UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
--------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-8467
------
WESBANCO, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
West Virginia 55-0571723
- ------------------------------- ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Bank Plaza, Wheeling, WV 26003
- ---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
304-234-9000
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or, for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. WesBanco had 18,016,061
shares outstanding at July 31, 2001.
WESBANCO, INC.
TABLE OF CONTENTS
-----------------
ITEM # ITEM PAGE NO.
- ------ ---- --------
Part I - FINANCIAL INFORMATION
------------------------------
1 Financial Statements 3 - 7
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 21
3 Quantitative and Qualitative Disclosures About
Market Risk 21
Part II - OTHER INFORMATION
---------------------------
1 Legal Proceedings 21 - 22
2 Changes in Securities and Use of Proceeds 22
3 Defaults Upon Senior Securities 22
4 Submission of Matters to a Vote of Security
Holders 22
5 Other Information 22
6 (a) Exhibits 22
6 (b) Reports on Form 8-K 22
Signatures 23
2
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. - Financial Statements
- -----------------------------
Consolidated Balance Sheets at June 30, 2001 and December 31, 2000, and
Consolidated Statements of Income for the three and six-months ended June 30,
2001 and 2000, and Consolidated Statements of Changes in Shareholders' Equity
and Consolidated Statements of Cash Flows for the six-months ended June 30,
2001 and 2000 are set forth on the following pages.
In the opinion of management of the Registrant, all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of
the financial information referred to above for such periods, have been made.
The results of operations for the six-months ended June 30, 2001 are not
necessarily indicative of what results may be attained for the entire year.
For further information, refer to the 2000 Annual Report to Shareholders,
which includes consolidated financial statements and footnotes thereto and
WesBanco, Inc.'s Annual Report on Form 10-K for the year ended December 31,
2000.
3
WESBANCO, INC.
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
(June 30, 2001 unaudited, dollars in thousands, except per share amounts)
June 30, December 31,
2001 2000
---------- -----------
ASSETS
Cash and due from banks $ 60,402 $ 72,796
Due from banks - interest bearing 677 620
Federal funds sold 40,700 ---
Securities:
Held to maturity (fair values of $243,134
and $198,534, respectively) 240,128 196,102
Available for sale, carried at fair value 411,734 350,287
---------- ----------
Total securities 651,862 546,389
---------- ----------
Loans, net of unearned income 1,548,017 1,590,702
Allowance for loan losses (19,974) (20,030)
---------- ----------
Net loans 1,528,043 1,570,672
---------- ----------
Premises and equipment 52,348 53,147
Accrued interest receivable 15,492 15,725
Other assets 48,586 50,788
---------- ----------
Total Assets $2,398,110 $2,310,137
========== ==========
LIABILITIES
Deposits:
Non-interest bearing demand $ 230,607 $ 234,265
Interest bearing demand 597,385 619,097
Savings deposits 253,536 249,830
Certificates of deposit 782,068 767,169
---------- ----------
Total deposits 1,863,596 1,870,361
---------- ----------
Other borrowings 261,050 159,317
Accrued interest payable 8,519 8,438
Other liabilities 13,271 13,515
---------- ----------
Total Liabilities 2,146,436 2,051,631
---------- ----------
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 58,999 59,464
Retained earnings 224,876 218,539
Treasury stock (2,997,598 and 2,428,591
shares, respectively, at cost) (73,525) (62,009)
Accumulated other comprehensive income (fair
value adjustments) 481 (365)
Deferred benefits for directors and employees (2,899) (865)
---------- ----------
Total Shareholders' Equity 251,674 258,506
---------- ----------
Total Liabilities and Shareholders' Equity $2,398,110 $2,310,137
========== ==========
See Notes to Consolidated Financial Statements.
4
WESBANCO, INC.
CONSOLIDATED STATEMENTS OF INCOME
- ------------------------------------------------------------------------------
(Unaudited, dollars in thousands, except per share amounts)
For the three For the six
months ended months ended
June 30, June 30,
-------------------- --------------------
2001 2000 2001 2000
-------- -------- -------- --------
INTEREST INCOME
Loans, including fees $ 31,852 $ 31,774 $ 64,469 $ 62,454
Securities:
Taxable 6,355 6,032 11,868 12,003
Tax-exempt 2,573 2,390 4,838 4,858
-------- -------- -------- --------
Total interest on securities 8,928 8,422 16,706 16,861
-------- -------- -------- --------
Federal funds sold 560 165 1,070 372
-------- -------- -------- --------
Total interest income 41,340 40,361 82,245 79,687
-------- -------- -------- --------
INTEREST EXPENSE
Interest bearing demand deposits 4,534 5,276 9,787 10,329
Savings deposits 1,245 1,336 2,468 2,689
Certificates of deposit 11,167 10,679 22,340 20,776
-------- -------- -------- --------
Total interest on deposits 16,946 17,291 34,595 33,794
Other borrowings 2,696 2,025 5,016 3,991
-------- -------- -------- --------
Total interest expense 19,642 19,316 39,611 37,785
-------- -------- -------- --------
NET INTEREST INCOME 21,698 21,045 42,634 41,902
Provision for loan losses 1,123 880 2,023 1,447
-------- -------- -------- --------
Net interest income after
provision for loan losses 20,575 20,165 40,611 40,455
-------- -------- -------- --------
NON-INTEREST INCOME
Trust fees 2,831 2,848 5,953 5,967
Service charges on deposits 2,397 2,153 4,486 3,894
Other income 696 515 1,230 1,206
Net securities gains 129 221 384 217
-------- -------- -------- --------
Total non-interest income 6,053 5,737 12,053 11,284
-------- -------- -------- --------
NON-INTEREST EXPENSE
Salaries and wages 6,859 7,078 13,480 13,770
Employee benefits 1,423 1,121 2,703 2,635
Net occupancy 1,061 948 2,053 1,888
Equipment 1,496 1,534 3,028 3,137
Other operating 5,348 5,314 9,967 10,507
-------- -------- -------- --------
Total non-interest expense 16,187 15,995 31,231 31,937
-------- -------- -------- --------
Income before provision for income taxes 10,441 9,907 21,433 19,802
Provision for income taxes 3,141 3,226 6,728 6,191
-------- -------- -------- --------
NET INCOME $ 7,300 $ 6,681 $ 14,705 $ 13,611
======== ======== ======== ========
Earnings per share $0.40 $0.35 $0.80 $0.70
Average shares outstanding 18,118,639 19,215,808 18,301,754 19,431,770
Dividends per share $0.23 $0.225 $0.46 $0.445
See Notes to Consolidated Financial Statements
5
WESBANCO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------
(Unaudited, dollars in thousands,except per share amounts)
Accumulated Deferred
Common Stock Other Benefits for
--------------------- Capital Retained Treasury Comprehensive Directors &
Shares Amount Surplus Earnings Stock Income/(Loss) Employees Total
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1999 19,789,925 $43,742 $60,133 $208,508 $(34,311) $(7,456) $ (952) $ 269,664
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income 13,611 13,611
Net fair value adjustment on
securities available for
sale - net of tax effect (652) (652)
----------
Comprehensive income 12,959
Cash dividends:
Common ($.445 per share) (8,493) (8,493)
Treasury shares purchased - net (734,716) (276) (16,701) (16,977)
Deferred benefits for directors - net (32) (32)
- ----------------------------------------------------------------------------------------------------------------------------------
June 30, 2000 19,055,209 $43,742 $59,857 $213,626 $(51,012) $(8,108) $(984) $257,121
==================================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 2000 18,567,940 $43,742 $59,464 $218,539 $(62,009) $ (365) $(865) $258,506
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income 14,705 14,705
Net fair value adjustment on
securities available for
sale - net of tax effect 537 537
Cumulative effect of accounting
change for derivative financial
instruments - net of tax effect 558 558
Net fair value adjustment on
derivatives - net of tax effect (174) (174)
Net derivative gains reclassified
into earnings - net of tax effect (75) (75)
--------
Comprehensive income 15,551
Cash dividends:
Common ($.46 per share) (8,368) (8,368)
Treasury shares purchased - net (569,007) (465) (11,516) (11,981)
Borrowing on ESOP debt (2,000) (2,000)
Deferred benefits for directors - net (34) (34)
- ----------------------------------------------------------------------------------------------------------------------------------
June 30, 2001 17,998,933 $43,742 $58,999 $224,876 $(73,525) $ 481 $(2,899) $251,674
==================================================================================================================================
Comprehensive income for the three-month periods ended June 30, 2001 and 2000
was $5,719 and $7,023, respectively.
See Notes to Consolidated Financial Statements.
6
WESBANCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
(Unaudited, in thousands)
For the six months ended
June 30,
Increase in Cash and Cash Equivalents ------------------------
2001 2000
---------- ----------
Cash Flows From Operating Activities:
Net Income $ 14,705 $ 13,611
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,559 2,447
Net amortization (accretion) (251) 291
Provision for loan losses 2,023 1,447
Gains on sales of securities - net (384) (217)
Deferred income taxes 95 (304)
Other - net (1,844) (102)
Net change in:
Interest receivable 233 856
Other assets and other liabilities 1,993 673
Interest payable 81 2,789
---------- ----------
Net cash provided by operating activities 19,210 21,491
---------- ----------
Cash Flows From Investing Activities:
Securities held to maturity:
Proceeds from maturities and calls 10,575 10,327
Payments for purchases (54,619) (488)
Securities available for sale:
Proceeds from sales 47,681 9,273
Proceeds from maturities and calls 99,954 29,905
Payment for purchases (207,669) (22,958)
Increase (decrease) in loans 40,606 (48,343)
Purchases of premises and equipment - net (1,915) (1,764)
Purchases of bank owned life insurance --- (4,400)
---------- ----------
Net cash used in investing activities (65,387) (28,448)
---------- ----------
Cash Flows From Financing Activities:
Increase (decrease) in deposits (6,765) 38,873
Increase in other borrowings 101,733 1,634
Dividends paid (8,447) (8,653)
Treasury shares purchased - net (11,981) (16,977)
---------- ----------
Net cash provided by financing activities 74,540 14,877
---------- ----------
Net increase in cash and cash equivalents 28,363 7,920
Cash and cash equivalents at beginning of period 73,416 81,354
---------- ----------
Cash and cash equivalents at end of period $ 101,779 $ 89,274
========== ==========
Supplemental Disclosures:
Interest paid on deposits and other borrowings $ 39,530 $ 34,996
Income taxes paid 6,791 6,315
See Notes to Consolidated Financial Statements.
7
WESBANCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Note 1 - Accounting policies
- ----------------------------
Basis of presentation: The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements. The consolidated financial statements include the
accounts of WesBanco, Inc. ("the Corporation") and its wholly-owned
subsidiaries. Significant intercompany transactions have been eliminated in
consolidation.
Cash and cash equivalents: For the purpose of reporting cash flows, cash and
cash equivalents include cash and due from banks, due from banks-interest
bearing and federal funds sold. Generally, federal funds are sold for one-day
periods.
Earnings per share: Basic earnings per share are 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 assumes the exercise of stock options.
There was no dilutive effect from the stock options and accordingly, basic
and diluted earnings per share are the same.
Note 2 - Agreements to Merge
- ----------------------------
WesBanco's banking subsidiary, WesBanco Bank, Inc., has received
notification from its bank regulatory agency, the Federal Reserve Bank of
Cleveland, of a downgrading of the bank's Community Reinvestment Act rating.
The impact of this change could be anticipated to adversely affect the ability
of WesBanco to obtain regulatory approval for its two previously announced
acquisitions with Freedom Bancshares, Inc. and American Bancorporation.
WesBanco is presently weighing the consequences of the rating, the regulatory
appeals available and the impact which these issues will have on the
previously announced projected closing dates.
Note 3 - New accounting standards
- ---------------------------------
In July 2001, the FASB issued SFAS No. 141, "Business Combinations". SFAS
No. 141 requires the purchase method of accounting be used for all business
combinations initiated or completed after June 30, 2001 and eliminates the
pooling-of-interests method of accounting. The statement also addresses
disclosure requirements for business combinations and initial recognition
and measurement criteria for goodwill and other intangible assets as a result
of purchase business combinations.
Also in July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets", which changes the accounting for goodwill from an
amortization method of to an impairment-only approach. The amortization of
goodwill, including goodwill recognized relating to past business
combinations, will cease upon adoption of the new standard. Impairment
testing for goodwill at a
8
reporting unit level will be required on at least an annual basis. The
new standard also addresses other accounting matters, disclosure
requirements and financial statement presentation issues relating to
goodwill and other intangible assets. The Corporation will adopt SFAS
No. 142 effective January 1, 2002, as required. Early adoption is not
permitted. The impact of adopting the provisions of this statement on
WesBanco's financial position and results of operations is currently not
estimable and will depend on the completion of an analysis of the
Corporation's goodwill balances and the cessation of goodwill amortization.
Item 2. - Management's Discussion and Analysis of Financial Condition and
- -------------------------------------------------------------------------
Results of Operations
- ---------------------
The following discussion and analysis presents in further detail the
financial condition and results of operations of WesBanco, Inc. and its
subsidiaries. This discussion and analysis should be read in conjunction
with the consolidated financial statements and notes presented in this report.
Forward-looking statements in this report relating to the Corporation'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; actions of the Federal Reserve Board and Federal Deposit Insurance
Corporation, legislative, and federal and state regulatory actions or reforms;
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.
Earnings Summary
----------------
Comparison of the six-months ended June 30, 2001 and 2000
---------------------------------------------------------
WesBanco's earnings per share for the six-months ended June 30, 2001
increased 14.3% to $0.80 compared to $0.70 for the six-months ended June 30,
2000. Net income increased 8.0% to $14.7 million compared to $13.6 million.
WesBanco's increased net income was primarily due to a reduction in non-
interest expense from improved internal operating efficiencies and increases
in net interest income and
9
deposit service activity fees. The percentage increase in earnings per
share exceeded the percentage increase in net income due to shares
repurchased under WesBanco's corporate stock repurchase plan.
WesBanco's key earnings performance ratios improved for the six-month
comparative period. Return on average assets increased to 1.26% from 1.20%
and a return on average equity increased to 11.53% from 10.47%.
WesBanco's core earnings per share for the six-months ended June 30,
2001 increased 13.7% to $0.83 compared to $0.73 for the six-months ended June
30, 2000. Core earnings, which excludes amortization of goodwill, net
securities gains and net gains/losses on sale of assets increased 7.2% to
$15.2 million compared to $14.2 million.
10
TABLE 1: AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
Three months ended June 30, Six months ended June 30,
-------------------------------------- --------------------------------------
2001 2000 2001 2000
------------------ ------------------ ------------------ -----------------
(dollars in thousands) Average Average Average Average Average Average Average Average
Volume Rate Volume Rate Volume Rate Volume Rate
------------------ ------------------ ------------------ -----------------
ASSETS
Loans,net of unearned income (1) $1,556,241 8.21% $1,550,229 8.24% $1,566,712 8.30% $1,539,213 8.16%
Securities: (2)
Taxable 408,133 6.23% 370,583 6.51% 377,591 6.29% 373,198 6.43%
Tax-exempt (3) 212,018 7.47% 192,212 7.65% 198,079 7.52% 195,638 7.64%
------------------ ------------------ ------------------ -----------------
Total securities 620,151 6.65% 562,795 6.90% 575,670 6.71% 568,836 6.85%
Federal funds sold 52,227 4.30% 10,787 6.15% 45,853 4.67% 12,475 6.00%
------------------ ------------------ ------------------ -----------------
Total earning assets (3) 2,228,619 7.68% 2,123,811 7.89% 2,188,235 7.80% 2,120,524 7.81%
------------------ ------------------ ------------------ -----------------
Other assets 163,615 156,784 161,622 151,103
----------- ----------- ----------- -----------
Total Assets $2,392,234 $2,280,595 $2,349,857 $2,271,627
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing demand deposits $ 613,464 2.96% $ 599,780 3.54% $ 614,405 3.21% $ 600,474 3.46%
Savings deposits 253,981 1.97% 271,613 1.98% 252,479 1.97% 272,967 1.98%
Certificates of deposit 775,955 5.77% 774,439 5.55% 770,536 5.85% 764,137 5.47%
------------------ ------------------ ------------------ -----------------
Total interest bearing deposits 1,643,400 4.14% 1,645,832 4.23% 1,637,420 4.26% 1,637,578 4.15%
Other borrowings 245,202 4.41% 140,703 5.79% 211,908 4.77% 142,088 5.65%
------------------ ------------------ ------------------ -----------------
Total interest
bearing liabilities 1,888,602 4.17% 1,786,535 4.35% 1,849,328 4.32% 1,779,666 4.27%
------------------ ------------------ ------------------ -----------------
Non-interest bearing
demand deposits 227,307 217,614 222,395 217,614
Other liabilities 20,271 19,150 20,988 17,051
Shareholders' Equity 256,054 257,296 257,146 257,296
---------- ---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $2,392,234 $2,280,595 $2,349,857 $2,271,627
========== ========== ========== ==========
Net yield on earning assets 3.90% 3.98% 3.92% 3.97%
======= ======= ======= =======
Taxable-equivalent net yield on earning assets 4.15% 4.23% 4.15% 4.22%
======= ======= ======= =======
(1) Gross of allowance for loan losses and net of unearned income, includes
non-accrual and loans held for sale, loan fees included in interest
income on loans are not material.
(2) Average yields on securities available for sale have been calculated
based on amortized cost.
(3) Taxable-equivalent basis is calculated on tax-exempt securities using a
tax rate of 35% for each year presented.
TABLE 2: RATE/VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND
INTEREST EXPENSE
Three months ended June 30, Six months ended June 30,
2001 compared to 2000 2001 compared to 2000
(in thousands) ---------------------------- ----------------------------
Net Increase Net Increase
Volume Rate (Decrease) Volume Rate (Decrease)
---------------------------- ----------------------------
Increase (decrease) in interest income:
Loans, net of unearned income $ 247 $ (169) $ 78 $ 1,036 $ 979 $ 2,015
Taxable securities 452 (129) 323 140 (275) (135)
Tax-exempt securities (1) 77 204 281 93 (124) (31)
Federal funds sold 421 (26) 395 796 (98) 698
---------------------------- ----------------------------
Total interest income change (1) 1,197 (120) 1,077 2,065 482 2,547
---------------------------- ----------------------------
Increase (decrease) in interest expense:
Interest bearing demand deposits 185 (927) (742) 228 (770) (542)
Savings deposits (71) (20) (91) (207) (14) (221)
Certificates of deposit 68 420 488 169 1,395 1,564
Other borrowings 1,095 (424) 671 1,717 (692) 1,025
---------------------------- ----------------------------
Total interest expense change 1,277 (951) 326 1,907 (81) 1,826
---------------------------- ----------------------------
Taxable-equivalent net interest
income increase (decrease) (1) $ (80) $ 831 $ 751 $ 158 $ 563 $ 721
============================ ============================
Increase (decrease) in taxable-
equivalent adjustment 98 (11)
------- -------
Net interest income increase $ 653 $ 732
======= =======
(1) Taxable-equivalent basis is calculated on tax-exempt securities using a
tax rate of 35% for each year presented.
11
Net Interest Income
-------------------
Net interest income, on a taxable-equivalent basis "TE", increased
$0.7 million for the six-months ended June 30, 2001 compared to the six-months
ended June 30, 2000. Average earning assets increased $67.7 million or 3.2%,
while average interest bearing liabilities increased $69.7 million or 3.9%.
As shown in Table 1, the net TE yield on average earning assets decreased
slightly to 4.15% compared to 4.22%. Similar to industry trends, WesBanco's
net yield decreased slightly due to competitive pricing pressure to adjust
rates on loan and deposit products. The decline of interest rates during the
first half of 2001 has favorably impacted WesBanco's net interest income.
Table 2 presents the impact these volume and rate changes had on net interest
income.
Interest income TE increased $2.5 million or 3.1% for the six-months
ended June 30, 2001 compared to the six-months ended June 30, 2000. As shown
in Table 2, interest income TE increased $2.0 million due to average volume
increases and increased $0.5 million due to average rates. As shown in Table
1, all average earning asset categories increased for the comparative periods.
Loans grew $27.5 million, federal funds sold increased $33.4 million and
securities grew $6.8 million. The increases in average loan volume and yields
were partially offset by lower yields on the increased volume in liquid
assets such as federal funds sold and securities. This change in asset mix
and the general decline in interest rates during the first half of 2001
contributed to the slight decrease in TE yield on average earning assets to
7.80 % from 7.81%.
Interest expense increased $1.8 million or 4.8% for the six-months ended
June 30, 2001 compared to the six-months ended June 30, 2000. As shown in
Table 2, the increase in interest expense was primarily due to average volume
increases. The cost of funds on average interest bearing liabilities
increased to 4.32% from 4.27%. Average volume increases in other borrowings
of $69.8 million, interest bearing demand deposits of $13.9 million and
certificates of deposits of $6.3 million were partially offset by average
volume decreases in savings deposits of $20.5 million. Customers shifted
savings balances into the competitively priced Prime Rate Money Market product
and certificates of deposit. Average rate increases in certificates of
deposit to 5.85% from 5.47% increased interest expense by $1.4 million.
Average rate decreases in interest bearing demand deposits and other
borrowings reduced interest expense by $0.8 million and $0.7 million,
respectively.
Non-interest Income
-------------------
Non-interest income, excluding net securities gains, increased $0.6
million or 5.4% for the six-months ended June 30, 2001 compared to the six-
months ended June 30, 2000. This increase resulted primarily from increases
in deposit activity income and gains generated from the sale of real estate
loans originated and sold in the secondary market. Deposit activity income
increased $0.6 million or 15.2% due to increases in deposit activity fees,
debit card and ATM fees. Gains generated from the sale of real
12
estate loans originated and sold in the secondary market increased $0.2
million. Trust revenue remained strong at $6.0 million for the comparative
periods.
Non-interest Expense
--------------------
Non-interest expense for the six-months ended June 30, 2001 decreased
$0.7 million or 2.2% compared to the six-months ended June 30, 2000 due
primarily to reductions in other operating expense and employee costs. Other
operating expense decreased $0.5 million or 5.1% due to lower marketing,
supplies and communication expenses. Employee costs decreased $0.2 million
primarily due to a lower number of employees. Average full time-equivalent
employees decreased to 1,022 at June 30, 2001 from 1,066 at June 30, 2000.
The reduction in employee costs was partially offset by an increase in health
care costs. The consolidation of WesBanco's four banking affiliates and
mortgage company affiliate into a single bank charter in 2000 continues to
provide improved internal operating efficiencies. As a result, WesBanco's
operating efficiency ratio has improved to 53.5% from 56.3% last year.
Income Taxes
------------
TABLE 3: Reconciliation of Income Tax Rates
For the six months ended
June 30,
------------------------
2001 2000
----------- ----------
Federal statutory tax rate 35% 35%
Tax-exempt interest income from securities
of states and political subdivisions (6) (7)
State income tax - net of federal tax effect 4 4
All other - net (2) (1)
----------- ----------
Effective tax rate 31% 31%
=========== ==========
WesBanco's federal income and state tax expense increased $0.5 million
to $6.7 million for the six-months ended June 30, 2001 compared to $6.2
million for the six-months ended June 30, 2000. In the second quarter of
2001, WesBanco concluded the Internal Revenue Service examination of its 1996
and 1997 federal and state income tax returns for a cost of approximately $0.1
million. The Corporation's effective tax rate remained at 31%.
Financial Condition
-------------------
Total assets of WesBanco were $2.4 billion as of June 30, 2001, an
increase of $88.0 million or 3.8% compared to total assets as of December 31,
2000. Total securities increased $105.5 million or
13
19.3%, total loans decreased $42.7 or 2.7%, deposits decreased $6.8 million
and other borrowings increased $101.7 million or 63.9% during the first half
of 2001. WesBanco utilized the increase in other borrowings as an alternate
source of funds and invested the proceeds into short and long-term securities
to take advantage of yield opportunities during the first half of 2001. The
decrease in total loans was primarily due to a general slow down in the
regional economy and the payoffs of two large commercial loans during the
first quarter of 2001.
TABLE 4: Composition of Securities
June 30, December 31,
(in thousands) 2001 2000
---------- ------------
Securities held to maturity (at amortized cost):
- ----------------------------------------------
U.S. Treasury and Federal Agency securities $ 4,063 $ 4,357
Obligations of states and political subdivisions 218,027 173,771
Other debt securities 18,038 17,974
---------- ----------
Total securities held to maturity (fair value
of $243,134 and $198,534, respectively) 240,128 196,102
---------- ----------
Securities available for sale (at fair value):
- ---------------------------------------------
U. S. Treasury and Federal Agency securities 234,504 206,268
Obligations of states and political subdivisions 12,223 12,907
Corporate securities 7,126 3,033
Mortgage-backed and other debt securities 157,881 128,079
---------- ----------
Total securities available for sale (amortized
cost of $411,391 and $350,831, respectively) 411,734 350,287
---------- ----------
Total securities $ 651,862 $ 546,389
========== ==========
Total securities increased $105.5 million or 19.3% from December 31,
2000 to June 30, 2001, representing a use of funds. WesBanco purchased
tax-exempt obligations classified as held to maturity securities to improve
tax-equivalent income. Additionally, WesBanco purchased Federal Agencies and
mortgage-backed securities, classified as available for sale, to take advantage
of favorable market rate opportunities during the first half of 2001.
Unrealized pre-tax gains on available for sale securities (fair value
adjustments) increased to a $0.3 million market gain as of June 30, 2001
compared to a $0.5 million market loss as of December 31, 2000. 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 impact the magnitude of the fair value adjustment by managing
both the volume and average maturities of securities classified as available
for sale. If these securities were held to their respective maturity dates,
no fair value gain or loss would be realized.
14
TABLE 5: Composition of Loans
June 30, December 31,
(in thousands) 2001 2000
----------- ------------
Commercial $ 536,890 $ 546,136
Real estate - construction 36,038 36,007
Real estate 637,028 654,315
Personal, net of unearned income 338,061 354,244
----------- -----------
Loans, net of unearned income $ 1,548,017 $ 1,590,702
=========== ===========
Loans, net of unearned income decreased $42.7 million or 2.7% from
December 31, 2000 to June 30, 2001. The decrease in the loan portfolio was
primarily due to a general slowdown in the regional economy and two large
commercial loans that were paid off in the first quarter of 2001. WesBanco
was able to generate loan activity by increasing real estate loans originated
and sold to the secondary market by 67.3% to $42.5 million for the six-months
ended June 30, 2001 compared to $25.4 million for the six-months ended
June 30, 2000. The composition of loans as a percentage of total loans
consisted of commercial at 35%, real estate at 43% and personal loans at 22%
as of June 30, 2001. WesBanco's loan to deposit ratio was 83.1% at June 30,
2001.
TABLE 6: Non-performing Assets, Other Impaired Loans and Loans Past Due 90
Days or More
June 30, December 31,
(in thousands) 2001 2000
---------- ------------
Non-accrual loans $ 4,023 $ 5,561
Renegotiated loans 3,812 417
---------- ----------
Total non-performing loans 7,835 5,978
Other real estate owned 3,037 3,424
---------- ----------
Total non-performing assets 10,872 9,402
Other impaired loans (1) 8,711 11,513
---------- ----------
Total non-performing assets and
other impaired loans $ 19,583 $ 20,915
========== ==========
Loans past due 90 days or more $ 6,675 $ 6,581
========== ==========
(1) Includes loans internally classified as doubtful and substandard that
meet the definition of impaired loans.
WesBanco's level of non-performing assets and other impaired loans
decreased $1.3 million from December 31, 2000 to June 30, 2001. This decrease
resulted primarily from the payoff of a renegotiated commercial loan totaling
$1.0 million. The decrease in other impaired loans and corresponding increase
in renegotiated loans resulted primarily from the reclassification of three
commercial loans totaling $4.1 million during the first quarter of 2001. One
of the three renegotiated
15
commercial loans totaling $1.0 million was paid off in the second quarter of
2001. The remaining two renegotiated commercial loans are currently
performing under the renegotiated terms.
Non-performing assets and other impaired loans as a percentage of total
loans decreased to 1.27% from 1.31% for the comparative periods. WesBanco
monitors the overall quality of its loan portfolio through various methods.
Underwriting policies and guidelines have been established for all types of
credits and management continually monitors the portfolio for adverse trends
in delinquent and non-performing loans. Loans are considered impaired when it
is determined that WesBanco may not be able to collect all principal and
interest due according to the contractual terms of the loans. Impaired loans
include all non-accrual and renegotiated loans, as well as loans internally
classified as substandard or doubtful that meets the definition of impaired
loans. Specific allowances for loan losses are allocated for impaired loans
based on the present value of expected future cash flows, or fair value of
the collateral for loans that are collateral-dependent.
TABLE 7: Allowance for Loan Losses
For the six months ended
June 30,
(in thousands) ------------------------
2001 2000
----------- -----------
Balance, at beginning of period $ 20,030 $ 19,752
Charge-offs (2,350) (1,667)
Recoveries 271 677
----------- ----------
Net charge-offs (2,079) (990)
Provision for loan losses 2,023 1,447
----------- ----------
Balance, at end of period $ 19,974 $ 20,209
=========== ==========
The allowance for loan losses is maintained at a level considered
adequate by management. Amounts allocated to the allowance for loan losses
are based upon management's evaluation of the credit risk in the loan
portfolio. While management has allocated the allowance for loan losses to
each loan category, the allowance is general in nature and available for the
loan portfolio in its entirety.
The allowance for loan losses as a percentage of total loans remained
consistent at 1.29% as of June 30, 2001 and June 30, 2000. Net loan
charge-offs increased $1.1 million due to a $0.7 million increase in
charge-offs and a $0.4 million decrease in recoveries for the comparative
periods. Personal
16
loan charge-offs increased $0.7 million during the first half
of 2001 due primarily to higher consumer bankruptcies. The net loan
charge-offs to average loans ratio increased to 0.13% from 0.06% for the
comparative periods.
The adequacy of the allowance for loan losses is evaluated quarterly.
Specific reserves are established when warranted for commercial loans greater
than $0.1 million. 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 considers
historical delinquency and net charge-off experience relative to loans
outstanding for each segment to estimate 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.
Deposits and Other Borrowings
-----------------------------
Deposits decreased $6.8 million from December 31, 2000 to June 30, 2001
reflecting reductions in non-interest and interest bearing demand deposits.
These decreases were partially offset by growth in savings and certificates of
deposit. The growth in certificates of deposit was primarily due to increases
in short-term certificates of deposit. This shifting of funds reflects
customers' preference for a variety of short-term, competitively priced
deposit alternatives in a period of declining interest rates.
Other borrowings, which include repurchase agreements, Federal funds
purchased and Federal Home Loan Bank borrowings increased $101.7 million or
63.9%, representing a source of funds from December 31, 2000 to June 30, 2001.
Repurchase agreements increased $45.0 million, Federal funds purchased
increased $27.1 million and Federal Home Loan Bank borrowings increased $29.6
million. WesBanco utilized the increase in other borrowings as an alternate
source of funds due to the decrease in deposits during the first half of 2001
to fund the purchases of tax-exempt, Federal Agency and mortgage-backed
securities and maintained adequate balance sheet liquidity for future loan
commitments or the purchase of securities.
17
Capital Resources
-----------------
Shareholders' equity remained strong at June 30, 2001, highlighted by
Tier I leverage capital of 9.8% and Tier I and total risk-based capital
ratios of 14.3% and 15.5%, respectively. Book value per share was $13.98
at June 30, 2001 compared to $13.92 at December 31, 2000. Shareholders'
equity decreased $6.8 million from December 31, 2000 to June 30, 2001
primarily due to the Corporation's purchase of 622,404 treasury shares
for $13.1 million and borrowing $2.0 million in WesBanco's Employee Stock
Ownership Plan. This reduction in capital was partially offset by the $6.3
million retention of earnings, net of dividends.
On March 21, 2001 WesBanco approved a new program to repurchase up to an
additional one million shares of WesBanco common stock. As of June 30, 2001,
611,296 shares of WesBanco common stock remain to be repurchased under the
current stock repurchase plan. The timing, price and quantity of purchases
under the plan are at the discretion of the Corporation and the plan may be
discontinued or suspended at any time.
TABLE 8: Capital Adequacy Ratios
June 30, December 31,
2001 2000
-------- ------------
Tier I leverage capital 9.8% 10.5%
Tier I risk-based capital 14.3% 14.4%
Total risk-based capital 15.5% 15.6%
WesBanco is subject to risk-based capital guidelines that measure
capital relative to risk-adjusted assets and off-balance sheet financial
instruments. As shown in Table 8, the Corporation's Tier I leverage, Tier I
risk-based and total risk-based capital ratios are well above the required
minimum levels of 4%, 4%, and 8%, respectively. At June 30, 2001 and
December 31, 2000, WesBanco's affiliate bank, WesBanco Bank, Inc., also
exceeded the minimum regulatory levels and is considered well-capitalized
under FDICIA. There are no conditions or events that have occurred
since June 30, 2001 that management believes has changed WesBanco's
well-capitalized category.
18
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. WesBanco's Asset/Liability
Management Committee monitors liquidity.
The principal source of liquidity is WesBanco's deposit base and other
borrowings. The Corporation's banking subsidiary maintains a Federal Home
Loan Bank borrowings line of credit of $601.6 million, of which $539.6
million currently remains unused. The Corporation increased FHLB borrowings
by $29.6 million during the first half of 2001 and used the proceeds to
purchase tax-exempt, Federal Agency and mortgage-backed securities.
The securities portfolio, federal funds sold and cash and due from banks
serves as additional sources of liquidity. Securities totaled $651.9 as of
June 30, 2001, of which $411.8 million were classified as available for sale.
Securities maturing within one year from both the available for sale and
held to maturity portfolios totaled $24.2 million at June 30, 2001.
Securities of $322.8 million were pledged at June 30, 2001. Additional
liquidity is provided by federal funds sold of $40.7 million and cash and due
from banks of $61.1 million at June 30, 2001.
At June 30, 2001, the Corporation had outstanding commitments to extend
credit in the ordinary course of business approximating $231.2 million. On a
historical basis, only a small portion of these commitments should result in
an outflow of funds. Management believes the Corporation has sufficient
liquidity to meet current obligations to borrowers, depositors and others.
Earnings Summary
----------------
Comparison of the three-months ended June 30, 2001 and 2000
-----------------------------------------------------------
WesBanco's earnings per share for the three-months ended June 30, 2001
increased 14.3% to $0.40 compared to $0.35 for the three-months ended June 30,
2000. Net income increased 9.3% to $7.3 million compared to $6.7 million.
WesBanco's increased net income was primarily due to improvements in net
interest income and deposit service activity fees. The percentage increase
in earnings per share exceeded the percentage increase in net income due to
shares repurchased under WesBanco's corporate stock repurchase plan.
19
WesBanco's key performance ratios improved in comparison to the second
quarter of last year. Earnings performance reflected a return on average
assets of 1.22% and a return on average equity of 11.44% for the three-months
ended June 30, 2001 compared to a return on average assets of 1.18% and a
return on average equity of 10.44% for the same period in 2000.
WesBanco's core earnings per share for the three-months ended June 30,
2001 increased 16.7% to $0.42 compared to $0.36 for the three-months ended
June 30, 2000. Core earnings, which excludes amortization of goodwill, net
securities gains and net gains/losses on sale of assets increased 9.9% to $7.6
million compared to $7.0 million.
Net Interest Income
-------------------
Net interest income, on a taxable-equivalent basis "TE", increased
$0.8 million or 3.4% for the three-months ended June 30, 2001 compared to the
three-months ended June 30, 2000. As shown in Table 1, average earning assets
increased $104.8 million or 4.9%, while average interest bearing liabilities
increased $102.1 million or 5.71%. The net TE yield on average earning
assets decreased slightly to 4.15% compared to 4.23%. Similar to industry
trends, WesBanco's net yield decreased slightly due to competitive pricing
pressure to adjust rates on loan and deposit products. The decline in
interest rates during the first half of 2001 has favorably impacted WesBanco's
net interest income during the second quarter of this year. Table 2 presents
the impact these volume and rate changes had on net interest income.
Interest income TE increased $1.1 million or 2.6% for the three-months
ended June 30, 2001 compared to the three-months ended June 30, 2000. As shown
in Table 2, average volume increases of $1.2 million or 2.9% were partially
offset by average rate decreases of $0.1 million or 0.3%. As shown in Table
1, all average earning asset categories increased for the comparative periods.
Securities grew $57.4 million, federal funds sold increased $41.4 million and
loans grew $6.0 million. The general decline in interest rates during the
first half of 2001 and a combination of lower loan demand and an increase in
short-term earning assets at lower yields contributed to the decrease in TE
yield on average earning assets of 7.68 % compared to 7.89%.
Interest expense increased $0.3 million or 1.2% for the three-months
ended June 30, 2001 compared to the three-months ended June 30, 2000. As
shown in Table 2, interest expense increased $1.3 million due to average
volume increases and decreased $1.0 million due to average rates. The average
volume increases in other borrowings of $104.5 million offset the decrease in
average interest rates. Customers continued to shift savings balances into
the competitively priced Prime Rate Money
20
Market product and certificates of deposit. WesBanco's cost of funds on
average interest bearing liabilities decreased to 4.17% from 4.35% during
this period of declining interest rates.
Non-interest Income
-------------------
Non-interest income, excluding net securities gains, increased $0.4
million or 7.4% for the three-months ended June 30, 2001 compared to the
three-months ended June 30, 2000. This increase resulted primarily from
increases in deposit activity income and gains generated from the sale of real
estate loans originated and sold in the secondary market. Deposit activity
income increased $0.2 million or 11.3% due to increases in deposit activity
fees, debit cards and ATM fees. Gains generated from the sale of real estate
loans originated and sold in the secondary market increased $0.1 million.
Trust revenue remained strong at $2.8 million for the comparative periods.
Non-interest Expense
--------------------
Non-interest expense for the three-months ended June 30, 2001 increased
$0.2 million or 1.2% compared to the three-months ended June 30, 2000. This
increase resulted primarily from increased employee costs, which was partially
offset by a decrease in the number of employees. The increase in employee
costs was due to a $0.4 million increase in health care costs. Salaries and
wages decreased $0.2 million due primarily to a lower number of employees.
Item 3. - Quantitative and Qualitative Disclosures about Market Risk
- --------------------------------------------------------------------
Through June 30, 2001, there have been no material changes to this
information as presented in the 2000 Annual Report.
PART II - OTHER INFORMATION
- ---------------------------
Item 1. - Legal Proceedings
- ---------------------------
WesBanco's banking subsidiary, WesBanco Bank, Inc., has received
notification from its bank regulatory agency, the Federal Reserve Bank
of Cleveland, of a downgrading of the bank's Community Reinvestment
Act rating. The impact of this change may adversely affect the
ability of WesBanco to obtain regulatory approval of its two
previously announced acquisitions with Freedom Bancshares, Inc. and
American Bancorporation. WesBanco is presently weighing the
consequences of the rating, the regulatory appeals available to
WesBanco, the timing and delays which could result therefrom and the
likelihood of its ability to close the transactions. The time for
closing the Freedom Bancshares, Inc.
21
transaction has expired under the terms of the applicable Merger Agreement
and it is uncertain whether Freedom will consider extending the closing.
WesBanco is involved in lawsuits, claims, investigations, and
proceedings which arise in the ordinary course of business. There are
no such other matters pending that WesBanco expects to be material in
relation to its business, financial condition or results of operation.
Item 2. - Changes in Securities and Use of Proceeds
- ---------------------------------------------------
Not Applicable
Item 3. - Defaults Upon Senior Securities
- -----------------------------------------
Not Applicable
Item 4. - Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
Not Applicable
Item 5. - Other Information
- ---------------------------
Not Applicable
Item 6(a). - Exhibits
- ---------------------
Not Applicable
Item 6(b). - Reports on Form 8-K
- --------------------------------
The Registrant filed no current reports on Form 8-K during the
quarter ended June 30, 2001.
22
SIGNATURES
----------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESBANCO, INC.
--------------
Date: August 14, 2001 /s/ Paul M. Limbert
--------------- -------------------------------------
Paul M. Limbert
President and Chief Executive Officer
Date: August 14, 2001 /s/ Robert H. Young
--------------- ----------------------------------
Robert H. Young
Executive Vice President and
Chief Financial Officer
23