
accounts. During 2000, WesBanco's ESOP renewed a revolving line of
credit with an affiliated lender. Conditions in the loan agreement
provide for a revolving line of credit in the aggregate amount of
$2,000 to facilitate purchases of WesBanco common stock in the open
market. The loan bears interest at a rate equal to the lender's base
rate and requires annual repayments of principal equal to 20% of the
balance at January 1 of each year. The loan has a final maturity date
of 5 years from date of inception. The revolving line of credit had
an outstanding balance of zero and $350 at December 31, 2000 and 1999,
respectively.
E-11
Total contributions to the Plan for the three years ended December
31, 2000, 1999 and 1998 were $1,052, $996 and $1,046, respectively.
Commercial BancShares Executive Supplemental Income Plan: The
Executive Supplemental Income Plan is a non-contributory plan covering
certain officers with benefits, which include death, and retirement
benefits. This Plan funded future benefit payments through an
insurance investment with fair values of $5,402 and $5,304 as of
December 31, 2000 and 1999, respectively. The net expense recorded to
provide these benefits was $142, $286 and $216 for 2000, 1999 and
1998, respectively. WesBanco does not anticipate providing this
benefit to any additional employees.
Key Executive Incentive Bonus & Option Plan: The Key Executive
Incentive Bonus & Option Plan, which was started in 1998, is a non-
qualified plan that includes three components, an Annual Bonus, a
Long-Term Incentive Bonus and a Stock Option component. The three
components allow for payments of cash, or a mixture of cash and stock,
or granting of stock options, depending upon the component of the plan
in which the award is earned through the attainment of certain
performance goals. Performance goals are established by WesBanco's
Board of Directors.
Compensation expense incurred in 2000, 1999 and 1998 for the Annual
Bonus component of the plan was $436, $348 and $364, respectively.
There were no awards or payments made for the Long-Term Bonus
component of the plan during the three years ended December 31, 2000.
The Stock Option component provides for granting of stock options to
eligible employees. The Board of Directors provided for the issuance
of 150,000 shares of common stock for this component of the Plan.
During 1998 and again in 2000, 28,000 shares were granted at an option
price of $29.50 and $22.00 per share, respectively, which were the
fair market prices on the date of the grants. Vesting of stock
options is based upon achievement of performance goals, which include
improvements in earnings per share. Vested shares totaled 34,218 at
December 31, 2000 and 15,552 shares at December 31, 1999. Employees
generally have a ten year period to exercise the vested options. No
options have been exercised. No shares were forfeited in 2000 and
3,113 shares were forfeited in 1999. All granted options become
immediately vested in the event of a change in control of the
Corporation.
The Corporation accounts for stock options in accordance with
APB Opinion No. 25 "Accounting for Stock Issued to Employees". Under
APB No. 25, since the exercise price exceeds the market price, no
compensation expense has been recognized. Using the expense
recognition provision of SFAS No. 123, compensation expense of $172,
$45, and $68 would have been recognized for the years 2000, 1999 and
1998, respectively. Fair value per share of $11.24 and $7.24 for the
2000 and 1998 options, respectively, were estimated using the Black-
Scholes option pricing model. Assumptions used in this model for the
2000 and 1998 options, includes a weighted-average expected life of 10
years, risk free interest rates of 6.22% and 5.49%, respectively,
dividend yield of 0%, and volatility factors of 21.6% and 18.1%,
respectively.
NOTE 10: OTHER OPERATING EXPENSE
Other operating expense consists of the following:
For the years ended December 31,
--------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------
Professional fees $ 3,568 $ 3,766 $ 3,711
Marketing 2,339 2,315 1,927
General administrative 1,035 1,194 1,205
Supplies 2,106 1,993 2,185
Postage 1,758 1,804 1,803
Communication 2,229 1,996 1,455
Miscellaneous taxes 3,170 3,323 3,238
Goodwill amortization 1,535 1,389 1,049
Other 3,151 4,910 6,823
- -----------------------------------------------------------------------------
Total $ 20,891 $ 22,690 $ 23,396
=============================================================================
NOTE 11: INCOME TAXES
A reconciliation of the federal statutory tax rate to the reported
effective tax rate is as follows:
For the years ended December 31,
--------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------
Federal statutory tax rate 35% 35% 35%
Tax-exempt interest income from securities
of states and political subdivisions (7) (7) (7)
State income taxes 4 4 3
Other - net (1) (3) 1
- -----------------------------------------------------------------------------
Effective tax rate 31% 29% 32%
=============================================================================
E-12
The provision for income taxes consists of the following:
For the years ended December 31,
--------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------
Current:
Federal $ 9,936 $ 9,612 $11,446
State 2,406 2,067 2,293
Deferred:
Federal 16 (282) (189)
State (87) 68 (55)
- -----------------------------------------------------------------------------
Total $12,271 $11,465 $13,495
=============================================================================
Tax expense applicable to
securities transactions $ 332 $ 153 $ 609
=============================================================================
Deferred tax assets and liabilities are comprised of the following:
December 31,
--------------------------
2000 1999 1998
- -----------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 7,538 $ 7,358 $ 7,075
Compensation and benefits 487 663 1,199
Net operating loss carryforward 410 337 ---
Tax effect of fair value adjustments on
securities available for sale 214 4,844 ---
Other (128) 33 47
- -----------------------------------------------------------------------------
Gross deferred tax assets 8,521 13,235 8,321
- -----------------------------------------------------------------------------
Deferred tax liabilities:
Tax effect of fair value adjustments on
securities available for sale --- --- (2,380)
Depreciation (1,288) (1,628) (1,484)
Purchase accounting adjustments (452) (472) (695)
Accretion on securities (344) (138) (205)
- -----------------------------------------------------------------------------
Gross deferred tax liabilities (2,084) (2,238) (4,764)
- -----------------------------------------------------------------------------
Net deferred tax assets $ 6,437 $10,997 $ 3,557
=============================================================================
NOTE 12: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates of financial instruments are based on the
present value of expected future cash flows, quoted market prices of
similar financial instruments, if available, and other valuation
techniques. These valuations are significantly affected by discount
rates, cash flow assumptions, and risk assumptions used. Therefore,
fair value estimates may not be substantiated by comparison to
independent markets and are not intended to reflect the proceeds that
may be realizable in an immediate settlement of the instruments.
The aggregate fair value of amounts presented does not represent the
underlying value of the Corporation. Management does not have the
intention to dispose of a significant portion of its financial
instruments and, therefore, the unrealized gains or losses should not
be interpreted as a forecast of future earnings and cash flows.
The following table represents the estimates of fair value of
financial instruments:
December 31,
---------------------------------------------
2000 1999
--------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -----------------------------------------------------------------------------------------
Financial assets:
Cash and short-term investments $ 73,416 $ 73,416 $ 81,354 $ 81,354
Securities held to maturity 196,102 198,534 213,253 211,009
Securities available for sale 350,287 350,287 354,675 354,675
Net loans (including loans held for sale) 1,570,672 1,553,688 1,503,694 1,479,129
Financial liabilities:
Deposits 1,870,361 1,873,083 1,814,001 1,813,446
Other borrowings 159,317 158,386 173,453 173,086
Off - balance sheet financial instruments:
Interest rate swap gain --- --- --- 1,031
=========================================================================================
E-13
The following methods and assumptions are used to estimate the fair
value of like kinds of financial instruments:
Cash and short-term investments: The carrying amount for cash and
short-term investments is a reasonable estimate of fair value. Short-
term investments consist of federal funds sold.
Securities: Fair values for securities are based on quoted market
prices, if available. If market prices are not available, then quoted
market prices of similar instruments are used.
Net loans: Fair values for loans with interest rates that fluctuate
as current rates change are generally valued at carrying amounts. The
fair values for residential mortgage loans are based on quoted market
prices of securitized financial instruments, adjusted for remaining
maturity and differences in loan characteristics. Fair values of
commercial real estate, construction and personal loans are based on a
discounted value of the estimated future cash flows expected to be
received. The current interest rates applied in the discounted cash
flow method reflect rates used to price new loans of similar type,
adjusted for relative risk and remaining maturity. For non-accrual
loans, fair value is estimated by discounting expected future
principal cash flows only.
Loans held for sale: The carrying amount for loans held for sale is a
reasonable estimate of fair value.
Deposits: The carrying amount is considered a reasonable estimate of
fair value for demand, savings and other variable rate deposit
accounts. The fair value of fixed maturity certificates of deposit is
estimated by a discounted cash flow method using the rates currently
offered for deposits of similar remaining maturities.
Other Borrowings: For federal funds purchased and repurchase
agreements, which represent short-term borrowings, the carrying amount
is a reasonable approximation of fair value. For longer term Federal
Home Loan Bank advances, fair value is based on rates currently
available to WesBanco for borrowings with similar terms and remaining
maturities.
Off-balance sheet financial instruments: Off-balance sheet financial
instruments consist of commitments to extend credit, standby letters
of credit and interest rate swap agreements. Fair values for
commitments to extend credit are estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present credit standing of
the counterparties. The estimated fair value of the commitments to
extend credit is immaterial and therefore not presented in the above
table. Fair values for interest rate swaps are estimated by obtaining
quotes from brokers. The values represent the amount the Corporation
would receive or pay to terminate the agreement considering current
interest rates.
NOTE 13: COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, WesBanco offers off-balance
sheet credit arrangements to enable its customers to meet their
financing objectives. The Corporation may enter into interest rate
swap agreements to manage its own risks arising from movement in
interest rates. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount
recognized in the financial statements.
WesBanco has various commitments outstanding to extend credit
approximating $187,616 and $226,254 and standby letters of credit of
$7,415 and $9,713 as of December 31, 2000 and 1999, respectively.
WesBanco's exposure to credit losses in the event of non-performance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual amount of those instruments. The Corporation uses the
same credit and collateral policies in making commitments and
conditional obligations as for all other lending. Collateral, which
secures these types of commitments is the same type as collateral for
other types of lending, such as accounts receivable, inventory and
fixed assets.
Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. Management evaluates each customer's credit worthiness
on a case-by-case basis.
Standby letters of credit are conditional commitments issued by
banks to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements, including normal business activities, bond
financing and similar transactions. The credit risk involved in
issuing letters of credit is essentially the same as that involved in
extending loans to customers. Collateral securing these types of
transactions is similar to collateral securing the Corporation's
commercial loans.
Interest rate swap agreements generally involve the exchange of
fixed and floating rate interest payments without the exchange of the
underlying notional amount, on which interest payments are calculated.
Differences between interest received and interest paid are reported
as a component of interest expense in the Consolidated Statement of
Income. Interest rate swap
E-14
agreements are entered into as part of the Corporation's interest rate
risk management strategy primarily to alter the interest rate sensitivity
of its deposit liabilities.
At December 31, 1999, WesBanco had entered into interest rate
swap agreements with a notional value of $65,904. WesBanco received a
weighted average variable rate of 4.80% and paid a weighted average
fixed rate of 4.98% for an average term of 5.32 years. During 2000,
these swap agreements were terminated, generating a deferred gain of
$1,046. The gain is being amortized over the remaining term of the
swap agreements using the interest method. WesBanco realized $135 of
interest rate swap gains during 2000.
The Corporation and its affiliates are parties to various legal
and administrative proceedings and claims. While any litigation
contains an element of uncertainty, management believes that the
outcome of such proceedings or claims pending or known to be
threatened will not have a material adverse effect on the
Corporation's consolidated financial position.
NOTE 14: TRANSACTIONS WITH RELATED PARTIES
Some officers and directors (including their affiliates, families
and entities in which they are principal owners) of the Corporation
and its subsidiaries are customers of those subsidiaries and have had,
and are expected to have, transactions with the subsidiaries in the
ordinary course of business. In addition, some officers and directors
are also officers and directors of corporations, which are customers
of the bank and have had, and are expected to have, transactions with
the bank in the ordinary course of business. In the opinion of
management, such transactions are consistent with prudent banking
practices and are within applicable banking regulations.
NOTE 15: REGULATORY MATTERS
WesBanco (Parent Company) is a legal entity separate and distinct
from its subsidiaries. There are various legal limitations on the
extent to which WesBanco's banking subsidiary may extend credit, pay
dividends or otherwise supply funds to WesBanco. Certain restrictions
under Federal and State law exist regarding the ability of a certain
subsidiary to pay dividends to WesBanco. Approval is required if
total dividends declared by a bank subsidiary, in any calendar year,
exceeds net profits for that year combined with its retained net
profits for the preceding two years. In determining to what extent to
pay dividends, a bank subsidiary must also consider the effect of
dividend payments on applicable risk-based capital and leverage ratio
requirements. During the second quarter of 2000 and 1999, Federal and
State regulatory agencies granted approval to declare special
dividends to WesBanco for the purpose of funding share repurchase
plans. As of December 31, 2000 and 1999, WesBanco's banking
subsidiary, could not have declared any dividends to be paid to
WesBanco without prior approval from regulatory agencies.
Federal Reserve regulations require depository institutions
to maintain cash reserves with the Federal Reserve Bank. The average
amounts of required reserve balances were approximately $26,951 and
$24,024 during 2000 and 1999, respectively.
WesBanco is subject to various regulatory capital requirements
(risk-based capital ratios) administered by Federal banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a material effect on the Corporation's
financial results.
All banks are required to have core capital (Tier 1) of at
least 4% of risk weighted assets, total capital of at least 8% of
risk-weighted assets, and a minimum Tier 1 leverage ratio of 3% of
adjusted quarterly average assets. Tier 1 capital consists
principally of shareholders' equity, excluding unrealized gains and
losses on securities available for sale, less goodwill and certain
other intangibles. Total capital consists of Tier 1 capital plus the
allowance for loan losses subject to limitation. The regulations also
define well-capitalized levels of Tier 1, total capital, and Tier 1
leverage as 6%, 10%, and 5%, respectively. WesBanco and its banking
subsidiary were categorized as well-capitalized under the regulatory
framework for prompt corrective action at December 31, 2000 and 1999.
There are no conditions or events since December 31, 2000 that
management believes have changed WesBanco's well-capitalized category.
The following table summarizes risk-based capital amounts and ratios
for WesBanco and its bank subsidiary:
December 31,
--------------------------------
2000 1999
--------------- ---------------
WesBanco, Inc. Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------
Total Capital to Risk-Weighted Assets $258,666 15.6% $275,113 17.0%
Tier 1 Capital to Risk-Weighted Assets 238,636 14.4 255,361 15.7
Tier 1 Leverage 238,636 10.5 255,361 11.3
WesBanco Bank, Inc.
- ---------------------------------------------------------------------------
Total Capital to Risk-Weighted Assets $248,104 15.1% $249,191 15.5%
Tier 1 Capital to Risk-Weighted Assets 228,080 13.9 229,443 14.3
Tier 1 Leverage 228,080 10.1 229,443 10.3
===========================================================================
E-15
NOTE 16: CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
Presented below are the condensed Balance Sheet, Statement of Income
and Statement of Cash Flows for the Parent Company:
BALANCE SHEET
December 31,
-------------------
2000 1999
- -----------------------------------------------------------------------------
ASSETS
Cash and short-term investments $ 4,640 $ 4,661
Investment in subsidiaries (at equity in net assets) 255,525 250,250
Securities available for sale carried at fair value 14,137 19,198
Dividends receivable --- 2,400
Other assets 670 523
- -----------------------------------------------------------------------------
Total Assets $274,972 $277,032
=============================================================================
LIABILITIES
Borrowings $ 11,500 $ 2,350
Dividends payable and other liabilities 4,966 5,018
- -----------------------------------------------------------------------------
Total Liabilities 16,466 7,368
SHAREHOLDERS' EQUITY 258,506 269,664
- -----------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $274,972 $277,032
=============================================================================
STATEMENT OF INCOME
For the years ended December 31,
--------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------
Dividends from subsidiaries $ 30,000 $ 21,133 $ 56,234
Income from securities 838 748 831
Other income 225 618 4,674
- -----------------------------------------------------------------------------
Total income 31,063 22,499 61,739
- -----------------------------------------------------------------------------
Total expense 1,781 1,474 1,372
- -----------------------------------------------------------------------------
Income before income tax provision (benefit)
and undistributed net income of subsidiaries 29,282 21,025 60,367
Income tax provision (benefit) (476) (404) 1,485
- -----------------------------------------------------------------------------
Income before undistributed net income
of subsidiaries 29,758 21,429 58,882
Undistributed net income (excess dividends)
of subsidiaries (2,834) 6,209 (30,569)
- -----------------------------------------------------------------------------
Net Income $ 26,924 $ 27,638 $ 28,313
=============================================================================
STATEMENT OF CASH FLOWS
For the years ended December 31,
--------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 26,924 $ 27,638 $ 28,313
Excess dividends (undistributed net income)
of subsidiaries 2,834 (6,209) 30,569
(Increase) decrease in other assets 2,547 28,133 (24,142)
Other - net 148 3,128 (4,282)
- -----------------------------------------------------------------------------
Net cash provided by operating activities 32,453 52,690 30,458
- -----------------------------------------------------------------------------
Cash flows from investing activities:
Securities available for sale:
Proceeds from sales 4,252 --- 4,287
Proceeds from maturities and calls 1,285 4,778 907
Payments for purchases (977) (693) (11,981)
(Acquisitions and additional capitalization)
or sale of subsidiaries (650) (2,000) 3,747
- -----------------------------------------------------------------------------
Net cash provided(used) by investing activities 3,910 2,085 (3,040)
- -----------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings (payments) on ESOP debt - net (350) 350 (97)
Increase in borrowings 9,500 2,000 ---
Purchases of treasury stock - net (28,367) (37,011) (9,726)
Dividends paid (17,167) (17,752) (15,401)
- -----------------------------------------------------------------------------
Net cash used by financing activities (36,384) (52,413) (25,224)
- -----------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (21) 2,362 2,194
Cash and short-term investments at beginning
of year 4,661 2,299 105
- -----------------------------------------------------------------------------
Cash and short-term investments at end of year $ 4,640 $ 4,661 $ 2,299
=============================================================================
E-16
NOTE 17: SUBSEQUENT EVENT - AGREEMENT TO MERGE
On February 22, 2001, WesBanco, Inc. and American Bancorporation
("American") entered into a definitive Agreement and Plan of Merger
providing for the merger of American Bancorporation with and into a
wholly-owned subsidiary of WesBanco formed for the purpose and the
merger of American affiliate, Wheeling National Bank, with and into
WesBanco affiliate, WesBanco Bank, Inc. The transaction will be
accounted for using the purchase method of accounting. Under the
terms of the Agreement and Plan of Merger, WesBanco will exchange
WesBanco common stock based upon a fixed exchange ratio of 1.1 shares
of WesBanco common stock for each share of American common stock
outstanding. The transaction, which was valued at $70,540, is subject
to the approvals of the appropriate banking regulatory authorities and
the shareholders of both companies. American granted an option to
WesBanco to purchase 622,805 shares of its common stock at $18.00 per
share. At December 31, 2000, American reported total assets of
$705,260, deposits of $496,147 and shareholders' equity of $40,565.
The transaction is expected to be completed during the third quarter
of 2001.
E-17
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------
SHAREHOLDER AND BOARD OF DIRECTORS
WESBANCO, INC.
We have audited the accompanying consolidated balance sheets
of WesBanco, Inc. and subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 2000. These financial statements are the
responsibility of WesBanco, Inc.'s management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of WesBanco, Inc. and subsidiaries at December 31, 2000 and
1999, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in
the United States.
/s/ Ernst & Young LLP
February 22, 2001
Pittsburgh, Pennsylvania
E-18
CONDENSED QUARTERLY STATEMENT OF INCOME
- -----------------------------------------------------------------------
(in thousands, except per share amounts)
2000 Quarter ended
-------------------------------------------------------------
Annual
March 31 June 30 September 30 December 31 Total
- -------------------------------------------------------------------------------------------------
Interest income $39,326 $40,361 $41,573 $41,819 $163,079
Interest expense 18,469 19,316 20,893 20,874 79,552
- -------------------------------------------------------------------------------------------------
Net interest income 20,857 21,045 20,680 20,945 83,527
Provision for loan losses 567 880 732 1,046 3,225
- -------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 20,290 20,165 19,948 19,899 80,302
Non-interest income 5,547 5,737 5,424 6,668 23,376
Non-interest expense 15,942 15,995 16,260 16,286 64,483
- -------------------------------------------------------------------------------------------------
Income before income taxes 9,895 9,907 9,112 10,281 39,195
Provision for income taxes 2,965 3,226 2,724 3,356 12,271
- -------------------------------------------------------------------------------------------------
Net Income $ 6,930 $ 6,681 $ 6,388 $ 6,925 $ 26,924
=================================================================================================
Earnings per share $0.35 $0.35 $0.34 $0.37 $1.41
=================================================================================================
1999 Quarter ended
-------------------------------------------------------------
Annual
March 31 June 30 September 30 December 31 Total
- -------------------------------------------------------------------------------------------------
Interest income $38,407 $38,751 $39,063 $39,640 $155,861
Interest expense 16,882 17,050 17,342 17,957 69,231
- -------------------------------------------------------------------------------------------------
Net interest income 21,525 21,701 21,721 21,683 86,630
Provision for loan losses 1,406 1,290 679 920 4,295
- -------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 20,119 20,411 21,042 20,763 82,335
Non-interest income 5,338 8,898 4,890 5,455 24,581
Non-interest expense 16,243 16,954 17,074 17,542 67,813
- -------------------------------------------------------------------------------------------------
Income before income taxes 9,214 12,355 8,858 8,676 39,103
Provision for income taxes 2,397 4,335 2,706 2,027 11,465
- -------------------------------------------------------------------------------------------------
Net Income $ 6,817 $ 8,020 $ 6,152 $ 6,649 $ 27,638
=================================================================================================
Earnings per share $0.33 $0.40 $0.30 $0.34 $1.37
=================================================================================================
E-19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
Management's Discussion and Analysis represents an overview of
the results of operations and financial condition of WesBanco, Inc.
This discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
Forward-looking statements in this report relating to the Company's
plans, strategies, objectives, expectations, intentions and adequacy
of resources, are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Investors are
cautioned that such forward-looking statements, which are not
historical fact, involve risks and uncertainties. Such statements are
subject to important factors that could cause actual results to differ
materially from those contemplated by such statements, including
without limitation, the effect of changing regional and national
economic conditions; changes in interest rates; credit risks of
commercial, real estate, and consumer loan customers and their lending
activities; changes in federal and state regulations; or other
unanticipated external developments materially impacting the
Corporation's operational and financial performance. The Corporation
does not assume any duty to update forward-looking statements.
TABLE 1. FIVE YEAR SELECTED FINANCIAL SUMMARY
(dollars in thousands, except per share amounts)
December 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------
Per share information:
Dividends $0.895 $ 0.88 $ 0.84 $0.786 $ 0.72
Book value at year end 13.92 13.63 14.35 13.97 13.17
Average common shares outstanding 19,092,927 20,229,524 20,867,193 20,461,742 19,855,791
Selected balance sheet information:
Total securities $ 546,389 $ 567,928 $ 680,550 $ 629,218 $ 600,330
Net loans 1,570,672 1,503,694 1,353,920 1,321,640 1,305,766
Total assets 2,310,137 2,269,726 2,242,712 2,211,543 2,090,750
Total deposits 1,870,361 1,814,001 1,787,642 1,779,867 1,702,660
Total shareholders' equity 258,506 269,664 296,483 287,995 268,481
Selected ratios:
Return on average assets 1.18% 1.23% 1.26% 1.18% 1.31%
Return on average equity 10.42 9.85 9.55 8.99 10.48
Dividend payout 63.47 64.23 61.76 63.90 54.96
Average equity to average assets 11.30 12.47 13.16 13.15 12.47
Trust assets, market value
at year end $3,099,441 $3,087,610 $2,774,906 $2,099,821 $1,712,280
===============================================================================================
For the years ended December 31,
-----------------------------------------------------------
Summary statement of income: 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------
Interest income $ 163,079 $ 155,861 $ 162,718 $ 157,790 $ 144,383
Interest expense 79,552 69,231 73,925 70,005 61,612
- -----------------------------------------------------------------------------------------------
Net interest income 83,527 86,630 88,793 87,785 82,771
Provision for loan losses 3,225 4,295 4,392 5,574 4,795
- -----------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 80,302 82,335 84,401 82,211 77,976
Non-interest income 23,376 24,581 25,715 17,701 15,657
Non-interest expense 64,483 67,813 68,308 65,182 57,043
- -----------------------------------------------------------------------------------------------
Income before income taxes 39,195 39,103 41,808 34,730 36,590
Provision for income taxes 12,271 11,465 13,495 9,519 10,648
- -----------------------------------------------------------------------------------------------
Net Income $ 26,924 $ 27,638 $ 28,313 $ 25,211 $ 25,942
Earnings per share $ 1.41 $ 1.37 $ 1.36 $ 1.23 $ 1.31
Core earnings (1) $ 27,966 $ 26,525 $ 25,468 $ 25,645 $ 25,788
Core earnings per share (1) 1.46 1.32 1.28 1.25 1.31
===============================================================================================
(1) Excludes goodwill amortization, net securities gains, and non-
recurring items.
E-20
OVERVIEW
WesBanco's 2000 financial performance was highlighted by strong and
consistent core earnings, excellent growth in trust revenue and
deposit activity charges, and decreases in non-interest expense,
provision for loan losses and net loan charge-offs.
Earnings for 2000 were $26.9 million or $1.41 per share
compared to $27.6 million or $1.37 per share in 1999. Net income for
1999 included a gain of $3.6 million from the sale of WesBanco's
credit card portfolio. This credit card gain contributed $0.11 to net
income per share for 1999.
Core earnings per share for 2000 increased 10.6% to $1.46 per
share compared to $1.32 per share in 1999. Core earnings, which
excludes amortization of goodwill, net securities gains and the gain
on the sale of the credit card portfolio, increased to $28.0 million
compared to $26.5 million.
GRAPH: Core Earnings Per Share*
------------------------
1998 $1.28
1999 $1.32
2000 $1.46
* Excludes goodwill amortization, net securities
gains and non-recurring items.
Non-recurring items recorded in the Statement of Income included a
pretax gain of $3.6 million on the sale of credit card receivables in
1999 and a pretax gain of $4.6 million on the sale of branch offices
in 1998. Additionally, special charges of $1.6 million, associated
with the March 31, 1998 acquisition of Commercial BancShares, were
recorded in various non-interest expense categories during 1998.
On January 14, 2000, WesBanco consummated the consolidation of
its four banking affiliates and mortgage company affiliate into a
single bank subsidiary, WesBanco Bank, Inc., which contributed to
reductions in non-interest expense during 2000. Non-interest expense
for the year decreased $3.3 million to $64.5 million compared to $67.8
million for 1999. WesBanco's efficiency ratio improved to 56.7% from
59.0%.
Acquisitions that impacted the comparative analysis in management's
discussion included the purchase of Heritage Bank of Harrison County,
Inc. on April 30, 1999 and Hunter Agency, Inc. on June 18, 1998.
Where useful, the impact of these events will be discussed.
Other uses of financial resources during the year included several
technology-related products such as; the introduction of WesBancoNet,
WesBanco's total internet banking solution, the continued improvement
of WesBanco's website, www.wesbanco.com, the completion of a check
imaging system and an on-line teller system, and the continued
expansion of the automatic teller machine network.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Tax equivalent net interest income for 2000 decreased $3.8 million
or 4.1% in comparison to 1999. Average earning assets increased $31.4
million or 1.5%, while average interest bearing liabilities increased
$50.8 million or 2.9%. As shown in Table 2, the tax equivalent net
yield on average earning assets was 4.1% compared to 4.4%. The
Federal Reserve increased the federal funds rate 100 basis points in
2000 compared to an increase of 75 basis points in 1999. WesBanco
raised its base lending rate to 9.50% from 8.50% in 2000 and to 8.50%
from 7.75% in 1999. Similar to industry trends, WesBanco's net yield
continued to decline due to the rising interest rate environment and
competitive pricing pressure to adjust rates on loan and deposit
products. Table 3 presents the impact of these changes in volume and
rate on the components of tax equivalent net interest income.
Tax equivalent interest income increased $6.6 million or 4.1%
for 2000 in comparison to 1999. The increase in tax equivalent
interest income was primarily due to increases in average loan volume
and yields and was partially offset by decreases in average securities
volume. Decreases of $84.4 million in average securities and
increases of $40.4 million in average interest bearing deposits funded
average loan growth of $115.0 million. Rising interest rates and the
shifting of securities into higher yielding loan products contributed
to the increase in the tax equivalent yield on average earning assets
to 7.9% from 7.7%.
Interest expense increased $10.3 million or 14.9% from 1999.
As shown in Table 2, the increase in interest expense resulted from an
increase in rates paid on average interest bearing liabilities to 4.4%
from 4.0% and average volume increases of 2.9%. The increase in rates
paid was affected by customers shifting savings and NOW balances into
the competitively priced Prime Rate Money Market product and
certificates of deposit. Average savings deposits decreased $32.0
million or 10.8% while average interest bearing demand deposits, which
includes the Prime Rate Money Market product, increased $23.4 million
or 4.1%. Average certificates of deposit increased $49.1 million or
6.8% due to attractive yields offered by WesBanco. This increase was
partially offset by decreases in a short-term specialty certificate of
deposit product that matured during the fourth quarter of 2000.
Average other borrowings increased $10.4 million or 7.2% reflecting
growth primarily in average Federal Home Loan Bank ("FHLB") borrowings
of $8.2 million.
E-21
TABLE 2. AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
For the years ended December 31,
----------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------ ----------------------------- -------------------------------
Average Average Average Average Average Average
(dollars in thousands) Volume Interest Rate Volume Interest Rate Volume Interest Rate
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
Loans, net of unearned income $1,556,195 $128,591 8.26% $1,441,172 $117,508 8.15% $1,354,680 $118,766 8.77%
Securities:
Taxable 374,302 24,297 6.49 436,501 27,269 6.25 502,379 31,205 6.21
Tax-exempt (1) 182,516 13,806 7.56 204,697 15,665 7.65 191,363 14,757 7.71
- -------------------------------------------------------------------------------------------------------------------------------
Total securities 556,818 38,103 6.84 641,198 42,934 6.70 693,742 45,962 6.63
Federal funds sold 18,703 1,217 6.51 17,905 902 5.04 58,474 3,155 5.40
- -------------------------------------------------------------------------------------------------------------------------------
Total earning assets (1) 2,131,716 $167,911 7.88% 2,100,275 $161,344 7.68% 2,106,896 $167,883 7.97%
Other assets 156,062 151,053 146,726
- -------------------------------------------------------------------------------------------------------------------------------
Total Assets $2,287,778 $2,251,328 $2,253,622
===============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing demand deposits $ 599,837 $ 21,488 3.58% $ 576,420 $ 18,071 3.14% $ 494,278 $ 16,693 3.38%
Savings deposits 265,723 5,264 1.98 297,759 5,936 1.99 327,342 7,852 2.40
Certificates of deposit 774,607 43,689 5.64 725,555 38,545 5.31 765,750 43,067 5.62
- -------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
deposits 1,640,167 70,441 4.29 1,599,734 62,552 3.91 1,587,370 67,612 4.26
Other borrowings 155,149 9,111 5.87 144,774 6,679 4.61 126,362 6,313 5.00
- -------------------------------------------------------------------------------------------------------------------------------
Total interest
bearing liabilities 1,795,316 $ 79,552 4.43% 1,744,508 $ 69,231 3.97% 1,713,732 $ 73,925 4.31%
- -------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing
demand deposits 215,393 207,520 221,304
Other liabilities 18,645 18,615 22,105
Shareholders' Equity 258,424 280,685 296,481
- -------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $2,287,778 $2,251,328 $2,253,622
===============================================================================================================================
Taxable equivalent net yield
on earning assets (1) $ 88,359 4.14% $ 92,113 4.39% $ 93,958 4.46%
===============================================================================================================================
Net yield on earning assets $ 83,527 3.92% $ 86,630 4.12% $ 88,793 4.21%
===============================================================================================================================
Total loans are gross of allowance for loan losses, net of unearned
income, and include loans held for sale.
Non-accrual loans were included in the average volume for the entire
year. Loan fees included in interest on loans are not material.
Average yields on securities available for sale have been calculated
based on amortized cost.
(1) Taxable equivalent basis is calculated on tax-exempt securities
using a tax rate of 35% for each year presented.
TABLE 3. RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND
INTEREST EXPENSE
2000 Compared to 1999 1999 Compared to 1998
----------------------------- ------------------------------
Net Increase Net Increase
(in thousands) Volume Rate (Decrease) Volume Rate (Decrease)
- ---------------------------------------------------------------------------------------------------------
Increase (decrease) in interest income:
Loans, net of unearned income $9,486 $1,597 $11,083 $ 7,330 $(8,588) $(1,258)
Taxable securities (4,005) 1,033 (2,972) (4,115) 179 (3,936)
Tax-exempt securities (1) (1,681) (178) (1,859) 1,023 (115) 908
Federal funds sold 42 273 315 (2,056) (197) (2,253)
- ---------------------------------------------------------------------------------------------------------
Total interest income change 3,842 2,725 6,567 2,182 (8,721) (6,539)
- ---------------------------------------------------------------------------------------------------------
Increase (decrease) in interest expense:
Interest bearing demand deposits 757 2,660 3,417 2,635 (1,257) 1,378
Savings deposits (635) (37) (672) (668) (1,248) (1,916)
Certificates of deposit 2,690 2,454 5,144 (2,200) (2,322) (4,522)
Other borrowings 506 1,926 2,432 874 (508) 366
- ---------------------------------------------------------------------------------------------------------
Total interest expense change 3,318 7,003 10,321 641 (5,335) (4,694)
- ---------------------------------------------------------------------------------------------------------
Net interest income increase (decrease)(1) $ 524 $(4,278) $(3,754) $ 1,541 $(3,386) $(1,845)
=========================================================================================================
Changes to rate/volume are allocated to both rate and volume on a
proportionate dollar basis.
(1) Taxable equivalent basis is calculated on tax-exempt securities
using a tax rate of 35% for each year presented.
E-22
PROVISION FOR LOAN LOSSES
Provision for loan losses in 2000 decreased to $3.2 million compared
to $4.3 million in 1999. Net charge-offs declined to $2.9 million
down from $3.4 million. As shown in Table 9, net charge-offs as a
percentage of average total loans decreased to 0.19% compared to 0.23%.
The decrease in the provision and net charge-offs reflects the
continuing improvement in the credit quality for all types of loans,
as well as increased efforts to recover loans charged off in prior
periods.
NON-INTEREST INCOME
Excluding the $3.6 million gain on the sale of the credit card
portfolio in 1999 and net securities gains, non-interest income
increased $2.0 million or 9.3% compared to 1999. This increase was
due to increases in trust revenue and deposit activity charges. The
increase, however, was partially offset by a reduction in credit card
activity fees due to the sale of the credit card portfolio in June
1999.
Trust revenue increased $1.6 million or 15.5% compared to 1999,
resulting from increases in the number of accounts under
administration, investment fees associated with the WesMark Mutual
Fund products and the increased market value of trust assets. The
market value of trust assets at December 31, 2000 was $3.1 billion, an
increase of $11.8 million from 1999.
Deposit activity charges increased approximately $1.3 million or
18.7% primarily due to increased overdraft fees.
Other income, excluding the $3.6 million gain on the sale of
the credit card portfolio in June 1999 and the $0.8 million reduction
in credit card activity fees in 1999, remained stable compared to
1999.
GRAPHS: Operating Income to Trust Revenue
Average Assets* (in thousands)
------------------- ---------------
1998 0.87% 1998 $ 9,066
1999 0.92% 1999 $10,582
2000 0.99% 2000 $12,226
*Excludes net securities gains
and non-recurring items.
Net securities gains increased $0.4 million or 113.7% in comparison
to 1999. Securities gains increased in the fourth quarter of 2000 due
to sales of mortgage-backed securities. The Corporation was able to
realize gains while improving liquidity due to declining interest
rates during the fourth quarter of 2000. In 1999, securities gains
decreased due to limited sales opportunities.
NON-INTEREST EXPENSE
Non-interest expense decreased $3.3 million or 4.9% compared to
1999, resulting primarily from decreases in employee benefit costs and
other operating expense. These factors were partially offset by
increases in equipment and net occupancy expense.
Employee benefit costs decreased $2.0 million or 28.4% compared to
1999, primarily due to a $1.1 million decrease in post-retirement
expense and $0.6 million decrease in health insurance costs. Salaries
and wages remained stable between the comparable periods as normal
salary increases were offset by reduced staffing levels resulting from
the consolidation to a single bank. Full-time equivalent employees
declined to 1,027 as of December 31, 2000 compared to 1,097 as of
December 31, 1999.
GRAPH: Operating Expense to
Average Assets*
--------------------
1998 2.96%
1999 3.01%
2000 2.82%
*Excludes goodwill amortization &
non-recurring items.
Other operating expense decreased $1.8 million or 7.9%
compared to 1999, due to the reduction of credit card activity
expenses and decreases in Y2K readiness expenses incurred in 1999.
These decreases were partially offset by increases in communication
expense and goodwill amortization.
Equipment and net occupancy expense increased $0.5 million or
5.2% compared to 1999, primarily due to technology-related costs.
WesBanco's consolidation of its four banks and mortgage
affiliate into a single bank subsidiary in January 2000, contributed
to the overall decline in non-interest expense between 2000 and 1999.
The Corporation substantially accomplished its consolidation goals
designed to reduce the number of administrative positions of separate
entities, centralize backoffice operations and redirect more senior
management time to servicing customers. The Corporation improved its
efficiency ratio to 56.7% from 59.0%.
E-23
INCOME TAXES
Federal income tax expense increased $0.7 million to $10.0 million
in 2000 from $9.3 million in 1999, resulting from an increase in the
Corporation's effective tax rate to 31% compared to 29% from the prior
year. The increase in the effective tax rate resulted from a decrease
in tax-free income coupled with an increase in non-deductible expense.
WesBanco's federal income tax returns for 1996 and 1997 were subject
to an Internal Revenue Service ("IRS") examination during the first
quarter of 1999. WesBanco and the IRS have agreed to settle certain
tax deductions for acquisition-related expenses and the timing of
certain loan origination costs taken in those years for approximately
$100 thousand.
WesBanco's West Virginia affiliates are subject to a corporate net
income tax, which is based upon federal taxable income, with certain
modifications. The statutory West Virginia tax rate was 9.0% for 2000
and 1999. West Virginia income tax, included in the provision for
income taxes, was $2.3 million for 2000 compared to $2.1 million for
1999.
WesBanco's offices located in Ohio are subject to an Ohio franchise
tax, rather than a corporate income tax. Ohio franchise taxes are
included in other operating expense.
FINANCIAL CONDITION
SECURITIES
Securities decreased $21.5 million between December 31, 2000 and
1999, creating liquidity for the Corporation to fund loans and a stock
repurchase program. As shown in Table 4, available for sale
securities, at fair value, representing 64.1% of total securities at
December 31, 2000, decreased $4.4 million from the same period in
1999, while held to maturity securities, representing the remaining
35.9% of total securities, decreased $17.1 million over the same
corresponding periods.
During 2000, securities available for sale and held to maturity
decreased through sales, maturities, paydowns of Federal Agency and
mortgage-backed securities. At December 31, 2000 the average yield of
the available for sale portfolio was 6.5% with an average maturity of
5.2 years. For the same period, the average yield of the held to
maturity portfolio was 7.0% with an average maturity of 4.8 years.
Unrealized pre-tax gains/losses on available for sale securities
(fair value adjustments) reduced to a $0.5 million market loss as of
December 31, 2000 compared to a $12.3 million market loss as of
December 31, 1999. These fair value adjustments represent temporary
fluctuations resulting from changes in market rates in relation to
average yields in the available for sale portfolio. WesBanco can
adjust the magnitude of the fair value adjustment by managing both the
volume of securities classified as available for sale and average
maturities. If securities are held to their respective maturity
dates, no fair value gain or loss would be realized.
Securities represent a source of liquidity for the Corporation.
During 2000, securities with a total carrying value of $79.0 million
either matured or were called. In addition, available for sale
securities of $65.2 million were sold during 2000.
.
TABLE 4. COMPOSITION OF SECURITIES
December 31,
-----------------------------
(in thousands) 2000 1999 1998
- ---------------------------------------------------------------------------------
Securities held to maturity (at amortized cost):
U.S. Treasury and Federal Agency securities $ 4,357 $ 13,346 $ 41,961
Obligations of states and political subdivisions 173,771 182,005 169,552
Other debt securities 17,974 17,902 3,332
- ---------------------------------------------------------------------------------
Total securities held to maturity 196,102 213,253 214,845
- ---------------------------------------------------------------------------------
Securities available for sale (at fair value):
U.S. Treasury and Federal Agency securities 206,268 189,593 276,260
Obligations of states and political subdivisions 12,907 18,298 24,712
Mortgage-backed and other securities 131,112 146,784 164,733
- ---------------------------------------------------------------------------------
Total securities available for sale 350,287 354,675 465,705
- ---------------------------------------------------------------------------------
Total securities $546,389 $567,928 $680,550
=================================================================================
Other debt securities include Federal Reserve Bank Stock and Federal
Home Loan Bank securities.
Other securities, classified as available for sale, include equity
interests in business corporations.
There are no individual securities included in obligations of states
and political subdivisions or other securities, which individually or
in the aggregate exceed ten percent of shareholders' equity.
E-24
TABLE 5. MATURITY DISTRIBUTION AND YIELD ANALYSIS OF SECURITIES
December 31, 2000
---------------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
----------------- ----------------- ---------------- ---------------
(dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield
- -----------------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. Treasury and Federal
Agency securities $ 500 6.37% $ 1,002 6.37% $ 2,855 7.25% --- ---
Obligations of states and
political subdivisions 15,178 7.06 49,706 7.17 64,237 7.03 $44,650 6.74%
Other debt securities --- --- --- --- --- --- 17,974 7.60
- -----------------------------------------------------------------------------------------------------------
Total held to maturity 15,678 7.04 50,708 7.15 67,092 7.04 62,624 7.05
- -----------------------------------------------------------------------------------------------------------
Securities available for sale:
U.S. Treasury and Federal
Agency securities 27,705 6.35 35,154 6.35 141,593 6.77 812 8.00
Obligations of states and
political subdivisions 1,250 5.94 8,477 6.06 2,453 6.87 691 10.00
Mortgage-backed and
other securities 1,461 5.05 52,151 6.30 74,050 6.09 5,034 2.54
- -----------------------------------------------------------------------------------------------------------
Total available for sale 30,416 6.27 95,782 6.30 218,096 6.54 6,537 4.01
- -----------------------------------------------------------------------------------------------------------
Total securities $46,094 6.53% $146,490 6.59% $285,188 6.66% $69,161 6.70%
===========================================================================================================
Yields are calculated using a weighted average yield to maturity.
Average yields on securities available for sale have been calculated
based on amortized cost.
Average yields on obligations of states and political subdivisions
have been calculated on a taxable equivalent basis.
Other debt securities include securities with no stated maturity date.
Mortgage-backed securities, which have prepayment provisions, are
assigned to maturity categories based on estimated average lives.
LOANS
LOAN PORTFOLIO: Loans increased $67.2 million or 4.4% between
December 31, 2000 and December 31, 1999. All major segments of the
portfolio experienced growth during the year.
Commercial loans increased $24.7 million or 4.7% compared to
the prior year, reflecting continued economic growth and expansion
throughout most of the year. The most significant increases were in
commercial real estate loans and revolving lines of credit secured by
other types of collateral.
Residential real estate loans increased $21.0 million or 3.3%
compared to the prior year. Residential real estate loans include
conventional mortgages to purchase or refinance personal residences
and home equity lines of credit that are secured by first or second
liens on residences. WesBanco also originates residential real estate
loans to be sold to the secondary market. Residential real estate
loans originated for sale were $50.5 million in 2000 compared to $82.1
million in 1999, a decrease of 38.5%. Growth in conventional
mortgages, including those sold to the secondary market, slowed in
2000 due to rising interest rates and a reduction in refinancing
activity, which was prevalent in 1999 when interest rates were more
attractive to consumers. However, WesBanco continued to experience
strong growth in home equity lines of credit, which increased $86.2
million or 30.0% at December 31, 2000.
TABLE 6. COMPOSITION OF LOANS
December 31,
----------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------- ---------------- ----------------- ---------------- -----------------
% of % of % of % of % of
(dollars in thousands) Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
- ----------------------------------------------------------------------------------------------------------------------
Loans:
Commercial $ 546,136 34% $ 521,450 34% $ 484,269 35% $ 438,055 33% $ 490,428 37%
Real estate -
construction 36,007 2 31,742 2 46,033 3 37,743 2 35,910 2
Real estate-residential 651,924 41 630,939 41 520,393 38 521,222 39 412,324 32
Personal 354,352 22 329,763 22 313,490 23 334,671 25 389,383 29
Loans held for sale 2,391 1 9,753 1 9,280 1 11,705 1 983 --
- ----------------------------------------------------------------------------------------------------------------------
Total loans $1,590,810 100% $1,523,647 100% $1,373,465 100% $1,343,396 100% $1,329,028 100%
- ----------------------------------------------------------------------------------------------------------------------
Loans are presented gross of allowance for loan losses and unearned
income on personal loans.
E-25
Referring to Table 6, loans held for sale decreased $7.4
million or 75.5% compared to the prior year, reflecting a decline in
residential real estate volume during the second half of 2000. The
Corporation enters into sales commitments at the time these loans are
funded.
Real estate-construction loans, which include both commercial
and residential properties, increased $4.3 million or 13.4% compared
to the prior year. The increase in real estate-construction loans at
any year-end is influenced by many factors, including the number of
housing starts and the volume of new commercial projects.
Personal loans increased $24.6 million or 7.5% compared to the
prior year. Personal loans consist primarily of indirect loans
originated through automobile dealers and other types of secured and
unsecured consumer purpose loans. Growth in personal loans in 2000
was primarily attributed to attractive pricing of indirect automobile
loans during the first half of the year. Management made a strategic
decision in the second half of 2000 to tighten underwriting standards
and thereby sacrifice some growth in personal loans to maintain credit
quality.
TABLE 7. MATURITY DISTRIBUTION OF LOANS
December 31, 2000
After One
In One Year through After
(in thousands) Year or Less Five Years Five Years
- -----------------------------------------------------------------------------
Commercial $126,651 $ 91,110 $129,897
Commercial real estate 21,191 22,154 155,133
Real estate - construction 6,734 1,717 27,556
- -----------------------------------------------------------------------------
Total $154,576 $114,981 $312,586
=============================================================================
Fixed rates $ 27,167 $ 70,360 $ 67,649
Variable rates 127,409 44,621 244,937
- -----------------------------------------------------------------------------
Total $154,576 $114,981 $312,586
=============================================================================
Excludes personal, residential mortgage and loans held for sale
LOAN RISK ELEMENTS AND CREDIT QUALITY: WesBanco extends credit to
individuals for various consumer purposes, which include residential
real estate loans, real estate-construction loans, home equity lines
of credit, installment loans to purchase automobiles, and other
personal loans. WesBanco also extends credit to businesses of all
types to purchase assets, including commercial real estate, or to
finance expansion, as well as revolving lines of credit and other
short-term loans to finance working capital requirements.
Credit risk, that is the risk that a borrower will be unable
to repay its obligations and default on a loan, is inherent in all
lending activities. WesBanco's primary goal in managing credit risk
is to minimize the impact of default by an individual borrower or
group of borrowers. Credit risk is managed both through the initial
underwriting process as well as through ongoing monitoring and
administration of the loan portfolio.
WesBanco's lending policies establish, among other things,
underwriting guidelines for all types of loans; lending authorities;
limitations on credit exposure to individual borrowers or groups of
borrowers, as well as loan type, industry, and geographic
concentrations; and loan portfolio administration procedures.
Exceptions to credit policy require careful evaluation of the
additional risks associated with each exception and the factors that
mitigate those risks.
Underwriting guidelines require an appropriate evaluation of
the repayment capacity and general creditworthiness of each borrower;
requirements for down payments or borrower's equity; the adequacy of
collateral, if any, to secure the loan including current market
appraisals or other valuations of collateral; and other factors unique
to each loan that may increase or mitigate its risks.
Individual lending officers may approve loans up to specified
limits, which vary by type of loan. Loans above individual officers'
limits require approval of the Chief Credit Officer, a loan committee,
or the Board of Directors, depending on the amount of credit exposure
to the particular borrower. These approval requirements also apply to
renewals and extensions of loans.
Personal loans are a homogeneous group of loans, generally
smaller in amount, which are not concentrated in a specific market
area and are spread over a larger number of diverse individual
borrowers. The maximum term for automobile loans and other types of
personal loans generally do not exceed 72 months. Unsecured personal
loans represent less than 5.0% of total personal loans. Risks in this
segment include the possibility of a general economic downturn, an
isolated adverse event that impacts a major employer, and collateral
values that depreciate faster than the repayment of the loan balance.
Residential real estate loans, while typically larger in amount
compared to personal loans, have many of the same characteristics and
are also affected by economic conditions, which may influence real
property values. Residential real estate loans have terms ranging
from 15 to 30 years depending on whether the interest rate is fixed or
adjustable, with a maximum of 15 years for fixed rate loans.
Borrowers are required to have adequate down payments or equity in the
property. Loan requests that exceed the loan-to-value guidelines set
forth by lending policy generally must be supported by private
mortgage insurance. Home equity lines of credit are secured by junior
liens against real estate and the loan amount may be up to 100% of the
value of the property.
E-26
Commercial loans are often for substantially larger amounts and
the potential for loss on any one loan can be significant. Commercial
real estate loans include both loans that are secured by properties
used in the operation of the borrower's business as
well as loans that are secured by income producing rental properties and
are generally structured to fully amortize over terms ranging from 15 to
20 years depending on the type of property. Commercial loans that are not
secured by real estate are made for shorter terms and include
revolving lines of credit that mature within one year or less.
Unsecured commercial loans represent less than 5.0% of total
commercial loans.
Real estate-construction loans are generally only made when
WesBanco also commits to the permanent financing of the project or
residence, or has a takeout commitment from another lender for the
permanent loan.
There are no significant loans made to customers outside
WesBanco's general market areas unless the borrower also has
significant other non-lending relationships with WesBanco. Most loans
are secured by real estate or personal property. At times, WesBanco
may purchase loans originated by other lending institutions. WesBanco
conducts its own customary credit evaluation before a loan is
purchased from another institution. Purchased loans, in the
aggregate, are not material relative to total loans.
Commercial loans are not concentrated in any single industry
but reflect a broad range of businesses located primarily within
WesBanco's market areas. However, two of the ten largest integrated
steel companies in the United States are headquartered in the Upper
Ohio Valley and are major employers in WesBanco's market. The steel
industry's future continues to be threatened by a number of economic
and other factors. One steel company located in the Upper Ohio Valley
filed a voluntary petition for protection under Chapter 11 of the
Bankruptcy Act in November 2000. As of December 31, 2000, WesBanco
had no material direct credit exposure to the steel industry.
However, WesBanco extends credit to consumers employed in the steel
industry and to businesses that provide products or services to the
industry. In addition, a number of other businesses not directly
associated with the industry could be adversely impacted by a
significant loss of employment.
Subsequent to loan origination, the process used to measure and
monitor credit risk depends on the type of loan. Monitoring the level
and trend of delinquent loans is a basic element for all loan types.
Credit risk in the personal loan and residential real estate
portfolios is also managed by monitoring market conditions that may
impact groups of borrowers or collateral values. Credit risk in the
commercial loan portfolio is managed by periodic reviews of large
borrowing relationships and by monitoring the portfolio for potential
concentrations of credit.
WesBanco maintains a loan grading system that categorizes
commercial loans according to their level of credit risk. All
commercial loans are assigned a grade at their inception, and grades
are regularly reviewed and evaluated. When the risk of a loan
increases beyond that which is considered acceptable in the assigned
grade, its grade is adjusted to reflect the change in risk. The loan
grading system provides management with an effective early warning
system of potential problems, assists in identifying adverse trends
and evaluating the overall quality of the portfolio, and facilitates
evaluating the adequacy of the allowance for loan losses.
Classified loans are those loans that exhibit clear and defined
weaknesses that may jeopardize their repayment in full. Loans are
classified as "substandard" when they are no longer adequately
protected by adequate net worth and paying capacity of the borrower or
the collateral. Substandard loans are characterized by the
possibility that WesBanco may sustain some loss. Loans are classified
as "doubtful" when the risk that a loss may occur has increased, or at
least a portion of the loan may require charge-off. Classified loans
include some loans that are delinquent or on non-accrual status and
may also include loans whose terms have been renegotiated.
WesBanco also maintains an independent loan review function to
evaluate the effectiveness of its credit risk management processes.
The loan review process also identifies areas that may require
additional management attention, evaluates the adequacy of loan
documentation and administration, provides written reports to
management regarding compliance with lending policies, and validates
the reliability of the grading system. The loan review function
reports to the Audit Committee of the Board of Directors.
NON-PERFORMING ASSETS AND OTHER IMPAIRED LOANS: Non-performing assets
consist of non-accrual and renegotiated loans and other real estate
owned. Other impaired loans include loans that are internally
classified as substandard or doubtful.
Loans are placed on non-accrual status, when in the opinion of
management, doubt exists as to collectability. All banks must conform
to the policies of the Board of Governors of the Federal Reserve
System and the Office of the Comptroller of the Currency which state
that banks may not accrue interest on any loan on which either the
principal or interest is past due 90 days or more unless the loan is
both well secured and in the process of collection. When a loan is
placed on non-accrual, interest income may be recognized as cash
payments are received.
Loans are categorized as renegotiated when WesBanco, for
economic or legal reasons related to a borrower's financial
difficulties, grants a concession to the borrower that it would not
otherwise consider. Concessions that may be granted include a
reduction of the interest rate, the amount of accrued interest, or the
face amount of the loan; as well as an extension of the maturity date
or the amortization schedule.
Loans are classified as substandard or doubtful as previously
discussed under Loan Risk Elements and Credit Quality.
Non-performing assets as a percentage of total loans remained
stable at 0.6% between December 31, 2000 and December 31, 1999. Non-
performing assets increased $0.9 million or 10.8% between December 31,
2000 and December 31, 1999. This increase resulted primarily from the
deterioration in the repayment capacity of one commercial borrower during
the third quarter of 2000.
E-27
Other impaired loans increased $2.8 million between December 31,
2000 and December 31, 1999. The increase resulted primarily from the
deterioration in the repayment capacity of three commercial borrowers
during the second half of 2000.
Total non-performing loans and other impaired loans as a percentage
of total loans were 1.1% at December 31, 2000 compared to 0.9% at
December 31, 1999.
TABLE 8. NON-PERFORMING ASSETS, OTHER IMPAIRED LOANS AND LOANS PAST DUE 90
DAYS OR MORE
December 31,
-------------------------------------------
(dollars in thousands) 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------
Non-accrual:
Personal $ 56 $ 36 $ 128 $ 105 $ 90
Commercial 5,144 1,199 8,687 6,309 4,135
Real estate 361 2,923 1,673 1,999 945
- -----------------------------------------------------------------------------
Total 5,561 4,158 10,488 8,413 5,170
- -----------------------------------------------------------------------------
Renegotiated:
Personal 36 3 --- 46 ---
Commercial 381 783 --- 1,307 1,527
Real estate --- 27 695 1,070 3,010
- -----------------------------------------------------------------------------
Total 417 813 695 2,423 4,537
- -----------------------------------------------------------------------------
Total non-performing loans 5,978 4,971 11,183 10,836 9,707
Other real estate owned 3,424 3,512 3,486 5,620 4,511
- -----------------------------------------------------------------------------
Total non-performing assets 9,402 8,483 14,669 16,456 14,218
- -----------------------------------------------------------------------------
Other impaired loans:
Commercial 11,513 8,706 5,285 3,765 3,057
Real estate --- --- --- --- 414
- -----------------------------------------------------------------------------
Total other impaired loans 11,513 8,706 5,285 3,765 3,471
- -----------------------------------------------------------------------------
Total non-performing assets
and other impaired loans $20,915 $17,189 $19,954 $20,221 $17,689
=============================================================================
Percentage of non-performing
assets to loans outstanding 0.6% 0.6% 1.1% 1.2% 1.1%
- -----------------------------------------------------------------------------
Percentage of non-performing
loans and other impaired
loans to loans outstanding 1.1% 0.9% 1.2% 1.1% 1.0%
- -----------------------------------------------------------------------------
Past due 90 days or more:
Personal $ 1,891 $ 1,219 $ 1,184 $ 1,611 $ 1,580
Commercial 2,706 3,176 4,317 1,121 1,381
Real estate 1,984 1,637 1,453 599 1,395
- -----------------------------------------------------------------------------
Total past due 90 day or more $ 6,581 $ 6,032 $ 6,954 $ 3,331 $ 4,356
=============================================================================
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is available
to absorb probable losses in the loan portfolio. The allowance is
reduced by losses, net of recoveries, and increased by charging a
provision to operations to maintain the allowance at a level
determined appropriate by management. There can be no assurance that
WesBanco will not sustain credit losses in future periods, which could
be substantial in relation to the size of the allowance.
The allowance for loan losses at December 31, 2000 was 1.26% of
total loans compared to 1.30% at December 31, 1999. Net charge-offs
for 2000 decreased 12.9% to $2.9 million compared to $3.4 million for
1999. The decrease in net charge-offs reflects the overall quality of
all segments of the loan portfolio, lower gross charge-offs, and
aggressive efforts to recover loans charged-off in prior periods.
GRAPH: Net charge-offs/
Average Loans
----------------
1998 0.41%
1999 0.23%
2000 0.19%
The adequacy of the allowance for loan losses is evaluated
quarterly. Specific reserves are established when warranted for
commercial loans greater than $100,000. The determination of specific
reserves takes into consideration the anticipated future cash flows
available to pay the loan and/or the estimated realizable value of
collateral and other secondary repayment sources, if any. For all
other commercial loans not specifically reserved, and residential real
estate and personal loans, management uses historical net charge-off
experience relative to loans outstanding for each segment to predict
future losses.
Management also evaluates factors such as economic conditions,
changes in underwriting standards or practices, delinquency and other
trends in the portfolio, specific industry conditions, loan
concentrations, the results of recent internal loan reviews or
regulatory examinations, and other relevant factors that may impact
the loan portfolio. Management relies on certain types of observable
data, such as employment statistics, trends in bankruptcy filings, and
external events that impact particular industries, to determine
whether loss attributes exist at the balance sheet date that will lead
to higher than historical losses in any segment of the portfolio.
E-28
TABLE 9. ALLOWANCE FOR LOAN LOSSES
For the years ended December 31,
-----------------------------------------------
(dollars in thousands) 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------
Beginning balance -
Allowance for loan losses $19,752 $19,098 $20,261 $19,102 $16,955
Allowance for loan losses of
acquired (sold) banks - net --- 192 (37) 269 707
Allowance for loan losses
allocated to (sold) credit cards --- (450) --- --- ---
Provision for loan losses 3,225 4,295 4,392 5,574 4,795
Charge-offs:
Commercial 1,474 2,024 1,933 1,016 920
Real estate 137 204 515 254 231
Personal 2,484 2,490 3,952 4,523 2,807
- -----------------------------------------------------------------------------------
Total charge-offs 4,095 4,718 6,400 5,793 3,958
- -----------------------------------------------------------------------------------
Recoveries:
Commercial 348 479 522 314 113
Real estate 29 64 39 90 71
Personal 771 792 321 705 419
- -----------------------------------------------------------------------------------
Total recoveries 1,148 1,335 882 1,109 603
- -----------------------------------------------------------------------------------
Net charge-offs 2,947 3,383 5,518 4,684 3,355
Ending balance -
Allowance for loan losses $20,030 $19,752 $19,098 $20,261 $19,102
===================================================================================
Ratio of net charge-offs to
average total loans outstanding
for the period .19% .23% .41% .35% .28%
===================================================================================
Ratio of the allowance for loan
losses to total loans outstanding
at the end of the period 1.26% 1.30% 1.39% 1.51% 1.44%
===================================================================================
Allocation of the allowance among the various segments of the
loan portfolio is set forth in Table 10. The allocation of the
allowance did not change significantly between December 31, 2000 and
December 31, 1999.
The allowance represents 115.0% of non-performing loans and other
impaired loans at December 31, 2000 compared to 144.0% at December 31,
1999. Management believes the allowance is sufficient to absorb a
total loss on all non-performing loans and other impaired loans.
However, a total loss on such loans is unlikely since most have
collateral which affords some protection.
TABLE 10. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
December 31,
----------------------------------------------
(dollars in thousands) 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------
Commercial and unallocated $15,855 $15,792 $13,929 $13,740 $13,963
Real estate - residential 885 749 611 634 470
Personal 3,290 3,211 4,558 5,887 4,669
- ----------------------------------------------------------------------------------
Total $20,030 $19,752 $19,098 $20,261 $19,102
==================================================================================
No allocations were made for real estate-construction loans.
DEPOSITS AND OTHER BORROWINGS
Deposits, WesBanco's primary source of funds, increased $56.4
million or 3.1% between December 31, 2000 and 1999. Except for savings
deposits, the Corporation experienced growth in each of its major
deposit categories. Interest bearing demand deposits increased $33.6
million or 5.7%, primarily from increases in the prime rate money
market and premium yield accounts. Certificates of deposit increased
$29.3 million or 4.0% while savings deposits decreased $24.2 million
or 8.8%. Customers continued to shift deposits from savings and NOW
accounts into the higher-yielding prime rate money product and
certificates of deposit, resulting in a higher cost of funds. The
acquisition of Heritage Bank added $19.4 million in average deposits
for 1999.
Other borrowings, consisting mainly of federal funds purchased,
repurchase agreements and FHLB borrowings, decreased $14.1 million or
8.1% at December 31, 2000 compared to the prior year.
E-29
TABLE 11. MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT $100,000 OR MORE
December 31,
----------------------
(in thousands) 2000 1999
- --------------------------------------------------------------------------
Maturity:
Under three months $ 25,060 $ 19,752
Three to six months 14,632 23,334
Six to twelve months 33,729 36,757
Over twelve months 62,910 48,542
- --------------------------------------------------------------------------
Total $136,331 $128,385
==========================================================================
Interest expense on certificates of deposit of $100,000 or more was
approximately $6,335 in 2000, $7,206 in 1999, and $7,921 in 1998.
CAPITAL RESOURCES
Shareholders' equity decreased to $258.5 million at December 31,
2000 from $269.7 million at December 31, 1999 due to purchases of
treasury stock. These reductions to equity were partially offset by
the retention of earnings, net of dividends, and changes in the fair
value adjustment on securities available for sale.
The increase in treasury stock relates to activity in corporate
stock repurchase plans. Treasury shares purchased through the
corporate stock plans totaled 1,113,577 for 2000. The Corporation has
approximately 227,608 shares remaining to be purchased in the current
one million share repurchase program, which began on May 1, 2000. The
shares are being purchased for general corporate purposes, which may
include potential acquisitions, dividend reinvestment and employee
benefit plans. Timing, price and quantity of purchases are at the
discretion of the Corporation and the plan may be discontinued or
suspended at any time. Treasury shares, totaling 422,916, were used
during 1999 in the purchase acquisition of Heritage Bank.
Fair value adjustments on securities available for sale, which
represent temporary fluctuations resulting from changes in market
rates, reduced the net unrealized loss to $0.5 million at December 31,
2000 compared to a $12.3 million net unrealized loss at December 31,
1999.
GRAPHS: Dividends Per Share Return on Equity
------------------------ ----------------
1998 $0.840 1998 9.55%
1999 $0.880 1999 9.85%
2000 $0.895 2000 10.42%
2001(Annualized) $0.920
Ending primary capital to assets for 2000 was 12.0% compared to
12.6% for 1999, reflecting WesBanco's continued strong capital
position. Strong and consistent earnings coupled with its high level
of capital have enabled WesBanco to continue its steady increase in
dividends declared per share. Effective with the second quarter of
2000 dividend, WesBanco increased its quarterly dividend per share
2.3% to $0.225 from $0.22 in the first quarter of 1999. For the year
2000, dividends increased to $0.90 per share compared to $0.88 per
share. The current dividend increase represented the fifteenth
consecutive year of dividend increases for WesBanco. Dividend payout
ratios over the last five years reflect the growth in dividends,
increasing to 63.5% in 2000 from 55.0% in 1996. On February 22, 2001,
WesBanco increased its quarterly dividend per share to $0.23 from
$0.225 per share, payable April 2, 2001.
WesBanco is subject to risk-based capital guidelines that measure
capital relative to risk-weighted assets and off-balance sheet
instruments. WesBanco, and its banking subsidiary, maintain Tier 1,
Total Capital and Leverage ratios well above minimum regulatory
levels. See Note 15 of the Consolidated Financial Statements for more
information on capital amounts, ratios and minimum regulatory
requirements.
MARKET AND LIQUIDITY RISK
MARKET RISK: Management considers interest rate risk the
Corporation's most significant market risk. Interest rate risk is the
exposure to adverse changes in net interest income due to changes in
interest rates. Consistency of the Corporation's net interest income
is largely dependent on effective management of interest rate risk.
As interest rates change in the market, rates earned on interest rate
sensitive assets and rates paid on interest rate sensitive liabilities
do not necessarily move concurrently. Differing rate sensitivities
may arise because fixed rate assets and liabilities may not have the
same maturities or because variable rate assets and liabilities differ
in the timing and/or the percentage of rate changes.
One method that management utilizes to measure interest rate risk is
an earnings simulation model, which analyzes net interest income
sensitivity to changing interest rates. The model takes into
consideration numerous assumptions regarding cash flow, repricing
characteristics, prepayment factors and callable bond forecasts at
varying levels of interest rates. Since these assumptions are
uncertain, the simulation analysis should not be relied upon as being
indicative of actual results. The analysis may not consider all
actions that WesBanco could employ in response to changes in interest
rates.
WesBanco's Asset/Liability Management Committee (ALCO), which
includes senior management representatives and reports to the Board of
Directors, monitors and manages interest rate risk within Board
approved policy limits. The current interest rate risk policy limits
are determined by measuring (using the earnings simulation model) the
anticipated change in net
E-30
interest income over a 12-month horizon assuming a 200 basis point
immediate and sustained increase or decrease in interest rates.
WesBanco's current policy limits this exposure to plus/minus 5.0%
of net interest income for the 12-month horizon.
Table 12 shows the Corporation's annual interest sensitivity at December 31,
2000 and 1999, assuming this 200 basis point change in market interest rates.
TABLE 12. NET INTEREST INCOME SENSITIVITY
Percentage Change in
Change in Net Interest Income
Interest Rates ------------------------------------ ALCO
(basis points) December 31, 2000 December 31, 1999 Guidelines
- -----------------------------------------------------------------------------
+200 -4.6% -4.0% +/- 5.0%
-200 2.0% 2.1% +/- 5.0%
At December 31, 2000, based on an immediate and sustained 200
basis point increase in market interest rates applied to the
simulation model, it is estimated that net interest income would
decrease by 4.6% over a 12-month horizon. A 200 basis point immediate
and sustained decrease in market interest rates would increase net
interest income by 2.0% over a 12-month horizon. These estimated
changes in net interest income are within ALCO policy guidelines.
Another method WesBanco uses to manage its interest rate risk
is a rate sensitivity gap analysis. Gap measures the maturity and
repricing relationships between rate sensitive assets and rate
sensitive liabilities (Table 13) at a specific point in time.
TABLE 13. INTEREST RATE SENSITIVITY - GAP ANALYSIS
December 31, 2000
------------------------------------------------------------------
Under Three Six Nine Over
Three To Six to Nine Months to One
(in thousands) Months Months Months One Year Year Total
- -------------------------------------------------------------------------------------------------------
RATE SENSITIVE ASSETS
Due from banks/interest bearing $ 620 --- --- --- --- $ 620
Securities (1) 17,374 $ 11,396 $ 8,611 $ 8,713 $ 500,839 546,933
Loans 340,830 92,544 92,380 93,111 971,837 1,590,702
- -------------------------------------------------------------------------------------------------------
Total rate sensitive assets 358,824 103,940 100,991 101,824 1,472,676 2,138,255
- -------------------------------------------------------------------------------------------------------
RATE SENSITIVE LIABILITIES
Money market deposit accounts 359,039 --- --- --- --- 359,039
Savings and NOW accounts 509,888 --- --- --- --- 509,888
Certificates of deposit 140,417 100,900 70,608 123,513 331,731 767,169
Federal funds purchased 15,000 --- --- --- --- 15,000
Other borrowings 128,635 2,509 1,447 10,014 1,712 144,317
- -------------------------------------------------------------------------------------------------------
Total rate sensitive liabilities 1,152,979 103,409 72,055 133,527 333,443 1,795,413
- -------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ (794,155) $ 531 $ 28,936 $ (31,703) $1,139,233 $ 342,842
=======================================================================================================
Cumulative interest
rate sensitivity gap $ (794,155) $(793,624) $(764,688) $(796,391) $ 342,842 ---
=======================================================================================================
(1) Securities are categorized above by expected maturity at amortized cost.
As shown in Table 13, the liability sensitive position in the under
three month horizon is primarily a result of $509.9 million in savings
and NOW account balances. Interest rates on these deposit instruments
are subject to periodic adjustment at management's discretion.
Another factor contributing to the liability sensitive position is the
continued growth in money market deposit accounts. WesBanco has
experienced strong growth in this deposit category since the
introduction of its competitively priced prime rate money market
product in 1997.
In order to reduce the exposure to interest rate fluctuations,
WesBanco utilizes interest rate swap agreements. At December 31,
1999, the notional value of interest rate swap agreements outstanding
was $65.9 million. These swap agreements were sold during 2000,
generating a deferred gain of $1.0 million. The Corporation also
manages the level of its fixed rate residential real estate loan
portfolio. Long-term fixed rate real estate loans are routinely sold
to the secondary market through WesBanco's mortgage banking division.
LIQUIDITY RISK: Liquidity risk is managed through the Corporation's
ability to provide adequate funds to meet changes in loan demand,
unexpected outflows in deposits and other borrowings as well as to
take advantage of market opportunities and meet operating cash needs
of the Corporation. This is accomplished by maintaining liquid assets
in the form of securities, maintaining sufficient borrowing capacity
and a stable core deposit base. Liquidity is centrally monitored by
WesBanco's ALCO.
The principal source of asset-funded liquidity has been the
securities portfolio. At December 31, 2000, WesBanco had
approximately $46.1 million in securities scheduled to mature within
one year compared to $104.2 million in the prior year.
E-31
Additional asset-funded liquidity is provided by the remainder of the
available for sale securities portfolio, cash and cash equivalents.
In addition to core deposit funding, the Corporation's banking
subsidiary maintains a line of credit with the FHLB as an additional
funding source. Available lines of credit at December 31, 2000 and
1999 approximated $578.2 million and $447.9 million, respectively.
The principal source of parent company liquidity is dividends from
WesBanco's banking subsidiary. There are legal limitations on the
ability of WesBanco Bank, WesBanco's banking subsidiary, to pay a
dividend to the parent company. See Note 15 of the Consolidated
Financial Statements for more information on dividend restrictions
between the Parent Company and WesBanco Bank. Additional Parent
Company liquidity is provided by the Parent's security portfolio as
well as a line of credit with WesBanco Bank.
At December 31, 2000, the Corporation had outstanding commitments to
extend credit in the ordinary course of business approximating $187.6
million compared to $226.3 million at the end of the prior year. On a
historical basis, only a small portion of these commitments will
result in an outflow of funds. The Corporation also has planned
additions to fixed assets of approximately $1.8 million during 2001.
Management believes the Corporation has sufficient liquidity to meet
current obligations to borrowers, depositors and others.
COMPARISON OF 1999 VERSUS 1998
Net income for 1999 was $27.6 million or $1.37 per share compared to
$28.3 million or $1.36 per share in 1998. For the same comparative
period, core earnings per share, excluding goodwill amortization, net
securities gains and non-recurring items increased 3.1% to $1.32 from
$1.28.
Non-recurring items recorded in the Statement of Income included a
pretax gain of $3.6 million on the sale of credit card receivables in
1999 and a pretax gain of $4.6 million on the sale of branch offices
in 1998. Additionally, special charges of $1.6 million, associated
with the March 31, 1998 acquisition of Commercial BancShares, were
recorded in various non-interest expense categories during 1998.
Taxable equivalent net interest income decreased $1.8 million or
2.0% in comparison to 1998. As shown in Table 2, the taxable
equivalent net yield on earning assets declined during 1999 in
comparison to 1998, reflecting a trend consistent with the banking
industry during the year. Average earning assets decreased slightly
during the same period, while interest bearing liabilities increased
$30.8 million or 1.8%. Market interest rates were stable during the
first half of 1999. During the second half of 1999, as the Federal Reserve
raised the federal funds rate, WesBanco adjusted its base lending rate
upward to 8.50% through year end.
The provision for loan losses was $4.3 million in 1999 compared
to $4.4 million in 1998. Net charge-offs for 1999 were $3.4 million
down from $5.5 million for 1998.
Non-interest income, excluding non-recurring gains in 1999 and 1998
of $3.6 million and $4.6 million, respectively, and net securities
gains, increased $1.0 million or 5.3% over 1998. The increase
resulted from increases in trust fees of $1.5 million or 16.7% and
insurance agency fees of $.4 million or 119.2% compared to 1998. Net
securities gains decreased $1.1 million or 74.9% in comparison to
1998. In 1999, securities gains decreased due to limited sales
opportunities. During 1998, a period of declining interest rates, the
Corporation was able to realize securities gains and improve
liquidity.
Non-interest expense, excluding special charges of $1.6 million from
1998 related to WesBanco's business combination with Commercial
BancShares, increased $1.1 million or 1.6% over 1998, due to
technology-related costs, the purchase acquisition of Heritage Bank in
April 1999, and opening two branch offices. These factors were
partially offset by reductions in expenses resulting from the sale of
the credit card portfolio in June 1999 and divesting of the Union Bank
of Tyler County in June 1998. Additionally, the integration of
Commercial BancShares led to improved operating efficiencies during
the comparable period.
COMPLETED BUSINESS COMBINATIONS AND DIVESTURE
During the three year period ending December 31, 2000, WesBanco
completed the following business combinations and divestiture:
Heritage Bank of Harrison County, Inc. - On April 30, 1999 WesBanco
completed the purchase acquisition of Heritage Bank of Harrison
County, Inc. Heritage reported total assets as of the acquisition
date of $33.1 million.
Union Bank of Tyler County - On June 30, 1998, WesBanco divested of
the Union Bank of Tyler County in order to fulfill a regulatory
condition. Union became affiliated with WesBanco as a result of
WesBanco's business combination with Commercial. Union reported total
assets of $46.9 million as of the sale date.
Hunter Agency, Inc. - On June 18, 1998, WesBanco completed its
purchase acquisition of Hunter Agency, located in Shinnston, WV, with
GRAPH: Total Assets*
-----------------
1986 $ 326
1987 $ 540
1988 $ 630
1989 $ 660
1990 $ 715
1991 $ 825
1992 $ 1,010
1993 $ 1,039
1994 $ 1,351
1995 $ 1,372
1996 $ 1,678
1997 $ 1,789
1998 $ 2,243
1999 $ 2,270
2000 $ 2,310
*Total Assets of acquired banks in year of acquisition.
E-32
and into a WesBanco affiliated company. During the third quarter of
1998, Hunter Insurance Agency expanded its service area to Morgantown,
WV, through the purchase acquisition of Simons Insurance Agency.
Hunter Agency was recently renamed WesBanco Insurance Services.
Commercial BancShares, Incorporated - On March 31, 1998 WesBanco
completed its business combination with Commercial BancShares,
Incorporated, located in Parkersburg, WV. The transaction was
accounted for as a pooling of interests and included Commercial's
March 9, 1998 acquisition of Gateway Bancshares, Inc. Commercial and
Gateway reported total combined assets as of the acquisition date of
$466.1 million.
E-33