1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------- AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
--------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-8467
------
WESBANCO, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
West Virginia 55-0571723
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1 Bank Plaza, Wheeling, WV 26003
- --------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
304-234-9000
---------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or, for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. WesBanco had 20,913,335
shares outstanding at July 31, 1998.
2
PART 1 - FINANCIAL INFORMATION
- -------------------------------
Consolidated Balance Sheets at June 30, 1998 and December 31, 1997, and
Consolidated Statements of Income, Consolidated Statements of Changes in
Shareholders' Equity and Consolidated Statements of Cash Flows for the six
months ended June 30, 1998 and 1997 are set forth on the following pages. On
March 31, 1998, WesBanco consummated its business combination with Commercial
BancShares, Incorporated, Parkersburg, West Virginia. All previously presented
financial information has been restated to include Commercial BancShares.
In the opinion of management of the Registrant, all adjustments, consisting
of normal recurring accruals, necessary for a fair presentation of the financial
information referred to above for such periods, have been made. The results
of operations for the six months ended June 30, 1998 are not necessarily
indicative of what results may be attained for the entire year.
For further information, refer to the 1997 Annual Report to Shareholders
which includes consolidated financial statements and footnotes thereto and
WesBanco, Inc.'s Annual Report on Form 10-K for the year ended December 31,
1997.
3
WESBANCO, INC.
CONSOLIDATED BALANCE SHEET
- ------------------------------------------------------------------------------
(Unaudited, dollars in thousands, except per share amounts)
June 30, December 31,
1998 1997
ASSETS ---------- ------------
Cash and due from banks $ 71,294 $ 73,412
Due from banks - interest bearing 5,230 1,515
Federal funds sold 42,961 86,363
Securities:
Available for sale, carried at market value 456,652 383,010
Held to maturity (market value of $251,997
and $249,165, respectively) 247,962 246,208
--------- ---------
Total securities 704,614 629,218
--------- ---------
Loans (net of unearned income of $901 and
$1,495, respectively) 1,335,158 1,341,901
Allowance for loan losses (19,906) (20,261)
--------- ---------
Net loans 1,315,252 1,321,640
--------- ---------
Bank premises and equipment - net 46,866 45,068
Accrued interest receivable 18,015 15,579
Other assets 39,084 38,748
---------- ----------
Total Assets $2,243,316 $2,211,543
========== ==========
LIABILITIES
Deposits:
Non-interest bearing demand $ 206,084 $ 205,399
Interest bearing demand 497,026 432,050
Savings 320,370 366,572
Certificates of deposit 754,957 775,846
---------- ----------
Total deposits 1,778,437 1,779,867
---------- ----------
Federal funds purchased and repurchase agreements 112,515 93,342
Other short-term borrowings 31,039 26,927
Accrued interest payable 7,361 7,224
Other liabilities 16,414 16,188
---------- ----------
Total Liabilities 1,945,766 1,923,548
---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 1,000,000 shares
authorized; none outstanding - -
Common stock, $2.0833 par value; 50,000,000 shares
authorized; 20,996,531 and 20,666,185 shares
issued, respectively 43,742 43,055
Capital surplus 60,400 57,997
Retained earnings 194,042 187,424
Treasury stock at cost (103,389 and 56,381
shares, respectively) (2,918) (1,675)
Other comprehensive income (market value adjustment) 2,892 1,783
Deferred benefits for employees and directors (608) (589)
---------- ----------
Total Shareholders' Equity 297,550 287,995
---------- ----------
Total Liabilities and Shareholders' Equity $2,243,316 $2,211,543
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
4
WESBANCO, INC.
CONSOLIDATED STATEMENT OF INCOME
- ------------------------------------------------------------------------------
(Unaudited, dollars in thousands, except per share amounts)
For the three months ended For the six months ended
June 30, June 30,
-------------------------- ------------------------
1998 1997 1998 1997
------------ ------------ ------------ ----------
INTEREST INCOME
Interest and fees on loans $ 29,975 $ 29,359 $ 59,625 $ 58,297
Interest on investment securities:
Taxable 8,148 6,573 15,857 13,102
Tax-exempt 2,439 2,253 4,747 4,530
---------- --------- --------- ---------
Total investment income 10,587 8,826 20,604 17,632
Other interest income 786 780 1,809 1,121
---------- --------- --------- ---------
Total interest income 41,348 38,965 82,038 77,050
---------- --------- --------- ---------
INTEREST EXPENSE
Interest on deposits 17,308 15,938 34,497 31,317
Interest on other borrowings 1,730 1,230 3,136 2,317
---------- --------- --------- ---------
Total interest expense 19,038 17,168 37,633 33,634
Net interest income 22,310 21,797 44,405 43,416
Provision for loan losses 1,649 1,005 2,402 2,216
---------- --------- --------- ---------
Net interest income after
provision for loan losses 20,661 20,792 42,003 41,200
---------- --------- --------- ---------
OTHER INCOME
Trust fees 2,240 1,828 4,664 3,704
Service charges and other income 7,190 2,231 9,626 4,344
Net securities gains 33 82 308 86
---------- --------- --------- ---------
Total other income 9,463 4,141 14,598 8,134
OTHER EXPENSE
Salaries, wages and employee benefits 9,647 8,317 18,490 16,557
Premises and equipment - net 2,555 2,184 4,849 4,505
Other operating expense 6,413 4,712 11,451 9,373
---------- --------- --------- ---------
Total other expense 18,615 15,213 34,790 30,435
---------- --------- --------- ---------
Income before provision for income taxes 11,509 9,720 21,811 18,899
Provision for income taxes 3,720 2,745 6,980 5,325
---------- --------- --------- ---------
Net Income $ 7,789 $ 6,975 $ 14,831 $ 13,574
========== ========= ========= =========
Earnings per share $0.37 $0.35 $0.71 $0.67
Average shares outstanding 20,876,297 20,217,749 20,888,797 20,280,407
Dividends per share $0.21 $0.193 $0.42 $0.386
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
5
WESBANCO, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREOLDERS' EQUITY
- ------------------------------------------------------------------------------
(Unaudited, in thousands, except for shares)
Deferred
Other Benefits for
Comprehensive Common Capital Retained Treasury Comprehensive Directors &
Income Stock Surplus Earnings Stock Income Employees Total
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1996 $ 31,545 $ 50,512 $ 187,777 $ (544) $ 46 $ (855) $ 268,481
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 25,211 25,211 25,211
Cash dividends:
Common ($.786 per share) (12,474) (12,474)
Common-by pooled bank
prior to acquisition (1,929) (1,929)
Stock issued for acquisition 366 7,519 4,901 12,786
Net treasury shares purchased 82 (6,032) (5,950)
Retirement of pooled bank stock
held by WesBanco (17) (116) (133)
Stock issued for a 3 for 2 stock
split effected in the form of a
50% stock dividend 11,161 (11,161)
Deferred benefits for directors (50) (50)
Principal payment on ESOP debt 450 450
ESOP borrowing (134) (134)
Market value adjustment on
investments available for sale-
net of tax effect 1,737 1,737 1,737
---------
Comprehensive income $ 26,948
=========
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 $ 43,055 $ 57,997 $ 187,424 $ (1,675) $ 1,783 $ (589) $ 287,995
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 14,831 14,831 14,831
Cash dividends:
Common ($.42 per share) (7,728) (7,728)
Common-by pooled bank
prior to acquisition (485) (485)
Stock issued for acquisitions 687 2,394 1,883 4,964
Net treasury shares purchased 9 (3,126) (3,117)
Deferred benefits for directors (19) (19)
Market value adjustment on
investments available for sale-
net of tax effect 1,109 1,109 1,109
---------
Comprehensive income $ 15,940
=========
- ----------------------------------------------------------------------------------------------------------------------------------
June 30, 1998 $ 43,742 $ 60,400 $ 194,042 $ (2,918) $ 2,892 $ (608) $ 297,550
- ----------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
6
WESBANCO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents (unaudited, in thousands)
For the six months ended
June 30,
------------------------
1998 1997
----------- ----------
Cash flows from operating activities:
Net Income $ 14,831 $ 13,574
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,992 3,029
Provision for loan losses 2,402 2,216
Gains on sales of securities-net (308) (86)
Deferred income taxes (4) 7
Gain on sale of subsidiary (4,604)
Other -- net 540 244
Net change in assets and liabilities:
Interest receivable (2,718) (444)
Other assets 1,509 789
Interest payable 223 160
Other liabilities (2,458) 247
--------- ---------
Net cash provided by operating activities 12,405 19,736
--------- ---------
Cash flows from investing activities:
Securities held to maturity:
Proceeds from maturities and calls 37,488 59,605
Payments for purchases (48,426) (22,460)
Securities available for sale:
Proceeds from sales 21,392 20,332
Proceeds from maturities and calls 96,815 27,513
Payments for purchases (192,007) (53,152)
Sale of subsidiary, net of cash sold (2,726) -
Purchase of subsidiaries, net of cash acquired 3,305 6,635
Net increase in loans (18,426) (4,477)
Purchases of premises and equipment-net (5,180) (3,461)
--------- ---------
Net cash provided by (used in) investing activities (107,765) 30,535
--------- ---------
Cash flows from financing activities:
Net increase in deposits 37,957 15,032
Increase(decrease) in federal funds purchased
and repurchase agreements 19,172 (2,235)
Increase in short-term borrowings 6,591 4,118
Dividends paid (7,043) (6,838)
Other (5) 100
Purchases of treasury shares-net (3,117) (4,856)
--------- ---------
Net cash provided by financing activities 53,555 5,321
--------- ---------
Net increase(decrease)in cash and cash equivalents (41,805) 55,592
Cash and cash equivalents at beginning of period 161,290 94,266
--------- ---------
Cash and cash equivalents at end of period $119,485 $149,858
========= =========
For the six months ended June 30, 1998 and 1997, WesBanco paid $37,410 and
$33,225 in interest on deposits and other borrowings, and $7,754 and $9,542
for income taxes, respectively.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
7
WESBANCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Note 1 - Accounting policies
- ----------------------------
Basis of presentation: The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The consolidated financial
statements include the accounts of WesBanco, Inc. ("the Corporation") and its
wholly-owned subsidiaries. Significant intercompany transactions have been
eliminated in consolidation. Previously presented financial information has
been restated to include Commercial BancShares, Incorporated ("Commercial").
The business combination of WesBanco and Commercial, which consummated on
March 31, 1998, was accounted for under the pooling-of-interests method of
accounting. The acquisition of Hunter Insurance Agency, which consummated
on June 18, 1998, was accounted for under the purchase method of accounting.
WesBanco issued 62,500 shares of common stock held in Treasury in the
transaction.
Cash and cash equivalents: For the purpose of reporting cash flows, cash and
cash equivalents include cash and due from banks, due from banks - interest
bearing and federal funds sold. Generally, federal funds are sold for one-day
periods.
Note 2 - Divestiture
- --------------------
On June 30, 1998, WesBanco sold 100% of the common stock in Union Bank of
Tyler County ("Union") to Hometown Bancshares, Inc. This transaction fulfilled
the regulatory condition that WesBanco divest of Union, which had become
affiliated with WesBanco as a result of WesBanco's business combination with
Commercial. As of June 30, 1998 Union had total assets of $46.9 million,
loans of $22.4 million, deposits of $39.3 million, and shareholders' equity
of $5.0 million. WesBanco realized a gain on the sale of Union of $4.6
million, which was recorded in the Consolidated Statement of Income at
June 30, 1998 in Service Charges and Other Income.
8
Note 3 - Incentive Bonus and Stock Option Plan
- ----------------------------------------------
On April 15, 1998 WesBanco shareholders approved a Key Executive Incentive
Bonus and Option Plan ("The Plan"). The Plan, which has three portions: an
Annual Bonus portion, a Long-term Bonus portion and a Stock Option portion,
is designed to pay incentive compensation based on achievement of performance
goals. Participation in any portion of the Plan is limited to those executive
employees of the Company who are in a position to directly influence the
achievement of goals set by the Board.
Incentive compensation under the Annual Bonus portion of the Plan is paid
primarily in cash, and under the Long-term Bonus portion, as a combination of
stock and cash. Under the Stock Option portion of the Plan, the exercise
price of each stock option is equal to fair market value as of the date
granted and shall not exceed a term of ten years from the date granted. Each
stock option is subject to a vesting schedule which vests such stock option
over one or more years based on performance goals.
As of June 30, 1998, 28,000 stock options have been granted, none of which
are vested. Based on the vesting schedule, the first performance measurement
period for vesting stock options will be December 31, 1998. WesBanco has
reserved 150,000 shares of common stock for issuance under the Plan, which
may be adjusted as necessary in the event of a substantial corporate event
which affects the number of shares of common stock then outstanding.
Note 4 - Special charges associated with Commercial
- ---------------------------------------------------
During the second quarter of 1998, WesBanco recorded approximately $1.6
million in special charges related to the business combination with Commercial
and subsequent integration of its operations. These special charges,
included in other expense, were comprised of $0.8 million in salary and
employee benefit adjustments and $0.8 million in other operating expense,
which consists of professional fees, integration and conversion costs, and
marketing expenses. WesBanco has paid substantially all of these charges
prior to June 30, 1998.
9
WESBANCO, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
The following discussion and analysis presents in further detail the
financial condition and results of operations of WesBanco, Inc. and its
subsidiaries. This discussion and analysis should be read in conjunction
with the consolidated financial statements and notes presented in this report.
Certain information in Management's Discussion and other statements
contained in this report, constitute forward-looking statements with respect
to WesBanco and its subsidiaries. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors. Such statements are
subject to 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 business, real estate, and consumer lending
activities; changes in federal and state regulations; the presence in the
Corporation's market area of competitors; or other unanticipated external
developments materially impacting the Corporation's operational and financial
performance.
Earnings Summary
----------------
Comparison of the six months ended June 30, 1998 and 1997
---------------------------------------------------------
Net income for the six months ended June 30, 1998 was $14.8 million, a 9.3%
increase over the same period in 1997. Earnings per share of common stock for
the six months ended June 30, 1998 and 1997 were $.71 and $.67, respectively.
The improvement in earnings during the second quarter resulted primarily from
a $4.6 million gain on the sale of Union Bank of Tyler County ("Union"), which
was partially offset by an increase in the provision for loan losses and
special charges associated with Commercial.
Annualized return on average assets was 1.3% for the six months ended June
30, 1998 and 1997. Annualized return on average equity was 10.1% for the six
months ended June 30, 1998 and 1997.
The acquisition of Shawnee Bank on June 30, 1997, which was accounted for
under the purchase method of accounting, impacts performance comparisons
between the six-month periods ended June 30, 1998 and 1997. Where significant,
Management's Discussion reflects the impact of this purchase acquisition on
the comparative financial information.
10
Net Interest Income
-------------------
During a period of stable market rates, net interest income before the
provision for loan losses, for the six months ended June 30, 1998 increased
$1.0 million or 2.3% over the same period for 1997. The increase in net
interest income resulted from growth in average earning assets of $159.3
million or 8.2% and interest bearing liabilities of $134.5 million or 8.4%.
The impact of this growth was partially offset by a reduction in the net tax
equivalent yield on average earning assets to 4.5% for the six-month period
ended June 30, 1998 from 4.7% for the same period in 1997.
Growth in average earning assets was comprised primarily of increases in
taxable securities of $98.8 million or 24.4% and loans of $28.5 million or
2.2%. Average rates on taxable investments decreased 22 basis points between
the six-month periods ended June 30, 1998 and 1997 while average rates on
loans approximated 1997 levels. Approximately $9.0 million of the increase
in taxable securities and $10.5 million of the increase in average loans
related to the purchase acquisition of Shawnee Bank. Fully taxable equivalent
yields on average earning assets decreased slightly to 8.1% from 8.2% between
the comparative periods reflecting a shift in balances from higher-yielding
loans to investments.
Growth in average interest bearing liabilities consisted primarily of an
increase in average interest bearing deposits of $101.1 million or 6.7%.
Within the deposit category, increases in average interest bearing demand of
$118.8 million or 32.4%, resulting from growth in Prime Rate Money Market
Accounts, and average certificates of deposit of $23.1 million or 3.0%, were
partially offset by a reduction in savings balances of $40.8 million or 10.7%.
Approximately $28.4 million of the increase in average interest bearing
deposits related to the purchase acquisition of Shawnee. The average rate on
interest bearing deposits increased approximately 10 basis points to 4.3% from
4.2% between the comparative periods reflecting a shift in balances from
traditional savings accounts to higher-yielding money market accounts and
certificates of deposit.
Other Income
------------
Excluding the gain on the sale of Union of $4.6 million, other income
increased $1.9 million or 22.9%. Trust fees increased $1.0 million or 25.9%,
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 approximated $2.3 billion as of June 30, 1998, an increase of
$372 million or 18.9% over June 30, 1997. Service charges and other income,
excluding the gain on the sale of Union, increased $0.7 million or 15.6%
between the six-month periods ended June 30, 1998 and 1997 reflecting an
increase in activity charges on deposit accounts.
11
Other Expense
-------------
Excluding special charges of $1.6 million associated with Commercial, other
expense increased $2.8 million or 9.2%, reflecting technology enhancements, the
purchase acquisition of Shawnee Bank, and the expansion of WesBanco's mortgage
banking affiliate. Technology enhancement projects, including upgrades to the
Corporation's Wide Area Network and conversion of the Trust Department's
operating system, influenced the respective Other Expense categories through
increased overtime, equipment, consulting and training costs. These technology
upgrades are expected to improve operating efficiencies in future periods.
During the six months ended June 30, 1998, WesBanco incurred approximately
$1.6 million in expenses related to the business combination with Commercial.
These non-recurring expenses consisted of salary and employee benefit costs,
conversion and integration costs and professional fees. Associated with
conversion and integration costs, WesBanco completed a conversion of
Commercial's mainframe computer systems into the WesBanco system during the
second quarter. The system conversion has enabled WesBanco to consolidate
resources and standardize operating procedures.
Income Taxes
------------
A reconciliation of the average federal statutory tax rate to the reported
effective tax rate attributable to income from operations follows:
For the six months
ended June 30,
-------------------
1998 1997
---- ----
Federal statutory tax rate 35% 35%
Tax-exempt interest income from securities
of states and political subdivisions (7) (8)
State income tax - net of federal tax effect 4 3
Alternative minimum tax credit
Carryforward recognized - (2)
----- -----
Effective tax rate 32% 28%
===== =====
The increase in the effective tax rate resulted from the utilization of
approximately $0.5 million in credits for prior years' minimum taxes during
the six months ended June 30, 1997. These tax credits were fully utilized
as of December 31, 1997.
12
Financial Condition
-------------------
Total assets of WesBanco as of June 30, 1998 were $2.2 billion, which
approximated total assets as of December 31, 1997. During the six month
period ended June 30, 1998, WesBanco experienced an increase in investment
securities, while loan and deposit balances approximated December 31, 1997
levels. As loan and deposit volume increased during this six-month
comparative period, these increases were offset by the divestiture of Union
on June 30, 1998.
Investment Securities
---------------------
The following table shows the composition of the investment securities
portfolio:
June 30, December 31,
1998 1997
(in thousands) -------------------------
Securities Available for Sale (at market):
- ------------------------------------------
U. S. Treasury and federal agency securities $311,713 $247,042
Obligations of states and political subdivisions 20,103 20,638
Corporate securities 7,996 8,540
Mortgage-backed securities 112,031 100,931
Other debt and equity securities 4,809 5,859
--------- ---------
Total available for sale 456,652 383,010
--------- ---------
Securities Held to Maturity (at cost):
- --------------------------------------
U.S. Treasury and federal agency securities 69,876 79,220
Obligations of states and political subdivisions 174,468 164,684
Other debt securities 3,618 2,304
--------- ---------
Total held to maturity (market value of
$251,997 and $249,165, respectively) 247,962 246,208
--------- ---------
Total securities $704,614 $629,218
========= =========
The market value adjustment, before tax effect, in the available for sale
securities portfolio reflected unrealized net gains of $4.8 million as of
June 30, 1998 compared to unrealized net gains of $2.9 million as of December
31, 1997. These adjustments represent temporary market value fluctuations
caused by general changes in market rates and the length of time to
respective maturity dates. If these securities are held until their
respective maturity date, no market value adjustment would be realized.
Loans
-----
Loans, net of unearned income decreased $6.7 million or 0.5% between June
30, 1998 and December 31, 1997. Loan growth, which occurred primarily in the
business loan category, was offset by a decrease of $22.4 million resulting
from the sale of Union.
13
The following table shows the composition of the loan portfolio:
June 30, December 31,
1998 1997
(in thousands) -------------------------
Loans:
Business $ 259,247 $ 243,458
Real Estate - Construction 49,569 37,743
Real Estate - Mortgage 707,090 715,819
Personal, net of unearned income 308,040 333,176
Loans held for sale 11,212 11,705
---------- ----------
Loans, net of unearned income $1,335,158 $1,341,901
========== ==========
WesBanco monitors the overall quality of its loan portfolio through various
methods. Underwriting policies and guidelines have been established for all
types of credits and management continually monitors the portfolio for adverse
trends in delinquent and non-performing loans.
Loans are considered impaired when it is determined that WesBanco may not
be able to collect all principal and interest due according to the contractual
terms of the loans. Impaired loans, including all non-performing loans, are
as follows:
June 30, December 31,
1998 1997
(in thousands) ----------------------
Nonperforming loans:
Nonaccrual $ 10,408 $ 8,413
Renegotiated 717 2,423
Other classified loans 5,715 6,292
-------- --------
Total impaired loans $ 16,840 $ 17,128
======== ========
The average balance of impaired loans during the six months ended June 30,
1998 and year ended December 31, 1997, was approximately $16,038 and $17,514,
respectively.
Specific allowances for loan losses are allocated for impaired loans based
on the present value of expected future cash flows, or the fair value of the
collateral for loans that are collateral dependent. Related allowances for
loan losses on impaired loans were $3.3 million and $2.6 million as of June
30, 1998 and December 31, 1997, respectively.
Other real estate owned totaled $5.6 million as of June 30, 1998, and
December 31, 1997. Loans past due 90 days or more decreased to $1.9 million
or .1% of total loans as of June 30, 1998 as compared to $3.3 million or .2%
of total loans as of December 31, 1997.
Lending by WesBanco banks is guided by written lending policies, which
allow for various types of lending. Normal lending practices do not include
the acquisition of high yield non-investment grade loans or "highly leveraged
transactions" ("HLT") from outside the primary market.
14
Allowance for Loan Losses
-------------------------
Activity in the allowance for loan losses is summarized as follows:
For the six months
ended June 30,
--------------------
1998 1997
(in thousands) --------- ---------
Balance, at beginning of period $ 20,261 $ 19,102
Allowance for loan losses of acquired bank 329 269
Allowance for loan losses of sold bank (366)
Charge-offs (3,408) (2,407)
Recoveries 688 313
--------- ---------
Net charge-offs (2,720) (2,094)
Provision for loan losses 2,402 2,216
--------- ---------
Balance, at end of period $ 19,906 $ 19,493
========= =========
The allowance for loan losses as a percentage of total loans was 1.49% as
of June 30, 1998 and 1.45% as of June 30, 1997. Amounts allocated to the
allowance for loan losses are based upon management's evaluation of the
credit risk in the loan portfolio. The increase in loan charge-offs between
the six months ended June 30, 1998 and 1997 related to the write-down of a
large business loan in the second quarter of 1998. Management believes that
the allowance for loan losses as of June 30, 1998 is adequate to provide for
potential losses in the portfolio.
Deposits
--------
Total deposits decreased $1.4 million or .08% between June 30, 1998 and
December 31, 1997, as growth of approximately $38 million was offset by a
decrease in deposits of $39.3 million resulting from the sale of Union. During
this six-month period, WesBanco experienced growth in both money market
accounts and certificates of deposit. Through competitive products such as
Good Neighbor Banking and the Prime Rate Money Market Account, WesBanco has
sustained growth in its deposit base over the past several years. However,
as these higher-yielding deposits increased, traditional savings balances
continued to decline, causing a change in the composition of deposits.
15
Liquidity and Capital Resources
-------------------------------
WesBanco manages its liquidity position to meet its funding needs,
including potential deposit outflows and loan principal disbursements and to
meet its asset and liability management objectives.
In addition to funds provided from operations, WesBanco's primary sources
of funds are deposits, principal repayments on loans and matured or called
securities. Scheduled loan repayments and maturing securities are relatively
predictable sources of funds. However, deposit flows and prepayments on loans
are significantly influenced by changes in market interest rates, economic
conditions, and competition. WesBanco strives to manage the pricing of its
deposits to maintain a balance of cash flows commensurate with loan
commitments and other funding needs.
WesBanco is subject to risk-based capital guidelines that measure capital
relative to risk-adjusted assets and off-balance sheet financial instruments.
The Corporation's Tier I, total risk-based capital and leverage ratios are
well above the required minimum levels of 4%, 8% and 4%, respectively.
At June 30, 1998 and December 31, 1997, all of WesBanco's affiliate banks
exceeded the minimum regulatory levels. Capital adequacy ratios are
summarized as follows:
June 30, December 31,
1998 1997
----------------------
Tier I capital 19.0% 18.7%
Total risk-based capital 20.3% 20.0%
Leverage 12.4% 12.5%
Earnings Summary
----------------
Comparison of the three months ended June 30, 1998 and 1997
-----------------------------------------------------------
Net income for the three months ended June 30, 1998 was $7.8 million, an
11.7% increase over the same period in 1997. Earnings per share of common
stock for the three-month period ended June 30, 1998 and 1997 were $.37 and
$.35, respectively. The increase in earnings during the second quarter
resulted primarily from the gain on the sale of Union coupled with an
improvement in net interest income. An increase in the provision for loan
losses along with expense related to the business combination with Commercial
partially offset these increased earnings.
Annualized return on average assets was 1.4% for the three-month period
ended June 30, 1998 and 1.3% for the three-month period ended June 30, 1997.
Annualized return on average equity was 10.6% compared to 10.5% for the
three-month period ended June 30, 1998 and 1997, respectively.
16
Net Interest Income
-------------------
During a period of stable market rates, net interest income before the
provision for loan losses, for the three-month period ended June 30, 1998
increased $0.5 million or 2.4% over the same period for 1997. The increase
in net interest income resulted from growth in quarterly average earning
assets of $152.9 million or 7.8% and quarterly interest bearing liabilities
of $137.7 million or 8.6%. Approximately $24.7 million of the increase in
earning assets and $28.8 million of the increase in interest bearing
liabilities related to the purchase acquisition of Shawnee Bank. The impact
of this growth on net interest income was partially offset by a reduction in
the net tax equivalent yield on average earning assets to 4.5% for the
three-month period ended June 30, 1998 from 4.7% for the same period in 1997.
Growth in quarterly average earning assets was comprised primarily of
increases in taxable securities of $116.2 million or 29.1% and loans of $30.5
million or 2.3%. Yields on taxable securities decreased 26 basis points
between the three-month periods ended June 30, 1998 and 1997, while yields
on loans approximated second quarter 1997 levels. Yields on average earning
assets decreased to 7.8% from 7.9% between the comparative periods reflecting
a shift in balances from higher-yielding loans to investments.
Growth in quarterly average interest bearing liabilities consisted primarily
of an increase in interest bearing deposits of $100 million or 6.6%. Within
the deposit category, growth in interest bearing demand of $115 million or
30% and average certificates of deposit of $15.8 million or 2.1%, was
partially offset by a reduction in savings balances of $30.8 million or 8.2%.
The average rate on interest bearing deposits increased to 4.3% from 4.2%
between the comparative periods reflecting a shift in balances from savings
accounts to higher-yielding money market accounts and certificates of deposit.
Other Income
------------
Excluding the gain on the sale of Union of $4.6 million, other income
increased $0.7 million or 17.3%. Trust fee income increased $0.4 million or
22.5%, 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. Service
charges and other income, excluding the gain on the sale of Union, increased
$0.4 million or 15.9% between the three-month periods ended June 30, 1998 and
1997, resulting primarily from an increase in activity charges on deposit
accounts.
Other Expense
-------------
Excluding special charges of $1.6 million associated with Commercial,
other expense increased $1.8 million or 12.1%. The increase in other expense
reflects enhancements in technology, the purchase acquisition of Shawnee Bank
and the expansion of WesBanco's mortgage banking affiliate.
17
Year 2000
---------
WesBanco continues its efforts toward Year 2000 compliance. The Year 2000
issue primarily results from computer programs recognizing a two-digit date
field rather than four digits to define the year. Computer software or
hardware that is date-sensitive may recognize "00" as the Year 1900 instead
of the Year 2000 which may cause system failure, miscalculations, and other
temporary disruptions of operations.
A task force, comprised of representatives from each affiliate bank along
with the Information Technology Department, was assembled in early 1997 to
manage Year 2000 compliance. WesBanco's task force plans to resolve problems
associated with the Year 2000 in five phases: awareness, assessment,
remediation, testing and implementation. Internal resources were used to
visit each of the offices to assess equipment, documents and environmental
processes that could be affected by the Year 2000 issue. The awareness and
assessment phases are 100% complete.
Remediation and testing is necessary when vendor-supplied software is not
Year 2000 compliant or if compliant, to confirm such determination. To date,
customer loan and deposit accounting systems have been certified by the
vendor and by an independent third party. Trust accounting and shareholder
accounting systems are considered Year 2000 ready/compliant by the appropriate
vendor. A few non-customer software applications, which are not Year 2000
ready, are being corrected through either software reprogramming or
replacement of the entire application. WesBanco has contacted its major
vendors and continues to monitor their plans for Year 2000 readiness. If
outside vendors are not Year 2000 compliant, WesBanco believes that it will
be able to change to vendors that offer Year 2000 compliant hardware and
software. Remediation of operating equipment not related to information
technology issues, such as vault doors, off-line teller machines, telephone
equipment and communication lines has not been completed. Completion of the
remediation and testing phases is scheduled prior to December 31, 1998.
The Corporation's commercial customers, both for loans and deposits, are
being monitored for Year 2000 compliance. Commercial borrowers which are not
Year 2000 ready may present repayment risks. Existing large commercial
borrowers have been contacted and Year 2000 risks are being evaluated by the
lending functions in terms of the borrower's reliance on technology, resources
available to address the issue, and the adequacy of a Year 2000 plan. New
borrowers are evaluated prior to extensions of credit being approved. In
addition, large commercial deposit customers have been contacted regarding
Year 2000 readiness.
18
WesBanco is currently in the process of completing contingency planning
which outlines possible options and remedies to eliminate any disruption of
service to customers. These plans will include; contingency planning for
internal systems, and/or hardware/software failures caused by vendors
non-compliance with Year 2000. The timetable to complete a full set of
contingency plans is September 30, 1998. Subsequent to completion, continued
revisions will be made to the contingency plans to incorporate changes with
internal systems, customer and vendor readiness.
The Corporation believes that modifications to existing systems, conversion
to new systems, and third party assessments and applicable testing will be
resolved by the end of the first quarter 1999, and the related costs will not
have a material impact on its results of operations or financial condition.
WesBanco has no means of ensuring that third parties (suppliers and major
commercial customers) with whom it interacts will be Year 2000 ready. The
inability of those parties to complete their Year 2000 process could impact
the Corporation.
WesBanco's plans to complete Year 2000 compliance are based upon
management's best estimates, which are derived utilizing numerous assumptions
of future events including availability of certain internal and external
resources, the ability of the Corporation's larger commercial customers to
become Year 2000 ready and the readiness of strategic third party vendors.
There can be no guarantee that these estimates will be achieved and actual
results could differ materially from these plans due to unforeseen
circumstances.
Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
Through June 30, 1998, there have been no material changes to the
information on this topic as presented in the 1997 Annual Report.
19
Part II - OTHER INFORMATION
- ---------------------------
Item 1-5 - Not Applicable
- -------------------------
Item 6(a) - Exhibits
- --------------------
27 Financial Data Schedule required by Article 9 of Regulation S-X.
Item 6(b) - Reports on Form 8-K
- -------------------------------
On April 16, 1998, the Registrant filed a current report on Form 8-K,
dated March 31, 1998, announcing the consummation of WesBanco's business
combination with Commercial BancShares.
On June 30, 1998, the Registrant filed a current report on Form 8-K,
dated June 18, 1998, announcing the consummation of WesBanco's purchase
acquisition of Hunter Insurance Agency.
20
SIGNATURES
- ----------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESBANCO, INC.
--------------
Date: August 13, 1998 /s/ Edward M. George
--------------- ------------------------------
Edward M. George
President and Chief Executive Officer
/s/ Paul M. Limbert
Date: August 13, 1998 -------------------------------
--------------- Paul M. Limbert
Executive Vice President and Chief
Financial Officer