27
EXHIBIT 13
WESBANCO, INC.
CONSOLIDATED BALANCE SHEET
- - -----------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
December 31,
-------------------------
1997 1996
- - -----------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 56,446 $ 58,828
Due from banks - interest bearing 198 197
Federal funds sold 71,513 10,970
Investment securities:
Held to maturity (market values of $226,789
and $250,132, respectively) 224,047 249,108
Available for sale carried at market value 342,510 276,201
- - -----------------------------------------------------------------------------
Total investment securities 566,557 525,309
- - -----------------------------------------------------------------------------
Loans, net of unearned income 1,032,983 1,027,353
Allowance for loan losses (15,531) (15,528)
- - -----------------------------------------------------------------------------
Net loans 1,017,452 1,011,825
- - -----------------------------------------------------------------------------
Bank premises and equipment 34,436 32,670
Accrued interest receivable 12,942 11,748
Other assets 29,751 26,224
- - -----------------------------------------------------------------------------
Total Assets $1,789,295 $1,677,771
- - -----------------------------------------------------------------------------
LIABILITIES
Deposits:
Non-interest bearing demand $ 158,323 $ 159,176
Interest bearing demand 383,978 284,143
Savings deposits 276,341 323,673
Certificates of deposit 595,612 575,828
- - -----------------------------------------------------------------------------
Total deposits 1,414,254 1,342,820
- - -----------------------------------------------------------------------------
Federal funds purchased and repurchase agreements 90,881 81,089
Other short-term borrowings 15,804 11,682
Accrued interest payable 5,804 5,826
Other liabilities 13,002 8,822
- - -----------------------------------------------------------------------------
Total Liabilities 1,539,745 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; 16,072,051 and 10,538,993
shares issued, respectively) 33,483 21,956
Capital surplus 44,550 36,949
Retained earnings 168,755 170,116
Treasury stock (56,381 and 17,139 shares,
respectively, at cost) (1,675) (544)
Market value adjustment on investments available
for sale-net of tax effect 5,026 (90)
Deferred benefits for directors and employees (589) (855)
- - -----------------------------------------------------------------------------
Total Shareholders' Equity 249,550 227,532
- - -----------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,789,295 $1,677,771
- - -----------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
28
WESBANCO, INC.
CONSOLIDATED STATEMENT OF INCOME
- - -----------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
For the years ended December 31,
--------------------------------
1997 1996 1995
- - ------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $ 90,467 $ 81,449 $ 74,452
- - ------------------------------------------------------------------------------
Interest on investment securities:
Taxable 23,062 22,066 23,614
Tax-exempt 8,474 7,642 7,524
- - ------------------------------------------------------------------------------
Total interest on investment securities 31,536 29,708 31,138
- - ------------------------------------------------------------------------------
Other interest income 2,527 1,781 2,492
- - ------------------------------------------------------------------------------
Total interest income 124,530 112,938 108,082
- - ------------------------------------------------------------------------------
Interest expense:
Interest bearing demand deposits 10,484 7,064 7,936
Savings deposits 7,451 8,817 10,333
Certificates of deposit 33,295 28,551 25,134
- - ------------------------------------------------------------------------------
Total interest on deposits 51,230 44,432 43,403
Other borrowings 4,544 3,786 3,167
- - ------------------------------------------------------------------------------
Total interest expense 55,774 48,218 46,570
- - ------------------------------------------------------------------------------
Net interest income 68,756 64,720 61,512
Provision for loan losses 4,314 4,336 2,788
- - ------------------------------------------------------------------------------
Net interest income after provision
for loan losses 64,442 60,384 58,724
- - ------------------------------------------------------------------------------
Other income:
Trust fees 6,833 5,442 4,716
Service charges and other income 7,350 6,592 6,213
Net gains on sales of securities 510 239 437
- - ------------------------------------------------------------------------------
Total other income 14,693 12,273 11,366
- - ------------------------------------------------------------------------------
Other expenses:
Salaries and wages 21,163 19,110 18,272
Employee benefits 4,610 4,500 4,945
Net occupancy expense 2,676 2,651 2,672
Equipment expense 4,464 3,135 2,461
Other operating expense 15,791 13,756 13,780
- - ------------------------------------------------------------------------------
Total other expenses 48,704 43,152 42,130
- - ------------------------------------------------------------------------------
Income before provision for income taxes 30,431 29,505 27,960
Provision for income taxes 8,157 8,344 7,656
- - ------------------------------------------------------------------------------
Net Income $ 22,274 $ 21,161 $ 20,304
- - ------------------------------------------------------------------------------
Preferred stock dividends and accretion - - $ 164
Net income applicable to common stock $ 22,274 $ 21,161 20,140
Earnings per share 1.40 1.39 1.32
Average shares outstanding 15,867,608 15,253,107 15,240,492
- - ------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
29
WESBANCO, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- - ------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
For the years ended December 31, 1997, 1996, and 1995
------------------------------------------------------------------------------
Market Value
Adjustment on Deferred
Investments Benefits for
Shares Common Capital Retained Treasury Available Directors &
Outstanding Stock Surplus Earnings Stock for Sale Employees Total
- - -----------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 10,199,958 $21,608 $32,447 $148,316 $(4,735) $(4,482) $(849) $192,305
- - -----------------------------------------------------------------------------------------------------------
Net Income 20,304 20,304
Cash dividends:
Common ($.64 per share) (8,139) (8,139)
Common by pooled bank
prior to acquisition (834) (834)
Preferred dividends & accretion (164) (164)
ESOP contribution 3,500 96 96
Net treasury shares purchased (128,597) (3,456) (3,456)
Redemption of preferred stock 111,111 (1,210) 3,057 1,847
ESOP borrowing (129) (129)
Principal payment on ESOP debt 200 200
Deferred benefits for directors (365) (365)
Market value adjustment on
investments available for
sale-net of tax effect 5,331 5,331
- - -----------------------------------------------------------------------------------------------------------
Balance, 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 ($.72 per share) (10,125) (10,125)
Common by pooled bank
prior to acquisition (403) (403)
Stock issued for acquisitions 378,008 348 5,674 5,899 11,921
Net treasury shares purchased (42,126) 38 (1,405) (1,367)
Principal payment on ESOP debt 365 365
Deferred benefits for directors (77) (77)
Market value adjustment on
investments available for
sale-net of tax effect (939) (939)
- - -----------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 10,521,854 21,956 36,949 170,116 (544) (90) (855) 227,532
- - -----------------------------------------------------------------------------------------------------------
Net Income 22,274 22,274
Cash dividends:
Common ($.786 per share) (12,474) (12,474)
Net treasury shares purchased (186,362) 82 (6,032) (5,950)
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) ----
Stock issued for acquisition 323,175 366 7,519 4,901 12,786
ESOP borrowing (134) (134)
Principal payment on ESOP debt 450 450
Deferred benefits for directors (50) (50)
Market value adjustment on
investments available for
sale-net of tax effect 5,116 5,116
- - -----------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 16,015,670 $33,483 $44,550 $168,755 $(1,675) $5,026 $(589) $249,550
- - -----------------------------------------------------------------------------------------------------------
There was no activity or outstanding balances in Nonredeemable Preferred Stock
for the years ended December 31, 1997, 1996 and 1995.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
30
WESBANCO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
- - ------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
For the years ended December 31,
----------------------------------
Increase (Decrease) in Cash and Cash Equivalents 1997 1996 1995
- - -------------------------------------------------------------------------------------
Cash flows from operating activities:
Net Income $22,274 $21,161 $20,304
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,245 5,563 7,169
Provision for loan losses 4,314 4,336 2,788
Gains on sales of investment
securities - net (510) (239) (437)
Deferred income taxes 373 (143) 82
Other - net 435 (387) 269
Net change in assets and liabilities:
Interest receivable (1,030) 960 873
Other assets 2,860 (3,461) (6,115)
Interest payable (302) (1,358) 1,468
Other liabilities 1,010 665 (906)
- - --------------------------------------------------------------------------------------
Net cash provided by operating activities 34,669 27,097 25,495
- - --------------------------------------------------------------------------------------
Cash flows from investing activities:
Investment securities held to maturity:
Proceeds from maturities and calls 93,925 113,454 80,059
Payments for purchases (51,438) (66,161) (67,026)
Investment securities available for sale:
Proceeds from sales 41,735 89,075 59,291
Proceeds from maturities and calls 52,018 43,843 47,901
Payments for purchases (160,233) (183,065) (50,145)
Purchase of subsidiaries, net of
cash acquired 6,635 2,127 ---
Net (increase) decrease in loans 7,560 (89,004) (84,815)
Purchases of premises and equipment-net (4,783) (5,978) (3,215)
- - --------------------------------------------------------------------------------------
Net cash used by investing activities (14,581) (95,709) (17,950)
- - --------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 42,862 37,723 258
Increase in federal funds purchased
and repurchase agreements 9,491 9,681 4,707
Increase (decrease) in short-term borrowings 4,122 10,280 (3,042)
Net payments related to ESOP debt (316) (364) (71)
Dividends paid (12,117) (9,799) (8,854)
Purchases of treasury shares-net (5,950) (1,367) (3,456)
Other-net (19) 863 57
- - --------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 38,073 47,017 (10,401)
- - --------------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 58,161 (21,595) (2,856)
Cash and cash equivalents at
beginning of year 69,798 91,393 94,249
- - --------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $127,959 $69,798 $91,393
- - --------------------------------------------------------------------------------------
During 1997, 1996 and 1995, WesBanco paid $55,797, $49,576, and $45,103 in
interest on deposits and other borrowings and $7,720, $8,578, and $8,113
for income taxes, respectively.
During 1997, and 1996, non cash activity consisted of common stock issued in
purchase acquisitions totaling $12,786 and $11,921, respectively.
During 1995, non-cash activity consisted of the redemption of 9,925 shares
of preferred stock. Of the total shares redeemed, 9,723 shares were
exchanged for 111,111 shares of WesBanco common stock in this transaction.
The remaining 202 shares were redeemed for cash at $190 per preferred share
and are included in other financing activities.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
31
WESBANCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - -----------------------------------------------------------------------------
NOTE 1: ACCOUNTING POLICIES
- - -----------------------------------------------------------------------------
WesBanco, Inc. is a multi-bank holding company offering a full
range of financial services, including trust and mortgage banking services,
through offices located in West Virginia and Eastern Ohio.
The significant accounting principles employed in the preparation
of the accompanying consolidated financial statements are summarized below:
Principles of consolidation:
The Consolidated Financial Statements of WesBanco, Inc. (the
"Corporation") include the accounts of the Corporation and its
wholly-owned subsidiaries. Material intercompany transactions and
accounts have been eliminated.
Reclassification:
Certain prior year financial information has been reclassified to
conform to the presentation in 1997. The reclassifications had no effect
on net income.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash and cash equivalents:
For the purpose of reporting cash flows, cash and cash equivalents
include cash and due from banks, and federal funds sold. Generally,
federal funds are sold for one day periods.
Investment securities:
Investments Available for Trading:
The Corporation did not have a trading portfolio during the two year
period ended December 31, 1997.
Investments Held to Maturity:
Investment securities consisting principally of debt securities,
which are purchased with the positive intent and ability to hold until
their maturity, are stated at cost, adjusted for amortization of premiums
and accretion of discounts.
Investments Available for Sale:
Debt securities not classified as trading or held to maturity, and
marketable equity securities not classified as trading, are classified as
available for sale. These securities may be sold at any time based upon
management's assessment of changes in economic or financial market conditions,
interest rate or prepayment risks, liquidity considerations, and other factors.
These securities are stated at market value, with the market value adjustment,
net of tax, reported as a separate component of shareholders' equity.
Permanent declines in value on these securities are recognized in results of
operations.
Gains and Losses:
Net realized gains and losses on sales of securities are included in
other income. The cost of these securities sold is based on the specific
identification method.
Amortization and Accretion:
Amortization of premiums and accretion of discounts are included in
interest on securities.
Loans held for sale:
Loan originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate.
Losses, if any, are recorded in other income based on the difference between
the market value and the aggregate cost.
Loans:
Interest is accrued as earned on loans except where doubt exists
as to collectability, in which case recognition of income is discontinued.
A loan is considered impaired, based on current information and
events, if it is probable that the Corporation will be unable to collect the
scheduled payments of principal and interest when due according to the
contractual terms of the loan agreement. Impaired loans include all
nonaccrual and renegotiated loans, as well as loans internally classified
as substandard or doubtful (as those terms are defined by banking regulations)
that meet the definition of impaired loans. The Corporation recognizes
interest income on nonaccrual impaired loans on the cash basis.
The allowance for loan losses is maintained at a level considered
adequate by management to provide for potential loan losses. The allowance
is increased by provisions charged to operating expenses and reduced by loan
losses, net of recoveries. The amount of allowance is based on management's
evaluation of the loan portfolio, as well as prevailing and anticipated
economic conditions, past loan loss experience, current delinquency factors,
changes in the character of the loan portfolio, specific problem loans and
other relevant factors.
Bank premises and equipment:
Bank premises and equipment are stated at cost less accumulated
depreciation, and depreciated over their estimated useful lives using
either the straight-line or an accelerated method. Useful lives are revised
when a change in life expectancy becomes apparent. Maintenance and repairs
are charged to expense and betterments are
32
NOTE 1: ACCOUNTING POLICIES (CONTINUED)
- - -----------------------------------------------------------------------------
capitalized. Gains and losses on bank premises and equipment retired or
otherwise disposed of are charged to expense when incurred.
Other real estate owned:
Other real estate owned consists primarily of properties acquired
through, or in lieu of, loan foreclosures. Valuations are performed
periodically and the real estate is carried at the lower of cost or
appraised value, less estimated costs to sell.
Purchase method of accounting:
Net assets of companies acquired in purchase transactions are
recorded at fair market value at the date of acquisition. The excess
of cost over net assets of affiliates purchased (goodwill) is amortized
over 15 years.
Income taxes:
Deferred tax assets and liabilities are recognized for the
expected future tax consequences attributable to temporary differences
between the carrying amounts of assets and liabilities and their tax bases.
In addition, such deferred tax asset and liability amounts are adjusted for
the effects of enacted changes in tax laws or rates.
Earnings per share:
The Corporation adopted the provisions of SFAS No. 128, "Earnings
Per Share," during 1997. Under the provisions of SFAS No. 128, previously
reported primary and fully diluted earnings per share were replaced with
basic and diluted earnings per share amounts, with restatement required for
all periods presented. Basic earnings per share is calculated by dividing
net income by the weighted average number of shares of common stock
outstanding during each period. Diluted earnings per share is calculated
by increasing the denominator for the assumed conversion of all potentially
dilutive securities. WesBanco does not have any dilutive securities,
therefore, basic and diluted earnings per share are the same.
On June 19, 1997, the Corporation's Board of Directors declared a
3 for 2 stock split effected in the form of a 50% stock dividend, payable
August 1, 1997. Average common shares outstanding and per common share data
in the consolidated financial statements have been retroactively adjusted
to reflect the common stock dividend.
Trust assets:
Assets held by subsidiary banks in fiduciary or agency capacities
for their customers are not included as assets in the accompanying
Consolidated Balance Sheet. Certain trust assets are held on deposit at
subsidiary banks.
New accounting standards:
SFAS No. 130, "Reporting Comprehensive Income," is effective for
fiscal years beginning after December 15, 1997. The statement establishes
standards for reporting and disclosure 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 Statements requires financial and
descriptive information about an entity's operating segments to be included
in the annual financial statements.
These standards, when implemented, are not expected to materially
impact the reported financial position or results of operations of the
Corporation.
NOTE 2: AGREEMENT TO MERGE
- - ------------------------------------------------------------------------------
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 multibank 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 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 stockholders of Commercial and WesBanco, is expected to be consummated on
March 31, 1998.
Prior to its agreement with WesBanco, Commercial executed a definitive
agreement to acquire Gateway Bancshares, Inc., located in McMechen, West
Virginia. The Gateway acquisition is expected to be consummated during
March 1998. As of December 31, 1997, Gateway reported total assets of
approximately $31 million, which represented 1.4% of the pro forma combined
assets of WesBanco and Commerical. Gateway is considered immaterial to the
transaction between WesBanco and Commercial.
33
NOTE 2: AGREEMENT TO MERGE (CONTINUED)
- - ------------------------------------------------------------------------------
WesBanco, including Commercial, on a pro forma combined basis reflected
the following: (unaudited, in thousands)
Pro forma
December 31, 1997 WesBanco Commercial Combined
- - -----------------------------------------------------------------------------
Total Assets $1,789,295 $428,312 $2,217,255
Total Liabilities 1,539,745 386,114 1,925,789
For the year ended December 31, 1997
- - -----------------------------------------------------------------------------
Net interest income $68,756 $19,029 $87,785
Net income 22,274 2,937 25,211
- - -----------------------------------------------------------------------------
NOTE 3: COMPLETED BUSINESS COMBINATIONS
- - -----------------------------------------------------------------------------
On August 30, 1996, WesBanco consummated a pooling of interests
acquisition with the Bank of Weirton, issuing 1,690,000 shares of common
stock in the transaction. As of the acquisition date, Bank of Weirton
reported total assets of approximately $177,877,000.
The following financial information presents the combined results
of WesBanco and Bank of Weirton as if the acquisition had occurred as of the
beginning of 1995: (in thousands)
For the WesBanco, Inc.
year ended as previously Bank of
December 31, 1995 presented Weirton WesBanco, Inc.
- - -----------------------------------------------------------------------------
Net interest income $56,029 $5,483 $61,512
Net income 18,189 2,115 20,304
- - -----------------------------------------------------------------------------
The following table summarizes WesBanco's purchase acquisitions for the three
year period ended December 31, 1997:
(dollars in thousands)
- - ------------------------------------------------------------------------------------------------------
Purchase Assets
Date Entity price Consideration Goodwill Acquired
- - ------------------------------------------------------------------------------------------------------
6/30/97 Shawnee Bank, Inc. $12,786 323,175 shares of common stock $6,498 $34,695
12/30/96 Vandalia National Corporation 12,046* 345,545 shares of common stock 7,783 55,372
8/20/96 Universal Mortgage Company 856 32,463 shares of common stock 538 1,185
- - ------------------------------------------------------------------------------------------------------
*Includes cash for stock warrants of $981
NOTE 4: INVESTMENT SECURITIES
- - ------------------------------------------------------------------------------
The following tables summarize amortized cost and fair values of held to
maturity and available for sale securities: (in thousands)
Held to Maturity
-----------------------------------------------------------------------------------------
December 31, 1997 December 31, 1996
------------------------------------------- --------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
- - ------------------------------------------------------------------ -------------------------------------------
U.S. Treasury and
Federal Agency
securities $ 67,600 $ 274 $ 4 $ 67,870 $ 99,457 $ 287 $ 38 $ 99,706
Obligations of
states and political
subdivisions 154,170 2,900 428 156,642 147,643 1,426 651 148,418
Other debt securities 2,277 _ _ 2,277 2,008 _ _ 2,008
- - -----------------------------------------------------------------------------------------------------------------
Totals $224,047 $3,174 $432 $226,789 $249,108 $1,713 $ 689 $250,132
- - -----------------------------------------------------------------------------------------------------------------
34
NOTE 4: INVESTMENT SECURITIES (CONTINUED)
- - ----------------------------------------------------------------------------
Available For Sale
-----------------------------------------------------------------------------------------
December 31, 1997 December 31, 1996
------------------------------------------- --------------------------------------------
Gross Gross Estimate Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
- - ------------------------------------------------------------------ -------------------------------------------
U.S. Treasury and
Federal Agency
securities $214,825 $1,590 $507 $215,908 $161,838 $ 714 $ 735 $161,817
Obligations of
states and political
subdivisions 19,086 38 130 18,994 14,233 21 134 14,120
Mortgage-backed
& other debt
securities 97,133 6,711 98 103,746 99,003 405 624 98,784
- - ----------------------------------------------------------------------------------------------------------------
Total debt securities 331,044 8,339 735 338,648 275,074 1,140 1,493 274,721
Equity securities 3,177 689 4 3,862 1,271 209 _ 1,480
- - ----------------------------------------------------------------------------------------------------------------
Totals $334,221 $9,028 $739 $342,510 $276,345 $1,349 $1,493 $276,201
- - ----------------------------------------------------------------------------------------------------------------
The following table summarizes amortized cost and estimated fair value of
securities by maturity
December 31, 1997
----------------------------------------------
Held to Maturity Available for Sale
---------------------- ---------------------
Estimated Estimated
Amortized Fair Amortized Fair
(in thousands) Cost Value Cost Value
- - ------------------------------------------------------------------------------
Within one year $ 39,582 $ 39,700 $ 45,640 $ 47,708
After one year, but within five 97,734 98,772 178,197 182,845
After five years, but within ten 52,896 54,227 105,885 106,699
After ten years 33,835 34,090 4,499 5,258
- - ------------------------------------------------------------------------------
Total $224,047 $226,789 $334,221 $342,510
- - ------------------------------------------------------------------------------
Mortgage-backed securities are assigned to maturity categories based on
estimated average lives. Available for sale securities in the after 10
year category include securities with no stated maturity. Other securities
with prepayment provisions are categorized based on contractual maturity.
Investment securities with par values aggregating $178,550,000 at
December 31, 1997 and $156,876,000 at December 31, 1996 were pledged to
secure public and trust funds. Gross security gains of $552,000, $602,000,
and $513,000 and gross security losses of $42,000, $363,000 and $76,000
were realized for the years ended December 31, 1997, 1996 and 1995,
respectively.
NOTE 5: LOANS
- - ------------------------------------------------------------------------------
The following table is a summary of total loans:
December 31,
--------------------------
(in thousands) 1997 1996
- - ------------------------------------------------------------------------------
Loans:
Commercial $ 206,909 $ 177,136
Real estate - construction 25,306 21,556
Real estate - mortgage 515,194 510,778
Personal, net of unearned income 273,869 316,900
- - ------------------------------------------------------------------------------
1,021,278 1,026,370
Loans held for sale 11,705 983
- - ------------------------------------------------------------------------------
Loans, net of unearned income $1,032,983 $1,027,353
- - ------------------------------------------------------------------------------
35
NOTE 5: LOANS (CONTINUED)
- - -----------------------------------------------------------------------------
The following table represents changes in the allowance for loan losses:
For the years ended December 31,
---------------------------------
(in thousands) 1997 1996 1995
- - -----------------------------------------------------------------------------
Balance, January 1 $15,528 $13,439 $12,960
Allowance for loan losses of purchased banks 269 707 _
Provision for loan losses 4,314 4,336 2,788
Losses charged to the allowance (5,492) (3,474) (3,102)
Recoveries 912 520 793
- - -----------------------------------------------------------------------------
Net losses charged to the allowance (4,580) (2,954) (2,309)
- - -----------------------------------------------------------------------------
Balance, December 31 $15,531 $15,528 $13,439
- - -----------------------------------------------------------------------------
The following tables summarize loans classified as impaired:
December 31,
-----------------------
(in thousands) 1997 1996
- - -----------------------------------------------------------------------------
Nonaccrual $ 6,658 $ 4,664
Renegotiated 773 2,150
Other classified loans:
Doubtful -- 94
Substandard 3,765 3,377
- - -----------------------------------------------------------------------------
Total impaired loans $11,196 $10,285
- - -----------------------------------------------------------------------------
Impaired loans with a related allowance for loan losses $7,291 $6,328
Allowance for loan losses on impaired loans 1,817 2,120
- - -----------------------------------------------------------------------------
For the years ended December 31,
--------------------------------
1997 1996 1995
- - -------------------------------------------------------------------------------
Average impaired loans $12,692 $11,541 $6,773
Amount of contractual interest income on impaired loans 676 595 382
Amount of interest income recognized on a cash basis 78 82 164
- - -------------------------------------------------------------------------------
Most lending occurs with customers located within West Virginia and
Eastern Ohio. No significant concentration of credit risk exists by industry
or by individual borrowers. The Corporation has no significant exposure to
highly leveraged loan transactions, nor any foreign loans.
Subsidiaries of WesBanco, in the ordinary course of business, grant
loans to related parties at terms which do not vary from terms that would
have been required if the transactions had been with unrelated parties.
Indebtedness of related parties aggregated approximately $32,507,000,
$40,114,000, and $46,809,000 as of December 31, 1997, 1996 and 1995,
respectively. During 1997 $25,358,000 of loans were funded and $32,965,000
of loans were repaid.
NOTE 6: BANK PREMISES AND EQUIPMENT
- - ------------------------------------------------------------------------------
Bank premises and equipment include:
Estimated December 31,
(in thousands) useful life 1997 1996
- - ------------------------------------------------------------------------------
Land and improvements (3-10 years) $ 7,330 $ 6,902
Buildings and improvements (4-50 years) 36,128 33,191
Furniture and equipment (2-25 years) 27,109 24,684
- - ------------------------------------------------------------------------------
70,567 64,777
Less - Accumulated depreciation (36,131) (32,107)
- - ------------------------------------------------------------------------------
Total $34,436 $32,670
- - ------------------------------------------------------------------------------
36
NOTE 7: CERTIFICATES OF DEPOSIT
- - ------------------------------------------------------------------------------
Certificates of deposit in denominations of $100,000 or more were
$103,612,000, and $92,336,000 as of December 31, 1997 and 1996, respectively.
Related interest expense was $5,901,000 in 1997 and $4,658,000 in 1996.
At December 31, 1997, the scheduled maturities of certificates of
deposit are as follows: (in thousands)
1998 $352,319
1999 149,717
2000 56,821
2001 12,304
2002 and thereafter 24,451
- - -----------------------------------
Total $595,612
- - -----------------------------------
NOTE 8: REPURCHASE AGREEMENTS AND OTHER SHORT-TERM BORROWINGS
- - ------------------------------------------------------------------------------
Federal funds purchased and securities sold under agreements to
repurchase generally mature within one to four days from the transaction date.
Other short-term borrowings consist of treasury tax and loan deposits and a
$10,000,000 fixed rate commitment with the Federal Home Loan Bank of
Pittsburgh. The loan was entered into with an affiliate bank for liquidity
purposes to fund a growing loan demand in its market area. The loan has a
guaranteed interest rate of 6.1% and will mature on July 15, 1998.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
For the years ended
December 31,
---------------------------
(in thousands) 1997 1996
- - -----------------------------------------------------------------------------
Average balance during the year $77,304 $69,975
Average interest rate during the year 5.00% 4.81%
Maximum month-end balance during the year $90,528 $86,854
- - -----------------------------------------------------------------------------
NOTE 9: EMPLOYEE BENEFIT PLANS
- - -----------------------------------------------------------------------------
Defined benefit pension plan:
At December 31, 1997, substantially all employees were participants in
the WesBanco defined benefit pension plan ("The Plan"). The plan covers those
employees who satisfy minimum age and length of service requirements.
Benefits of the plan are generally based on the years of service and the
employee's compensation during the last five years of employment. The plan's
funding policy has been to contribute annually the maximum amount that can be
deducted for federal income tax purposes. Contributions are intended to
provide not only for benefits attributed to service to date, but also for
those expected to be earned in the future.
During 1996, all the assets and liabilities of Bank of Weirton's
defined benefit plan were merged into the WesBanco plan. Prior to the
merger, Bank of Weirton had a non-contributory defined benefit pension plan.
The Bank of Weirton's plan benefit formula was based on length of service and
average employee compensation. Net periodic pension cost benefit for the
plans include the following components:
For the years ended December 31,
--------------------------------
(in thousands) 1997 1996 1995
- - ------------------------------------------------------------------------------
Service cost - benefits earned during year $ 773 $ 755 $ 913
Interest cost on projected benefit obligation 1,406 1,380 1,543
Actual return on plan assets (3,582) (3,313) (3,714)
Net amortization and deferral 1,194 1,329 2,318
- - ------------------------------------------------------------------------------
Net periodic pension cost (benefit) $ (209) $ 151 $1,060
- - ------------------------------------------------------------------------------
37
NOTE 9: EMPLOYEE BENEFIT PLANS (CONTINUED)
- - ------------------------------------------------------------------------------
The following table sets forth the defined benefit pension plan's funded
status and the asset reflected in the Consolidated Balance Sheet:
December 31,
----------------------
(in thousands) 1997 1996
- - -----------------------------------------------------------------------------
Actuarial present value of benefit obligation:
Vested benefit obligation $ 16,041 $ 15,296
Accumulated benefit obligation 17,611 17,001
- - -----------------------------------------------------------------------------
Projected benefit obligation $(20,830) $(19,642)
Plan assets at current market value, primarily
listed stocks, bonds and cash equivalents 27,680 24,928
- - -----------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 6,850 5,286
Unrecognized prior service cost (1,479) (1,655)
Unrecognized net gain (2,342) (1,245)
Unrecognized obligation 27 33
- - -----------------------------------------------------------------------------
Net pension asset $ 3,056 $ 2,419
- - -----------------------------------------------------------------------------
Actuarial assumptions used in the determination of the projected benefit
obligation in the plan are as follows:
For the years ended December 31,
-------------------------------
1997 1996 1995
- - ------------------------------------------------------------------------------
Weighted average discount rates 7.25% 7.50% 7.50%
Rates of increase in compensation levels 4.50 4.50 4.50
Weighted average expected long-term return on assets 8.75 8.75 8.75
- - ------------------------------------------------------------------------------
Assumptions used in the Bank of Weirton's plan were 8.0% for discount rates
in 1996 and 1995, and 8.0% and 8.5% for expected long term return on assets
in 1996 and 1995, respectively. The Bank of Weirton rates of compensation
are based on a decreasing percentage scale as age increases.
Postretirement medical and death benefit plan:
The Corporation currently provides a death benefit and a contributory
health insurance plan for all retirees. Contributions toward health
insurance are fixed amounts which may be changed at the Corporation's sole
discretion. For 1997, the health insurance benefit for retirees was $100
per month and the death benefit for retirees was $7,500.
As of December 31,1997 substantially all employees were included in
the post retirement medical and death benefit programs.
Net periodic postretirement benefit costs other than pension costs
include the following components:
For the years ended December 31,
-------------------------------
(in thousands) 1997 1996 1995
- - -----------------------------------------------------------------------------------
Service cost - benefits earned during year $ 99 $128 $ 71
Interest cost on projected benefit obligation 209 191 173
Prior service cost 70 70 57
- - -----------------------------------------------------------------------------------
Net periodic postretirement benefit cost other than pensions $378 $389 $301
- - -----------------------------------------------------------------------------------
The following table sets forth the liability reflected in the Consolidated
Balance Sheet:
December 31,
--------------------
(in thousands) 1997 1996
- - ----------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $1,375 $1,178
Fully eligible active plan participants 1,728 1,579
- - ----------------------------------------------------------------------------
Total 3,103 2,757
Unrecognized prior service cost (986) (1,056)
Unrecognized net loss (249) (31)
- - ----------------------------------------------------------------------------
Net postretirement benefit liability $1,868 $1,670
- - ----------------------------------------------------------------------------
38
NOTE 9: EMPLOYEE BENEFIT PLANS (CONTINUED)
- - ------------------------------------------------------------------------------
Weighted average discount rate assumptions used in the accounting for
the WesBanco postretirement plan were 7.25%, 7.5% and 7.5% for 1997, 1996
and 1995, respectively.
Postretirement benefits are funded as incurred resulting in cash
payments of approximately $169,000, $138,000 and $126,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
The Corporation's portion of the cost of health care benefits is
not expected to increase during 1998. An assumption of a 1% per year
increase in the benefit level would increase the expense in health care
benefits by $48,521 or 16% for the year ended 1997 and increase the
accumulated postretirement benefit obligation by $299,393 or 13% as of
December 31, 1997.
KSOP: (Employee Stock Ownership and 401(k) Plan)
The Corporation's KSOP consists of a qualified noncontributory
Employee Stock Ownership Plan and Trust Agreement, which was expanded on
January 1, 1996 to include the provisions of a 401(k). As of December 31,
1997, substantially all employees were included in the KSOP.
Under the 401(k) provisions, the Corporation makes matching
contributions to the 401(k), up to a maximum of 1.5% of employees' annual
compensation, subject to regulatory limitations. The employer's matching
contributions to the 401(k) plan during 1997 and 1996 were $236,000 and
$201,000, respectively.
Under the employee stock ownership portion of the Plan, a Trust
holds 162,375 shares of WesBanco common stock. Approximately 156,530
shares of stock were allocated to specific employee accounts as of December
31, 1997. During November 1995, the Trust renegotiated its existing line of
credit with an affiliated lender. Conditions in the loan agreement remain
the same, providing for a line of credit in the aggregate amount of
$1,000,000 to facilitate purchases of WesBanco common stock in the open
market. The loan bears interest at a rate equal to the lender's base rate
and requires annual repayments of principal equal to 20% of the balance at
January 1 of each year. The loan has a final maturity date of 5 years from
date of inception. The $1,000,000 revolving line of credit had a balance
of $97,000 and $413,000 as of December 31, 1997 and 1996, respectively.
Total contributions to the employee stock ownership portion of the
Plan during 1997 were $490,000. Contributions during 1996 and 1995 were
$400,000 and $350,000, respectively.
NOTE 10: OTHER OPERATING EXPENSE
- - ----------------------------------------------------------------------------
Other operating expense consists of the following:
For the years ended December 31,
-----------------------------------
(in thousands) 1997 1996 1995
- - -----------------------------------------------------------------------------
Customer and office supplies $ 1,460 $ 1,465 $ 1,291
Postage and freight 1,221 1,229 1,047
Legal and accounting fees 870 944 998
Marketing media 1,630 1,732 1,303
Miscellaneous taxes 2,452 1,977 1,787
FDIC Insurance 168 12 1,462
Goodwill amortization 769 18 5
Other 7,221 6,379 5,887
- - -----------------------------------------------------------------------------
Total $15,791 $13,756 $13,780
- - -----------------------------------------------------------------------------
NOTE 11: INCOME TAXES
- - -----------------------------------------------------------------------------
A reconciliation of the federal statutory tax rate to the reported
effective tax rate is as follows:
For the years ended December 31,
-------------------------------
1997 1996 1995
- - -----------------------------------------------------------------------------
Federal statutory tax rate 35% 35% 35%
Tax-exempt interest income from securities of
states and political subdivisions (8) (8) (9)
State income taxes 3 3 3
Other - net (3) (2) (2)
- - -----------------------------------------------------------------------------
Effective tax rate 27% 28% 27%
- - -----------------------------------------------------------------------------
39
NOTE 11: INCOME TAXES (CONTINUED)
- - -----------------------------------------------------------------------------
The provision for income taxes consists of the following:
For the years ended December 31,
--------------------------------
(in thousands) 1997 1996 1995
- - -----------------------------------------------------------------------------
Current - Federal $6,361 $7,142 $6,363
State 1,423 1,345 1,208
Deferred - Federal 332 (146) 87
State 41 3 (2)
- - -----------------------------------------------------------------------------
Total $8,157 $8,344 $7,656
- - -----------------------------------------------------------------------------
Tax expense applicable to securities transactions $206 $96 $174
- - -----------------------------------------------------------------------------
Deferred tax assets and liabilities are comprised of the following:
December 31,
-----------------------------
(in thousands) 1997 1996 1995
- - -----------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $5,521 $5,398 $4,532
Deferred compensation 338 335 355
Other 39 167 117
- - -----------------------------------------------------------------------------
Gross deferred tax assets 5,898 5,900 5,004
- - -----------------------------------------------------------------------------
Deferred tax liabilities:
Tax effect of market value adjustment on
investment securities available for sale 3,245 - 542
Depreciation 1,248 1,095 925
Purchase accounting adjustments 458 214 167
Accretion on investments 214 143 136
Postretirement and pension expense 456 252 -
Other - 237 257
- - -----------------------------------------------------------------------------
Gross deferred tax liabilities 5,621 1,941 2,027
- - -----------------------------------------------------------------------------
Deferred tax asset valuation allowance - - -
- - -----------------------------------------------------------------------------
Net deferred tax assets $ 277 $3,959 $2,977
- - -----------------------------------------------------------------------------
NOTE 12: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
- - -----------------------------------------------------------------------------
Fair value estimates of financial instruments are based on present
value of expected future cash flows, quoted market prices of similar
financial instruments, if available, and other valuation techniques. These
valuations are significantly affected by the discount rates, cash flow
assumptions, and risk assumptions used. Therefore, the fair value
estimates may not be substantiated by comparison to independent markets
and are not intended to reflect the proceeds that may be realizable in an
immediate settlement of the instruments.
The aggregate fair value of amounts presented does not represent
the underlying value of the Corporation. Management does not have the
intention to dispose of a significant portion of its financial instruments
and, therefore, the unrealized gains or losses should not be interpreted as
a forecast of future earnings and cash flows. The following table represents
the estimates of fair value of financial instruments:
December 31,
-----------------------------------------------
1997 1996
---------------------- ----------------------
Carrying Fair Carrying Fair
(in thousands) Amount Value Amount Value
- - ------------------------------------------------------------------------------------------
Financial assets:
Cash and short-term investments $ 128,157 $ 128,157 $ 69,995 $ 69,995
Investment securities-held to maturity 224,047 226,789 249,108 250,132
Investment securities-available for sale 342,510 342,510 276,201 276,201
Net loans (including loans held for sale) 1,017,452 1,022,579 1,011,825 1,015,831
Financial liabilities:
Deposits 1,414,254 1,415,618 1,342,820 1,343,730
Short-term borrowings 106,685 106,685 92,771 92,771
- - --------------------------------------------------------------------------------------------
40
NOTE 12: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
- - -----------------------------------------------------------------------------
The following methods and assumptions are used to estimate the fair
value of like kinds of financial instruments:
Cash and Short-Term Investments:
The carrying amount for cash and short-term investments is a
reasonable estimate of fair value. Short-term investments consist of federal
funds sold.
Investment Securities:
Fair values for investment securities are based on quoted market
prices, if available. If market prices are not available, then quoted market
prices of similar instruments are used.
Loans Held For Sale:
The carrying amount for loans held for sale is a reasonable estimate
of fair value.
Net Loans:
Fair values for loans with interest rates that fluctuate as current
rates change are generally valued at carrying amounts. The fair values for
residential mortgage loans are based on quoted market prices of securitized
financial instruments, adjusted for remaining maturity and differences in
loan characteristics. Fair values of commercial real estate, construction
and personal loans are based on a discounted value of the estimated future
cash flows expected to be received. The current interest rates applied in
the discounted cash flow method reflect rates used to price new loans of
similar type, adjusted for relative risk and remaining maturity. The fair
value of credit cards is estimated based on the anticipated average cost of
soliciting a new account and the present credit quality of the outstanding
balances. For nonaccrual loans, fair value is estimated by discounting
expected future principal cash flows only.
Deposits:
The carrying amount is considered a reasonable estimate of fair
value for demand and savings deposits and other variable rate deposit
accounts. The fair value of fixed maturity certificates of deposit is
estimated by a discounted cash flow method using the rates currently
offered for deposits of similar remaining maturities.
Short-Term Borrowings:
For short-term borrowings, which include federal funds purchased,
repurchase agreements, a Federal Home Loan Bank commitment, and other
short-term borrowings, the carrying amount is a reasonable approximation
of fair value.
Off-Balance Sheet Instruments:
Off-balance sheet instruments consist of commitments to extend
credit, standby letters of credit and an interest rate swap agreement.
Fair values for commitments to extend credit are estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present credit standing of the
counterparties. The fair value for the interest rate swap agreement, which
has a notional value of $10 million is estimated by obtaining quotes from
brokers. The value represents the amount the Corporation would receive
or pay to terminate the agreement considering current interest rates. The
estimated fair value of the commitments to extend credit and the interest
rate swap are immaterial.
NOTE 13: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
- - ------------------------------------------------------------------------------
In the normal course of business, WesBanco offers off-balance-sheet
financial instruments to enable its customers to meet their financing
objectives. The Corporation also enters into these transactions to manage
its own risks arising from movement in interest rates. These financial
instruments include commitments to extend credit, standby letters of credit,
and interest rate swap agreements. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the financial statements.
WesBanco has outstanding various commitments to extend credit
approximating $98,446,000 and $70,527,000 and standby letters of credit
of $8,224,000 and $7,909,000 as of December 31, 1997 and 1996, respectively.
WesBanco's exposure to credit loss in the event of non-performance
by the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual amount
of those instruments. The Corporation uses the same credit and collateral
policies in making commitments and conditional obligations as for all other
lending. Collateral which secures these types of commitments is the same
type as collateral for other types of lending, such as accounts receivable,
inventory and fixed assets.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. Management evaluates
each customer's credit worthiness on a case-by-case basis.
41
NOTE 13: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
- - -----------------------------------------------------------------------------
Standby letters of credit are conditional commitments issued by banks
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including normal business activities, bond financing and similar transactions.
The credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loans to customers. Collateral securing these
types of transactions is similar to collateral securing the Corporation's
commercial loans.
Interest rate swap agreements generally involve the exchange of fixed
and floating rate interest payments without the exchange of the underlying
notional amount, on which interest payments are calculated. Interest rate
swap agreements are entered into as part of the Corporation's interest rate
risk management strategy primarily to alter the interest rate sensitivity of
its deposit liabilities. As of December 31, 1997, the Corporation had an
interest rate swap agreement with a notional value of $10 million and a
fixed pay rate of 5.29%/variable receive rate of 60% of Bank Prime Rate, due
to mature in 1999.
The Corporation and its affiliates are parties to various legal and
administrative proceedings and claims. While any litigation contains an
element of uncertainty, management believes that the outcome of such
proceedings or claims pending or known to be threatened will not have a
material adverse effect on the Corporation's consolidated financial position.
NOTE 14: TRANSACTIONS WITH RELATED PARTIES
- - ------------------------------------------------------------------------------
Some officers and directors (including their affiliates, families and
entities in which they are principal owners) of the Corporation and its
subsidiaries are customers of those subsidiaries and have had, and are
expected to have, transactions with the subsidiaries in the ordinary course
of business. In addition, some officers and directors are also officers
and directors of corporations which are customers of the banks and have
had, and are expected to have, transactions with the banks in the ordinary
course of business. In the opinion of management, such transactions are
consistent with prudent banking practices and are within applicable banking
regulations.
NOTE 15: REGULATORY MATTERS
- - ------------------------------------------------------------------------------
The operations of affiliate banks are subject to Federal and State
statutes which limit the banks' ability to pay dividends or otherwise
transfer funds to the Parent Company. At December 31, 1997 the banks,
without prior approval from regulatory agencies, could have distributed
dividends of approximately $856,000.
Federal Reserve regulations require depository institutions to
maintain cash reserves with the Federal Reserve Bank. The average amounts
of required reserve balances were approximately $11,466,000 and $9,695,000
during 1997 and 1996, respectively.
WesBanco is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
guidelines and the regulatory framework for prompt corrective action, the
Corporation must meet specific capital guidelines that involve quantitative
measures of the Corporation's assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. WesBanco's
capital amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Corporation to maintain minimum amounts and ratios of
Tier I and Total Capital to risk-weighted assets and of Tier I to average
assets (Leverage). As of December 31, 1997 and 1996, each of the affiliate
banks are categorized as well capitalized and meet all capital adequacy
requirements to which each respective entity is subject.
To be categorized as well capitalized the Corporation must maintain
minimum total risk based capital, Tier I capital, and leverage ratios as set
forth in the following table. There are no conditions or events that
management believes have changed WesBanco's category.
42
NOTE 15: REGULATORY MATTERS (CONTINUED)
- - ------------------------------------------------------------------------------
The following table summarizes capital amounts and ratios for WesBanco and its
largest affiliate, WesBanco Wheeling:
(dollars in thousands)
To Be Well
Capitalized Under
For Capital Corrective Action
Actual Adequacy Purposes: Provisions:
--------------- ------------------ -----------------
WesBanco Amount Ratio Amount Ratio Amount Ratio
- - ------------------------------------------------------------------------------------------------
As of December 31, 1997:
Total Capital to Risk-Weighted Assets $245,021 21.2% $92,491 8.0% $115,614 10.0%
Tier I Capital to Risk-Weighted Assets 230,556 19.9 46,246 4.0 69,369 6.0
Leverage 230,556 13.1 70,784 4.0 88,483 5.0
- - ------------------------------------------------------------------------------------------------
As of December 31, 1996:
Total Capital to Risk-Weighted Assets $233,139 21.0% $88,698 8.0% $110,872 10.0%
Tier I Capital to Risk-Weighted Assets 219,259 19.9 44,349 4.0 66,523 6.0
Leverage 219,259 13.8 63,875 4.0 79,844 5.0
- - ------------------------------------------------------------------------------------------------
WesBanco Wheeling
- - ------------------------------------------------------------------------------------------------
As of December 31, 1997:
Total Capital to Risk-Weighted Assets $112,717 21.8% $41,420 8.0% $51,775 10.0%
Tier I Capital to Risk-Weighted Assets 106,258 20.5 20,710 4.0 31,065 6.0
Leverage 106,258 12.2 34,804 4.0 43,505 5.0
- - ------------------------------------------------------------------------------------------------
As of December 31, 1996:
Total Capital to Risk-Weighted Assets $111,472 22.9% $38,879 8.0% $48,598 10.0%
Tier I Capital to Risk-Weighted Assets 105,394 21.7 19,439 4.0 29,159 6.0
Leverage 105,394 12.9 32,570 4.0 40,713 5.0
- - ------------------------------------------------------------------------------------------------
NOTE 16: CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
- - ------------------------------------------------------------------------------
Presented below are the condensed Balance Sheet, Statement of Income
and Statement of Cash Flows for the Parent Company: (in thousands)
BALANCE SHEET
December 31,
-----------------------
1997 1996
- - -----------------------------------------------------------------------------
ASSETS
Cash $ 105 $ 2,424
Investment in subsidiaries (at equity in net assets) 224,862 204,095
Investment securities:
Available for sale carried at market value 21,526 18,679
Dividends receivable 6,500 5,500
Other assets 406 543
- - -----------------------------------------------------------------------------
Total Assets $253,399 $231,241
- - -----------------------------------------------------------------------------
LIABILITIES
Long-term borrowings $ 97 $ 413
Dividends payable and other liabilities 3,752 3,296
- - -----------------------------------------------------------------------------
Total Liabilities 3,849 3,709
SHAREHOLDERS' EQUITY 249,550 227,532
- - -----------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $253,399 $231,241
- - -----------------------------------------------------------------------------
43
NOTE 16: CONDENSED PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
- - ------------------------------------------------------------------------------
STATEMENT OF INCOME
For the years ended December 31,
--------------------------------
1997 1996 1995
- - -------------------------------------------------------------------------------------
Dividends from subsidiaries $21,000 $19,900 $20,500
Income from investment securities 761 594 361
Other income 135 285 312
- - -------------------------------------------------------------------------------------
Total Income 21,896 20,779 21,173
- - -------------------------------------------------------------------------------------
Total Expenses 1,058 1,059 809
- - -------------------------------------------------------------------------------------
Income before income tax benefit and
undistributed net income of subsidiaries 20,838 19,720 20,364
Income tax benefit 285 303 145
- - --------------------------------------------------------------------------------------
Income before undistributed net income of subsidiaries 21,123 20,023 20,509
Undistributed net income (excess dividends) of subsidiaries 1,151 1,138 (205)
- - --------------------------------------------------------------------------------------
Net Income $22,274 $21,161 $20,304
- - --------------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
For the years ended December 31,
-------------------------------
1997 1996 1995
- - -------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net Income $22,274 $21,161 $20,304
Undistributed (net income) excess dividends of subsidiaries (1,151) (1,138) 205
Increase (decrease) in other assets (847) 4,103 (7,795)
Other-net 347 151 (163)
- - -------------------------------------------------------------------------------------------
Net cash provided by operating activities 20,623 24,277 12,551
- - -------------------------------------------------------------------------------------------
Cash flows from investing activities:
Investment securities available for sale:
Proceeds from sales 3,874 2,927 2,267
Proceeds from maturities and calls 1,909 1,703 852
Payments for purchases (8,319) (15,315) (1,671)
Investments held to maturity:
Proceeds from maturities and calls - - 1,883
Payments for purchases - - (1,848)
Acquisitions and additional capitalization of subsidiaries (2,003) (2,605) -
- - -------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (4,539) (13,290) 1,483
- - -------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net payments on ESOP related debt (316) (364) (71)
Purchases of treasury stock-net (5,950) (1,367) (3,456)
Dividends paid (12,117) (9,396) (8,022)
Other (20) 21 57
- - -------------------------------------------------------------------------------------------
Net cash used in financing activities (18,403) (11,106) (11,492)
- - -------------------------------------------------------------------------------------------
Net increase (decrease) in cash (2,319) (119) 2,542
Cash at beginning of year 2,424 2,543 1
- - -------------------------------------------------------------------------------------------
Cash at end of year $ 105 $ 2,424 $ 2,543
- - -------------------------------------------------------------------------------------------
During 1997 and 1996, non cash activity consisted of common stock issued in
purchase acquisitions totaling $12,786 and $11,921, respectively. During
1995, non-cash activity consisted of the redemption of 9,925 shares of
preferred stock. Of the total shares redeemed, 9,723 shares were exchanged
for 111,111 shares of WesBanco common stock in this transaction. The
remaining 202 shares were redeemed for cash at $190 per preferred share and
are included in other financing activities.
44
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
- - ------------------------------------------------------------------------------
The financial statements and the information pertaining to those
statements are the responsibility of management. The financial statements
have been prepared in conformity with generally accepted accounting
principles, applied on a consistent basis.
The accounting systems of the Corporation and its subsidiaries
include internal controls and procedures which provide reasonable assurance
as to the reliability of the financial records. Internal controls are
generally supported by written policies and procedures. Internal audit
performs audits of operations, reviews procedures, monitors adherence to
bank policies and submits written audit reports to the Audit Committee.
The Audit Committee of the Board of Directors is composed of only outside
directors. The Audit Committee meets regularly with management, internal
audit and our independent auditors to review accounting, auditing and
financial matters. The internal auditors, Federal and State examiners, and
Ernst & Young LLP have full access to the Audit Committee to discuss any
appropriate matters.
Independent auditors provide an objective review of management's
discharge of its financial responsibilities relating to the preparation of
the financial statements. The independent auditor's report is based on an
audit in accordance with generally accepted auditing standards. This report
expresses an informed judgment as to whether management's financial
statements present fairly, in conformity with generally accepted accounting
principles, the Corporation's financial position, results of operations
and cash flows.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- - ------------------------------------------------------------------------------
SHAREHOLDERS AND BOARD OF DIRECTORS
WESBANCO, INC.
We have audited the accompanying consolidated balance sheets of
WesBanco, Inc. and subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of income, changes in shareholders' equity,
and cash flows for the two years ended December 31, 1997. These financial
statements are the responsibility of the management of WesBanco, Inc. Our
responsibility is to express an opinion on these financial statements based
on our audits. The financial statements of WesBanco, Inc. for the year ended
December 31, 1995 were audited by other auditors whose report dated
January 25, 1996, except as to the Bank of Weirton transaction, which is as
of August 30, 1996, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
WesBanco, Inc. and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the two
years ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
February 4, 1998
45
WESBANCO, INC.
CONDENSED QUARTERLY STATEMENT OF INCOME
- - ------------------------------------------------------------------------------
(in thousands, except per share amounts)
1997 Quarter ended
---------------------------------------------------------
Annual
March 31 June 30 September 30 December 31 Total
- - ----------------------------------------------------------------------------------------------
Interest income $29,915 $30,645 $31,748 $32,222 $124,530
Interest expense 12,995 13,632 14,345 14,802 55,774
- - ----------------------------------------------------------------------------------------------
Net interest income 16,920 17,013 17,403 17,420 68,756
Provision for loan losses 1,100 889 875 1,450 4,314
- - ----------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 15,820 16,124 16,528 15,970 64,442
Other income 3,270 3,383 3,758 4,282 14,693
Other expenses 11,630 11,741 12,261 13,072 48,704
- - ----------------------------------------------------------------------------------------------
Income before income taxes 7,460 7,766 8,025 7,180 30,431
Provision for income taxes 1,955 2,118 2,087 1,997 8,157
- - ----------------------------------------------------------------------------------------------
Net Income $ 5,505 $ 5,648 $ 5,938 $ 5,183 $ 22,274
- - ----------------------------------------------------------------------------------------------
Earnings per share $.35 $.36 $.37 $.32 $1.40
- - ----------------------------------------------------------------------------------------------
1996 Quarter ended
---------------------------------------------------------
Annual
March 31 June 30 September 30 December 31 Total
- - ----------------------------------------------------------------------------------------------
Interest income $27,476 $27,704 $28,048 $29,710 $112,938
Interest expense 11,810 11,754 12,159 12,495 48,218
- - ----------------------------------------------------------------------------------------------
Net interest income 15,666 15,950 15,889 17,215 64,720
Provision for loan losses 869 681 1,298 1,488 4,336
- - ----------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 14,797 15,269 14,591 15,727 60,384
Other income 3,062 2,910 3,145 3,156 12,273
Other expenses 10,120 10,492 10,834 11,706 43,152
- - ----------------------------------------------------------------------------------------------
Income before income taxes 7,739 7,687 6,902 7,177 29,505
Provision for income taxes 2,366 2,140 1,749 2,089 8,344
- - ----------------------------------------------------------------------------------------------
Net Income $ 5,373 $ 5,547 $ 5,153 $ 5,088 $ 21,161
- - ----------------------------------------------------------------------------------------------
Earnings per share $.36 $.36 $.34 $.33 $1.39
- - ----------------------------------------------------------------------------------------------
46
WESBANCO, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS
- - -----------------------------------------------------------------------------
Management's Discussion and Analysis represents an overview of the
results of operations and financial condition of WesBanco, Inc. This
discussion and analysis should be read in conjunction with the Consolidated
Financial Statements and Notes thereto.
Certain information in Management's Discussion and other statements
contained in this report which are not historical facts may be forward
looking statements that 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, consumer
and their lending activities; changes in federal and state regulations; the
presence in the Corporation's market area of competitors with greater
financial resources than the Corporation; or other unanticipated external
developments materially impacting the Corporation's operational and financial
performance.
FIVE YEAR SELECTED FINANCIAL SUMMARY(1)
- - ------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
December 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
- - ------------------------------------------------------------------------------------------------------
Cash dividends declared per share(2) $ 0.786 $ 0.72 $ 0.64 $ 0.573 $ 0.527
Book value per share(2) 15.58 14.41 13.55 12.57 12.35
Average common shares outstanding(2) 15,867,608 15,253,107 15,240,492 15,421,317 15,569,249
Selected Balance Sheet Information:
Total Investments $ 566,557 $ 525,309 $ 522,288 $ 587,953 $ 602,888
Net Loans 1,017,452 1,011,825 880,480 798,413 759,318
Total Assets 1,789,295 1,677,771 1,549,019 1,532,832 1,534,131
Total Deposits 1,414,254 1,342,820 1,254,844 1,254,586 1,265,677
Total Shareholders' Equity 249,550 227,532 206,996 192,305 191,801
Selected Ratios:
Return on Average Assets 1.30% 1.34% 1.33% 1.17% 1.30%
Return on Average Equity 9.38 10.02 10.15 9.32 10.59
Dividend Payout Ratio 56.00 49.76 44.19 45.80 37.28
Average Equity to Average Assets 13.85 13.33 13.09 12.58 12.24
For the years ended December 31,
-------------------------------------------------------------
Summary Statement of Income: 1997 1996 1995 1994 1993
- - -----------------------------------------------------------------------------------------------------
Interest income $124,530 $112,938 $108,082 $101,720 $105,268
Interest expense 55,774 48,218 46,570 39,660 43,727
- - -----------------------------------------------------------------------------------------------------
Net interest income 68,756 64,720 61,512 62,060 61,541
Provision for loan losses 4,314 4,336 2,788 6,073 3,247
- - -----------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 64,442 60,384 58,724 55,987 58,294
Other income 14,693 12,273 11,366 11,028 10,367
Other expenses 48,704 43,152 42,130 42,840 41,873
- - -----------------------------------------------------------------------------------------------------
Income before income taxes 30,431 29,505 27,960 24,175 26,788
Provision for income taxes 8,157 8,344 7,656 6,283 7,070
- - -----------------------------------------------------------------------------------------------------
Net Income $22,274 $21,161 $20,304 $17,892 $19,718
- - -----------------------------------------------------------------------------------------------------
Preferred stock dividends and accretion - - $ 164 $ 183 $ 184
Net income applicable to common stock $22,274 $21,161 20,140 17,709 19,534
Earnings per share(2) 1.40 1.39 1.32 1.15 1.25
- - -----------------------------------------------------------------------------------------------------
(1) See Note 1 of the Notes to Consolidated Financial Statements.
(2) Adjusted to reflect a 3 for 2 stock split effected in the form of a 50%
stock dividend, declared June 19, 1997.
47
RESULTS OF OPERATIONS
- - ------------------------------------------------------------------------------
SUMMARY
- - ------------------------------------------------------------------------------
WesBanco's net income for 1997 was a record $22.3 million or $1.40 per
share, up 5.3% and 0.7%, respectively, from $21.2 million or $1.39 per share
in 1996. The increase resulted from a 6.2% increase in net interest income
and a 19.7% increase in other income partially offset by a 12.9% increase in
other expense. Contributing to the 1997 increase in income was a 7.6%
increase in average earning assets coupled with an increase in trust and
deposit fees.
WesBanco's results of operations and financial position have not been
restated to include the acquisitions of Vandalia National Corporation,
acquired December 30, 1996, and Shawnee Bank, Inc., acquired June 30, 1997,
which were accounted for using the purchase method of accounting. These
acquisitions impact performance comparisons between 1997 and prior periods.
Management's Discussion reflects the impact of these purchase acquisitions
NET INTEREST INCOME
- - ------------------------------------------------------------------------------
Net interest income, the spread between interest income on earning assets
and interest expense on liabilities to fund those assets, represents the
largest component of earnings to the Corporation. Net interest income is
affected by both changes in the level of interest rates and changes in the
amounts and mix of interest earning assets and interest bearing liabilities.
The net yield on earning assets (net interest income as a percentage of
interest earning assets) is a frequently used measurement of net interest
income.
For 1997, net interest income was $68.8 million, up $4.0 million or 6.2%
over 1996, reflecting an increase in average earning assets of $113.1 million
or 7.6%. Of this increase in earning assets, $61.4 million resulted from
the purchase acquisitions with the remaining growth in average loans.
Average loans increased $98.1 million or 10.5% over 1996 due to the
purchase acquisitions, which contributed $49.9 million, as well as, increases
in both loans held for sale and commercial loans. Residential mortgage and
personal loans, which increased significantly during 1996, declined during
1997 effectively slowing the growth rate in loans. Average loan yields
increased only 5 basis points to 8.75% compared to the prior year, reflecting
the stable interest rate environment during the year.
Average securities totaled $525.1 million for 1997, which approximated
1996 levels. Taxable securities declined during 1997 primarily through
maturity run-off, as proceeds were used to invest in tax-exempt securities.
Average federal funds sold, which increased $12.4 million over 1996,
represented a short-term use of funds. Average yields on securities improved
33 basis points to 6.01% between 1997 and 1996, while average yields on
federal funds sold increased 20 basis points over 1996.
Earning assets are funded primarily by deposits. During 1997, average
deposits increased to $1.4 billion, up $94.7 million or 7.4% over 1996.
Purchase acquisitions contributed $43.4 million to the growth in average
deposits, while additional funds were provided through growth in money market
deposit accounts and certificates of deposit. The average cost of interest
bearing liabilities was 4.28% for 1997, up 30 basis points from 1996,
reflecting a shift in the composition of deposits from savings and NOW
accounts to higher-yielding money market accounts and certificates of deposit.
The net yield on earning assets was 4.28% for 1997, reflecting a decline
of 6 basis points from 1996. An increase in the cost of interest bearing
deposits, caused by a shift in balances to higher-yielding deposit products,
contributed to the decline in the net yield.
48
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
- - ------------------------------------------------------------------------------
(dollars in thousands)
For the years ended December 31,
--------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ --------------------------- -------------------------
Average Average Average Average Average Average
Volume Interest Rate Volume Interest Rate Volume Interest Rate
- - -------------------------------------------------------------------------------------------------------------------------
ASSETS
Total loans $1,033,477 $ 90,467 8.75% $935,360 $81,449 8.70% $852,902 $74,452 8.73%
Investment securities:
Taxable 358,061 23,062 6.44 375,451 22,066 5.88 416,646 23,614 5.67
Tax-exempt 167,088 8,474 5.07 147,165 7,642 5.19 135,211 7,524 5.56
- - -------------------------------------------------------------------------------------------------------------------------
Total investment securities 525,149 31,536 6.01 522,616 29,708 5.68 551,857 31,138 5.64
Federal funds sold 46,306 2,527 5.46 33,880 1,781 5.26 41,591 2,492 5.99
- - -------------------------------------------------------------------------------------------------------------------------
Total earning assets 1,604,932 $124,530 7.76% 1,491,856 $112,938 7.57% 1,446,350 $108,082 7.47%
- - -------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 48,918 50,580 45,893
Other assets 59,503 42,558 35,454
- - -------------------------------------------------------------------------------------------------------------------------
Total Assets $1,713,353 $1,584,994 $1,527,697
- - -------------------------------------------------------------------------------------------------------------------------
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Interest bearing demand $328,544 $10,484 3.19% $273,790 $7,064 2.58% $280,063 $ 7,936 2.83%
Savings deposits 299,215 7,451 2.49 331,879 8,817 2.66 352,674 10,333 2.93
Certificates of deposit 585,996 33,295 5.68 524,938 28,551 5.44 470,668 25,134 5.34
- - -------------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 1,213,755 51,230 4.22 1,130,607 44,432 3.93 1,103,405 43,403 3.93
Federal funds purchased and
repurchase agreements 78,393 3,914 4.99 75,183 3,599 4.79 55,272 2,957 5.35
Other borrowings 11,494 630 5.48 6,646 187 2.81 4,825 210 4.35
- - -------------------------------------------------------------------------------------------------------------------------
Total interest
bearing liabilities 1,303,642 $55,774 4.28% 1,212,436 $48,218 3.98% 1,163,502 $46,570 4.00%
- - -------------------------------------------------------------------------------------------------------------------------
Noninterest bearing demand 156,574 145,069 145,397
Other liabilities 15,772 16,241 17,177
Redeemable Preferred Stock &
Shareholders' Equity 237,365 211,248 201,621
- - -------------------------------------------------------------------------------------------------------------------------
Total Liabilities, Redeemable
Preferred Stock &
Shareholders' Equity $1,713,353 $1,584,994 $1,527,697
- - -------------------------------------------------------------------------------------------------------------------------
Net yield on earning assets $68,756 4.28% $64,720 4.34% $61,512 4.25%
- - -------------------------------------------------------------------------------------------------------------------------
Taxable equivalent net yield
on earning assets $73,319 4.57% $68,835 4.61% $65,559 4.53%
- - -------------------------------------------------------------------------------------------------------------------------
Total loans are gross of allowance for loan losses, net of unearned income,
and include loans held for sale.
Nonaccrual loans were included in the average volume for the entire year.
Loan fees included in interest on loans are not material.
Average yields on investment securities available for sale have been
calculated based on amortized cost.
Taxable equivalent basis is calculated on tax-exempt securities using a tax
rate of 35% for each year presented.
OTHER INCOME
- - ------------------------------------------------------------------------------
Other income, excluding securities transactions, increased $2.1 million
or 17.9% over 1996, due to increases in both trust fees and service charges
on deposit accounts. The impact of the purchase acquisitions on other
income included $0.2 million in service charges on deposit accounts.
Trust fees were $6.8 million for 1997, an increase of $1.4 million or
25.6% over 1996, reflecting increases in the number of accounts under
administration, the market value of trust assets and investment fees
associated with the WesMark mutual fund products which were introduced in
early 1997. The market value of trust assets at December 31, 1997 was $1.9
billion as compared to $1.6 billion at December 31, 1996, an increase of
20.6%.
Service charges and other income, excluding the purchase acquisitions,
totaled $7.2 million for 1997, an increase of $0.6 million or 8.5% over
1996, reflecting an increase in deposit service charges. Enhancements to
the monitoring system for collecting fees primarily contributed to the
increase over 1996.
49
OTHER EXPENSE
- - ------------------------------------------------------------------------------
Other expense increased $5.6 million or 12.9% in 1997 to $48.7 million.
The 1997 increase in other expense was significantly affected by the
purchase acquisitions and related goodwill amortization. The purchase
acquisitions added $3.5 million in other expense during 1997, of which
$1.6 million was in salaries and employee benefits, $0.3 million in net
occupancy and equipment expense, $0.8 million in goodwill amortization and
$0.8 million in other operating expense. Full-time equivalent employees
related to purchase acquisitions totaled 17 as of December 31, 1997.
Excluding the $3.5 million in expense related to the purchase
acquisitions, other expense for 1997 totaled $45.2 million, an increase
of $2.1 million or 4.7% over 1996. The remaining other expense discussion
excludes the purchase acquisitions.
Salaries and employee benefits increased $0.6 million or 2.4% over the
prior year, reflecting annual salary adjustments and staffing increases
associated with expansion of WesBanco's mortgage banking affiliate, partially
offset by a reduction in pension costs. Full-time equivalent employees
increased to 866 as of December 31, 1997 from 860 as of December 31, 1996.
Occupancy and equipment expense increased $1.0 million or 18.2%,
reflecting corporate-wide enhancements in technology, which included the
expansion of a wide area network. These technology related expenses have
contributed to efficiencies in customer-related services as well as
non-customer support functions. Through the use of the wide area network,
efficiencies in communication between affiliate locations have improved
extensively, while the utilization of new computer software has enhanced
customer serviceability. The increase in occupancy and equipment also
reflected startup and operational costs of a new branch facility in St.
Clairsville, Ohio, which opened in early 1997.
Other operating expense for 1997 increased $0.4 million or 3.0%,
reflecting an increase in professional fees associated with improving fee
income levels and operational efficiencies.
INCOME TAXES
- - ------------------------------------------------------------------------------
Federal income tax expense decreased $0.3 million to $6.7 million during
1997 from $7.0 million during the prior year.
The effective tax rate for the Corporation decreased to 26.8% during 1997
from 28.3% during 1996. The decrease in the effective tax rate primarily
resulted from the utilization of $0.9 million in alternative minimum tax
credit, and to a lesser extent, changes in the level of taxable income and
the changing state effective tax rate. For 1998, the Corporation anticipates
an increase in the effective tax rate, as a result of full utilization of the
tax credit in 1997.
The State of West Virginia has a corporate net income tax based upon
federal taxable income, adjusted for certain items not subject to state
taxation. The statutory state tax rate for 1997 was 9.0%. State income tax
included in the provision for income taxes was $1.5 million for 1997 compared
to $1.3 million for 1996. The State of Ohio does not have a corporate income
tax, but rather, businesses are subject to an Ohio corporate franchise tax
which is included in other operating expenses.
FINANCIAL CONDITION
- - ------------------------------------------------------------------------------
INVESTMENT SECURITIES
- - ------------------------------------------------------------------------------
Investment securities at December 31, 1997 totaled $566.6 million
compared to $525.3 million as of December 31, 1996. The increase in
investment securities as well as federal funds sold primarily resulted
from deposit growth which was in excess of loan growth. The increase in
federal funds sold, up $60.5 million at December 31, 1997 compared to the
prior year, further reflected the lack of short-term investment alternatives
during the year.
WesBanco's available for sale portfolio at fair market value was $342.5
million or 61% of total investment securities as of December 31, 1997 compared
to $276.2 million or 53% of total investment securities as of December 31,
1996. At December 31, 1997, the available for sale portfolio had an average
yield of 6.3% and an average maturity of 4.7 years, compared to
6.2% and 4.1 years, respectively as of December 31, 1996.
The market value adjustment, recorded on the Consolidated Balance Sheet
as an adjustment to Shareholders' Equity, reflected an unrealized after-tax
gain of $5.0 million, as of December 31, 1997 compared to an unrealized
after-tax loss of $90,000 as of December 31, 1996. These market value
adjustments represent temporary
50
INVESTMENT SECURITIES (CONTINUED)
- - ------------------------------------------------------------------------------
market value fluctuations caused by changes in market rates in relation to
the average yields in the available for sale portfolio. WesBanco can adjust
the volatility of the market value adjustment by managing both the volume of
securities classified as available for sale and average maturities. If
securities are held to their maturity dates, no gain or loss would be
realized.
Held to maturity securities, at cost, totaled $224.0 million or 39% of
total investment securities as of December 31, 1997 compared to $249.1
million or 47% of total investment securities as of December 31, 1996. At
December 31, 1997, the held to maturity portfolio had an average yield of
5.5% and an average maturity of 4.8 years, compared to 5.5% and 3.8 years,
respectively as of December 31, 1996.
Total investment securities reflected an average yield of 6.0% as of
December 31, 1997, up slightly from 5.9% the prior year. Affected primarily
by extending maturities on agency securities purchased during 1997, the
total average maturity of investment securities at December 31, 1997 extended
to 4.7 years as compared to 4 years as of December 31, 1996. Investment
securities represent a primary source of liquidity. During 1997, investment
securities with a total carrying value of $145.9 million either matured or
were called. Available for sale securities of $41.7 million were sold
during 1997.
LOANS
- - ------------------------------------------------------------------------------
Loans, net of unearned income at December 31, 1997 totaled $1.0 billion,
which approximated 1996 levels. The lack of growth reflected competitive
pricing pressures which negatively impacted certain mortgage and personal
loan products, tightening of credit quality standards, and lack of economic
growth in the Upper Ohio Valley. These decreasing factors were offset by
increases resulting from the Shawnee Bank purchase acquisition, which added
approximately $11.2 million in total loans, and loans held for sale.
Commercial loans, at December 31, 1997, increased $29.8 million, while
personal loans decreased $43.0 million, compared to the prior year. The
decrease in personal loans reflected a decline in indirect auto loan
originations, which was impacted by a general downturn in auto financing by
banks. Mortgage loan originations through WesBanco's affiliate, WesBanco
Mortgage Company increased during 1997. The Mortgage Company originates
residential mortgage loans and sells its fixed rate mortgage loans to the
secondary market. For 1997, the Mortgage Company originated approximately
$58.4 million in residential mortgage loans.
As of December 31, 1997, commercial loans comprised 20% of total loans
outstanding, real estate secured loans comprised 53% and personal loans
comprised 27%.
Although market rates have remained stable during 1997, rates offered on
several loan products were lowered, reflecting the competitive environment.
The majority of commercial loans reprice monthly based on changes in prime
rate.
Impaired loans, at December 31, 1997 and 1996, included all nonaccrual
and renegotiated loans as well as loans internally classified as substandard
or doubtful. Loans classified as impaired increased to $11.2 million in 1997
or 1.1% of loans outstanding compared to $10.3 million in 1996 or 1% of
loans outstanding. Nonaccrual loans are generally secured by collateral
believed to have adequate market values to protect against significant
losses. The Corporation continues to monitor the nonperforming assets to
ensure against deterioration in collateral values.
Net charge-offs in 1997 were $4.6 million compared to $3.0 million in
1996. The increase resulted from a rise in personal bankruptcies in
WesBanco's market area, which are consistent with bankruptcy trends
nationally. During 1997, the Corporation tightened its credit
standards contributing to a decrease in personal loan volume. The provision
for loan losses was $4.3 million in 1997, consistent with 1996. The allowance
for loan losses to loans was 1.5% as of December 31, 1997, unchanged from
December 31, 1996. Amounts charged to earnings were based on periodic
management evaluations of the loan portfolio, specific problem loans and
other factors. The allowance for loan losses is considered adequate to provide
for future losses in the loan portfolio.
51
DEPOSITS
- - ------------------------------------------------------------------------------
As of December 31, 1997, total deposits were $1.4 billion, reflecting an
increase of $71.4 million or 5.3% from December 31, 1996. The 1997 increase
was due in part to the acquisition of Shawnee Bank, which accounted for
approximately $28.6 million of the growth. The remaining portion of the
increase was the result of growth in Prime Rate Money Market accounts, which
averaged a rate of 5.22% during 1997, and certificates of deposits. These
deposit products, along with various pricing bonuses from the Good Neighbor
Banking Program, represented interest rate advantages to customers over other
deposit products in the marketplace.
During 1997, WesBanco continued to experience a change in deposit mix as
customers shifted funds from demand and savings products into the higher-
yielding Prime Rate Money Market account and certificates of deposit. This
change in deposit mix has contributed to a 30 basis point increase in the
cost of interest bearing deposits during 1997 coupled with an increase in
the rate sensitivity of the deposit base. As competition for deposits between
banks and nonbanks continues to intensify, the rising cost of deposits and
change in composition of deposits will also continue.
During 1998, the Corporation expects the change in deposit mix to
continue, as the focus will be on growth in higher-rate deposit products.
CAPITAL ADEQUACY
- - ------------------------------------------------------------------------------
Shareholders' equity increased to $249.6 million at December 31, 1997
from $227.5 million at December 31, 1996 due to the retention of earnings,
issuance of stock for the acquisition of Shawnee and the upward market
value adjustment on investment securities available for sale.
Ending capital to assets for 1997 was 14.7% compared to 14.4% for 1996,
reflecting WesBanco's strong capital position. The relatively high level
of capital coupled with strong earnings has enabled WesBanco to continue
its steady increase in dividends declared per share. Dividend payout ratios
over the last five years reflect the steady growth in dividends, increasing
to 56% in 1997 from 37% in 1993.
The Corporation announced cash dividend increases during 1997 and the
first quarter of 1998. On April 1, 1997 and October 1, 1997 the quarterly
dividend per share increased to $.193 and $.20, respectively, a 7% increase
from the January 1, 1997 quarterly dividend of $.187. On February 19, 1998,
the quarterly dividend per share, payable April 1, 1998 was increased to
$.21, representing the thirteenth consecutive year of common stock cash
dividend increases for WesBanco.
During 1997, common shares outstanding increased to 16.0 million from
10.5 million. This increase reflected the issuance of 5.4 million common
shares related to a 3 for 2 stock split effected in the form of a 50% stock
dividend and shares issued in the purchase acquisition of Shawnee Bank, Inc.
Throughout the Annual Report average shares and per share information have
been restated to reflect the 50% stock dividend.
WesBanco is subject to risk-based capital guidelines that measure capital
relative to risk-weighted assets and off-balance sheet instruments. WesBanco,
and its banking subsidiaries, maintain Tier I, Total Capital and Leverage
ratios well above minimum regulatory levels. See Note 15 of the Consolidated
Financial Statements for more information on capital amounts, ratios and
minimum regulatory requirements.
INTEREST RATE MANAGEMENT AND LIQUIDITY
- - ------------------------------------------------------------------------------
Interest rate management measures the sensitivity of net interest
earnings to changes in the level of interest rates. As interest rates
change in the market, rates earned on interest earning assets and rates paid
on interest-bearing 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 of rate changes.
WesBanco and its banking subsidiaries review their interest rate
sensitivity on a periodic basis. The following table classifies interest
earning assets and interest bearing liabilities into maturity categories and
measures the differences between maturing assets and liabilities in each
category (interest sensitivity gap).
52
INTEREST RATE MANAGEMENT AND LIQUIDITY (CONTINUED)
- - ------------------------------------------------------------------------------
At December 31, 1997, the Corporation was in a liability sensitive position as
summarized in the table below:
Under Three Six Nine Over
Three to Six to Nine Months to One
(in thousands) Months Months Months One Year Year Total
- - -------------------------------------------------------------------------------------------------------
ASSETS
Due from banks/interest
bearing $ 198 - - - - $ 198
Loans 265,484 $67,644 $61,777 $73,718 $564,360 1,032,983
Investment securities(1) 26,730 28,107 10,600 19,785 473,046 558,268
Federal funds sold 71,513 - - - - 71,513
- - -------------------------------------------------------------------------------------------------------
Total interest earning assets 363,925 95,751 72,377 93,503 1,037,406 1,662,962
- - -------------------------------------------------------------------------------------------------------
LIABILITIES
Savings and NOW accounts 483,564 - - - - 483,564
All other interest bearing
deposits 311,620 83,166 69,649 54,639 253,293 772,367
Short-term borrowings 91,036 3,218 11,665 509 257 106,685
- - -------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 886,220 86,384 81,314 55,148 253,550 1,362,616
- - -------------------------------------------------------------------------------------------------------
Interest sensitivity gap $(522,295) $ 9,367 $(8,937) $38,355 $783,856 $ 300,346
- - -------------------------------------------------------------------------------------------------------
Cumulative interest sensitivity gap $(522,295) $(512,928) $(521,865) $(483,510) $300,346
- - -------------------------------------------------------------------------------------------------------
(1) Securities are categorized above by expected maturity at amortized cost.
The changing interest rate environment can substantially impact the
Corporation's net interest income and profitability. The Asset/Liability
Management Committee believes the Corporation's interest sensitivity (gap)
position provides for a changing interest rate environment. The liability
sensitive position in the under three month time period is primarily caused
by savings and NOW deposits. Interest rates on these deposit instruments are
subject to periodic adjustment at management's discretion.
The Corporation's short-term liability sensitive position would suggest
exposure of the net interest margin to changing interest rates. An increase
in interest rates may cause a decline in the net interest margin while a
decrease in interest rates may have the opposite effect. The Corporation may
reduce its short-term liability sensitive position, making its net interest
margin less vulnerable to rising interest rates, by shortening asset
maturities primarily through reinvestment into federal funds from investment
maturities or by extending deposit maturities.
During 1997, WesBanco experienced an increase in its short-term
liability sensitive position due to growth in the Prime Rate Money Market
Product. In an effort to manage this additional interest sensitivity, in
1997 WesBanco entered into an interest rate swap with a notional value of
$10 million, due to mature in 1999. The swap agreement effectively fixed
the interest rate on $10 million in short-term deposits for 2 years.
Another measure used to assess changes in net interest income resulting
from changing interest rates is income simulation. Key assumptions used in
income simulation include loan and deposit growth, pricing, interest
sensitivity, and the level of interest rate or balance changes on
indeterminate maturity deposit products such as savings and NOW deposits.
These assumptions have been developed through a combination of historical
analysis and future anticipated pricing behavior.
Based on the results of the income simulation, as of December 31, 1997,
the Corporation would expect an increase in net interest income of $0.2
million and a decrease of $1.6 million from an immediate and sustained 200
basis point increase and decrease, respectively, in interest rates over a
12-month period.
The Corporation manages its liquidity position to ensure that sufficient
funds are available to meet customer needs for borrowing and deposit
withdrawals. The Corporation's primary source of liquidity is its strong
core deposit base. The growth in deposits is somewhat dependent upon
interest rates of competitive financial instruments. Short-term liquidity is
maintained through the use of federal funds sold, which represents one day
investments and cash balances. As of December 31, 1997, federal funds sold
and cash balances were $128.2 million or 7.2% of total assets as compared
to $70 million or 4.2% of total assets as of December 31, 1996. The increase
in short-term liquidity resulted from a $60.5 million increase in federal
funds sold, reflecting an excess of deposit growth over loan growth.
Additional short-term liquidity is maintained through investments with
expected maturities of less than one year which, during 1998, approximate
$85.2 million or 4.8% of total assets. During 1997 investment
53
INTEREST RATE MANAGEMENT AND LIQUIDITY (CONTINUED)
- - ------------------------------------------------------------------------------
maturities and calls of $145.9 million became available for reinvestment.
As of December 31, 1997 the Corporation had outstanding commitments to
extend credit in the ordinary course of business approximating $98.5 million.
On an historical basis only a small portion of these commitments result in
expended funds.
The Corporation has planned additions to fixed assets of approximately
$5.5 million during 1998, of which commitments totaling $1.7 million have
been made.
COMPARISON OF 1996 VERSUS 1995
- - ------------------------------------------------------------------------------
Net income increased 4.2% to $21.2 million for the year ended December
31, 1996 compared to 1995, reflecting increases in net interest income and
service fees. Return on average assets was 1.3%, consistent with the prior
year, while return on average equity decreased to 10.0% from 10.2% in 1995.
Net interest income increased $3.2 million or 5.2% over 1995, reflecting
balance sheet growth and an improvement in the net yield on earning assets.
Average earning assets increased $45.5 million or 3.1%, while the net yield
improved to 4.34% from 4.25%. Mortgage and consumer loans contributed to
a 9.7% growth in average loans, which were funded, in part, by maturing
securities causing a change in asset mix. Average interest bearing
liabilities increased $48.9 million or 4.2%, reflecting an 11.5% increase
in average certificates of deposit. The increase in certificates of deposit
resulted from the competitively-priced Good Neighbor Banking Program and a
shift in deposits from demand and savings deposits. Influenced by falling
market rates, improvement in the net yield on earning assets during 1996
primarily resulted from a decrease in rates on short-term borrowing, demand
and savings deposits, partially offset by a change in deposit mix to
higher-yielding deposits.
The provision for loan losses increased to $4.3 million from $2.8 million
in 1995, reflecting an increase in net charge-offs and growth in the mortgage
and consumer loan portfolios. Net charge-offs increased to $3.0 million from
$2.3 million in the prior year. The allowance for loan losses to total loans
was 1.5% as of December 31, 1996, consistent with 1995.
Other income, excluding securities transactions, and other expense
increased $1.1 million or 10.1% and $1.0 million or 2.4%, respectively, over
1995. Other income increased primarily due to a $0.7 million or 15.4%
increase in trust fees. The other expense increase primarily resulted from
increases in equipment, training, and overtime costs associated with
technology enhancements, including the installation of a wide area network
and a new mainframe computer software system. Pension and other employee
benefits decreased in 1996, reflecting a reduction in pension costs caused
by market value appreciation of pension plan assets.
BUSINESS COMBINATIONS
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Commercial BancShares, Incorporated - On September 30, 1997, WesBanco and
Commercial BancShares, Incorporated, a multi-bank holding company located in
Parkersburg, WV, entered into a definitive Agreement and Plan of Merger. The
transaction will be accounted for as a pooling of interests. Please refer
to the following table for selected financial data on a pro forma combined
basis.
Shawnee Bank, Inc. - On June 30, 1997, WesBanco completed the acquisition
of Shawnee Bank, Inc., located in Dunbar, WV. The acquisition was accounted
for using the purchase method of accounting.
Vandalia National Corporation - On December 30, 1996, WesBanco completed
the acquisition of Vandalia National Corporation, located in Morgantown, WV.
The acquisition was accounted for using the purchase method of accounting.
Bank of Weirton - On August 30, 1996, WesBanco consummated its
acquisition of the Bank of Weirton. WesBanco issued 1,690,000 shares of
common stock to shareholders of Bank of Weirton, in a transaction accounted
for as a pooling of interests. Bank of Weirton reported net income of $2.1
million for the year ended December 31, 1995.
Universal Mortgage Company - On August 20, 1996, WesBanco completed the
acquisition of Universal Mortgage Company which was accounted for using the
purchase method of accounting.
54
BUSINESS COMBINATIONS (CONTINUED)
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The following table sets forth WesBanco and Commercial BancShares selected
financial data on a pro forma combined basis:
December 31, 1997
--------------------------------------------
Commercial
(unaudited, dollars in thousands, BancShares, Pro forma
except per share amounts) WesBanco, Inc. Incorporated Combined
- - --------------------------------------------------------------------------------------
For the year:
Interest income $124,530 $33,260 $157,790
Interest expense 55,774 14,231 70,005
- - --------------------------------------------------------------------------------------
Net interest income 68,756 19,029 87,785
Provision for loan losses 4,314 1,260 5,574
Other income 14,693 3,008 17,701
Other expense 48,704 16,478 65,182
- - --------------------------------------------------------------------------------------
Income before income taxes 30,431 4,299 34,730
Income taxes 8,157 1,362 9,519
- - --------------------------------------------------------------------------------------
Net Income $ 22,274 $ 2,937 $ 25,211
- - --------------------------------------------------------------------------------------
Earnings per share $1.40 $1.82 $1.23
Average shares outstanding 15,867,608 1,616,187 20,461,743
Return on average assets 1.3% 0.7% 1.2%
Return on average equity 9.4% 6.8% 9.0%
At year end:
- - --------------------------------------------------------------------------------------
Assets $1,789,295 $428,312 $2,217,255
Securities 566,557 68,725 634,930
Loans, net of unearned income 1,032,983 308,670 1,341,653
Allowance for loan losses 15,531 4,731 20,262
Deposits 1,414,254 365,612 1,779,866
Shareholders' equity 249,550 42,198 291,466
Book value per share 15.58 26.11 14.14
YEAR 2000
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During 1997, WesBanco continued a corporate wide project to address
issues associated with the year 2000. Many computer programs were originally
designed to recognize only a two-digit date field. The issue is that instead
of recognizing the four-digit date of "2000", computer logic will cause
programs with a two-digit date to work as if the clock had been turned back
to the year 1900.
In early 1997, the Corporation assembled a task force, comprised of
representatives from each affiliate, to design and implement a corporate plan
which will identify systems affected by this issue, and apply corrective
measures for full year 2000 compliance. The task force, which meets monthly,
has made considerable progress toward completion of the corporate plan.
Currently, all major noncompliant systems have been identified. WesBanco
plans to either modify or replace these systems by the end of 1998. In
addition, a list of all vendor-supplied equipment and software has been
compiled for use in obtaining vendor certification or formal commitment to
become compliant. All computer software applications that manage our
customer banking systems have been certified year 2000 compliant by the
vendor.
The Corporation believes that modifications to existing systems,
conversion to new systems, and vendor compliance upgrades, will be resolved
on a timely basis, and related costs will not have a material impact on its
results of operations or financial condition.
55
MARKET OF COMMON STOCK AND RELATED SHAREHOLDER MATTERS
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WesBanco's common stock is quoted on The Nasdaq Stock Market (Nasdaq),
with a trading symbol of WSBC. As reported by Nasdaq, the price information
reflects high and low sales prices.
The approximate number of holders of WesBanco's $2.0833 par value common
stock as of December 31, 1997 was 4,391.
On February 19, 1998, the quarterly dividend per share payable April 1,
1998 was increased to $.21.
The following represents reported high and low trading prices and
dividends declared during the respective quarter:
Dividend
High Low Declared
- - -------------------------------------------------------------
1997
4th quarter $31.25 $27.50 $.200
3rd quarter 30.50 25.75 .200
2nd quarter 27.17 21.33 .193
1st quarter 22.17 21.17 .193
1996
4th quarter $21.67 $18.33 $.187
3rd quarter 19.00 17.50 .187
2nd quarter 18.17 17.17 .173
1st quarter 19.17 17.50 .173
OTHER MATTERS
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As of December 31, 1997, WesBanco had approximately 58% of its assets in
the Upper Ohio Valley, an area that experienced a 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.
The direct impact of the strike on the financial results of WesBanco is
not determinable. A rise in personal bankruptcies, consistent with national
trends, and the continued slow economic growth in the Upper Ohio Valley
represent external factors impacting WesBanco's market area, which may or may
not be directly related to the strike.