1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------- AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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 19,964,418
shares outstanding at October 31, 1999.
2
PART 1 - FINANCIAL INFORMATION
- -------------------------------
Consolidated Balance Sheets at September 30, 1999 and December 31, 1998,
Consolidated Statements of Income for the three and nine months ended
September 30, 1999 and 1998, and Consolidated Statements of Changes in
Shareholders' Equity and Consolidated Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998 are set forth on the following pages.
In the opinion of management of the Registrant, all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of
the financial information referred to above for such periods, have been made.
The results of operations for the nine months ended September 30, 1999 are
not necessarily indicative of what results may be attained for the entire
year.
For further information, refer to the 1998 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,
1998.
3
WESBANCO, INC.
CONSOLIDATED BALANCE SHEET
- ------------------------------------------------------------------------------
(Unaudited, dollars in thousands, except per share amounts)
September 30, December 31,
1999 1998
------------- -------------
ASSETS
Cash and due from banks $ 69,995 $ 62,989
Due from banks - interest bearing 5,111 5,174
Federal funds sold 11,840 38,055
Securities:
Held to maturity (market value of $223,790
and $220,699, respectively) 224,683 214,845
Available for sale, carried at market value 380,051 465,705
------------ ------------
Total securities 604,734 680,550
------------ ------------
Loans (net of unearned income of $222 and
$512, respectively) 1,488,068 1,373,018
Allowance for loan losses (19,399) (19,098)
------------ ------------
Net loans 1,468,669 1,353,920
------------ ------------
Premise and equipment 54,338 47,999
Other assets 62,821 54,025
------------ ------------
Total Assets $ 2,277,508 $ 2,242,712
============ ============
LIABILITIES
Deposits:
Demand $ 204,545 $ 227,349
Interest bearing demand 603,674 510,662
Savings 294,153 308,979
Certificates of deposit 713,758 740,652
------------ ------------
Total deposits 1,816,130 1,787,642
Federal funds purchased and repurchase agreements 127,827 112,511
Other borrowings 41,595 22,194
Other liabilities 17,511 23,882
------------ ------------
Total Liabilities 2,003,063 1,946,229
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 1,000,000 shares
authorized; none outstanding --- ---
Common stock, $2.0833 par value; 50,000,000
shares authorized; 20,996,531 shares issued 43,742 43,742
Capital surplus 60,217 60,283
Retained earnings 204,654 198,269
Treasury stock, at cost (1,002,677 and
336,296 shares, respectively) (29,060) (9,421)
Accumulated other comprehensive income (5,108) 3,610
------------ -----------
Total Shareholders' Equity 274,445 296,483
------------ ------------
Total Liabilities and Shareholders' Equity $ 2,277,508 $ 2,242,712
============ ============
See Notes to Consolidated Financial Statements.
4
WESBANCO, INC.
CONSOLIDATED STATEMENT OF INCOME
- ------------------------------------------------------------------------------
(Unaudited, dollars in thousands, except per share amounts)
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- -------------------------
1999 1998 1999 1998
------------ ----------- ----------- ----------
INTEREST INCOME
Loans, including fees $ 29,672 $ 29,685 $ 86,757 $ 89,310
Securities:
Taxable 6,617 7,820 21,067 23,677
Tax-exempt 2,594 2,475 7,649 7,222
------------ ----------- ---------- ----------
Total interest on securities 9,211 10,295 28,716 30,899
Federal funds sold 180 768 748 2,577
----------- ----------- ---------- ----------
Total interest income 39,063 40,748 116,221 122,786
----------- ----------- ---------- ----------
INTEREST EXPENSE
Interest bearing demand deposits 4,606 4,371 13,111 12,564
Savings deposits 1,495 1,989 4,507 6,298
Certificates of deposit 9,525 10,651 28,991 32,646
----------- ----------- ---------- ----------
Total interest on deposits 15,626 17,011 46,609 51,508
Other borrowings 1,716 1,661 4,665 4,797
----------- ----------- ---------- ----------
Total interest expense 17,342 18,672 51,274 56,305
----------- ----------- ---------- ----------
Net interest income 21,721 22,076 64,947 66,481
Provision for loan losses 679 503 3,375 2,905
----------- ----------- ---------- ----------
Net interest income after provision
for loan losses 21,042 21,573 61,572 63,576
----------- ----------- ---------- ----------
OTHER INCOME
Trust fees 2,334 2,166 7,687 6,830
Service charges and other income 2,479 2,591 11,123 12,217
Net securities gains 77 502 316 810
----------- ----------- ---------- ----------
Total other income 4,890 5,259 19,126 19,857
----------- ----------- ---------- ----------
OTHER EXPENSE
Salaries and employee benefits 9,185 8,333 26,699 26,823
Net occupancy expense 865 850 2,590 2,751
Equipment expense 1,493 1,456 4,635 4,404
Other operating expense 5,531 5,165 16,347 16,616
----------- ----------- ---------- ----------
Total other expense 17,074 15,804 50,271 50,594
----------- ----------- ---------- ----------
Income before provision for
income taxes 8,858 11,028 30,427 32,839
Provision for income taxes 2,706 3,602 9,438 10,582
----------- ----------- ---------- ----------
Net Income $ 6,152 $ 7,426 $ 20,989 $ 22,257
=========== =========== ========== ==========
Earnings per share of common stock $ 0.30 $ 0.36 $ 1.03 $ 1.07
Average shares outstanding 20,143,848 20,908,784 20,340,026 20,895,579
Dividends per share $ 0.22 $ 0.21 $ 0.66 $ 0.63
See Notes to Consolidated Financial Statements.
5
WESBANCO, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------
(Unaudited, in thousands, except for shares)
Accumulated
Common Stock Other
-------------------- Capital Retained Treasury Comprehensive
Shares Amount Surplus Earnings Stock Income Total
- --------------------------------------------------------------------------------------------------------------------
December 31, 1997 20,609,805 $43,055 $57,997 $186,835 ($1,675) $ 1,783 $287,995
- --------------------------------------------------------------------------------------------------------------------
Net Income 22,257 22,257
Net market value adjustment on
securities available for
sale - net of tax effect 3,886 3,886
----------
Comprehensive income 26,143
Cash dividends:
Common ($.63 per share) (12,114) (12,114)
Common-by pooled bank
prior to acquisition (485) (485)
Net treasury shares purchased (44,572) (82) (2,495) (2,577)
Stock issued for acquisition 330,346 687 2,394 1,883 4,964
Deferred benefits for directors (30) (30)
- --------------------------------------------------------------------------------------------------------------------
September 30, 1998 20,895,579 $43,742 $60,309 $196,463 ($2,287) $5,669 $303,896
====================================================================================================================
- --------------------------------------------------------------------------------------------------------------------
December 31, 1998 20,660,235 $43,742 $60,283 $198,269 ($9,421) $3,610 $296,483
- --------------------------------------------------------------------------------------------------------------------
Net Income 20,989 20,989
Net market value adjustment on
securities available for
sale - net of tax effect (8,718) (8,718)
----------
Comprehensive income 12,271
Cash dividends:
Common ($.66 per share) (13,533) (13,533)
Net treasury shares purchased (1,089,297) 116 (31,792) (31,676)
Stock issued for acquisition 422,916 (182) 12,153 11,971
KSOP borrowing (1,000) (1,000)
Deferred benefits for directors (71) (71)
- ---------------------------------------------------------------------------------------------------------------------
September 30, 1999 19,993,854 $43,742 $60,217 $204,654 ($29,060) ($5,108) $274,445
=====================================================================================================================
Comprehensive income for the three-month periods ended September 30, 1999
and 1998 was $4,918 and $10,203, respectively.
See Notes to Consolidated Financial Statements.
6
WESBANCO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents (unaudited, in thousands)
For the nine months ended
September 30,
-------------------------
1999 1998
------------ -----------
Cash flows from operating activities:
Net Income $ 20,989 $ 22,257
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 4,155 3,901
Net amortization of securities 1,117 326
Amortization of goodwill 1,001 770
Provision for loan losses 3,375 2,905
Gain on sale of credit card portfolio (3,561) ---
Gain on sales of securities-net (316) (810)
Gain on sale of bank --- (4,604)
Deferred income taxes (854) 173
Other -- net (3) 46
Net change in assets and liabilities:
Interest receivable (804) (2,833)
Other assets 611 (1,341)
Interest payable (815) 85
Other liabilities (624) (1,470)
---------- ----------
Net cash provided by operating activities 24,271 19,405
---------- ----------
Cash flows from investing activities:
Securities held to maturity:
Proceeds from maturities and calls 34,841 57,158
Payments for purchases (45,623) (94,042)
Securities available for sale:
Proceeds from sales 44,103 37,213
Proceeds from maturities and calls 111,447 168,336
Payments for purchases (83,344) (234,559)
Sale of bank, net of cash sold --- (2,726)
Proceeds from the sale of credit cards 18,789 ---
Purchase of subsidiaries, net of cash acquired 2,809 4,989
Net increase in loans (107,197) (35,944)
Purchases of premises and equipment-net (7,031) (7,053)
---------- ----------
Net cash used by investing activities (31,206) (106,628)
---------- ----------
Cash flows from financing activities:
Net increase (decrease) in deposits (1,002) 38,185
Increase in federal funds purchased and
repurchase agreements 16,388 9,694
Increase (decrease) in other borrowings 17,330 (11,584)
Dividends paid (13,379) (11,420)
Other 2 10
Purchases of treasury shares-net (31,676) (2,577)
---------- ----------
Net cash provided (used) by financing activities (12,337) 22,308
---------- ----------
Net decrease in cash and cash equivalents (19,272) (64,915)
Cash and cash equivalents at beginning of period 106,218 161,290
---------- ----------
Cash and cash equivalents at end of period $ 86,946 $ 96,375
========== ==========
Supplemental Disclosures:
Interest paid on deposits and other borrowings $ 51,974 $ 56,219
Income taxes paid 9,235 9,879
See Notes to Consolidated Financial Statements.
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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. The acquisition of The Heritage Bank of Harrison
County, which was completed on April 30, 1999, was accounted for under the
purchase method of accounting. WesBanco issued 422,916 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.
Earnings per share: Basic earnings per share are calculated by dividing net
income by the weighted average number of shares of common stock outstanding
during each period. For diluted earnings per share, the weighted average
number of shares for each period assumes the exercise of stock options.
There was no dilutive effect from the stock options and accordingly, basic
and diluted earnings per share are the same.
Reclassification: Certain amounts in the financial statements have been
reclassified to conform to the statement presentation for the current year.
These reclassifications have no effect on the Consolidated Statement of
Income.
8
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.
For comparative purposes, consideration should be given to the effects of the
April 30, 1999, acquisition of The Heritage Bank of Harrison County, Inc.
("Heritage Bank"), the June 7, 1999, sale of the credit card receivables, the
June 30, 1998 sale of the Union Bank of Tyler County ("Union Bank"), which
was required by regulatory authorities in conjunction with the acquisition of
Commercial BancShares, Incorporated, and the June 18, 1998, acquisition of
Hunter Agency, Inc. WesBanco's results of operations and financial position
have not been restated to reflect these transactions. Where significant, the
effect of these transactions on the Balance Sheet and Statement of Income
will be discussed.
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 nine months ended September 30, 1999 and 1998
---------------------------------------------------------------
WesBanco's net income for the nine months ended September 30, 1999, was
$21.0 million compared to $22.3 million for the same period in 1998. Earnings
per share for the nine months ended September 30, 1999, and 1998, were $1.03
and $1.07, respectively. Core earnings per share, which excludes non-recurring
items, were $0.92 and $0.95 for the nine months ended September 30, 1999, and
1998, respectively. The decrease in core earnings resulted from continued
competitive pricing pressure on net interest income, an increase in the
provision for loan losses, an increase in technology-related costs, Y2K
readiness costs and operating expenses associated with the recently acquired
Heritage Bank and Hunter Agency.
9
Annualized return on average assets was 1.2% for the nine months ended
September 30, 1999 compared to 1.3% for the same period of 1998. Annualized
return on average equity was 9.9% for the nine-month period ended September
30, 1999 and 10.0% for the same period in 1998.
Non-recurring items included a $3.5 million gain on the sale of the
credit card portfolio recorded during the nine months ended September 30, 1999.
A $4.6 million gain on the sale of Union Bank and $1.6 million in special
charges associated with the business combination with Commercial BancShares
were recorded during the nine months ended September 30, 1998. In addition,
non-recurring items reflected a reduction in security gains of $0.5 million
between the comparative periods.
Net Interest Income
-------------------
Net interest income, on a taxable equivalent basis ("TE"), for the nine
months ended September 30, 1999 declined $1.3 million or 1.9% from the same
period in 1998. Affecting the decline in net interest income was a decrease
in the net (TE) yield on average earning assets to 4.4% from 4.5% during the
comparative period. The net yield, while positively impacted by strong loan
growth during 1999, declined due to competitive pricing pressure on both loan
and deposit products. Average earning assets and interest bearing liabilities
remained relatively flat during this time period. However, both of these
average balance sheet components changed significantly in composition. Average
earning assets, which increased due to loan growth, decreased in the areas of
federal funds sold and the securities portfolio. Interest bearing liabilities
increased in the competitively-priced Prime Rate Money Market Product, but
declined in savings and certificates of deposit balances. Other factors
affecting the average balance sheet between the nine months ended
September 30, 1999 and 1998 included the sale of Union Bank in June 1998, the
purchase of the Heritage Bank in April 1999 and the sale of the credit card
portfolio in June 1999, all of which had a net decreasing impact on average
earning assets of $15.8 million during the nine-month comparative period.
Interest income (TE) declined $6.3 million or 5.0% between the nine
months ended September 30, 1999 and 1998, reflecting a decline in the yield
(TE) on average earning assets to 7.7% from 8.0%. During the comparative
periods, the yield (TE) on average securities remained consistent with last
year, while the yield on average federal funds sold declined 56 basis points
and the yield on average loans declined 69 basis points. The decrease in the
average loan yield resulted from interest rate adjustments on loan products
in this period of low interest rates and the sale of the credit card portfolio
in June 1999. Average earning assets, although relatively stable (decreasing
less than 1%) in comparison to last year, reflected a significant shift of
funds into loans from securities and federal funds sold. Average total
securities decreased $38.7 million or 5.6% and average federal funds sold
declined by $42.5 million or 67.8%, while average loans increased $69.6
million or 5.2% during the comparative period.
Interest expense declined $5.0 million or 8.9% between the nine months
ended September 30, 1999 and 1998, resulting from a decline in the rate paid
on average interest bearing liabilities to 4.0%
10
from 4.4%. During this period of low interest rates, the rate on average
interest bearing demand deposits decreased 32 basis points, the average
savings rate decreased 54 basis points and the rate on average certificates
of deposit decreased 33 basis points. Average interest bearing liabilities
showed minimal growth between comparative periods, as customers moved
balances into the competitively-priced Prime Rate Money Market product from
certificates of deposit and savings accounts. Average interest bearing demand
deposits, which includes the Prime Rate Money Market product, increased $72.0
million or 14.7%, while average savings and certificates of deposit had a
combined decrease of $77.1 million or 7.0%. Average other borrowings,
consisting of federal funds purchased, repurchase agreements and Federal Home
Loan Bank borrowings, increased $11.9 million or 9.4% reflecting growth
primarily in short-term repurchase agreements.
Other Income
------------
Excluding non-recurring income, other income increased $0.9 million or
6.0% between the nine months ended September 30, 1999 and 1998 resulting
primarily from an increase in Trust fees. The continued strong growth in
trust fees reflected increases in the number of accounts under administration,
increasing market value of trust assets, and fees associated with the WesMark
mutual fund products. The market value of trust assets grew to $2.9 billion
as of September 30, 1999, an increase of $485.4 million or 20.0% in comparison
to September 30, 1998. Service charges on deposits decreased slightly, while
other income, consisting primarily of activity fees and non-banking income,
increased $0.3 million due to an increase in insurance fees from non-bank
affiliate, Hunter Agency. The increase in other income was partially offset
by a reduction in credit card activity fees of approximately $0.4 million
during the comparative period.
Non-recurring income for the nine months ended September 30, 1999
included the gain on the sale of the credit card receivables of $3.5 million
and net securities gains of $0.3 million. Non-recurring income for the nine
months ended September 30, 1998, included a $4.6 million gain on the sale of
Union and $0.8 million in net securities gains.
Other Expenses
--------------
Excluding non-recurring special charges of $1.6 million associated with
the business combination with Commercial BancShares in 1998, other expenses
increased $1.2 million or 2.5% during the nine months ended September 30, 1999
and 1998. Salaries and employee benefit expenses, excluding special charges
of $0.8 million, increased $0.7 million during the comparative period,
reflecting normal salary adjustments, increased post-retirement expenses, and
increased number of employees from the Heritage Bank and Hunter Agency
acquisitions. Other operating expenses, excluding special charges of $0.7
million, increased $0.5 million during the comparative period due to
increases in technology-related expenses and operating expenses of the
Heritage Bank and Hunter Agency. Technology-related expenses
11
included consulting, training and telecommunication expenses associated with
the continued expansion of WesBanco's Wide Area Network, implementation of a
new Trust operating system, Year 2000 readiness costs, and computer training
and development classes for employees. These increasing factors were
partially offset by operating efficiencies gained from last year's conversion
of Commercial BancShares operating systems into WesBanco's core banking
systems, coupled with the internal consolidation of two affiliate banks.
Income Taxes
------------
A reconciliation of the average federal statutory tax rate to the reported
effective tax rate attributable to income from operations follows:
For the nine months ended
September 30,
-------------------------
1999 1998
---- ----
Federal statutory tax rate 35% 35%
Tax-exempt interest income from securities
of states and political subdivisions (7) (7)
State income tax - net of federal tax effect 4 4
All other - net (1) 0
------ ------
Effective tax rate 31% 32%
====== ======
WesBanco's federal income tax returns for 1997 and 1996 were subject to
an Internal Revenue Service ("IRS") examination during the first quarter of
1999. In the final report, the IRS disallowed certain tax deductions for
acquisition-related expenses and disagrees with the timing of certain loan
origination costs taken in those years. WesBanco has appealed the IRS ruling.
If the IRS position is upheld, the projected impact on the results of
operations is approximately $0.1 million.
Financial Condition
-------------------
Total assets of WesBanco were $2.3 billion as of September 30, 1999, an
increase of $34.8 million or 1.6% over total assets as of December 31, 1998.
WesBanco experienced strong loan growth of $115.1 million or 8.4% during this
nine-month period, driven by growth in fixed-rate residential real estate
loans and the acquisition of the Heritage Bank. Concurrently, securities
decreased $75.8 million as proceeds from maturities and sales of securities
were used to fund the increased loan volume. Also during the nine-month
period, deposits grew $28.5 million or 1.6%, reflecting the acquisition of
the Heritage Bank.
12
Securities
----------
The following table shows the composition of the securities portfolio:
September 30, December 31,
1999 1998
(in thousands) ---------------------------
Held to Maturity (at cost):
- ---------------------------
U.S. Treasury and federal agency securities $ 22,658 $ 41,961
Obligations of states and political subdivisions 187,928 169,552
Other debt securities 14,097 3,332
--------- ---------
Total held to maturity (market value of $223,790
and $220,699, respectively) 224,683 214,845
--------- ---------
Available for Sale (at market):
- -------------------------------
U. S. Treasury and federal agency securities 206,656 276,260
Obligations of states and political subdivisions 19,797 24,712
Corporate securities 3,056 5,262
Mortgage-backed and other debt securities 150,542 159,471
--------- ---------
Total available for sale 380,051 465,705
--------- ---------
Total securities $ 604,734 $ 680,550
========= =========
Proceeds from the sale or maturity of securities represent a source of
liquidity for WesBanco. During the nine months ended September 30, 1999,
with only moderate deposit growth, proceeds from the sale and maturity of
agency securities in the available for sale portfolio served as a principal
source of funds for new loan growth. Security purchase activity occurred
primarily in tax-exempt municipals, which represented the most favorable
yield opportunities.
Reflecting an increase in market interest rates, the market value
adjustment, before tax effect, in the available for sale securities portfolio
changed to an unrealized net loss of $8.3 million as of September 30, 1999
compared to an unrealized net gain of $6.0 million as of December 31, 1998.
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.
13
Loans
-----
The following table shows the composition of the loan portfolio:
September 30, December 31,
(in thousands) 1999 1998
---------------------------
Loans:
- ------
Business $ 498,093 $ 484,269
Real estate - construction 44,680 46,033
Real estate 615,176 520,393
Personal, net of unearned income 316,553 313,043
Loans held for sale 13,566 9,280
----------- -----------
Loans, net of unearned income $ 1,488,068 $ 1,373,018
=========== ===========
The increase in loans during the nine-month period was concentrated in
real estate loans due to offering highly competitive rates on residential
real estate and home equity loans. Personal loan growth occurred in indirect
auto loans, which was partially offset by the sale of $15.4 million in credit
card receivables. Additionally, the acquisition of the Heritage Bank
contributed approximately $24.1 million to loan balances during the current
year-to-date period.
Non-performing Assets
---------------------
Non-performing assets are summarized as follows:
September 30, December 31,
(in thousands) 1999 1998
Non-performing assets: ----------------------------
- ----------------------
Nonaccrual loans $ 3,853 $ 10,488
Renegotiated loans 913 695
Other classified loans (1) 8,238 5,285
---------- ---------
Total impaired loans 13,004 16,468
Other real estate owned 3,505 3,486
---------- ---------
Total nonperforming assets $ 16,509 $ 19,954
========== =========
Loans past due 90 days or more $ 3,741 $ 6,954
========== =========
(1) Includes loans internally classified as doubtful and substandard (as
defined by banking regulations) that meet the definition of impaired loans.
WesBanco continues to experience improvement in the level of
nonperforming assets, which decreased $3.5 million in comparison to
December 31, 1998 and $7.9 million in comparison to September 30, 1998.
Nonperforming assets as a percentage of loans and other real estate reflects
this improvement, reducing to 1.11% as of September 30, 1999 from 1.45% and
1.80% as of December 31, 1998 and September 30, 1998, respectively. The
declining trend between September 30, 1999 and
14
December 31, 1998 resulted from the payoff of two large commercial loans
during the first four months of 1999 totaling $5.2 million, which were
previously classified as nonaccrual. There were no additional losses on the
payoff of these loans in 1999.
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.
Specific allowances for loan losses are allocated for impaired loans
based on the present value of expected future cash flows, or a fair value of
the collateral for loans that are collateral dependent. Allowances for loan
losses on impaired loans were $2.6 million as of September 30, 1999 and $2.2
million as of December 31, 1998. The increase in specific allowances
resulted primarily from the reevaluation of an impaired commercial loan.
Additionally, the increase was due to allowances on impaired loans added
during this nine-month period which exceeded allowances on impaired loans
paid-off.
Lending by WesBanco banks is guided by written lending policies, which
allow for various types of lending. Normal lending practices do not include
the acquisition of high yield non-investment grade loans or "highly leveraged
transactions" ("HLT") from outside the primary market.
Allowance for Loan Losses
-------------------------
Activity in the allowance for loan losses is summarized as follows:
For the nine months ended
September 30,
-------------------------
(in thousands) 1999 1998
Allowance for loan losses: ------------ -----------
- --------------------------
Balance, at beginning of period $ 19,098 $ 20,261
Allowance for loan losses of acquired/sold
banks-net 192 (37)
Allowance for loan losses allocated to sold
credit cards (450)
Charge-offs (3,874) (4,569)
Recoveries 1,058 855
---------- ----------
Net charge-offs (2,816) (3,714)
Provision for loan losses 3,375 2,905
---------- ----------
Balance, at end of period $ 19,399 $ 19,415
========== ==========
Amounts allocated to the allowance for loan losses are based upon
management's evaluation of the credit risk in the loan portfolio.
15
The allowance for loan losses as a percentage of total loans was 1.3% as
of September 30, 1999 and 1.4% as of September 30, 1998. Contributing to the
decline in the allowance to loans percentage was the June 7, 1999 sale of the
credit card portfolio, which resulted in a $0.45 million reduction to the
allowance for loan losses. This adjustment was based on management's
evaluation of the delinquency factors and net charge-off experience
associated with the credit card receivables. Additionally, the decline in
the allowance as a percentage of loans ratio reflects a reduction in
non-performing assets between September 30, 1999 and 1998.
The provision for loan losses is based on periodic management evaluation
of the loan portfolio as well as prevailing economic conditions, net loans
charged off, past loan experience, current delinquency factors, changes in
the character of the loan portfolio, specific problem loans and other factors.
The increase in the provision resulted primarily from the significant growth
in the loan portfolio during the nine-month comparative period.
Deposits and Other Borrowings
-----------------------------
Deposits increased $28.5 million or 1.6% between September 30, 1999 and
December 31, 1998, reflecting growth in interest bearing demand deposits,
driven by Prime Rate Money Market accounts, and the purchase of the Heritage
Bank, which added $29.1 million to deposit balances. These factors were
partially offset by reductions in savings and short-term certificates of
deposit balances. This shifting of funds reflects our customer's preference
for competitively priced short-term investment alternatives in this period of
low interest rates. Although short-term CD's decreased as balances shifted
into Prime Rate Money Market accounts, longer-term CD's increased slightly,
primarily due to bonus rates offered through the Good Neighbor Banking program.
Federal funds purchased, repurchase agreements and other borrowings,
representing an additional funding source during this year-to-date period,
increased $34.7 million or 25.8%. The increase in other borrowings was
comprised of Federal Home Loan Bank borrowings, which rose to $34.9 million
at September 30, 1999, from $19.3 million at December 31, 1998.
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
can be significantly influenced by changes in market interest rates, economic
conditions, and
16
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.
Shareholders' equity decreased $22.0 million between September 30, 1999
and December 30, 1998, resulting from the acquisition of treasury stock and
the after-tax market value adjustment on securities available for sale. The
increase in treasury stock resulted from the completion of a one million
share stock repurchase program and the start of a new program to repurchase
up to one million additional shares of WesBanco common stock on the open
market. The timing, price, and quantity of purchases under the plan are at
the discretion of the Corporation and the plan may be discontinued or
suspended at any time. As of September 30, 1999, WesBanco had purchased
427,027 shares under the plan.
Capital adequacy ratios are summarized as follows:
September 30, December 31,
1999 1998
----------------------------
Capital adequacy ratios:
- ------------------------
Tier I capital 16.3% 18.5%
Total risk-based capital 17.5% 19.8%
Leverage 11.5% 12.5%
WesBanco is subject to risk-based capital guidelines that measure
capital relative to risk-adjusted assets and off-balance sheet financial
instruments. The Corporation's Tier I, total risk-based capital and
leverage ratios are well above the required minimum levels of 4%, 8% and 4%,
respectively. At September 30, 1999 and December 31, 1998, all of WesBanco's
affiliate banks exceeded the minimum regulatory levels.
Earnings Summary
----------------
Comparison of the three months ended September 30, 1999 and 1998
----------------------------------------------------------------
Net income for the three months ended September 30, 1999 was $6.2
million compared to $7.4 million for the same period in 1998. Earnings per
share for the three months ended September 30, 1999 and 1998 were $0.30 and
$0.36, respectively. A decrease in net interest income and security gains,
coupled with an increase in non-interest expenses are factors contributing
to the change in earnings. Annualized return on average assets was 1.1% for
the three months ended September 30, 1999 and 1.3% for the same period in
1998. Annualized return on average equity was 8.9% for the three months ended
September 30, 1999 and 9.8% for the same period in 1998.
17
Net Interest Income
-------------------
Net interest income (TE) for the three months ended September 30, 1999
decreased $0.3 million or 1.2% from the same period in 1998. Affecting the
decrease in net interest income was a decline in the net yield (TE) on average
earning assets to 4.4% from 4.5%. The decline in net yield was attributed to
competitive pricing pressure on loan and deposit products in this period of
low interest rates.
Interest income (TE) declined $1.6 million or 3.9% between the three
months ended September 30, 1999 and 1998, resulting from a decline in the
yield (TE) on average earning assets to 7.7% from 8.1%. The decline in the
yield on earning assets was caused primarily by loan yields, which decreased
61 basis points, reflecting the sale of credit card receivables, real estate
loan refinancing activity and competitive pricing pressure to lower loan rates.
Average earning assets for the third quarter of 1999 approximated third
quarter 1998 levels.
Interest expense declined $1.3 million or 7.1% between the three months
ended September 30, 1999 and 1998, the result of a decline in the rate paid
on average interest bearing liabilities to 4.0% from 4.4%. The margin impact
of a decline in the rate paid was partially offset by an increase in interest
bearing liabilities of $37.8 million or 2.2%, reflecting growth from Prime
Rate money market deposit accounts, an increase in repurchase agreements,
Federal Home Loan Bank borrowings, and the acquisition of the Heritage Bank.
Declines in savings and short-term certificates of deposit offset some of
the growth in money market accounts indicating a shift of deposit funds and
customers' investment preference toward the higher-yielding money market
product.
Other Income
------------
Excluding non-recurring income, other income for the three months ended
September 30, 1999 increased approximately $0.1 million or 1.2% over the
same period of 1998. Trust fees increased $0.2 million or 7.8% for the
three-months ended September 30, 1999 compared to the same period of 1998,
reflecting continued new business development, offset by activity fees which
decreased due to the sale of the credit card portfolio. Non-recurring income
for the three months ended September 30, 1999 and 1998 included net security
gains of $0.1 and $0.5 million, respectively.
Other Expenses
--------------
Other expenses for the three months ended September 30, 1999 increased
$1.3 million or 8.0% compared to the same period of 1998. The majority of the
increase occurred in salaries and employee benefits, which rose $0.9 million
or 10.2% during the comparative period. The increase resulted from normal
salary adjustments, an increase in post-retirement expenses, employee expenses
of the Heritage Bank and Hunter Agency and an increase in staffing due to the
recent completion of two new branch facilities. Net occupancy and equipment
expense remained relatively stable during the comparative period, while other
operating expenses increased due primarily to technology-related projects.
18
Forward-Looking Statements
--------------------------
Balance sheet:
- --------------
During the remainder of 1999, assuming stable interest rates, management
expects limited loan growth as real estate lending moderates. With no deposit
growth expected during the remainder of the year, funding of any new loan
demand should continue to be from the securities portfolio and other
borrowings. A shift in the composition of deposits is expected to continue,
as declines in certificates of deposit and savings balances will be offset by
continued growth in the competitively priced Prime Rate Money Market Deposit
accounts. Assuming stable interest rates during the Year 2000, management
expects minimal balance sheet growth. Deposits are expected to increase
modestly, while loan growth should slow considerably in comparison to 1999
levels.
Statement of income:
- --------------------
Net interest income: For the remainder of 1999 and into Year 2000, management
expects net interest income to approximate 1999 levels as growth due to new
volume should be offset by narrowing interest rate spreads. Tighter spreads
between loan and deposit products are the result of both the low interest
rate environment and competitive pressure, from both banks and non-banks, on
loan and deposit products.
Other income and expense: For the remainder of 1999 and into Year 2000,
management expects trust fees and non-banking income to exceed prior year
levels. Growth in trust fees should reflect continued new business
development efforts and growth in the WesMark mutual funds. Non-banking income
will be positively impacted by an increase in insurance fees associated with
Hunter Agency. The growth in these other income categories, however, will
be partially offset by a decrease in credit card activity fees due to the
sale of the credit card portfolio in June 1999.
For the remainder of 1999, management expects operating expenses to
remain consistent with third quarter 1999 levels. In October 1999, a plan
was approved by the WesBanco Board of Directors to move to a single bank
charter for WesBanco that will consolidate the four existing WesBanco bank
affiliates as well as WesBanco Mortgage Company into a single bank charter.
Although appropriate technology is in place to permit consolidation,
management expects to incur some technology-related costs in the process,
such as a conversion fee from our banking software vendor for combining the
banks. Under a single bank structure, the Corporation expects to trim
approximately $1.7 million in annual non-interest expenses by the end of the
Year 2000. Factors expected to have an increasing affect on operating
expenses during the year include the recently acquired Heritage Bank, costs
associated with two new branch facilities opened during the second half of
1999, and continued efforts to initiate technology-related projects such as
a check imaging system, an on-line teller system, platform automation and
internet banking.
19
Year 2000 Readiness Disclosure
------------------------------
The Year 2000 issue primarily results from computer software or hardware
that is date-sensitive and may recognize "00" as the Year 1900 instead of the
Year 2000 which may cause system failure, miscalculations and other temporary
disruptions of operations.
WesBanco's Year 2000 Task Force, which includes independent consultants
and an outside Board member, has completed the Awareness, Assessment,
Remediation, Validation and Implementation phases of this project.
WesBanco estimates the total external and internal costs of becoming Year
2000 ready will approximate $660,000. These costs include operating expenses
incurred and paid through September 30, 1999 of $560,000, estimated future
capital expenditures of $20,000 and estimated future operating expenses of
$80,000.
Mission Critical vendor supplied and maintained application software,
which must be continuously operable to support WesBanco's customer processing
requirements, includes accounting systems for: deposits, loans, general ledger,
shareholders, Trust, credit cards and ATM/debit cards. Accounting systems for
loans, deposits, and general ledger have been certified as Year 2000 compliant
by an independent third party. Vendors of the other systems, noted above,
have represented to WesBanco that applicable Year 2000 testing has been
performed and the systems are Year 2000 compliant.
WesBanco elected to perform in-house testing, including future date
testing, on 100% of all software and banking equipment. WesBanco has
successfully tested its mission critical and all other application software.
Planned system enhancements during the fourth quarter of 1999 will be tested
prior to their installation.
Information technology ("IT") systems such as, mainframe computers,
network servers and microcomputers, have been successfully tested as Year 2000
compliant. The Year 2000 Task Force has completed a non-IT examination of
WesBanco's business offices, to provide assurance that security systems,
vault doors, calculators, HVAC systems and telephone systems have been
evaluated and exceptions resolved.
Large commercial deposit and loan customers and non-IT vendors have been
assessed for their capability to resolve the Year 2000 issues and have
attained acceptable compliance. A program to visit each municipality and
county government that serves our branches and ATM locations was completed
and the results are acceptable.
Contingency plans, which set forth procedures for handling potential
disruptions to operations, have been developed and include plans for all main
customer products, services, supplies, and trust fiduciary accounts, and a
liquidity/funding contingency plan to provide adequate cash availability and
the
20
access to cash sources and credit lines. These contingency plans have
multiple phases, including a business impact-analysis phase, a detail plan
development phase and a plan validation phase. The business impact-analysis
and detail contingency plan was completed and validated according to the date
schedule provided by the FFIEC. The validation process includes testing our
detail contingency plan, and, as necessary, train our staff on the emergency
process prior to year end.
The Trust/Investments function of WesBanco has validated its main
operating system for Year 2000 compliance. Trust has successfully evaluated
all of their fiduciary investment holdings and will continue monitoring their
account holdings beyond the century change.
WesBanco has completed all phases of the Year 2000 Program and management
believes it has taken the appropriate steps to identify and resolve Year 2000
issues in a timely manner. WesBanco has no means of ensuring that third
parties (suppliers and major commercial customer) with whom it interacts will
be Year 2000 ready. The inability of those parties to complete their Year
2000 process could impact the financial results of WesBanco. Contingency
plans will address the uncertainty of third parties readiness.
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
anticipated ability of WesBanco's larger commercial customers to become Year
2000 compliant 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 September 30, 1999, there have been no material changes to the
information on this topic as presented in the 1998 Annual Report.
21
Part II - OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings
- --------------------------
Reference has been made in prior filings to the case styled Tankovits v.
Glessner, et al, Civil Action No. 96-C-59(w) presently pending in the
Circuit Court of Ohio County, West Virginia. A tentative settlement has
been reached by the parties and, subject to approval by the court, the
matter should be dismissed without material impact on the financial
statements of the Company. The procedural aspects of the settlement
have yet to be resolved since the case involves the administration of a
trust. These procedural issues, which involve how the settlement should
be approved, could jeopardize the settlement and reinstate the litigation
facet of the case.
Item 3, 5 - Not Applicable
- --------------------------
Item 6(a) - Exhibits
- --------------------
10.1 Change in control agreement.
10.2 Change in control agreement - differences between Exhibit 10.1 and
the executed change in control agreements for each executive officer.
27 Financial Data Schedule required by Article 9 of Regulation S-X.
Item 6(b) - Reports on Form 8-K
- -------------------------------
The Registrant filed no current reports on Form 8-K during the quarter
ended September 30, 1999.
22
SIGNATURES
----------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESBANCO, INC.
--------------
/s/ Edward M. George
Date: November 15, 1999 _______________________________
Edward M. George
President and Chief Executive Officer
/s/ Paul M. Limbert
Date: November 15, 1999 _______________________________
Paul M. Limbert
Executive Vice President and Chief
Financial Officer