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, 2002
--------------------------------------------
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 20,974,690 shares outstanding at July 31, 2002
WESBANCO, INC.
TABLE OF CONTENTS
-----------------
ITEM # ITEM PAGE NO.
- ------ ---- --------
PART I - FINANCIAL INFORMATION
------------------------------
1 Financial Statements and Accompanying Notes 3 - 11
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 24
3 Quantitative and Qualitative Disclosures About
Market Risk 24
PART II - OTHER INFORMATION
---------------------------
1 Legal Proceedings 25
2 Changes in Securities and Use of Proceeds 26
3 Defaults Upon Senior Securities 26
4 Submission of Matters to a Vote of Security
Holders 26
5 Other Information 26
6 (a) Exhibits 26
6 (b) Reports on Form 8-K 26
Signatures and Certification 27 - 28
Exhibits E 1 - E 11
2
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. - Financial Statements
- ------------------------------
Consolidated Balance Sheets at June 30, 2002 and December
31, 2001, and Consolidated Statements of Income for the three
months and six months ended June 30, 2002 and June 30, 2001, and
Consolidated Statements of Changes in Shareholders' Equity and
Consolidated Statements of Cash Flows for the six months ended
June 30, 2002 and 2001 are set forth on the following pages.
On March 1, 2002, WesBanco, Inc. ("WesBanco") completed the
acquisition of American Bancorporation ("American") and the
merger of American's affiliate, Wheeling National Bank, with and
into WesBanco's affiliate, WesBanco Bank, Inc. As of the date of
the acquisition, American had total assets of approximately $679
million that represented 28% of WesBanco's pre-acquisition total
assets.
In the opinion of the management of WesBanco, 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 three months and six months ended June 30,
2002 are not necessarily indicative of what results may be
attained for the entire year.
For further information, refer to the 2001 Annual Report to
Shareholders, which includes consolidated financial statements
and footnotes thereto and WesBanco's Annual Report on Form 10-K
for the year ended December 31, 2001.
3
WESBANCO, INC.
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
(Unaudited dollars in thousands, except per share amounts)
June 30, December 31,
2002 2001
---------------- ---------------
ASSETS
Cash and due from banks $ 72,711 $ 81,563
Due from banks - interest bearing 1,074 712
Federal funds sold 46,800 -
Securities:
Held to maturity (fair values of
$481,778 and $242,558, respectively) 474,164 240,953
Available for sale, carried at fair value 608,690 517,517
---------------- ---------------
Total securities 1,082,854 758,470
---------------- ---------------
Loans, net of unearned income 1,842,396 1,539,695
Allowance for loan losses (24,281) (20,786)
---------------- ---------------
Net loans 1,818,115 1,518,909
---------------- ---------------
Premises and equipment 57,180 50,252
Accrued interest receivable 19,788 16,290
Goodwill 46,940 19,898
Core deposit intangible 15,417 -
Other assets 45,982 28,360
---------------- ---------------
Total Assets $ 3,206,861 $ 2,474,454
================ ===============
LIABILITIES
Deposits:
Non-interest bearing demand $ 302,067 $ 244,422
Interest bearing demand 268,516 245,447
Money Market Accounts 473,138 406,727
Savings deposits 372,453 252,438
Certificates of deposit 986,128 764,424
---------------- ---------------
Total deposits 2,402,302 1,913,458
---------------- ---------------
Other borrowings 427,430 279,131
Accrued interest payable 8,804 7,313
Other liabilities 24,500 16,351
Obligated mandatorily redeemable capital
securities of subsidiary trust 12,650 -
---------------- ---------------
Total Liabilities 2,875,686 2,216,253
---------------- ---------------
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;
21,319,348 and 20,996,531 shares
issued, respectively 44,415 43,742
Capital surplus 52,830 58,663
Retained earnings 237,814 230,924
Treasury stock (274,347 and 3,142,034
shares, respectively, at cost) (6,552) (76,183)
Accumulated other comprehensive income
(fair value adjustments) 5,219 3,560
Deferred benefits for directors and
employees (2,551) (2,505)
---------------- ---------------
Total Shareholders' Equity 331,175 258,201
---------------- ---------------
Total Liabilities and Shareholders' Equity $ 3,206,861 $ 2,474,454
================ ===============
See Notes to Consolidated Financial Statements.
4
WESBANCO, INC.
CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------------------------------
(Unaudited, dollars in thousands, except per share amounts)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- -------------------------
2002 2001 2002 2001
--------- -------- --------- ---------
INTEREST INCOME
Loans, including fees $32,552 $31,852 $62,570 $64,469
Securities:
Taxable 8,705 6,355 16,279 11,868
Tax-exempt 4,132 2,573 7,273 4,838
Total interest on --------- -------- --------- ---------
securities 12,837 8,928 23,552 16,706
--------- -------- --------- ---------
Federal funds sold 177 560 313 1,070
--------- -------- --------- ---------
Total interest income 45,566 41,340 86,435 82,245
--------- -------- --------- ---------
INTEREST EXPENSE
Interest bearing demand
deposits 482 1,042 948 2,363
Money Market Accounts 3,328 3,492 6,425 7,424
Savings deposits 1,141 1,245 1,957 2,468
Certificates of deposit 9,923 11,167 19,426 22,340
Total interest on --------- -------- --------- ---------
deposits 14,874 16,946 28,756 34,595
Other borrowings 4,041 2,696 6,777 5,016
--------- -------- --------- ---------
Total interest expense 18,915 19,642 35,533 39,611
--------- -------- --------- ---------
Net interest income 26,651 21,698 50,902 42,634
Provision for loan losses 1,760 1,123 3,999 2,023
--------- -------- --------- ---------
Net interest income after
provision for loan losses 24,891 20,575 46,903 40,611
--------- -------- --------- ---------
NON-INTEREST INCOME
Trust fees 2,735 2,831 5,850 5,953
Service charges on deposits 2,805 2,397 5,096 4,486
Other income 608 696 1,132 1,230
Securities gains (net of
losses) 509 129 1,683 384
--------- -------- --------- ---------
Total non-interest income 6,657 6,053 13,761 12,053
--------- -------- --------- ---------
NON-INTEREST EXPENSE
Salaries and wages 8,110 6,859 15,396 13,480
Employee benefits 1,778 1,423 3,589 2,703
Net occupancy 1,256 1,061 2,358 2,053
Equipment 1,909 1,496 3,292 3,028
Other operating 6,116 5,348 11,245 9,967
Non-recurring merger expenses 715 -- 1,781 --
--------- -------- --------- ---------
Total non-interest expense 19,884 16,187 37,661 31,231
--------- -------- --------- ---------
Income before provision for
income taxes 11,664 10,441 23,003 21,433
Provision for income taxes 2,986 3,141 6,257 6,728
--------- -------- --------- ---------
Net Income $ 8,678 $ 7,300 $ 16,746 $ 14,705
========= ======== ========= =========
Earnings per share $ 0.41 $ 0.40 $ 0.83 $ 0.80
Average shares outstanding 21,213,306 18,118,639 20,121,032 18,301,754
Dividends per share $ 0.235 $ 0.23 $ 0.465 $ 0.46
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, 2000 18,567,940 $43,742 $59,464 $218,539 $(62,009) $ (365) $ (865) $258,506
- --------------------------------------------------------------------------------------------------------------------------------
Net income 14,705 14,705
Net fair value adjustment
on securities available
for sale - net of
tax effect 749 749
Net securities gains
reclassified into
earnings - net of tax
effect (212) (212)
Cumulative effect of
accounting change for
derivative financial
instruments - net of
tax effect 558 558
Net fair value adjustment
on derivatives - net of
tax effect (174) (174)
Net derivative gains
reclassified into
earnings - net of
tax effect (75) (75)
----------
Comprehensive Income 15,551
Cash dividends:
Common ($.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
================================================================================================================================
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 2001 17,854,497 $43,742 $58,663 $230,924 $(76,183) $ 3,560 $ (2,505) $258,201
- --------------------------------------------------------------------------------------------------------------------------------
Net income 16,746 16,746
Net fair value adjustment
on securities available
for sale - net of
tax effect 3,658 3,658
Net securities gains
reclassified into
earnings - net of tax
effect (1,340) (1,340)
Net fair value adjustment
on derivatives - net of
tax effect (591) (591)
Net derivative gains
reclassified into
earnings - net of
tax effect (68) (68)
----------
Comprehensive Income 18,405
Cash dividends:
Common ($.465 per share) (9,856) (9,856)
Treasury shares purchased
- net (251,384) (195) (5,857) (6,052)
Stock issued for
acquisition 3,441,888 673 (5,638) 75,488 70,523
Deferred benefits for
directors - net (46) (46)
- --------------------------------------------------------------------------------------------------------------------------------
June 30, 2002 21,045,001 $44,415 $52,830 $237,814 $ (6,552) $5,219 $(2,551) $331,175
================================================================================================================================
Note: Comprehensive income for the three-month periods ended June 30, 2002
and 2001 was $14,466 and $5,719, respectively.
See Notes to Consolidated Financial Statements.
6
WESBANCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------
(Unaudited, in thousands)
For the six months ended
Increase in Cash and Cash Equivalents June 30,
-----------------------------
2002 2001
------------- -------------
Cash Flows From Operating Activities:
Net income $ 16,746 $ 14,705
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 2,691 2,559
Net accretion (1,307) (251)
Provision for loan losses 3,999 2,023
Gains on sales of securities - net (1,683) (384)
Deferred income taxes (55) 95
Other - net 201 (1,844)
Net change in:
Interest receivable 937 233
Other assets and other liabilities 2,359 1,993
Interest payable (1,103) 81
------------- -------------
Net cash provided by operating activities 22,785 19,210
------------- -------------
Cash Flows From Investing Activities:
Securities held to maturity:
Proceeds from maturities and calls 49,307 10,575
Payments for purchases (175,042) (54,619)
Securities available for sale:
Proceeds from sales 217,042 47,681
Proceeds from maturities and calls 45,282 99,954
Payments for purchases (178,041) (207,669)
Net cash received in acquisition 24,464 -
Decrease in loans 43,272 40,606
Purchases of premises and equipment - net (2,709) (1,915)
------------- -------------
Net cash provided (used) by investing activities 23,575 (65,387)
------------- -------------
Cash Flows From Financing Activities:
Increase (decrease) in deposits 19,341 (6,765)
Increase (decrease) in other borrowings (12,306) 101,733
Dividends paid (9,015) (8,447)
Treasury shares purchased - net (6,052) (11,981)
Other (18) -
------------- -------------
Net cash provided (used) by financing activities (8,050) 74,540
------------- -------------
Net increase in cash and cash equivalents 38,310 28,363
Cash and cash equivalents at beginning of period 82,275 73,416
------------- -------------
Cash and cash equivalents at end of period $ 120,585 $ 101,779
============= =============
Supplemental Disclosures:
Interest paid on deposits and other borrowings $ 36,635 $ 39,530
Income taxes paid 6,900 6,791
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 interim
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 and its wholly-owned
subsidiaries. Significant intercompany transactions have been eliminated
in consolidation. The accounting and reporting policies followed in the
presentation of these financial statements are consistent with those
applied in the preparation of the 2001 Annual Report of WesBanco, Inc. on
Form 10-K. In the opinion of management, adjustments necessary for a fair
presentation of financial position and results of operations for the
interim periods have been made. Such adjustments are of a normal and
recurring nature.
Reclassification: Certain prior year financial information has been
reclassified to conform to the presentation at June 30, 2002. The
reclassifications had no effect on net income.
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.
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 - Completed Business Combination
- ---------------------------------------
On March 1, 2002, WesBanco completed the acquisition of American and
the merger of American's affiliate, Wheeling National Bank, Wheeling, West
Virginia, with and into WesBanco's affiliate, WesBanco Bank, Inc. WesBanco
and American entered into a definitive Agreement and Plan of Merger on
February 22, 2001. Under the terms of the definitive Agreement and Plan of
Merger, WesBanco exchanged 1.1 shares of WesBanco common stock for each
share of American common stock. A total of 3,441,888 shares of WesBanco
common stock valued at $70.5 million were issued to fund the transaction.
The transaction was accounted for using the purchase method of accounting.
As of the acquisition date, American had total assets of approximately $679
million, deposits of $466 million and stockholders' equity of $44 million.
In connection with the acquisition on March 1, 2002, WesBanco recorded
goodwill of approximately $27 million and a core deposit intangible of $16
million on its Consolidated Balance Sheet.
8
The following table presents pro forma combined results of operations
of WesBanco and American as if the business combination had been completed
as of the beginning of each respective period:
(unaudited, in thousands,
except per share amounts)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net Interest Income $ 26,651 $ 26,492 $ 54,395 $ 52,634
Net Income 8,678 8,475 16,749 17,254
Earnings Per Share 0.41 0.39 0.79 0.79
Note 3 - Obligated Manditorily Redeemable Capital Securities of
------------------------------------------------------
Subsidiary Trust
----------------
On March 1, 2002, WesBanco assumed $12.65 million of 8.5% Trust
Preferred Securities ("Preferred Securities") from American. In April 1998,
American created a statutory business trust under Delaware law for the
purpose of issuing the company obligated Preferred Securities. The
proceeds from the sale of the Preferred Securities of the Trust, as well as
proceeds from the issuance of common securities to American, were utilized
by the Trust to invest in $13.04 million of 8.5% Junior Subordinated
Debentures ("the Debentures") of American. The Debentures represent the
sole assets of the Trust.
The Preferred Securities, which have a stated value and liquidation
preference of $10 per share, are registered on Nasdaq under the stock
symbol WSBCP (formerly AMBCP). Interest on the Preferred Securities is
cumulative and payable quarterly in arrears. WesBanco has the right to
optionally redeem the Debentures on or after April 30, 2003. The
Debentures mature on April 1, 2028.
The Preferred Securities are presented as a separate category of long-
term debt on the Consolidated Balance Sheet. For regulatory purposes, the
Preferred Securities are included in Tier I Capital in accordance with
regulatory reporting requirements.
Note 4 - Business Segments
- --------------------------
WesBanco operates two reportable segments: community banking and trust
and investment services. WesBanco's community banking segment offers
services traditionally offered by full-service commercial banks, including
commercial demand, individual demand and time deposit accounts, as well as
commercial, mortgage and individual installment loans. The trust and
investment services segment offers trust services as well as various
alternative investment products including mutual funds. The market value
of assets under management of the trust and investment services segment was
approximately $2.5 billion at June 30, 2002 and $2.9 billion at June 30,
2001. These assets are held by WesBanco's affiliate, WesBanco Bank, Inc.
in fiduciary or agency capacities for their customers and therefore are not
included as assets on WesBanco's Consolidated Balance Sheet.
9
The following table provides selected financial information for the
segments of WesBanco:
Trust &
Community Investment
(unaudited, in thousands) Banking Services Consolidated
--------- ---------- ------------
For the three months ended June 30, 2002:
Net interest income $ 26,651 --- $ 26,651
Provision for loan losses 1,760 --- 1,760
Non-interest income 3,922 $ 2,735 6,657
Non-interest expense 18,222 1,662 19,884
Provision for income taxes 2,557 429 2,986
Net income 8,034 644 8,678
For the three months ended June 30, 2001:
Net interest income $ 21,698 --- $ 21,698
Provision for loan losses 1,123 --- 1,123
Non-interest income 3,222 $ 2,831 6,053
Non-interest expense 14,570 1,617 16,187
Provision for income taxes 2,655 486 3,141
Net income 6,572 728 7,300
Trust &
Community Investment
(unaudited, in thousands) Banking Services Consolidated
--------- ---------- ------------
For the six months ended June 30, 2002:
Net interest income $ 50,902 --- $ 50,902
Provision for loan losses 3,999 --- 3,999
Non-interest income 7,911 $ 5,850 13,761
Non-interest expense 34,289 3,372 37,661
Provision for income taxes 5,266 991 6,257
Net income 15,259 1,487 16,746
For the six months ended June 30, 2001:
Net interest income $ 42,634 --- $ 42,634
Provision for loan losses 2,023 --- 2,023
Non-interest income 6,100 $ 5,953 12,053
Non-interest expense 27,912 3,319 31,231
Provision for income taxes 5,674 1,054 6,728
Net income 13,125 1,580 14,705
Note 5 - Goodwill and Core Deposit Intangible
- ---------------------------------------------
On January 1, 2002, WesBanco adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets", which change the accounting for goodwill from an
amortization method to an evaluation of possible impairment approach. The
amortization of goodwill, including goodwill recognized relating to past
business combinations, ceased upon adoption of the new standard.
Impairment testing for goodwill at a reporting unit level is 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.
10
SFAS No. 142, as part of its adoption provisions, required a
transitional impairment test to be applied to all goodwill and other
indefinite-lived intangible assets within the first half of 2002 and any
resulting impairment loss be reported as a change in accounting principle.
WesBanco has completed this impairment testing as of the date of adoption
and determined that goodwill was not impaired.
The following table presents reported net income and earnings per
share data for the three and six months ended June 30, 2002 and 2001,
respectively, as well as pro forma adjustments as if SFAS No. 142 had been
adopted on January 1, 2001.
unaudited, in thousands,
except per share amounts)
For the three months ended For the six months ended
June 30, June 30,
-------------------------- ------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Reported net income $ 8,678 $ 7,300 $ 16,746 $ 14,705
Add back: Non-tax deductible
goodwill amortization --- 338 --- 631
---------- ---------- ---------- ----------
Adjusted net income $ 8,678 $ 7,638 $ 16,746 $ 15,336
========== ========== ========== ==========
Earnings Per Share:
Reported net income $ 0.41 $ 0.40 $ 0.83 $ 0.80
Add back: Non-tax deductible
goodwill amortization --- 0.02 --- 0.04
---------- ---------- ---------- ----------
Adjusted net income $ 0.41 $ 0.42 $ 0.83 $ 0.84
========== ========== ========== ==========
WesBanco's Consolidated Balanced Sheet reflected total
goodwill assets of $47 million as of June 30, 2002 and $20 million at
December 31, 2001. In addition, WesBanco recorded a core deposit
intangible of $16 million in connection with the March 1, 2002 acquisition
of American. The core deposit intangible is being amortized using a
declining balance method over an estimated life of approximately 11 years.
Amortization expense was $0.6 million for the second quarter of 2002 and
$0.7 million for the six months ended June 30, 2002. Core deposit
intangible amortization for each of the next five years is as follows: (in
thousands)
Year Amount
------------------- -----------
Remainder of 2002 $ 1,086
2003 2,112
2004 1,960
2005 1,762
2006 1,278
11
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 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 WesBanco'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 developments
materially impacting WesBanco's operational and financial performance.
WesBanco does not assume any duty to update forward-looking statements.
12
Earnings Summary
----------------
Comparison of the quarters and six months ended June 30, 2002 and 2001
----------------------------------------------------------------------
WesBanco's net income for the second quarter of 2002 increased
18.9% to $8.7 million compared to $7.3 million for the second quarter of
2001. Earnings per share increased 2.5% to $0.41 compared to $0.40 for the
corresponding period last year. For the six months ended June 30, 2002,
net income increased 13.9% to $16.7 million compared to $14.7 million for
the six months ended June 30, 2001. Earnings per share increased 3.8% to
$0.83 from $0.80 for the six months ended June 30, 2001.
The financial results include the March 1, 2002 acquisition of
American Bancorporation ("American") and its subsidiary bank, Wheeling
National Bank. As of the acquisition date, American reported total assets
of approximately $679 million, which represented 28% of WesBanco's pre-
acquisition total assets. A total of 3,441,888 shares, or 19% of pre-
acquisition shares outstanding, of WesBanco common stock were issued to
fund the transaction.
Core earnings increased 11.5% to $16.9 million for the six
months ended June 30, 2002 compared to $15.2 million for the same period
last year. Core earnings is calculated by excluding amortization of
goodwill and, on an after-tax basis, nonrecurring expenses related to the
acquisition of American Bancorporation, net securities gains and net
gains/losses on the sale of non-earning assets. Core earnings per share
remained consistent at $0.42 per share for the second quarters of 2002 and
2001, respectively, and increased to $0.84 for the six months ended June
30, 2002 from $0.83 for the six months ended June 30, 2001.
Although impacted somewhat by American's lower historical
return on assets and return on equity, earnings performance ratios remained
strong. WesBanco's return on average assets measured 1.09% for the second
quarter and 1.15% for the six months ended June 30, 2002, compared to 1.22%
and 1.26% for the corresponding periods in 2001. Return on average equity
decreased to 10.55% for the second quarter and 11.04% for the six months
ended June 30, 2002, compared to returns of 11.44% and 11.53% for the
second quarter and six months ended June 30, 2001, respectively.
13
TABLE 1: AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
Three months ended June 30, Six months ended June 30,
----------------------------------------------------- ----------------------------------------------
2002 2001 2002 2001
(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) $1,855,188 7.04% $1,556,241 8.21% $1,752,259 7.20% $1,566,712 8.30%
Securities: (2)
Taxable 707,944 4.92% 408,133 6.23% 636,284 5.12% 377,591 6.29%
Tax-exempt (3) 337,184 7.54% 212,018 7.47% 296,520 7.55% 198,079 7.52%
------------------------- ----------------------- --------------------- ----------------------
Total securities 1,045,128 5.76% 620,151 6.65% 932,804 5.89% 575,670 6.71%
Federal funds sold 40,830 1.74% 52,227 4.30% 37,551 1.67% 45,853 4.67%
------------------------- ----------------------- --------------------- ----------------------
Total earning assets (3) 2,941,146 6.51% 2,228,619 7.68% 2,722,614 6.68% 2,188,235 7.80%
------------------------- ----------------------- --------------------- ----------------------
Other assets 243,584 163,615 219,028 161,622
------------- ------------- ------------- -------------
Total Assets $3,184,730 $2,392,234 $2,941,642 $2,349,857
============= ============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing
demand deposits $ 270,113 0.72% $ 246,754 1.69% $ 261,202 0.73% $ 249,528 1.91%
Money Market Accounts 463,779 2.88% 366,710 3.82% 443,262 2.92% 364,877 4.10%
Savings deposits 378,411 1.21% 253,981 1.97% 339,577 1.16% 252,479 1.97%
Certificates of deposit 993,994 4.00% 775,955 5.77% 920,898 4.25% 770,536 5.85%
------------------------- ----------------------- --------------------- ----------------------
Total interest
bearing deposits 2,106,297 2.83% 1,643,400 4.14% 1,964,939 2.95% 1,637,420 4.26%
Other borrowings 433,088 3.74% 245,202 4.41% 373,877 3.66% 211,908 4.77%
------------------------- ----------------------- --------------------- ----------------------
Total interest
bearing liabilities 2,539,385 2.99% 1,888,602 4.17% 2,338,816 3.06% 1,849,328 4.32%
------------------------- ----------------------- --------------------- ----------------------
Non-interest bearing
demand deposits 286,583 227,307 269,455 222,395
Other liabilities 28,712 20,271 27,485 20,988
Shareholders' Equity 330,050 256,054 305,886 257,146
------------- ------------- ------------- -------------
Total Liabilities and
Shareholders' Equity $3,184,730 $2,392,234 $2,941,642 $2,349,857
============= ============= ============= =============
Taxable equivalent net
yield on average
earning assets 3.93% 4.15% 4.04% 4.15%
======= ======== ======== ========
(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
the federal statutory tax rate of 35% for each period presented.
TABLE 2: RATE/VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST
EXPENSE
Three months ended June 30, Six months ended June 30,
2002 compared to 2001 2002 compared to 2001
----------------------------------- ------------------------------------
(in thousands) Net Increase Net Increase
Volume Rate (Decrease) Volume Rate (Decrease)
----------------------------------- ------------------------------------
Increase (decrease) in interest income:
Loans, net of unearned income $ 5,616 $ (4,916) $ 700 $ 7,193 $ (9,092) $ (1,899)
Taxable securities 3,905 (1,555) 2,350 6,941 (2,530) 4,411
Tax-exempt securities (1) 2,358 40 2,398 3,714 32 3,746
Federal funds sold (103) (280) (383) (166) (591) (757)
----------------------------------- ------------------------------------
Total interest income change (1) 11,776 (6,711) 5,065 17,682 (12,181) 5,501
----------------------------------- ------------------------------------
Increase (decrease) in interest expense:
Interest bearing demand deposits 91 (651) (560) 106 (1,521) (1,415)
Money Market Accounts 806 (970) (164) 1,399 (2,398) (999)
Savings deposits 478 (582) (104) 889 (1,400) (511)
Certificates of deposit 2,678 (3,922) (1,244) 3,864 (6,778) (2,914)
Other borrowings 1,805 (460) 1,345 3,147 (1,386) 1,761
----------------------------------- ------------------------------------
Total interest expense change 5,858 (6,585) (727) 9,405 (13,483) (4,078)
----------------------------------- ------------------------------------
Taxable equivalent net interest
income increase (decrease) (1) $ 5,918 $ (126) $ 5,792 $ 8,277 $ 1,302 $ 9,579
=================================== ====================================
Increase in taxable equivalent adjustment 839 1,311
------------ -------------
Net interest income increase $ 4,953 $ 8,268
============ =============
(1) Taxable equivalent basis is calculated on tax-exempt securities using
the federal statutory tax rate of 35% for each period presented.
14
Net Interest Income
-------------------
Taxable equivalent net interest income, which is WesBanco's largest
revenue source, is the difference between interest income on earning assets
(loans, securities and federal funds sold) and interest expense paid on
liabilities (deposits and borrowings). Taxable equivalent net interest
income is affected by the general level of interest rates, changes in
interest rates, and changes in the amount and composition of interest
earning assets and interest bearing liabilities.
Taxable equivalent net interest income increased $5.8 million
or 25.1% for the second quarter of 2002 and $9.6 million or 21.2% for the
six months ended June 30, 2002 compared to the corresponding periods in
2001. The increases resulted primarily from earning asset growth related
to the acquisition of American. For the quarter, average earning assets
increased $712.5 million or 32.0% compared to the same period last year, of
which approximately $640 million related to American. For the first half
of 2002, average earning assets increased $534.4 million or 24.4% compared
to the same period last year, of which approximately $426 million related
to American. The increase in net interest income due to earning asset
growth was partially offset by the impact of lower interest rates during
the first half of 2002. For the second quarter and the first half of 2002,
the taxable equivalent net interest margin decreased 22 basis points and 11
basis points, respectively, compared to the corresponding periods in 2001.
Contributing to the decrease in the net interest margin was the acquisition
of American. Prior to the acquisition, American operated at a lower
historical net interest margin, which approximated 3.1% compared to
WesBanco's margin of 4.2%. In addition, rate compression between loan and
deposit products; planned reductions in higher-yielding but less profitable
indirect automobile lending; sales of longer-term mortgaged-backed
securities and a general slowdown in loan growth contributed to the
decrease in net interest margin. In a stable but low interest rate
environment, as experienced in the second quarter of this year, WesBanco's
spread between loan and deposit interest rates narrowed. Declines in loan
yields accelerated during the first half of 2002, reflecting the
composition of American's loan portfolio, an increase in loan refinancings
and a slowdown in business loan growth, while declines in deposit rates
slowed due to competitive pressures and pricing constraints in a low
interest rate environment.
Taxable equivalent interest income increased $5.1 million or 11.9%
for the second quarter of 2002 and $5.5 million or 6.5% for the six months
ended June 30, 2002, compared to the corresponding periods in 2001. As
shown in Tables 1 and 2, taxable equivalent interest income increased due
to volume increases in average earning assets that were partially offset by
a decline in the average taxable equivalent yield. The volume increases
were primarily the result of American and the decrease in average yields
resulted from a general reduction in interest rates combined with a shift
in volume from higher-yielding loans into securities with lower yields.
Excluding American, during the first half of 2002, commercial loan volume
increased slightly, while real estate and consumer loan volume declined.
Since the second quarter of last year, WesBanco's base lending rate
decreased to 4.75% from 6.75%.
Interest expense decreased $0.7 million or 3.7% for the second quarter
of 2002 and $4.1 million or 10.3% for the six months ended June 30, 2002,
compared to the corresponding periods in 2001. As shown in Tables 1 and 2,
interest expense increased due to volume increases in average interest
bearing liabilities that were partially offset by an
15
average rate decrease. The volume increases were primarily the result of
American and the average rate decrease was due to significant reductions in
average rates paid on core and maturing term deposit products and certain
short-term other borrowings.
Non-interest Income
-------------------
Non-interest income, excluding net securities gains, increased
$0.2 million or 3.8% for the second quarter of 2002 and $0.4 million or
3.5% for the first half of 2002 compared to the corresponding periods last
year. The increases related to growth in deposit activity fees due
primarily to the addition of deposit accounts from the American
transaction. Reflecting a decline in the market value of trust assets due
to equity market performance, trust fees decreased slightly for the period.
The market value of trust assets under management decreased to $2.5 billion
at June 30, 2002 compared to $2.9 billion at June 30, 2001 and $2.8 billion
at March 31, 2002. Increases in net securities gains for the second
quarter and first half of 2002 resulted primarily from the sale of certain
callable agency securities to take advantage of market opportunities and to
reposition the securities portfolio. During the second quarter of 2002,
net securities gains were reduced by an other-than-temporary impairment
charge of $0.2 million.
Non-interest Expense
--------------------
Non-interest expense, excluding non-recurring expenses related
to the American acquisition, increased $3.0 million or 18.4% and $4.6
million or 14.9% compared to the second quarter and first half of last
year, respectively. The increases were primarily the result of incremental
operating costs related to American. In addition to American, operating
expenses were impacted during the first half of 2002 by an increase in
employee benefit expenses resulting from an increase in defined benefit
plan expenses.
Non-recurring expenses of $0.7 million and $1.8 million, recorded in
the second quarter and the first half of 2002, respectively, related to the
American acquisition and consisted mainly of post-merger severance payments
and data system conversion costs. Non-recurring expenses related to the
acquisition are projected to total $3.1 million. Approximately $2.5
million of these expenses are expected to be recorded in 2002 with the
remainder to be recorded in 2003. Total annual cost savings
ranging from $2.5 to $3.0 million are expected to be realized from the
business combination with American by the end of 2003.
During the first half of 2002, WesBanco's efficiency ratio,
the calculation of which excludes amortization of goodwill, non-recurring
items, net securities gains and gains/losses on the sale of non-earning
assets, remained consistent with the first half of 2001 at 53.5% and
compared favorably to its national peer group average of 57.1%. The
national peer group averages, which represent banks with assets ranging
from $1 to $5 billion, was compiled by SNL Securities based on March 31,
2002 financial information.
16
Income Taxes
------------
TABLE 3: Reconciliation of Income Tax Rates
For the Three Months Ended For the six months Ended
June 30, June 30,
-------------------------- ------------------------
2002 2001 2002 2001
-------- -------- -------- --------
Federal statutory tax rate 35 % 35 % 35 % 35 %
Tax-exempt interest income (13) (10) (12) (6)
State income tax- net of
federal tax effect 3 4 3 4
All other - net 1 1 1 (2)
-------- -------- -------- --------
Effective tax rate 26 % 30 % 27 % 31 %
======== ======== ======== ========
WesBanco's federal and state income tax expense decreased to $6.3
million for the six months ended June 30, 2002 compared to $6.7 million for
the six months ended June 30, 2001. WesBanco's effective tax rate for the
second quarter of 2002 decreased to 26% from 30% for the second quarter of
2001 and decreased to 27% for the first half of 2002 from 31% for the first
half of 2001. This decrease was primarily due to a 49.7% increase in
average tax-exempt securities compared to the first half of 2001,
reflecting the American acquisition. As of the acquisition date,
American's tax exempt securities totaled $99.1 million and represented
35.7% of its total securities portfolio.
Financial Condition
-------------------
Total assets of WesBanco were $3.2 billion as of June 30, 2002, an
increase of $732.4 million or 29.6% compared to total assets as of December
31, 2001. The American acquisition accounted for approximately $679
million of the increase. Total liabilities of WesBanco were $2.9 billion as
of June 30, 2002, an increase of $659.4 million or 29.8% compared to total
liabilities of $2.2 billion as of December 31, 2001. The American
acquisition accounted for approximately $634 million of the increase.
17
TABLE 4: Composition of Securities
June 30, December 31,
(in thousands) 2002 2001
--------------- ----------------
Securities held to maturity (at amortized cost):
- -----------------------------------------------
U.S. Treasury and Federal Agency securities $ 101,489 $ 1,001
Obligations of states and political subdivisions 349,600 221,866
Other securities 23,075 18,086
--------------- ----------------
Total securities held to maturity (fair value
of $481,778 and $242,558, respectively) 474,164 240,953
--------------- ----------------
Securities available for sale (at fair value):
- ---------------------------------------------
U. S. Treasury and Federal Agency securities 297,086 307,250
Obligations of states and political subdivisions 10,488 12,076
Corporate securities 18,776 14,017
Mortgage-backed and other securities 282,340 184,174
--------------- ----------------
Total securities available for sale (amortized
cost of $597,446 and $510,104, respectively) 608,690 517,517
--------------- ----------------
Total securities $1,082,854 $758,470
=============== ================
Total securities increased $324.4 million or 42.8% from
December 31, 2001 to June 30, 2002. The American acquisition increased
total securities by approximately $277 million. At June 30, 2002, the
average taxable equivalent yield of the available for sale portfolio was
5.35% with an average maturity of 2.7 years compared to 5.75% and 2.7
years, respectively, at December 31, 2001. At June 30, 2002, the average
taxable equivalent yield of the held to maturity portfolio was 6.24% with
an average maturity of 5.4 years compared to 6.94% and 6.6 years,
respectively, at December 31, 2001. The lower average maturity for the six
months ended June 30, 2002 was due to repositioning for an increasing rate
environment predicted earlier in 2002 resulting in the sale of longer-term
securities and callable agencies with lower yields.
During the first half of 2002, WesBanco purchased U.S. Agency
securities to improve liquidity and restructure the securities portfolio.
Unrealized pre-tax gains/losses on available for sale securities (fair
value adjustments) reflected a $11.2 million market gain as of June 30,
2002 compared to a $7.4 million market gain as of December 31, 2001. 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.
18
TABLE 5: Composition of Loans
(in thousands) June 30, December 31,
2002 2001
--------------- ----------------
Commercial $ 737,874 $ 569,193
Real estate - construction 43,257 37,676
Real estate - residential 718,575 620,108
Consumer, net of unearned income 342,690 312,718
--------------- ----------------
Loans, net of unearned income $1,842,396 $1,539,695
=============== ================
Loans, net of unearned income, increased $302.7 million or 19.7% from
December 31, 2001 to June 30, 2002. The American acquisition increased
loans by approximately $345 million. Excluding the American acquisition,
loans decreased $42.3 million or 2.7%. Competition from alternative financing
sources contributed to reductions in both consumer and real estate loans,
while economic conditions and a general lack of new capital expenditures
by businesses resulted in weaker commercial loan demand in the first half
of 2002. WesBanco also continued tightening its credit standards for
indirect automobile lending, which also contributed to the decline in
consumer loans. The composition of loans as a percentage of total loans at
June 30, 2002 consisted of commercial at 40%, real estate at 41% and consumer
at 19%. As of the acquisition date, American's composition of loans
consisted of commercial at 50%, real estate at 34% and consumer at 16%.
Off-balance sheet loan commitments consist of available balances under
lines of credit and standby letters of credit. These commitments to extend
credit were $335.8 million at June 30, 2002 compared to $269.7 million at
December 31, 2001 and $231.2 million at June 30, 2001. This increase is
attributed to the American acquisition and growth in commercial and home
equity lines of credit. Commercial lines of credit and standby letters of
credit are generally renewable or may be cancelled annually. Loan
commitments that are available beyond one year consist of home equity and
other personal lines of credit, certain real estate construction loans, and
other commercial lines of credit. Loan commitments, regardless of the
duration of availability, are cancelable by WesBanco under certain
circumstances.
19
TABLE 6: Non-performing Assets, Other Impaired Loans and Loans Past Due
90 Days or More
June 30, December 31,
(in thousands) 2002 2001
------------ --------------
Non-accrual loans $ 8,319 $ 4,030
Renegotiated loans 2,676 3,756
------------ --------------
Total non-performing loans 10,995 7,786
Other real estate owned 3,609 3,215
------------ --------------
Total non-performing assets 14,604 11,001
Other impaired loans (1) 12,366 6,355
------------ --------------
Total non-performing assets and other
impaired loans $ 26,970 $ 17,356
============ ==============
Loans past due 90 days or more $ 10,894 $ 10,496
============ ==============
(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
increased $9.6 million from December 31, 2001 to June 30, 2002. The
increase resulted from WesBanco's determination that $6.6 million of
commercial loans were impaired due to the deterioration of the repayment
capacity of certain borrowers combined with the $4.4 million of non-
performing assets and other impaired loans from the American acquisition.
These increases were partially offset by the write-down of $1.4 million
related to two commercial real estate loans which had allocated specific
loss reserves established in prior periods.
Non-performing loans as a percentage of total loans were 0.60%
at June 30, 2002, up from 0.52% at March 31, 2002 and 0.51% at December 31,
2001. Also, non-performing loans and loans past due over 90 days or more as
a percentage of the allowance for loan losses was 90.2% at June 30, 2002
compared to 88.0% at December 31, 2001 and 72.3% at June 30, 2001.
WesBanco monitors the overall quality of its loan portfolio and off-
balance sheet commitments through various methods. 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 practice for all loan types. Underwriting standards may also be
changed when appropriate. 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 also managed by periodic reviews of large
borrowing relationships, monitoring the portfolio for potential
concentrations of credit, and monitoring each borrower's compliance with
applicable loan covenants.
20
TABLE 7: Allowance for Loan Losses
For the six months ended
June 30,
--------------------------------
(in thousands) 2002 2001
-------------- -------------
Balance, at beginning of period $ 20,786 $ 20,030
Allowance for loan losses of acquired bank 3,903 -
Charge-offs (4,695) (2,350)
Recoveries 288 271
-------------- -------------
Net charge-offs (4,407) (2,079)
Provision for loan losses 3,999 2,023
-------------- -------------
Balance, at end of period $ 24,281 $ 19,974
============== =============
The allowance for loan losses as a percentage of total loans was 1.32%
at June 30, 2002 compared to 1.35% at December 31, 2001. The decrease in
the allowance as a percentage of total loans at June 30, 2002 from December
31, 2001 resulted from the reduction in specific loss reserves associated
with the write-down of two commercial real estate loans and the addition of
American's allowance for loan losses, which at the acquisition date, was
approximately 1.1% of loans outstanding.
Net loan charge-offs for the six months ended June 30, 2002
increased $2.3 million compared to the six months ended June 30, 2001.
Commercial loan charge-offs increased $1.4 million, due principally to the
previously mentioned write-down of two commercial real estate secured
loans. Consumer loan charge-offs increased $0.9 million due primarily to
increased personal bankruptcies and an excess of used automobiles on the
market, which drove down the collateral values of repossessed units. Net loan
charge-offs as a percentage of average total loans on an annualized basis
were 0.51% for the first half of 2002 compared to 0.27% for the first half
of 2001. The provision for loan losses increased $2.0 million for the six
months ended June 30, 2002 compared to the first half of 2001. The
allowance for loan losses was 2.21 times non-performing loans at June 30,
2002 compared to 2.55 times non-performing loans at June 30, 2001.
The allowance for loan losses is available to absorb 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 adequacy of the allowance for loan losses is evaluated
quarterly, which includes testing certain loans for impairment. Larger
commercial loans that exhibit potential or observed credit weaknesses are
subject to individual review. Reserves are allocated to individual loans
based on management's estimate of the borrower's ability to repay the loan
given the availability of collateral, other sources of cash flow, and legal
options available to WesBanco. 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
21
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
-----------------------------
Total deposits increased $488.8 million or 25.5% during the first half
of 2002. The American acquisition increased total deposits by approximately
$466 million. Excluding American, deposit growth during the first half of
2002 was the result of a 16% increase in money market deposit accounts and
a 7% increase in non-interest bearing demand deposits. Long-term certificates
of deposit and savings deposits reflected a declining trend. Customers
shifted balances out of certificates of deposit and savings products in
favor of the competitively-priced prime rate money market accounts.
Other borrowings, which include Federal Home Loan Bank ("FHLB")
borrowings, repurchase agreements and federal funds purchased, increased by
$148.3 million during the first half of 2002 compared to the first half of
2001, primarily due to FHLB borrowings acquired in the American transaction.
As of June 30, 2002, WesBanco had $270.9 million outstanding in FHLB
borrowings with a weighted average yield of 4.5%.
TABLE 8: FHLB Maturities:
(in thousands)
2003 $ 85,588
2004 44,900
2005 30,506
2006 10,014
2009 53,390
2010 44,518
2012 1,978
---------
Total $ 270,894
=========
Capital Resources
-----------------
WesBanco's shareholders' equity remained strong during the
first half of 2002, highlighted by a Tier I leverage ratio of 8.85% and
ratios of 13.22% and 14.38% for Tier I and total risk-based capital,
respectively, at June 30, 2002. For WesBanco's national peer group, as of
March 31, 2002, the Tier I leverage ratio was 8.30%, the Tier I risk-based
capital ratio was 11.39% and the total risk-based capital ratio was 12.73%.
Trust preferred securities of $12.6 million acquired in conjunction with
the American acquisition were included in the calculation of the capital
ratios. Book value increased to $15.74 per share at June 30, 2002 from
$13.98 per share at June 30, 2001. Tangible book value decreased to $12.77
per share at June 30, 2002 from $12.90 per share at June 30, 2001 due
primarily to additional goodwill of approximately $27 million and a core
deposit intangible of approximately $16 million, recorded as a result of
the American acquisition.
On June 20, 2002, WesBanco announced the adoption of a new
stock repurchase plan to begin repurchasing up to an additional one million
shares of WesBanco common stock representing approximately 4.7% of
outstanding shares on
22
the open market. The timing, price and quantity of purchases will be
at the discretion of WesBanco and the program may be discontinued
or suspended at any time. Shares previously purchased through
the stock repurchase plan approved by the Board on March 21, 2001 were used
primarily, in conjunction with the recent acquisition of American. During
the first half of 2002, WesBanco purchased a total of 300,638 shares
through its stock repurchase plans. As of June 30, 2002, a total of
1,118,964 shares remain available to be repurchased under the current
plans.
TABLE 9: Capital Adequacy Ratios
June 30, December 31,
2002 2001
-------- ------------
Tier I leverage capital 8.85% 9.62%
Tier I risk-based capital 13.22% 14.09%
Total risk-based capital 14.38% 15.34%
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 9, WesBanco'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, 2002 and
December 31, 2001, 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, 2002 that management believes may have changed WesBanco Bank's
"well-capitalized" categorization.
Liquidity Risk
--------------
Liquidity is defined as the degree of readiness to convert assets into
cash with minimum loss. Liquidity risk is managed through WesBanco'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. This is
accomplished by maintaining liquid assets in the form of securities,
sufficient borrowing capacity and a stable core deposit base. WesBanco's
Asset/Liability Management Committee ("ALCO") monitors liquidity monthly
and senior management reviews liquidity weekly.
The principal source of liquidity is WesBanco's deposit base and other
borrowings. At June 30, 2002, WesBanco's banking subsidiary had a maximum
borrowing capacity at the Federal Home Loan Bank of approximately $901
million, of which $640 million was unused. The acquisition of American
added approximately $428 million to the maximum borrowing capacity and
approximately $273 million to the unused capacity.
The securities portfolio, federal funds sold, cash and due from banks
serve as additional sources of liquidity. Securities totaled $1.1 billion
as of June 30, 2002, of which $608.7 million was classified as available
for sale. Securities maturing within one year from both the available for
sale and held to maturity portfolios totaled $52.5 million at June 30,
2002. Securities of $408.0 million were pledged at June 30, 2002.
Additional liquidity was provided by federal funds sold of $46.8 million
and cash and due from banks of $73.8 million at June 30, 2002.
23
Management believes, based on factors known as of June 30, 2002, that
WesBanco has sufficient liquidity to meet current obligations to borrowers,
depositors and others.
Item 3. - Quantitative and Qualitative Disclosures about Market Risk
- --------------------------------------------------------------------
Management considers interest rate risk WesBanco'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
WesBanco'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.
Management uses an earnings simulation model to analyze 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 ALCO monitors
loan, investment and liability portfolios to ensure comprehensive
management of interest rate risk within Board approved policy guidelines.
The current interest rate risk policy guidelines prescribe a maximum impact
on net interest income of +/- 5% for a 200 basis point immediate change in
interest rates over twelve months.
At June 30, 2002, a 200 basis point increase in interest rates may
increase net interest income by approximately 0.1% compared to 0.4% at
December 31, 2001. Conversely, a 200 basis point decrease in interest
rates, at June 30, 2002, may decrease net interest income by approximately
5.8% compared to 5.4% at December 31, 2001. In the current low interest
rate environment, the exposure to a 200 basis point declining interest rate
scenario on net interest income becomes distorted as artificial rate floors
are imposed, through simulation analysis, on various deposit products and
other borrowings. To lessen the distortion of rate floors in the declining
interest rate scenario, management believes that an alternative 100 basis
point declining rate scenario is more appropriate for evaluation purposes.
A 100 basis point decrease in interest rates, at June 30, 2002, may result
in a net interest income reduction of approximately 2.0% compared to 1.6%
at December 31, 2001.
In order to reduce the exposure of interest rate fluctuations,
WesBanco utilizes interest rate swap agreements. These 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. These agreements are entered into as part of
WesBanco's interest rate risk management strategy primarily to alter the
interest rate sensitivity of deposit liabilities. At June 30, 2002,
the notional value of interest rate swap agreements outstanding was
approximately $117.0 million with a related market loss of $1.5 million,
net of tax, which is recorded in comprehensive income.
24
PART II - OTHER INFORMATION
- ---------------------------
Item 1. - Legal Proceedings
- ---------------------------
On March 1, 2002, WesBanco consummated its acquisition of American
Bancorporation through a series of corporate mergers. At the time of the
consummation of this transaction, American Bancorporation was a defendant
in a suit styled Martin, et al. v. The American Bancorporation Retirement
Plan, et al., under Civil Action No. 5:2000-CV-168 (Broadwater), presently
pending in the United States District Court for the Northern District of
West Virginia. WesBanco has essentially become substituted as the
principal defendant in this suit by reason of the merger. This case
involves a class action suit against American Bancorporation by certain
beneficiaries of the American Bancorporation Defined Benefit Retirement
Plan (the "Plan") seeking to challenge benefit calculations and
methodologies used by the outside Plan Administrator in determining
benefits under the Plan which was frozen by American Bancorporation, as to
benefit accruals, some years ago. The Plan had been the subject of a
predecessor action in a case styled American Bancorporation Retirement
Plan, et al. v. McKain, Civil Action No. 5:93-CV-110, which was also
litigated in the United States District Court for the Northern District of
West Virginia. The McKain case resulted in an Order entered by the
District Court on September 22, 1995, which directed American
Bancorporation to follow a specific method for determining retirement
benefits under the Plan. American Bancorporation has asserted that they
have calculated the benefits in accordance with the requirements of the
1995 District Court Order. The purported class of plaintiffs now assert
that they are not bound by the 1995 District Court Order since they were
not parties to that proceeding and are seeking a separate benefit
determination. The District Court in the current case has substantially
limited the class of plaintiffs to a group of approximately 37 individuals
and has granted partial summary judgment to significantly reduce the scope
and extent of the underlying case. It is not believed that the case
presents any material risk of exposure to WesBanco though, as with any
litigation matter, there are uncertainties in the outcome of the proceeding
which cannot be determined with any degree of certainty.
On August 1, 2002, the Corporation was named in a lawsuit filed
by a former loan customer of the Corporation's banking subsidiary over a
failed purchase of an ambulance service enterprise operated by a local
hospital. It is believed the suit has been filed against the wrong
corporation since the Corporation has had no business dealings with the
plaintiff. The suit alleges numerous counts and claims against multiple
defendants over the purchase and subsequent failure of the ambulance
service. The Corporation's banking subsidiary did make a loan to the
plaintiff's company which became delinquent and the bank did recover fully
on the loan through liquidation of pledged collateral. Allegations of
fraudulent conduct and tortuous interference are alleged against the
Corporation. No discovery has yet been undertaken in the case and the
broad and sweeping nature of the alleged conduct makes it difficult to
assess the substance of the Complaint. The Corporation intends to
vigorously defend the suit.
WesBanco is also involved in other 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 operations.
25
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
- ---------------------
10.20 Separation Agreement and Release and Waiver of Claims
Between WesBanco, Inc. and Dennis P. Yaeger dated
May 30, 2002, set forth on pages E1 through E8.
10.21 Stock Option Amendment Agreement Between WesBanco, Inc.
and Dennis P. Yaeger dated May 31, 2002, set forth
on pages E-9 through E-11.
Item 6(b). - Reports on Form 8-K
- --------------------------------
On May 14, 2002, WesBanco, Inc. filed a current report on Form 8-K/A,
amending the Form 8-K filed on March 15, 2002, to provide the information
required under Item 7.
On June 26, 2002, WesBanco, Inc. filed a current report on Form 8-K,
announcing the adoption of a new stock repurchase plan, to repurchase up to
an additional one million shares of WesBanco common stock.
On July 23, 2002, WesBanco, Inc. furnished a Form 8-K, in accordance
with general instruction B.2. of Form 8-K. The information was furnished
and shall not be deemed filed for the purposes of Section 18 of the
Securities Exchange Act of 1934. Representatives of the Registrant conducted
a presentation to a group of analysts and investors at the Community Bank
Investor Conference in New York City.
26
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, 2002 /s/ Paul M. Limbert
-------------------
Paul M. Limbert
President and Chief Executive Officer
Date: August 14, 2002 /s/ Robert H. Young
--------------------
Robert H. Young
Executive Vice President and Chief
Financial Officer
27
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of WesBanco, Inc on Form 10-Q for
the period ended June 30, 2002 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), each of the undersigned, in
the capacities and on the dates indicated below, hereby certifies pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operation of
WesBanco, Inc.
Date: August 14, 2002 /s/ Paul M. Limbert
-------------------
Paul M. Limbert
President and Chief Executive Officer
Date: August 14, 2002 /s/ Robert H. Young
-------------------
Robert H. Young
Executive Vice President and Chief
Financial Officer
28