1
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 September 30, 1997
-------------------------------------------------
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. Outstanding at October 31,
1997, 16,059,352 shares.
2
PART 1 - FINANCIAL INFORMATION
- -------------------------------
Consolidated Balance Sheets at September 30, 1997 and
December 31, 1996, and Consolidated Statements of Income,
Consolidated Statements of Changes in Shareholders' Equity and
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996 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
nine months ended September 30, 1997 are not necessarily
indicative of what results may be attained for the entire year.
Average shares and per share information have been restated
to reflect a 3 for 2 stock split that was effected in the form of
a fifty percent (50%) stock dividend, declared June 19, 1997.
For further information, refer to the 1996 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, 1996.
3
WESBANCO, INC.
CONSOLIDATED BALANCE SHEET
- ------------------------------------------------------------------------------
(Unaudited, dollars in thousands, except per share amounts)
September 30, December 31,
1997 1996
------------- ------------
ASSETS
Cash and due from banks $ 55,520 $ 58,828
Due from banks - interest bearing 198 197
Federal funds sold 48,600 10,970
Securities:
Available for sale, carried at market value 318,794 276,201
Held to maturity (market value of $236,022
and $250,132, respectively) 233,739 249,108
----------- -----------
Total securities 552,533 525,309
----------- -----------
Loans held for sale 13,991 983
Loans (net of unearned income of $1,933
and $4,160, respectively) 1,028,475 1,026,370
Allowance for loan losses (15,522) (15,528)
----------- -----------
Net loans 1,012,953 1,010,842
----------- -----------
Bank premises and equipment - net 34,480 32,670
Accrued interest receivable 13,259 11,748
Other assets 30,877 26,224
----------- -----------
Total Assets $1,762,411 $1,677,771
=========== ===========
LIABILITIES
Deposits:
Non-interest bearing demand $ 162,141 $ 159,176
Interest bearing demand 346,718 284,143
Savings 288,807 323,673
Certificates of deposit 594,400 575,828
----------- -----------
Total deposits 1,392,066 1,342,820
----------- -----------
Federal funds purchased and repurchase agreements 87,706 81,089
Other short-term borrowings 17,356 11,682
Accrued interest payable 6,130 5,826
Other liabilities 12,575 8,822
----------- -----------
Total Liabilities 1,515,833 1,450,239
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 1,000,000
shares authorized; none outstanding - -
Common stock, $2.0833 par value; 25,000,000
shares authorized; 16,072,049 and 10,538,993
shares issued, respectively 33,484 21,956
Capital surplus 44,536 36,949
Retained earnings 166,784 170,116
Treasury stock at cost (7,600 and 17,139
shares, respectively) (208) (544)
Market value adjustment on securities
available for sale - net of tax effect 2,999 (90)
Deferred benefits for employees and directors (1,017) (855)
----------- -----------
Total Shareholders' Equity 246,578 227,532
----------- -----------
Total Liabilities and Shareholders' Equity $1,762,411 $1,677,771
=========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
4
WESBANCO, INC.
CONSOLIDATED STATEMENT OF INCOME
- -----------------------------------------------------------------------------
(Unaudited, dollars in thousands, except per share amounts)
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- -------------------------
1997 1996 1997 1996
------------ ----------- ----------- -----------
INTEREST INCOME
Interest and fees on loans $ 22,916 $ 20,684 $ 67,411 $ 60,046
Interest on securities 7,993 7,451 23,249 22,305
Interest on short-term investments 839 329 1,648 1,293
--------- --------- --------- ---------
Total interest income 31,748 28,464 92,308 83,644
--------- --------- --------- ---------
INTEREST EXPENSE
Interest on deposits 13,169 11,215 37,728 33,010
Interest on other borrowings 1,176 944 3,244 2,713
---------- --------- --------- ---------
Total interest expense 14,345 12,159 40,972 35,723
---------- --------- --------- ---------
Net interest income 17,403 16,305 51,336 47,921
Provision for loan losses 875 1,298 2,864 2,848
---------- --------- --------- ---------
Net interest income after
provision for loan losses 16,528 15,007 48,472 45,073
---------- --------- --------- ---------
OTHER INCOME
Trust fees 1,702 1,204 4,985 4,039
Service charges and other income 1,979 1,692 5,264 4,713
Net securities gains(losses) 77 (167) 162 (51)
---------- --------- --------- ---------
Total other income 3,758 2,729 10,411 8,701
---------- --------- --------- ---------
OTHER EXPENSES
Salaries, wages and
employee benefits 6,573 6,076 19,037 17,406
Premises and equipment-net 1,837 1,402 5,315 4,354
Other operating 3,851 3,356 11,280 9,686
---------- --------- --------- ---------
Total other expenses 12,261 10,834 35,632 31,446
---------- --------- --------- ---------
Income before provision for
income taxes 8,025 6,902 23,251 22,328
Provision for income taxes 2,087 1,749 6,160 6,255
---------- --------- --------- ---------
Net Income $5,938 $5,153 $17,091 $16,073
========== ========= ========= =========
Earnings per share of common stock $0.37 $0.34 $1.08 $1.06
========== ========= ========= =========
Average shares outstanding 16,068,798 15,317,595 15,809,965 15,279,684
========== ========== ========== ==========
Dividends per share $0.200 $0.187 $0.586 $0.533
========== ========== ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
5
WESBANCO, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------
(Unaudited, in thousands, except for shares)
Market Value Deferred
Adjustment on Benefits for
Shares Common Capital Retained Treasury Investments Directors &
Outstanding Stock Surplus Earnings Stock Available for Sale Employees Total
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1995 10,185,972 $21,608 $31,237 $159,483 $(5,038) $ 849 $(1,143) $ 206,996
- ----------------------------------------------------------------------------------------------------------------------------
Net income 21,161 21,161
Cash dividends
Common (10,125) (10,125)
Common by pooled bank
prior to acquisition (403) (403)
Stock issued for
acquisitions 378,008 348 5,674 5,899 11,921
Net treasury shares
purchased (42,126) 38 (1,405) (1,367)
Principal payment
on ESOP debt 365 365
Deferred benefits
for directors (77) (77)
Market value adjustment
on investments
available for sale-
net of tax effect (939) (939)
- -----------------------------------------------------------------------------------------------------------------------------
December 31, 1996 10,521,854 21,956 36,949 170,116 (544) (90) (855) 227,532
- -----------------------------------------------------------------------------------------------------------------------------
Net income 17,091 17,091
Cash dividends - Common (9,262) (9,262)
Stock issued for
acquisition 323,172 367 7,518 4,901 12,786
Net treasury shares
purchased (137,580) 69 (4,565) (4,496)
Stock issued for a
3 for 2 stock split
effected in the form
of a 50% stock dividend 5,357,003 11,161 (11,161) -
Deferred benefits
for directors (28) (28)
ESOP borrowing (134) (134)
Market value adjustment
on investments
available for sale-
net of tax effect 3,089 3,089
- -----------------------------------------------------------------------------------------------------------------------------
September 30, 1997 16,064,449 $33,484 $44,536 $166,784 $(208) $ 2,999 $(1,017) $246,578
- -----------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of
these financial statements.
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WESBANCO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents (unaudited, in thousands)
For the nine months ended
September 30,
--------------------------
1997 1996
------------ -----------
Cash flows from operating activities:
Net Income $17,091 $16,073
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,857 4,282
Provision for loan losses 2,864 2,848
Gains on sales of securities-net (162) 51
Deferred income taxes 315 (329)
Net change in assets and liabilities:
Loans held for sale (13,009) -
Interest receivable (1,347) (35)
Other assets 2,074 (1,353)
Interest payable 24 18
Other liabilities 1,157 1,861
Other - net (119) (244)
----------- ----------
Net cash provided by operating activities 12,745 23,172
----------- ----------
Cash flows from investing activities:
Securities held to maturity:
Payments for purchases (39,582) (38,306)
Proceeds from maturities and calls 72,395 81,093
Securities available for sale:
Payments for purchases (104,546) (121,848)
Proceeds from sales 25,779 70,513
Proceeds from maturities and calls 32,685 26,228
Purchase of subsidiary, net of cash acquired 6,615 -
Net (increase) decrease in loans 12,526 (73,525)
Purchases of premises and equipment-net (3,697) (3,260)
---------- ----------
Net cash provided by (used in) investing activities 2,175 (59,105)
---------- ----------
Cash flows from financing activities:
Net increase in deposits 20,678 16,668
Increase in federal funds purchased
and repurchase agreements 6,316 14,194
Increase in short-term borrowings 5,674 11,402
Dividends paid (8,904) (6,937)
Purchases of treasury shares-net (4,496) (721)
ESOP borrowings 134 -
---------- ----------
Net cash provided by financing activitie 19,402 34,606
---------- ----------
Net increase (decrease) in cash and cash equivalents 34,322 (1,327)
Cash and cash equivalents at beginning of period 69,798 91,694
---------- ----------
Cash and cash equivalents at end of period $104,120 $90,367
========== ==========
For the nine months ended September 30, 1997 and 1996, WesBanco paid $40,669
and $35,359 in interest on deposits and other borrowings, and $5,720 and
$6,220 for income taxes respectively. During the nine months ended
September 30, 1997 non-cash activity consisted of common stock issued in
connection with the purchase acquisition of Shawnee on June 30, 1997, which
totaled $12,786.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
7
WESBANCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------
Note 1 - Basis of presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles 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 generally accepted accounting principles
for complete financial statements.
The consolidated financial statements include the accounts
of WesBanco, Inc. and its wholly-owned subsidiaries. All
significant intercompany transactions have been eliminated in
consolidation. Average shares and per share information have
been restated to reflect a 3 for 2 stock split that was effected
in the form of a fifty percent (50%) stock dividend, declared
June 19, 1997 and paid August 1, 1997.
Note 2 - New accounting standards to be adopted
- -----------------------------------------------
During the nine months ended September 30, 1997, the
Financial Accounting Standards Board issued several Statements of
Financial Accounting Standards ("SFAS").
SFAS No. 128, "Earnings per Share" is effective for periods
ending after December 15, 1997 with retroactive restatement
required for all periods presented. Under the provisions of SFAS
No. 128, primary and fully diluted earnings per share will be
replaced with basic and diluted earnings per share amounts.
SFAS No. 129, "Disclosure of Information About Capital
Structure," is effective for financial statements for the periods
ending after December 15, 1997. This Statement requires
disclosure of rights and privileges of various securities
outstanding.
SFAS No. 130, "Reporting Comprehensive Income," is effective for
fiscal years beginning after December 15, 1997. The statement
establishes standards for reporting and display of comprehensive
income and its components. Comprehensive income includes net
income and all other changes in shareholders' equity except those
resulting from investments and distributions of owners.
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," is effective for financial statements for
periods beginning after December 15, 1997. This Statement
requires financial
8
Note 2 - New accounting standards to be adopted (continued)
- -----------------------------------------------------------
and descriptive information about an entity's operating segments
to be included in the annual financial statements.
None of these standards when implemented are expected to
materially impact the reported financial position or results of
operations of the Corporation.
Note 3 - Mergers and acquisitions
- ---------------------------------
On September 30, 1997, WesBanco and Commercial Bancshares,
Incorporated jointly announced the signing of a definitive
Agreement and Plan of Merger providing for Commercial, a multi-
bank holding company headquartered in Parkersburg, West Virginia,
to merge with WesBanco affiliated companies. Under the terms of
the definitive Agreement and Plan of Merger, WesBanco will
exchange 2.85 shares of WesBanco common stock for each share of
Commercial common stock outstanding in a tax free exchange. The
merger, which is based on a fixed exchange ratio, will be
accounted for as a pooling of interests. In addition, Commercial
has granted to WesBanco an option, exercisable under certain
conditions, to purchase up to 19.9% of Commercial's outstanding
common shares.
The transaction, which is subject to, among other things,
approval by the appropriate regulatory authorities and the
stockholders of Commercial and WesBanco, is expected to be
completed during the first quarter of 1998. Prior to its
agreement with WesBanco, Commercial executed a definitive
agreement to acquire Gateway Bancshares, Inc., located in
McMechen, West Virginia. On a proforma basis, Commercial,
including the acquisition of Gateway, reflected total assets of
approximately $456,305,000 and common shares outstanding of
1,732,295 as of September 30, 1997.
Note 4 - Completed Merger
- -------------------------
On June 30, 1997, WesBanco consummated its acquisition of
Shawnee Bank, Inc., into WesBanco Bank Charleston, a wholly-owned
subsidiary of WesBanco. In accordance with the terms of the
acquisition, WesBanco issued a total of 323,172 shares of common
stock, of which 147,274 shares were from its Treasury balance and
175,898 shares were newly issued. The acquisition was accounted
for as a purchase transaction with a total purchase price of
$12,786,000. The excess of the purchase price over the fair
market value of the net assets (goodwill) of Shawnee approximated
$7,107,000 and is being amortized over a period of 15 years. As
of the acquisition date, Shawnee reported total assets of
approximately $34,695,000.
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WESBANCO, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ----------------------------------------------------------------
(Unaudited, dollars in thousands, except per share amounts)
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.
Financial Condition
-------------------
Total assets of WesBanco as of September 30, 1997 were
$1,762,411 as compared to $1,677,771 as of December 31, 1996, an
increase of 5%. Contributing to the increase in assets was the
purchase acquisition of Shawnee, which occurred June 30, 1997.
As of the acquisition date, Shawnee reported total assets of
$34,695, loans of $17,502 and deposits of $28,643.
For the comparative period, securities and federal funds
sold increased $27,224 and $37,630, respectively. Loans remained
unchanged from the same level as December 31, 1996, while
deposits increased $49,246.
Securities
- ----------
The following table shows the composition of WesBanco's
securities portfolio:
September 30, December 31,
1997 1996
------------- ------------
Securities Available for Sale (at market):
- ------------------------------------------
U.S. Treasury and federal agency securities $215,729 $161,817
Obligations of states and political subdivisions 14,291 14,120
Corporate securities 8,584 5,005
Mortgage-backed securities 78,285 93,750
Other debt and equity securities 1,905 1,509
---------- ---------
Total available for sale 318,794 276,201
---------- ---------
Securities Held to Maturity (at cost):
- --------------------------------------
U.S. Treasury and federal agency securities 79,164 99,457
Obligations of states and political subdivisions 152,298 147,643
Other debt securities 2,277 2,008
---------- ---------
Total held to maturity (market value of
$236,022 and $250,132, respectively) 233,739 249,108
---------- ---------
Total securities $552,533 $525,309
========== =========
10
The market value adjustment, before tax effect, in the
available for sale securities portfolio reflected unrealized net
gains of $4,938 as of September 30, 1997 compared to unrealized
net losses of $144 as of December 31, 1996. These adjustments
represent temporary market value fluctuations caused by general
changes in market rates and the length of time to respective
maturity dates. If these securities are held until their
respective maturity date, no market value adjustment would be
realized.
Loans
- -----
The following table shows the composition of WesBanco's loan
portfolio at September 30, 1997 and December 31, 1996:
September 30, 1997 December 31, 1996
------------------ -----------------
Amount Percent Amount Percent
------ ------- ------ -------
Commercial $ 201,462 19.6% $ 177,136 17.2%
Real Estate - Construction 26,294 2.6 21,556 2.0
Real Estate - Mortgage 513,400 49.8 510,778 49.6
Consumer 289,252 28.0 321,060 31.2
--------- ------ --------- ------
Total Loans 1,030,408 100.0% 1,030,530 100.0%
Less:
Unearned income (1,933) (4,160)
Allowance for loan losses (15,522) (15,528)
---------- ----------
Net Loans $1,012,953 $1,010,842
========== ==========
Consumer loans declined during the nine months ended
September 30, 1997, reflecting a slowdown in indirect auto
financing, while commercial loans increased primarily due to
financing a large secured business loan during the third quarter
of 1997. The Corporation expects loan growth to remain slow during
the fourth quarter of 1997 due to the competitive environment and
lack of economic growth in the Upper Ohio Valley.
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 nonperforming 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, including all nonperforming loans, are as follows:
September 30, December 31,
1997 1996
------------- ------------
Nonperforming loans:
Nonaccrual $ 6,596 $ 4,664
Renegotiated 815 2,150
Other classified loans:
Doubtful 94
Substandard 3,377 3,377
---------- ----------
Total impaired loans $ 10,788 $ 10,285
========== ==========
The average balance of impaired loans during the nine months ended
September 30, 1997 and year ended December 31, 1996, was approximately
$11,940 and $11,541, respectively.
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Specific allowances for loan losses are allocated for
impaired loans based on the present value of expected future cash
flows, or the fair value of the collateral for loans that are
collateral dependent. Related allowances for loan losses on
impaired loans were $1,774 and $2,120 as of September 30, 1997
and December 31, 1996, respectively.
Other real estate owned totaled $4,629 as of September 30,
1997, compared to $3,555 as of December 31, 1996. Loans past due
90 days or more decreased to $4,022 or .4% of total loans as of
September 30, 1997, as compared to $4,105 or .4% of total loans
as of December 31, 1996.
Lending by WesBanco banks is guided by written lending
policies which allow for various types of lending. Normal
lending practices do not include the acquisition of high yield
non-investment grade loans or "highly leveraged transactions"
("HLT") from outside the primary market.
Allowance for Loan Losses
- -------------------------
Activity in the allowance for loan losses is summarized as follows:
For the nine months
ended September 30,
--------------------
1997 1996
---- ----
Balance, at beginning of period $15,528 $13,440
Allowance for loan losses of purchased bank 269 -
Charge-offs (3,821) (2,063)
Recoveries 682 372
------- -------
Net charge-offs (3,139) (1,691)
Provision for loan losses 2,864 2,848
------- -------
Balance, at end of period $15,522 $14,597
======= =======
The increase in net charge-offs during the nine months ended
September 30, 1997 resulted from an increase in consumer loan
charge-offs and the writedown of a commercial loan. The increase
in consumer loan charge-offs was due to the lack of economic
growth in the Upper Ohio Valley. The allowance for loan losses
as a percentage of total loans was 1.51% as of September 30, 1997
and 1996. Amounts allocated to the allowance for loan losses are
based upon management's evaluation of the credit risk in the loan
portfolio. Management believes that the allowance for loan
losses as of September 30, 1997 is adequate to provide for
potential losses in the portfolio.
Deposits
- --------
Total deposits increased $49,246 between September 30, 1997
and December 31, 1996 due in part to the purchase acquisition of
Shawnee Bank, Inc., which accounted for approximately 58% of the
growth. In addition, WesBanco experienced growth in both
interest bearing demand and certificates of
12
deposit. Customer preference for higher yielding products coupled with
competitive pricing through the Good Neighbor Banking program have resulted
in steady growth in certificates of deposit. Contributing to the
growth in interest bearing demand was the Prime Rate Money Market
account, introduced on October 1, 1996. This deposit product,
competitively priced at 60% of WesBanco's prime rate, has generated
both new deposit growth and a shift in deposit balances from savings
and other interest bearing demand products.
Liquidity and Capital Resources
- -------------------------------
WesBanco manages its liquidity position to meet its funding
needs, including deposit outflows and loan principal
disbursements and to meet its asset and liability management
objectives.
In addition to funds provided from operations, WesBanco's
primary sources of funds are deposits, principal repayments on
loans and matured or called securities. Scheduled loan
repayments and maturing securities are relatively predictable
sources of funds. However, deposit flows and prepayments on
loans are significantly influenced by changes in market interest
rates, economic conditions, and competition. WesBanco strives to
manage the pricing of its deposits to maintain a balance of cash
flows commensurate with loan commitments and other funding needs.
WesBanco is subject to risk-based capital guidelines that
measure capital relative to risk-adjusted assets and off-balance
sheet financial instruments. The Corporation's Tier I, total
risk-based capital and leverage ratios are well above the
required minimum levels of 4%, 8% and 4%, respectively.
At September 30, 1997 and December 31, 1996, all of
WesBanco's affiliate banks exceeded the minimum regulatory
levels. Capital adequacy ratios are summarized as follows:
September 30, December 31,
1997 1996
------------- ------------
Tier I capital 19.8% 19.8%
Total risk-based capital 21.0 21.0
Leverage 13.2 13.7
13
Earnings Summary
----------------
Comparison of the nine months ended September 30, 1997 and 1996
---------------------------------------------------------------
Net income for the nine months ended September 30, 1997 was
$17,091, a 6.3% increase over the same period in 1996. Earnings
per share of common stock for the nine months ended September 30,
1997 and 1996 were $1.08 and $1.06, respectively. The purchase
acquisitions of Vandalia National Corporation and Shawnee Bank,
Inc. were completed subsequent to the nine months ended September
30, 1996. The impact of these acquisitions increased most income
and expense classifications during the nine months ended
September 30, 1997, as further explained in the Earnings Summary.
Return on average assets was 1.3% for the nine months ended
September 30, 1997 and 1.4% for the nine months ended September
30, 1996. Return on average equity was 9.8% compared to 10.3% for
the nine months ended September 30, 1997 and 1996, respectively.
Net Interest Income
- -------------------
During a period of stable market rates, net interest income
before the provision for loan losses, for the nine months ended
September 30, 1997 increased $3,415 or 7.1% over the same period
for 1996. While the net tax equivalent yield on average earning
assets remained level at 4.6%, the increase in net interest
income was primarily the result of growth in average earning
assets of $107,584 and interest bearing liabilities of $86,700.
Interest Income
- ---------------
Total interest income increased $8,664 or 10.4% between the
nine month periods ended September 30, 1997 and 1996. The
average balance on interest earning assets increased $107,584 or
7.2%, while the average yield on average earning assets, on a
fully tax equivalent basis increased to 8.1% from 7.8% between
the nine month period ended September 30, 1997 and 1996.
Interest and fees on loans increased $7,365 or 12.3% primarily
due to an increase in the average balance of loans outstanding.
Average loan balances increased $103,837 or 11.3%, while average
rates earned on loans remained unchanged. Loan growth resulted
from the Vandalia and Shawnee purchase acquisitions coupled with
growth in indirect auto financing during 1996. Interest on
taxable securities, which did not change significantly between
the nine month periods ended September 30, 1997 and 1996,
reflected a decline in the average outstanding balance of $31,623
offset by an increase in the average rate of approximately .4%.
The decrease in the average securities balance was the result of
funding loan growth during 1996 with scheduled investment
maturities. Interest earned on nontaxable securities increased
$1,207 or 23.5%. Increases in the average balance of nontaxable
securities approximated $23,531 and the average yield increased
.3%. WesBanco emphasized purchases of nontaxable securities,
which represented after-tax yield advantages over other
securities during the comparative period.
14
Interest Expense
- ----------------
Total interest expense increased $5,249 or 14.7% between the
nine month periods ended September 30, 1997 and 1996. The average
balance of interest bearing liabilities increased $86,700 or
7.2%, while the average cost of funds rate increased .3%
to 4.2% from 3.9% between the nine month periods ended September
30, 1997 and 1996. Interest expense on deposits increased $4,718
or 14.3%. During the comparative period, the average rate of
interest bearing deposits increased .3% and average interest
bearing deposit balances increased by approximately $80,893 or
7.2%. Interest expense on interest bearing demand deposits
increased $2,143 or 41.1% primarily due to an increase in the
average rate of .6% coupled with an increase in the average
balance of $42,795 or 15.7%. An increase of $3,696 or 17.6% in
the interest expense on certificates of deposit was primarily due
to an average balance increase of $72,969. The increase in
average balance and rate for both interest bearing demand and
certificates of deposit resulted from the Vandalia and Shawnee
purchase acquisitions, the competitively-priced Prime Rate Money
Market product and Good Neighbor Banking bonuses offered on
various certificates of deposit products. Affected primarily by
a shift in balances from savings into money markets and
certificates of deposit, interest on savings accounts decreased
$1,121 or 16.4%. Average savings balances declined $34,871 and
the average rate decreased .2%. Interest on other borrowings,
which consists primarily of repurchase agreements, increased $531
or 19.6% due to an increase in average balances outstanding of
$5,808. Rates paid on repurchase agreements closely follow the
direction of interest rates in the federal funds market.
Other Income
- ------------
Other income increased $1,710 or 19.7%. Trust fee income
increased $946 due to increases in the market value of trust
assets and new trust business as well as fees associated with the
establishment of a new family of mutual funds, the WesMark funds.
The market value of trust assets approximated $1,901,346 as of
September 30, 1997, an increase of $401,416 or 26.8% over
September 30, 1996. Service charges and other income increased
$551 or 11.7% between the nine month periods ended September 30,
1997 and 1996, resulting from an increase in service charges on
deposit accounts.
Other Expenses
- --------------
Total other expenses increased $4,186 or 13.3%.
Approximately $2,053 or 49.0% of the increase was associated with
the purchase acquisitions which occurred subsequent to the nine
months ended September 30, 1996. Salaries and employee benefits
increased $1,631 or 9.4% during the comparative period, of which
approximately $899 was due to the purchase acquisitions. The
remaining portion of the increase resulted from wage increases and
an increase in health insurance costs, partially offset by a reduction
in the cost of the defined benefit pension plan. Premises and equipment
expense increased $961 or 22.1%. While the purchase acquisitions
contributed to the increase in this expense category, the
15
majority of the increase was due to depreciation expense on
technology enhancements made during 1996, including the
installation of a wide area network and a new banking software
system. Other operating expenses increased $1,594 or 16.5%.
Approximately $929 or 58.3% of the increase was associated
with the purchase acquisitions, which included related goodwill
amortization of $525. The increase in other expenses was further
affected by the construction of a 2,700 square foot branch office
of WesBanco Bank Barnesville, an affiliate of WesBanco. The office,
located in the Ohio Valley Plaza, St. Clairville, Ohio, began operations
early 1997.
Income Taxes
- ------------
A reconciliation of the average federal statutory tax rate
to the reported effective tax rate attributable to income from
operations follows:
For the nine months
ended September 30,
--------------------
1997 1996
---- ----
Federal statutory tax rate 35% 35%
Tax-exempt interest income from
securities of states and political
subdivisions (9) (8)
State income tax - net of federal
tax effect 3 3
Alternative minimum tax credit
carryforward recognized (3) -
All other - net 0 (1)
---- ----
Effective tax rate 26% 29%
==== ====
For the nine months ended September 30, 1997, the
Corporation has utilized credits for prior years' minimum taxes
of $675. As of September 30, 1997, approximately $198 in credits
are available for future periods to reduce federal income taxes
payable.
Comparison of the three months ended September 30, 1997 and 1996
----------------------------------------------------------------
Interest Income
- ---------------
Total interest income increased $3,284 or 11.5% between the
three month periods ended September 30, 1997 and 1996. Interest
and fees on loans increased $2,232 or 10.8% primarily due to an
increase in the average balance of loans outstanding. Average
loan balances increased by approximately $102,969 or 11.1% as
average rates earned on loans decreased approximately .2%.
Interest on taxable securities, which did not change
significantly between the three month periods ending September 30,
16
1997 and 1996, reflected a decrease in the average outstanding
balance of $14,746 offset by an increase in the average rate of
approximately .1%. The decrease in average taxable securities
was the result of funding loan growth during 1996 with scheduled
investment maturities. Interest earned on nontaxable securities
increased by $702 or 50%. Increases in the average balance of
nontaxable securities approximated $20,730 while the average yield
increased 1.2%. WesBanco emphasized purchases in nontaxable
securities, which represented after-tax yield advantages over
other securities during the comparative period.
Interest Expense
- ----------------
Total interest expense increased $2,186 or 18% between the
three month periods ended September 30, 1997 and 1996. Interest
expense on deposits increased $1,954 or 17.4% during the
comparative period as the average rate on interest bearing
deposits increased .3% and average interest-bearing deposit
balances increased by approximately $97,056 or 8.6%. Interest
expense on interest bearing demand deposits increased $1,069 or
60.4% primarily due to an increase in the average rate of .7%
coupled with an increase in the average balance of $70,562 or
26.3%. The rate and balance increases resulted from growth in the
Prime Rate Money Market product. An increase of $1,346 or 18.9%
in the interest expense on certificates of deposit was primarily
the result of an average balance increase of $67,866. The growth
in certificates of deposit was associated primarily with the Good
Neighbor Banking Program. Affected primarily by a shift in
balances from savings into money markets and certificates of
deposit, interest on savings accounts decreased $461 or 19.9%.
Average savings balances declined $41,372 and the average rate
decreased .3%. Interest on other borrowings, which consist
primarily of repurchase agreements, increased $232 or 24.6% .
Other Income
- ------------
Other income increased $1,029 or 37.7% between the three
month periods ended September 30, 1997 and 1996. The increase
was due to both trust fee income, which reflected fees associated
with the WesMark funds, and increased service charges on deposit
accounts.
Other Expenses
- --------------
Total other expenses increased $1,427 or 13.2%, of which
approximately $913 or 64.0% was associated with the purchase
acquisitions. Salaries and employee benefits increased $497 or
8.2% during the comparative period. Premises and equipment
expense increased $435 or 31% primarily due to depreciation
expense on technology enhancements made during 1996. Other
operating expenses increased $495 or 14.7%. Approximately
$439 of the increase was associated with the purchase acquisitions,
which included related goodwill amortization of $257. The increase
in other expenses was also affected by the construction of a branch
office of WesBanco Barnesville, which began operations early 1997.
17
Other Matters
-------------
WesBanco has approximately 58% of its assets located in the Upper
Ohio Valley, an area that experienced an extended strike between the
United Steel Workers Union and Wheeling-Pittsburgh Steel Corporation.
On August 12, 1997, a new contract was ratified between the Union and
Wheeling-Pittsburgh Steel.
Part II - OTHER INFORMATION
- ---------------------------
Item 1-5 - Not Applicable
- -------------------------
Item 6(a) - Exhibits
- --------------------
2.1 Agreement and Plan of Merger, by and between WesBanco, Inc. and
Commercial Bancshares, Incorporated, dated September 30, 1997.
2.2 Stock Option Agreement by and between WesBanco,Inc. and Commercial
Bancshares, Incorporated, dated September 12, 1997.
27 Financial Data Schedule required by Article 9 of Regulation S-X.
Item 6(b) - Reports on Form 8-K
- -------------------------------
(1) On August 5, 1997, the Registrant filed a current report on
Form 8-K, dated August 1, 1997, announcing a 3 for 2 stock split
that was effected in the form of a fifty percent (50%) stock
dividend paid August 1, 1997 to shareholders of record on
July 15, 1997.
(2) On October 6, 1997, the Registrant filed a current report on
Form 8-K, dated September 30, 1997 announcing the signing of a
definitive Agreement and Plan of Merger providing for the merger of
Commercial Bancshares, Incorporated, located in Parkersburg, West
Virginia, into WesBanco, Inc.
18
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.
--------------
November 14, 1997 /s/ Edward M. George
------------------------------------
Edward M. George
President and Chief Executive Officer
November 14, 1997 /s/ Paul M. Limbert
------------------------------------------
Paul M. Limbert
Executive Vice President-Credit Administration
and Chief Financial Officer